Riverside Opportunity Zone with Aaron Mazzrillo #682

Norris Bruce

Bruce Norris is an active investor, hard money lender, and real estate educator with over 30 years experience. Bruce has been involved in over 2,000 real estate transactions as a buyer, seller, builder and money partner.

Norris Bruce
February 14, 2020

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Aaron Norris is joined again this week by one who shares his name: Aaron Mazzrillo. He is an entrepreneur, a real estate investor, and a marketer. He also comes at this from a different angle than some people do.

Episode Highlights

Has he stayed consistent in his business or moved to different marketing?
What’s the new black swan in the real estate market?
What kinds of platforms does he like to use for advertising?
What does he believe makes a good wholesaler?
Which areas in Riverside are opportunity zones, and how did Aaron take advantage of this?
What is he most excited about heading into 2020?
What are his thoughts on ADUs, and what new law did they just come out with?

Episode Notes

Aaron began by asking Aaron Mazzrillo if he has stayed consistent in what he has bought or if he has moved from foreclosures and short sale buying to more of marketing directly to people. He said he was never the trustee sale guy. He did a couple, but that was never his deal. He was always direct to sellers. When the market tanked, he had done a bunch of REOs since this was easy pickings.

Consistently, he has dealt with the landlord. He hopes this will go away; but with the way things are going with the California government, you never know. He was watching this interview with these staffers for one of the guys running for president. He was saying landlords should be murdered. It was brutal. It was an undercover interview, and he just couldn’t believe the mentality of this guy.

Aaron Norris said half the people they are taking to Florida in March has nothing to do with being worried about a downturn. It’s politics. They’re thinking they are at the end of their physical asset career. They don’t want to have to worry about rehabs or politics, and they themselves are moving out of the state. Oakland passed a ruling where they have made felons a protected class. He understands that if you put somebody in prison, they served their time, and they’re released, they deserve a second chance. However, not allowing people to do background checks is something else. Aaron believes if you’re a felon, you deserve to have a home, a job, and you shouldn’t be marginalized because you did this. Maybe it was a mistake. People make bad decisions. However, he would not want the guy who was put in prison for murdering his landlord as his tenant. Maybe he could go live with his mom. However, he said if your crime was smuggling weed or something, he would still be ok with having you as a tenant if you are a felon for that.

In Sacramento, if your tenant is caught with over six plants, they can fine you five hundred dollars per plant. There’s a real estate investor in Sacramento with over one hundred thousand dollars in fines. Aaron Mazzrillo said one of his friends just bought a house recently, a very nice house. He fixed it all up since it needed quite a bit of work. He got it all rehabbed and rented it to a couple from another state. Ethnicity was important in this situation because it happens a lot. When he talks about ethnicity as a marketer, it’s from demographics, it’s not racism. He is always looking at things from a demographic perspective. This particular couple that leased the house from him turned it into a grove, and there’s thousands of plants in that house.

What people don’t know is that how you get caught is a lot of cities own their own utility or have close connections. You have the utility department hand it to code enforcement because they’re looking to plug budget gaps. A lot of people don’t understand over the last two years, CalPERS came back to the cities and saw how the last ten years didn’t go so well. They promised 7 percent, and it’s been way lower than that. They then give you your extra unfunded liability for CalPERS, and it’s to the tune of millions. They’re going to be looking for revenue sources, and this is Aaron Norris’s concern with investors. Everybody is watching cities like Sacramento to find creative ways.

The state just shut down because of the ADU law. If you’re building something under $750,000, a city can’t charge you impact fees. There goes that stream of revenue, so where will they go to next? At their previous big event Turmoil, half the day was discussing politics and opportunity. It’s the new black swan. That’s exactly why they called it Turmoil. What’s interesting is a lot of the opportunity is digging in really local because Wall Street doesn’t have a time. They’re very transaction-focused. When Aaron Mazzrillow works with property managers and homeowners, it’s a different conversation. Generally, the bulk of his business for the past 15 years has come from mailing inexpensively. He tries to find the cheapest postcard he can get because it’s not. There’s no media that I haven’t tested except maybe TV, but he has definitely done a lot of radio. He knows what works and what doesn’t work. Radio is the worst, and billboards come in second. However, when you have somebody like HomeVestors who able to buy a ton of market share for a little money, it makes sense. However, for the average investor to go out and get a billboard, it is pointless and doesn’t make any sense.

