JF1015: How He Bought Over 100 Units in Nine Months

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He was even a schoolteacher at one point. Our guest is limitless and decided that he wanted to jump into real estate all of a sudden. He then thought apartment complexes would be a good idea, hear how he purchased over 100 units in the last nine months!

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Todd Dexheimer Real Estate Background:

– Owner at Sterling Acquisitions
– Began investing 2008, bought 1st rental, flip and own house to live in a flip within a few weeks of each other
– Proceeded to complete over 100 rehab/sell flips and 80 units of SF’s – 4 units and a 15 unit
– Bought a ski resort and now buying apartments out of state – has bought 76 units since July 2016
– Formerly was a high school teacher from 2005-2010
– Based in Twin Cities, Minnesota
– Say hi to him at toddATsterlinggroupmn.com
– Best Ever Book: Emerging Real Estate Markets

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.

With us today, Todd Dexheimer. How are you doing, Todd?

Todd Dexheimer: Good, Joe. I appreciate you having me on.

Joe Fairless: We’re glad to have you on the show. A little bit about Todd – he is the owner at Sterling Acquisitions. When he began investing in 2008, he bought three different properties; I’ll let him explain what he did with those three properties, but right out of the gate he bought three different properties. He proceeded to complete over 100 rehab and sell flips and 80 units of single-families, and he has bought a ski resort and he is now buying apartments out of state. He’s bought 76 units since about this time last year. He’s formally a high school teacher and he is in Twin Cities, Minnesota. With that being said, Todd, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Todd Dexheimer: Yeah, absolutely. Like you said, I used to be a high school shop teacher; I did that for about five years, and my wife took a job in Saint Paul, which is where we live right now, so I had nothing to do but read, because right when she got married, she took a long-distance job, we were living apart, so I read and I got really interesting in investing, and in real estate investing in particular. I really like the apartment stuff, and I thought “This is what I wanna do.”

Timing worked out really well, obviously. I started in 2008, right when the market crashed, and like you said, I bought three properties. I bought them all within a couple weeks of each other. I bought my first rental house, which I actually still own today, I bought a house to live in and fix up and flip, a foreclosure that my wife and I lived in; that was a treat. Then I also bought with a partner my first actual flip that I didn’t live in, and it all went really well, I kind of wanted to keep on going.

In 2008, early 2009 I bought three more rental homes and a duplex, and just kept on going. In 2009 I formed a partnership with a business partner that we went out and flipped houses, and then we also bought rentals with some of that income… But between 2009-2015 I flipped over a hundred properties, I kept a bunch of them, 50-60 properties. There’s a few more in that, I guess, but right now I still have about 50 of them. Mostly single-families, up to four-unit buildings.

You mentioned I bought a ski resort… During that time I also bought one 15-unit apartment deal which was a flip, and just some other random stuff.

Where I’m at right now – in 2015, my business partner and I split; we each had differences in our vision, and I decided “You know what? I always wanted to go and buy apartment buildings, and that’s what I’m gonna do.” So I started researching more on apartments, on the markets, and I was looking for kind of emerging real estate markets. In the Twin Cities it’s really expensive here to buy, not a ton of good deals, so I knew that I needed to go somewhere else to achieve my goals.

I took over a year of research and finally I jumped on a plane and went to several markets that I thought had good opportunities to buy, and within nine months–

Joe Fairless: Which ones?

Todd Dexheimer: I went into Memphis, Tennessee…. That was scary, if you’ve ever been there…

Joe Fairless: There’s some good pockets and some bad pockets, but some really, really bad pockets.

Todd Dexheimer: Yeah, definitely. I got chased down there, I thought I was gonna get killed. I went into Florida, Jacksonville, and then I went to Cincinnati. Cincinnati is where I ended up buying most of my deals; I’ve also bought some stuff in Milwaukee, Wisconsin as well.

In the last nine months I’ve now purchased about 100 units, all out of state, all between 11 and 22 units, and now I’m looking for that next step up to try to get into the 50+ units. My main focus is on just trying to find those emerging markets, finding apartments and private investors to invest in them.

Joe Fairless: What type of structure do you have with private investors on a deal?

Todd Dexheimer: I’m pretty flexible, but what I try to do on my properties is a partnership split, and it really depends on the deal, but let’s just say — my main focus is on trying to find value-add. If it’s a value-add with a lot of work and a lot of potential, it’s gonna be closer to like a 50/50 type split. They put in most or all the funds, depending on the deal, of course, and they get a preferred return (7%) and then we split 50/50. That’s the equity, that’s the cashflow, that’s the profit when we sell. It’s kind of a 5-7 year plan on the deal. But again, it depends on the deal.

