Listen to the Podcast Here: Welcome back to The Real Estate Nerds Podcast! On today’s Bad Beats episode, we learn the power of knowing what you know–and knowing what you don’t. Our host and real estate attorney Scott Smith welcomes Gino Barbaro, a life coach, fellow investor, and host of the popular Jake and Gino Podcast. Gino Barbaro, co-founder of Jake & Gino LLC, a real estate education company focused on multifamily investing, takes us through what’s it like when the deal you’re most excited about ends up being your worst. Then he and Scott answer the critical question: where do you start again after an investing failure? Description Useful Resources Gino’s Worst Deal: Excitement vs. Judgment Scott introduces Gino and gets right into the details of his worst deal, as well as other lesser real estate blunders he’s made along his path to multi-family success. [2:00] Gino began investing in real estate after college, while also following his father into the restaurant business. His first deal was in 2002, and he selected a multi-family property for his first purchase. He was motivated to enter real estate to break away from exhausting 60-hour work weeks and working for another person. Excited by the initial success of his first property, he eagerly purchased a mixed-use property just before the crash. [3:00] Gino’s motivations to become a self-made success contributed to his self-described fatal flaw: a lack of education. He lacked fundamental negotiation skills, market and asset class understanding, and other knowledge that is crucial to real estate success. In retrospect, he believes he should have gotten advice from a more experienced investor. He confirms he wouldn’t buy this same property today for one simple reason: its location in New York, a city rif with complicated economic challenges that affect investors and renters alike. [4:00] The complications around his multi-class New York property led Gino to get back to his roots: multi-family. But that didn’t stop him from making some other mistakes along the way. [5:00] Gino has lost money on more than one occasion because of getting caught up in excitement, lacking familiarity with his asset class, and buying before getting enough information. He tells Scott about a different investment that ended up losing him $170,000 because he failed to do his due diligence. This particular deal was for a mobile home park. [5:20] Scott asks Gino about the details of the asset that ended up being his worst deal. Gino explains that it was a mixed-use building, equal parts retail, industrial, and office space in New York City. Leasing the office space in particular became a challenge. [6:30] Good deals and bad deals always start out the same–with enthusiastic anticipation. Gino was excited to get into the deal because it was something different. Scott points out that excitement clouds judgment, and Gino agrees that this was the case for him. He made multiple mistakes that are common for new investors, such as sinking far too much money into repairs. [7:45] Gino can now see his two biggest issues: his blind spots and his ego. On Risk: Knowing When to Be Brave [8:00]Gino’s critical error by his own admission was failing to understand the numbers. [8:09] Learning the business is more important for those starting out than focusing on lofty ambitions. [9:00] One of Gino’s strengths is his ability to confront fears to take risks. He advises that investors weigh the pros and cons, and if pros win, that is motivation enough to take a risk that could be profitable. [10:00] Scott relates to Gino’s risk assessment strategy of determining the worst case scenario, and facing it head-on if financially possible. This was something Scott personally experienced in his former life as a litigation attorney. [10:10] “When I was doing litigation, I spent two years in there and realized everybody hated their lives, hated what they were doing.When I wanted to make the shift to go do Royal Legal Solutions and help real estate investors … I asked myself, ‘How quickly can I go get another job if this doesn’t work out?’” When Scott realized he could financially recover inside of a month, he took the leap and created the firm that he still leads today. [11:00] Our guest and host conclude that approaching your ambitions logically can save you a lot of grief and money. Gino asserts: “Look at things logically. Emotions lower intelligence. That’s what happens. I was emotional about this thing. But at the same time, you need the emotions to take the action.” That said, he realizes if he had a stronger team consisting of a smart attorneys, underwriters, and CPAs, he may not have experienced the failure he did going it alone. [12:00] For Gino, developing a successful life is as simple as knowing what you want and why, then worrying about how to get it. His life coach side makes an appearance with some words of wisdom: “Focus on your why, and you’ll figure out your how.” [12:12] For him, that was multi-family real estate. [13:00] Scott asks when Gino points to a failure to do legal due diligence on both his part, and his attorney’s. There were additional issues with the Board of Health and water issues in the building. He failed fire inspections and had to spend thousands upgrading his fire detection and sprinkler systems. Lessons Learned from Gino’s Worst Deal: Due Diligence, Focus, and Recovering From Failure [14:15] The lesson for Gino was clear: “Due diligence is the two most important words in any investing endeavor.” Scott observes that a better attorney or even a more experienced investor could have prevented many of these problems. Gino agrees that this was a deal that a smart attorney should have killed. [15:50] Scott points out that getting an intelligent partner into the deal can be the cheapest way to have some experts on your team. Getting partners with high levels of knowledge invested in your deal can get any investor tons of free expertise, vigilance, and a safety net against bad deals. [17:00] Keeping your eye on the ball is critical for any investment to succeed. Ultimately, Gino believes if you focus on the numbers and path toward profit, this attitude can keep you on the track to success. [18:00] Some failures are inevitable, but having a system to do some “forensics” to evaluate what went wrong can prevent repeating your mistakes. Scott Smith advises investors: “Don’t be afraid to make mistakes, but make better mistakes along the way.”. [19:00] Gino concurs that if you aren’t making errors, you aren’t doing much living. “The most successful people in life are those who can look at a problem through the lens of opportunity.” The Takeaway: Know Thyself and Have a Healthy Attitude Toward Mistakes Scott and Gino wrap up the show by recapping the major points that other investors can learn from Gino’s story. [20:00] The two investors agree that approaching mistakes constructively can make or break a real estate career. Similarly, they concur that excitement is a double-edged sword. It can cloud your judgment, or motivate you. This is where having a team can be useful to ensure enthusiasm is harnessed and used to motivate without distracting from good decision-making. [21:00] Self-awareness and situational awareness can help investors approach deals intelligently, evaluate them rationally, and use previous bad deals as springboards on to better things. Connect with Gino Barbaro Connect with Gino directly by email or his personal website. Don’t forget to check out the Jake and Gino Podcast, and while you’re in the iTunes store, you can also subscribe to his Wheelbarrow Profits Podcast. You can subscribe the podcasts, get additional content, or join an ever-growing community of investors learning from Gino’s multi-family expertise at JakeAndGino.com. Listener Resources Thank you for joining us on today’s episode of the Real Estate Nerds Podcast. For even more free educational resources on real estate investing and the law, check out the Royal Legal Solutions blog. You can also reach our host Scott Smith directly, connect with him on LinkedIn, subscribe to the Royal Legal Solutions YouTube channel, or join our investor community on Facebook. Don’t forget to subscribe to stay up to date and have the most current episodes of the Real Estate Nerds Podcast directly in your listening library. Every subscription helps us create new, custom content for you. What did you think of today’s episode? What would you like to hear more about in the future? Leave your thoughts and questions in the comments section below, or leave us a review in the iTunes store. We love hearing your feedback, so fire away. Join us again next week for a fascinating discussion about how to achieve financial independence with real estate investor, biohacker, and data guru Fernando Aires. Thanks for listening and joining us on our journey to become better investors! Hosted by Scott Smith, Lead Attorney and Founder of Royal Legal Solutions. Schedule your personal consultation now. If you have questions about our content or suggestions for future episodes or guests, reach our podcast team at [email protected].