Aaron Norris loved watching OpenDoor roll out. Somebody he knew up in Sacramento said that they had interviewed a former employee who said that they were spending over $200 grand a month on direct mail and digital ads. This doesn’t surprise him. Their mailers are beautiful and are all over Instagram. They’ve all disappeared now because they learned that they also did not convert.

Aaron Mazzrillo came up with a new logo that he calls a branded version of what he has already been doing. He is still putting in that small-town feel and staying a locally-owned veteran, which he has never utilized prior. He is getting a lot of responses from that since people are telling him they are only calling him because he said he was a vet. He said he should put a picture of himself with his 60 cal machine gun on his Web site when he was buff. Back to his logo, Call for Offer is his new brand. He wanted the logo to be a telephone with a cord. A millennial called him up and asked him if it was a charger. He told him he doesn’t know the demographic he was going for because people under 35 don’t own real estate. They don’t understand it because they are living in their high-end luxury apartments, and that’s OK. He is not trying to buy the house you don’t own. He likes to test and play with the marketing down to those fine details. That is the entertainment in this business.

Aaron Norris said he loves direct mail, although it’s more expensive. He has tested a lot of things over the years, although he doesn’t spend enough to test enough. He sends probably two mailers every year. He has three very different funnels. First, he looks at the people looking to get into the business. He hopes to help them get to the point where they’re borrowing money from them. The other category is the passive. With everything with the 1031 exchanges they are doing, it is this new fourth funnel that is so different. He also figures out how you feed and direct people down a funnel as quickly and efficiently as possible. Aaron Mazzrillo said radio, which Aaron agreed. Radio and magazines have been terrible because when it comes to converting to the online space, Aaron is a PR guy and would rather try to get story placement in very specific media where he doesn’t have to pay or is creating content in Forbes or BiggerPockets.

Aaron Norris asked if there is any other platform besides mailers he likes, which he said social media. He has been slaying it here, and he is not buying from sellers. They’re not on social media. He is buying from these young gun wholesalers that are out there buying. He plans on doing 11 flips this month. Half of them probably came from wholesalers who just went out and did an un-targeted campaign because they don’t know what they’re doing. They learned it from a seminar or tax blast. Aaron Norris wondered why the FTC hasn’t shut them down yet. It’s scary. The majority think they will get away with it, but the one who gets burned will get burned hard. It looks like they’re about to shut it down because they’re going after the telecom industry.

Aaron Mazzrillo said Verizon has a thing where it says if it is potential spam. He would get telemarketer calls all day long, and his assistant would tell him to stop talking to those people. Aaron was just relentless and would make up all kinds of weird stories to mess with them. He was getting more calls when he made the mistake of registering a domain and not making it private. One of the ways he would mess with them would be to ask if they knew any models are actresses for his X rated website. His assistant made him stop. However, he likes comedy entertainment and like to laugh and make people laugh. He made it clear if he is writing on social media he is doing it smiling and laughing or giggling. It’s never meant to be mean to anybody. Sometimes you get some sensitive people, but it’s hard to read tone on social media.

That’s also part of the game. People want to see personality, which is something Aaron Norris said he struggles with, especially in such a political environment. That was something they struggled with when creating their report. They needed to figure out how to talk about politics without going there. People need to make the decision that if you’re gonna do stuff like that, people will be gravitating towards you because you will be that honest voice.