It’s all about making the investors money, right? You’ve gotta make them happy, you’ve gotta make them money, and they’re not gonna wanna do business with you if you can’t do that.

A lot of the deals I put money into — like I said, I do value-adds, and I do a lot of construction value-adds, so we have to put some funds in right upfront.

Joe Fairless: What do you mean construction? New build, or just major renovation?

Todd Dexheimer: No, renovation. For instance, I just bought a 20-unit and I’ll put in about $180,000 into it.

Joe Fairless: How much did you buy it for?

Todd Dexheimer: 185k.

Joe Fairless: You bought it for 185k and you are putting in about 180k?

Todd Dexheimer: Yeah. 20 units, 2-bedroom, one-bath…

Joe Fairless: And it will be worth…?

Todd Dexheimer: Probably in the sixes when we’re all done.

Joe Fairless: Got it. Where is that one?

Todd Dexheimer: It’s in Cincinnati?

Joe Fairless: Okay. What area in Cincinnati?

Todd Dexheimer: Westwood.

Joe Fairless: Okay, cool.

Todd Dexheimer: It’s a C area, it’s definitely gonna require a lot of work just because of the area it’s in and because of the work that needs to be done, but it’ll be a good property once it’s done, and we might sell that one a little quicker than five years.

So some of those deals like that I might put a decent amount of the rehab portion in, and then when we finance it finally, then typically I get my money back, the investor gets a lot of their money back, if not all, as well.

Joe Fairless: And do they maintain original ownership, or do you cash them out?

Todd Dexheimer: I don’t cash them out, I keep them in the deal.

Joe Fairless: Cool. You’re in Twin Cities; Cincinnati is not a couple hour’s drive from where you are, therefore I suspect that you have a team in place doing these renovations. This is a major construction or renovation project, it sounds like. How did you find your on-the-ground partner?

Todd Dexheimer: It’s all about referrals. Basically, when I started there, it’s finding the agents that are doing deals, and then getting referrals from them on who are the managers in town that can do this type of thing, who are the contractors in town. Then once you find some managers, who are the contractors in town.
With my background, I’ve done a lot of construction, so I know what I’m looking for, too. That’s really helped in finding contractors. I’ve actually found a lot of the contractors that I work with just through Craigslist, through word of mouth. My top contractor right now is a guy that I found, and he’s just doing awesome. He’s getting these projects done fast and he’s doing them right, and he’s [unintelligible [00:09:44].05]

Like you said, you have to find the right people, that’s extremely important. Your manager and your contractor – those people are gonna make or break the deal.

Joe Fairless: One unique thing that I love about what you’ve done – and it shouldn’t be unique, but unfortunately it is for fix and flippers… That is you have kept a lot of the homes that you’ve renovated in your personal portfolio; you said you have about 60 of them that you’ve kept. Most fix and flippers, they flip and then they just keep on turning that money. My advice, based on the interviews I’ve done, is to do what you’ve done – to keep some of them in your portfolio. Clearly, you can’t do a one-to-one ratio, otherwise you won’t have money to fund the next flip, but at least keep some.

How do you manage the 60 properties that you have in your portfolio?

Todd Dexheimer: Those ones I self-manage now.

Joe Fairless: Wow…!

Todd Dexheimer: I’ve got a team… It sounds daunting, but it’s really not. I’ve got a team of maintenance, people that can handle that kind of stuff. I’ve got a bookkeeper assistant that does a lot of the day-to-day, so I don’t really spend that much time. I’ve got people that help me with showings…

Joe Fairless: How many hours a week?

Todd Dexheimer: I don’t know, maybe 2-3 hours.

Joe Fairless: 2-3 hours, that’s it? So you have your own property management company.

Todd Dexheimer: Essentially, yeah. It’s all about delegating. If you can delegate and get the right systems in place… Definitely, there’s some weeks, Joe, where I’m tearing my hair out [unintelligible [00:11:17].02] I spent 20 hours that week. But there’s other weeks I don’t even think about them.

Joe Fairless: The weeks that you’re starting to yank on your hair and you spend 20 hours a week, what’s happening? What’s a specific example?

Todd Dexheimer: I’ve had it where a tenant would call into the city because something happened. The tenant doesn’t contact me, they just contact the city first… Some repair, or something like that. So then the city gets on me, then they do their inspections and they might find five other things that they want me to fix, and it’s just dealing with the city, dealing with the tenant, dealing with all that kind of stuff…

It was really bad when I was doing most of the maintenance myself. I pretty much missed my wife’s birthday one year because of that, so…

Joe Fairless: She appreciated that… [laughter] You were on call, you were fixing someone’s maintenance issue?

Todd Dexheimer: Yeah, I started a [unintelligible [00:12:07].12] and I get a phone call from a tenant. It was a Friday night, and I get a phone call from a tenant that they’re plumbing had burst, and this wasn’t as simple as “Go shut your water off.” This was a small apartment building, so I called a bunch of plumbers, I called my plumber – everybody’s out of town, everybody’s gone. So I was like, “Sorry, honey, I [unintelligible [00:12:28].00]” [laughter] I’m back and forth to Home Depot, getting parts and I finally fixed it, and I get home at 10 o’clock at night…

Joe Fairless: Smelling great, I’m sure… [laughter]

Todd Dexheimer: So as I said, it was time to delegate some of that stuff.

Joe Fairless: Did you decide that, or did she decide that for you?

Todd Dexheimer: She decided, yeah. “It’s either me or your apartments.” She’s [unintelligible [00:12:57].17]

Joe Fairless: What type of software program do you use?

Todd Dexheimer: QuickBooks is all that I’ve used. I don’t do any of that stuff. When I was doing it myself I was using Excel, but now my assistant takes care of all the books, everything right now. I’ve been looking at a new program called AppFolio that I might try out, but we’ll see.

Joe Fairless: Alright, I’ve gotta ask about the ski resort… Is that making you money?

Todd Dexheimer: I sold it.

Joe Fairless: You sold it. Did it make you money?

Todd Dexheimer: A lot, yeah.

Joe Fairless: Tell us about it.

Todd Dexheimer: So actually I’ve got give credit to my old business partner, he found it. He’s a big deer hunter. He ended up stumbling across this property, talked to the guy that owned it… It was just perfect timing. He wanted to sell it, so we bought it for $450,000 or something, right around there. We kind of wanted to do something with it, but it just wasn’t gonna work. He wanted to do [unintelligible [00:13:50].18] he was gonna run everything… And it wasn’t working; he wasn’t doing anything, and I didn’t want any part of running it. So we ended up putting it on the market and selling it and making a pretty good chunk of money on the sale.

Joe Fairless: What did you sell it for?

Todd Dexheimer: 900k.

Joe Fairless: Okay. In what period of time?

Todd Dexheimer: This was just over a year.

Joe Fairless: About a year…

Todd Dexheimer: Yeah, so we were gonna run events and weddings and stuff like that out of it, and it probably would have made good money, but it just would have been a lot of management and a lot of time and effort on something — I just didn’t wanna focus on it. Actually, a young guy bought it and he’s running weddings and events, and he runs one of those [unintelligible [00:14:32].07] events out of it, and he’s doing pretty good. I talked to him not too long ago and he’s doing pretty good with it. We sold it to the right person, I think.

Joe Fairless: Yeah, win/win all around. What city is that in?

Todd Dexheimer: That’s in Rochester, Minnesota. It’s an hour South of the Twin Cities. Beautiful area, 172 acres… A beautiful piece of property. 8,000 square foot lodge…

Joe Fairless: How did you originally finance that?

Todd Dexheimer: The bank gave us 100% financing on it.

Joe Fairless: Wow… What year was this?

Todd Dexheimer: This was in 2012-ish…

Joe Fairless: Huh!

Todd Dexheimer: Based on the appraisal value, they gave us 100% loan on it, because it appraised at like $950,000.

Joe Fairless: Wow… Did the seller review the appraisal before closing?

Todd Dexheimer: I’m not sure. I’m sure if he did, he went “Oh my gosh, what am I doing?” [laughter]

Joe Fairless: Wow.

Todd Dexheimer: But you know, it kind of worked out for everyone. Yeah, he probably could have sold it for a little bit more, but they needed to get out of it, and they needed to get out of it desperately, and they wanted somebody that was gonna do something with it; that was the intention, and it just ended up not working. But again, now the right person has it and he’s doing really good with it.

Joe Fairless: How did you get the funds for the original purchases? Was it through your high school teaching, or was it some other way?

Todd Dexheimer: When I first started, my wife and I basically took all of our money and we bought our first — or I guess it was our second house, but our first house in the Twin Cities in the foreclosure and that rental property, and that was all of our money. I don’t know why she let me do it, but she did.