Aaron Mazzrillo spoke at a conference in Oakland because the head wanted him back despite Aaron mostly telling jokes on the stage and throwing himself and his tenants under the bus. Mic Blackwell should trademark that. You can’t pay for this kind of entertainment. Aaron Norris thinks it’s important because when everybody shows up and has such a different background and different personality, it’s important for people to see themselves and be inspired by people that they relate to. Aaron Norris took a very different career path from several of the other investors. It’s cool that whole new generation of us are showing up. He got invited to speak at Ted X, and somebody that was in the audience in the Inland Empire Club liked his story on how he ended up in this business. They thought it was inspiring and asked him to talk to a bunch of college students. You never know who you are going to inspire.

They next went on to talk about wholesalers since it has really become a dirty word over the last couple of years. People immediately roll their eyes when someone says they are going to be a wholesaler. Aaron asked Mazzrillo what he believes makes a good wholesaler. He said wholesaling is more about marketing than anything else. You don’t need to know about how to buy a house. When people call Aaron to tell him they want to wholesale, he tells them to throw all their real estate books away and go buy some marketing books, whether it’s Dan Kennedy or Gary Halbert. He even recommends the letter book, which is 400 pages of misery.

However, you will learn a lot from his book, so go study some of that. As a wholesaler, you’re not a real estate investor. You are a marketer. You’re a marketer at the core because you need to attract leads into your funnel. All the other things you can figure out. Focus on the marketing side of it, become different, and try to get your stuff to stand out. That’s always where he spends the majority of his time in the office and in the evenings. He creates sales letters, looks at them, puts them away, and then comes back to reread them. He will consistently have 500 printed out, and he will sit down and sign every one of them if he is doing like a letter campaign. He wants to get the feel of the marketing piece. If you read it enough times, you start to inspire new ways of writing the same sentence, just in a little different hook.

Aaron Norris knows so many people that do such different channels. He has some people who will just download lists off of Propertyradar, and they will only call or text. They won’t do any direct marketing. He has people that specialize in SEO. You can still send a bad text message, however; so if that’s all he was doing he would test different messages to see what the response is. He was driving up to the Owens River to do some fly fishing with a real estate investor, and he was telling Aaron about a conversation he had with another investor. He asked him what the shortest sentence is you could write to get a response. They ended up having a contest to see who could come up with a shorter sentence that would still elicit a response from somebody. Things like that can b- a little mind opening in as far as writing a text or just a simple text message. How do you get somebody to respond to you? There’s a lot of different things that you can do, especially with direct mail or sending a text message or an email.

Marketing has really changed. Aaron’s favorite is whenever they have an event or something and you’ll put the date in the subject line. You will have people e-mail back asking when the event is. That’s pretty bad when they won’t even read the subject line. We’re in a market where there’s a lot of noise, and then every market is different. In the Inland Empire, we have the Press-Enterprise, the San Bernardino Sun, and Orange County Register all owned by the same company. The demographics are so different. For Orange County, all their real estate team is basically in Orange County. Nobody wants to work with the Inland Empire, which is sad because if you look at all the cities in the Inland Empire, Riverside is the most poised for an explosion. It’s an amazing little city, and they have a lot of good intentions. They are doing so many things, including the convention center expansion. Aaron Mazzrillo saw the conceptual drawings for downtown, and it made him want to live there.

Aaron Norris was very involved with the city when they were doing the Riverside Renaissance and they did something that was a partnership between UCR, the business community, and the city. During the downturn, they spent two billion dollars in Riverside doing projects that would have typically taken 35 years. They leveraged the downturn since they just happened to raise the money before the downturn. They were one of the only cities building. When you go downtown and look at the Fox Theater, it looks so impressive on the inside and not what you would expect looking at it from the outside. It goes so far down and is nicer than a lot of broadway houses.