That rental, after I fixed it — both of them were foreclosures… The single-family that we bought didn’t require a ton of money because we did a 203K loan on it, I think it was called…

Joe Fairless: Yeah…

Todd Dexheimer: An FHA loan. But the rental – we had to put 20% down and then I put my own cash into it to fix it up… Then we ended up refinancing it and we pulled all of our money out of it, plus we got paid, and we still retained about a $350/month cashflow. With that money then we went and did the same thing quite a few times. At that time you could do it. I don’t think you can do that really anymore, refinance that quickly. But at that time you could refinance right away. So that’s what we did – we bought five properties like that, I think, and then I started finding investors to help fund flips, and find banks.

In 2009 and 2010 I probably called about 300 local banks to get financing on flips, and I found a handful of them that said yes.

Joe Fairless: That’s a lot of banks.

Todd Dexheimer: You wouldn’t believe how many of them called me stupid. “You’re crazy to be investing in real estate. In 2009…?” [laughs] The sky had fallen. So many of them just felt sorry for me that I was investing in real estate… [laughter]

Joe Fairless: In hindsight, 2009-2010 ended up being a phenomenal time to be investing in real estate.

Todd Dexheimer: Yeah, absolutely.

Joe Fairless: Based on your experience, what is your best real estate investing advice ever?

Todd Dexheimer: I guess I’ll come up with two things. I would say focus on your actual goals and be patient. Especially in this market, to be patient is really important. It’s just so easy to get distracted. There are so many gurus out there teaching all kinds of stuff on how to get rich; a lot of it works, but you’ve gotta figure out what’s for you and then kind of stick with it, and try not to [unintelligible [00:18:09].24] everywhere.

What I’m focusing on right now is apartments and building that business, but in the past I was doing flipping and I was doing contracting, I was doing the rentals, I was doing really anything… Anything that I could get my hands on, I was doing. I was selling real estate… I joined an MLM selling vacation packages… I just wanted to do anything to try to make money, and it just distracts you.

Just focus on what you wanna do and really be patient with it and understand that it takes a while and it’s not just an overnight business. I’m piggybacking on what I just said – this is a business, and I think too many people take this as… They think they’re a real estate investor; you’re not a real estate investor, you’re a business owner, and you’ve gotta run it as a business and not as a hobby, especially if you wanna buy apartment buildings and you wanna use private money. You can’t just go and use other people’s money and run it as a hobby. It’s a business, and you know that… You’ve got a good portfolio, you run it as a business.

Joe Fairless: You do. You mentioned “Focus on your goals and be patient.” Now, I wanna call you out a little bit and I wanna hear what your response is, because you bought three properties right out of the gate, and I have yet to meet someone who on their first purchase three deals, but yet your advice is “Be patient.” What do you say about that?

Todd Dexheimer: [laughs] I guess you did call me out. I would say it was a different market then. And before I bought that rental, before I bought that flip and the house that I ended up living in, I looked at probably 200 houses and I didn’t buy any of them until I found the ones that worked, and worked well.

I bought a lot at one time, but I looked at a couple hundred of them and it was over several months before I bought. And like I said, that time was different; there were deals everywhere. Now there’s still deals, but you have to make sure you’re not overpaying for a deal.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Todd Dexheimer: Yeah, let’s do it.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [[00:20:18].10] to [[00:21:20].24]

Joe Fairless: Best ever book you’ve read?

Todd Dexheimer: David Lindahl, Emerging Real Estate Markets. I’ve also got this cool new book sitting on my desk that I just dug into, and it’s written by this guy Joe Fairless.

Joe Fairless: I knew this was coming…

Todd Dexheimer: Best Real Estate Investing Advice Ever, Vol. 2. [laughter] I love it though, Joe. I met you in Cincinnati not too long ago, and you talked about the Junior Achievement… I thought that was cool, so I had to go and buy the book right away… If nothing else, just to support that Junior Achievement. I didn’t know if your book was gonna be good or not, but that’s what I wanted to buy it for.

So far the book is pretty good. I haven’t gotten too far into it, but so far it’s pretty good.

Joe Fairless: Best ever deal you’ve done?

Todd Dexheimer: Oh, boy… It’s hard to say. I bought a fourplex for 98k; it was listed for 210k. That was pretty fun. One of my favorite ones – I bought a triplex pretty much by accident. It came on the market for about 80k. I think I put my bid in for about $80,000 and I get an e-mail from the agent, he says “Hey, your offer for $86,000 is the best, and if you come up to $88,000, you’ve got it, and we won’t call for [unintelligible [00:22:25].13]” That wasn’t my offer, but I’m like “Okay…” [laughter]

I run over to the property, I take a look… I walked there as quick as I could, because I had to make a decision. I’m like, “This is a slam dunk.” So I said “Yeah, I could do this deal.” During my inspection, I’m walking this building and I find out that there’s an extra area to this house that’s completely [unintelligible [00:22:50].07] You can’t figure it out from the outside and you can’t figure it out from the inside, but I can see where there was a door that was patched in from the inside – and I shouldn’t say this out loud, because I probably shouldn’t have done it, but I broke a hole in the drywall… This was a foreclosure, condemned building. I broke a hole in the drywall and it’s a whole other unit, an illegal unit that somebody had put in. There was an extra bedroom, bathroom and it allowed me to expand the kitchen. I don’t think anybody would have known about it until after they bought the house and they’re going “What the heck is going on with this building?” So it ended up giving me an extra bedroom.

That’s not even the best part. This deal was close to a couple of our private colleges, but I didn’t know how close, if it was gonna draw college students or not, so before I even closed on this building I threw ads on Craigslist, and I’m showing this building… Before I closed on the house I’m going into the building and showing college students, and I ended up getting three leases signed on the triplex before I closed on the deal. I closed on it, and there was $100,000 of renovations I had to do in two months. I had so many people on that property…

We did the renovations, we got it done exactly when we needed to get it done. The city inspector walked through, gave me the certificate of occupancy and literally within an hour three of my units moved and I collected $3,700 of income right then.

Joe Fairless: Wow.

Todd Dexheimer: It was so cool. [laughter] I still have that thing, and it’s a cashflow machine… All by accident. I was just putting offers in and being diligent about making sure you’re on top of it and not letting opportunities pass you by.

Joe Fairless: What’s a mistake you’ve made on a real estate deal?

Todd Dexheimer: I don’t think I’ve ever made a mistake.

Joe Fairless: Seriously? [laughter]

Todd Dexheimer: No, I lost 100k because of lack of contracts and lack of just really paying attention. What happened was I flipped a house but I didn’t actually do the rehab on it. I just flipped it to this unassuming couple, [unintelligible [00:25:00].21] they seemed good, and I [unintelligible [00:25:03].02] to do the repairs; so I was gonna make money on the flip and gonna make money on the contract, but everything was loose. I had poor contracts, change orders were done through text messages and e-mails, all that kind of stuff.

A day or two before the house was done, I met with these people and gave them the final bill with all the changes and all that kind of stuff. They didn’t like the bill, so I said “Well, let’s talk about it.” They said “We’ll go home and we’ll talk.”

The next day my contractor shows up and the locks are changed, and I get a call from an attorney saying they’re suing me. So legal fees and a long time later I end up losing about 100k. The only good thing is I’d made money on the flip, so I really only lost in the end about 50k, but still, it’s a lot of money. It’s just all because of not being diligent.

Joe Fairless: What’s the best ever way you like to give back?

Todd Dexheimer: Right now most of my giving is through my church. I love volunteering. I’ve got two kids, so I love volunteering with them, bringing them to events… I really just wanna focus on doing that more. And like I said before, I love giving to this Junior Achievement – that’s kind of one of my goals. As I invest in apartments, my commitment is to give a minimum of 5% of the income to local charities that that property is in, with the main focus being education for underserved, low-income youth and young adults.

Joe Fairless: Well, that is Junior Achievement right there.

Todd Dexheimer: Yeah, absolutely.

Joe Fairless: Where can the Best Ever listeners get in touch with you?

Todd Dexheimer: They could e-mail me. My e-mail is Todd@SterlingGroupMN.com.

Joe Fairless: Well, Todd, thanks for being on the show and talking through how you got started with the three different properties, how you and your partner bought a ski resort and made a good chunk of cash on that, how you have kept a percentage of your fix and flips in your portfolio, so you get that income coming in… Your self-management, how you do partner splits where they put most or all of the money in, 7% preferred return, 50/50 split thereafter. And again, every deal is unique, but generally that’s how you approach it. Then the extra unit that wasn’t your offer that you rented out before you bought the property, which I’m not sure if that is recommended, but either way – what a story! Thanks for sharing that, as well as everything else that you shared.

This has been an educational interview and an interview that is inspirational. I hope you have a best ever day, my friend, and we’ll talk to you soon.

Todd Dexheimer: I appreciate it. Thanks, Joe!

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