Since the Fox Theater is in an opportunity zone, this led to their next discussion on opportunity zones. Aaron Mazzrillo is one of the few people in the real estate community doing it. He does it because he is pro-Riverside, and the entire downtown area is an opportunity zone. The apartments on Mission Inn Avenue went up for sale, and he snapped them up immediately. It was originally built as four duplexes, so there’s eight units. Interestingly, at some point Riverside had a very seedy past, especially downtown. The Pussycat Theater is where the Fox Theater is. At one point, it was boarded up and slated for demo. Knowing that Riverside is turning the course, it’s amazing seeing what is happening downtown. It’s only going to get more amazing with the Cheech going in and the new library being built. It’s really amazing down there.

Aaron Mazzrillo bought the property right across from the library while I’m in Ascot. It’s these four Spanish style apartment buildings. He will own the Garden ones, and that’s an opportunity zone. When he discovered this was for sale, he had a vacant rental he decided to sell. He was looking at six figures in equity and to do 1031. You have to create this fund, and the fund has to buy it. There are a few more nuances to figure out, but his friend John from Puerto Rico sent him a 2-hour webinar. You have access to it as a borrower, or you can hit him up on Facebook.

If you pull one of those aside and decide to run a business from that, you could also have a business that’s an opportunity zone business. There are two different layers. Aaron was talking to people in downtown Riverside, and he knew somebody who owned a building that needed a ton of tenant improvements. She had no idea going in, and Aaron happened to have a friend that was going into a brewery. She didn’t know that opportunity zones existed, and she was raising money. If you’re raising money, it’s a ten-year play. You get all the tax benefits if you play the ten-year game.

This is what Steve in downtown was telling Aaron Mazzrillo about. You could start a fund and you can raise money to buy these things. The great thing he said was he doesn’t know anybody doing it. But, he told Aaron if he was interested in this, it would be amazing. Aaron Norris said we need to get the word out because he doesn’t think investors are paying enough attention to it. What’s cool about it is that if investors wanted to go from different assets, it’s a fun ride if you own stocks. One of the things the Norris Group will be doing in Florida is they have investors that are trying to get out of stocks, and they finally get a chance to get in because you can move any kind of gains. They’re looking to get into real estate for the first time, and that’s how they’re going to do it.

Aaron Mazzrillo really thinks that if you capitalize on this, it could be like buying Bitcoin at $100 a coin. That’s over. You miss that, and you miss that. You miss buying Tesla or Amazon for $50. Your bitcoin at a dollar a coin is your opportunity. You could walk away, but for the people who do jump in, there’s a lot who don’t know and you want to create the awareness. It’s a new opportunity and could literally be the bitcoin of a dollar coin. If you’re talking to a lot of real estate investors that are looking to get rid of those rentals, you could play both sides of that. You can also take the principle off the table that you originally have invested. If you want some cash now, you can take that off the table and only move the gains. The Tier 2 structure, which is where you’re raising money to then pass through into businesses, makes Aaron Norris a little nervous.

California has some issues where they’re not recognizing and playing the game as the Federal intends them to do. They need the money now, so you do have to know that you’re going to have to pay taxes on that now. However, this is only on the state level. Maybe this year you should try to have a really low income. Just tell escrow you need to delay closing until the day after the fiscal year ends.

Aaron Norris saw an opportunity last year, and this is why he and Bruce wanted to create the opportunity zone and ADU chapters at the same time for their event. For the investors who really love California and want to stay here, Aaron thinks this is the way. He really thinks the next couple of years will be about creating value. When the ADU thing is done well, it’s a great opportunity. Aaron is on the chair of a nonprofit, and one of the employees specifically reached out and told him they would really love the opportunity. This is Riverside, and he really wants to live closer to where he works. The way a lot of people have lived is they are willing to change to be closer to the action. The Norris Group has investor friends who want to live downtown because they want it walkable.

Aaron Norris said he does not need a whole lot of space. People asked him why he didn’t sell the house he bought in 2010. He said it was because he loved it and it was a nice 2,500 square foot space. He didn’t need more space. Aaron Mazzrillo thinks this is what millennials get. It reminded him of a line from Fight Club where he said the stuff you own ends up owning you. Somehow, that has gone viral in their subconscious. They don’t want to own things because they can watch movies on their phones or download books.

Aaron Norris asked Mazzrillo what he is most excited about heading into 2020. He said he is trying out his game. He got into real estate because he came from the multi-family world. He wanted to get into developing and building his own apartment buildings. At the time, there weren’t really a lot of people out there doing multifamily. He surrounded himself with house people since this was easy. The easy access to real estate is through houses. Aaron got so entrenched in the house business that he got away from what he really wanted to do in the beginning anyway. HI never wanted to be the single-family house guy. He wanted to buy or build multifamily properties. The eight units is the start, but he wants to scale up and start selling more of his houses off. He plans on keeping some of the A-plus ones he has that are in the $500 thousand and plus range that he has rented out low loans. He especially likes the downtown Riverside ones and will never get rid of those.

His San Bernardino properties are a different story and slated to be gotten rid of. He actually had some people burn one of his properties up on Monday. However, when the insurance covered it, he felt like he hit the lottery. He immediately called a private adjuster. He told him to go out and fight the insurance company, give him a big payday, and then he was going to sell the building.

Aaron asked Mazzrillo if he has had problems with any of his properties. Aaron had a situation once where his things got canceled because he was in a fire zone. Aaron Mazzrillo had a similar situation. He owns a house at the top of a landslide area in Rim Forest, and that’s in a fire area. His insurance doubled, and it was very expensive. However, it is not killing the cash flow.

Aaron asked him if he has invested in other markets besides California. He was in five states at one time. He was in Texas, Colorado, Utah, and Massachusetts. He sold all his properties out of state except one, although he would gladly get rid of that one. He is trying to do another deal in that same market, and he likes doing historic properties, too. He also owns a very large Victorian on Bandini, which he turned into a sober living facility. He has also done some historic properties on the other side of the freeway as well as in Whittier.

There is a premium that comes with these. You can be an actor, or you can be an actor with an Oscar. You’re both actors with equal skills, but he or she just happened to get the part. There’s a little bit of more money that comes along with the other. He understands that people like flagship properties in their portfolio, but Mazzrillo is not one of them. He was buying a property in downtown, and when he was meeting with the historical society, they said it could possibly qualify for a landmark. You won’t get any extra benefits from it, but being a landmark property definitely ups the value.

Aaron Norris asked him if he had talked to the city about the ADU law that allows you to expand up to 25 percent more units in commercial. He said he hadn’t because he is not really the ADU guy. He doesn’t like the ADU of putting an ADU in the backyard of the homes he wants to keep. Aaron was wondering because the state gave the cities permission and the suggestion, but he hadn’t talked to any cities that were completely on board with if you’re willing to do ADUs for commercial, it’s just configuring the internal square feet. In the future, in cities like LA it makes a lot of sense because real estate is so expensive. It will likely be the case in Riverside too. And that’s how a lot of people live anyways. They have a little unit in the back, but the majority of what he owns is track housing. Privacy-wise, people don’t want someone living over their garage.

In Orange County, a $500,000 house is entry-level. But, if you’re buying a $500,000 house in Riverside, it’s in a really nice neighborhood. You don’t want somebody living over your garage, especially if you are paying $2,000 a month in rent. That would be upsetting. Mazzrillo said that’s why he does not want to put ADUs in the houses he wants to keep. He would probably put one on his own house because he doesn’t like people in his house. He may do a lot of public speaking, but he is a very private person. He rehabs everything except where he lives. It has new windows, but it is pretty rundown. He even threw his couch away it was so bad.

Aaron ended by asking the best way for people to connect with Aaron Mazzrillo. He said Facebook or Instagram. On Instagram, the handle is aaron the house buyer. By the end of the year, he may change it to aaron the apartment buyer. He likes single-family, but it’s not what he wanted to do or why he got into the business. It’s like wanting to play in the NBA, but you’re still at the farm league. Check out his entertaining feed online.

The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669. For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.