JF2162: Knowing Enough To Be Dangerous With David Ounanian

David grew up in a middle-class family with the mentality to go to school to get a degree and find a job to work for the rest of your life. He actually started out doing really well, having a corporate job, working remote, and making six figures but living paycheck to paycheck. He soon realized he was trapped in the rat race and wanted to get out. He shares how he went about escaping his 9-5 within 2 years and the process he followed. 

David Ounanian Real Estate Background:

  • Founder of Transform St. Louis, LLC
  • Full-time investor and agent
  • 3 years of real estate experience; 7 years as an agent
  • Portfolio consists of 12 properties using the BRRRR method and flipping 3-4 properties a year
  • Based in St. Louis, MO
  • Say hi to him at: https://www.transformstlouis.com/

 

 

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Best Ever Tweet:

“If you’re not investing in real estate, then you’re probably not hanging around people who are investing in real estate.” – David Ounanian

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JF2151: Construction Owner and Investor Point Of View With Jorge Abreu

Jorge Abreu decided to leave real estate because he was not passionate about working in the corp world. He ended up developing a construction company called JNT Construction and now is the CEO of Elevate, a commercial investment group. He is now a full time active and passive real estate investor with 14 years of experience. 

 

Jorge Abreu Real Estate Background:

  • CEO of Elevate Commercial Investment Group and owner of JNT Construction
  • Is a full-time active and passive real estate investor with 14 years of real estate experience
  • He has wholesaled 200+ properties, flipped 100+ and developed several construction projects from the ground up
  • Current portfolio consists of 1,720 doors as a GP and 1,400+ as a LP
  • Based in Dallas, TX
  • Say hi to him at: www.ElevateCIG.com 

 

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Best Ever Tweet:

“If a contractor doesn’t have a presence online, it is a huge red flag.” – Jorge Abreu

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JF2127: Cross Collateral Deals With Matt Deboth

Matt served 8 years in the Marine Corps as a force recon marine and has 9 years of real estate experience with a portfolio consisting of 174 rental units and has 25 flips. He shares how he uses cross collateral financing to help him acquire more properties with little to no money down. 

 

Matt Deboth  Real Estate Background:

  • Served 8 years in the Marine Corps as a force recon marine
  • 9 years of real estate experience
  • Portfolio consists of 174 rental units and flipped 25 rental units
  • Currently rehabbing a 48-unit apartment in Des Moines, Iowa
  • Located in Des Moines, Iowa
  • Say hi to him at: www.TripleHoldings.com  
  • Best Ever Book: Titans by Rockerfeller

 

 

 

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Best Ever Tweet:

“One tip that will help you grow your business is to bring value to brokers without looking for something in return.” – Matt Deboth


TRANSCRIPTION

Theo Hicks:  Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we are speaking with Matt Deboth. Matt, how are you doing today?

Matt Deboth: Good, good. How are you?

Theo Hicks:  I’m doing great. Thanks for asking, and thanks for joining us today. Looking forward to our conversation. Before we begin, a little bit about Matt – he served eight years in the Marine Corps as a Force Recon Marine, he has nine years of real estate experience, portfolio consists of 174 rental units, and he’s flipped 25 rental units. He’s currently rehabbing a 48 unit apartment in Des Moines, Iowa. So we’ll definitely talk about that. Also located in Des Moines, Iowa. You can say hi to him at tripleholdings.com. So Matt, before we dive into that 48-unit deal, would you mind telling us a little more about your background and what you’re focused on now?

Matt Deboth: Yeah, I spent eight years in the Marine Corps. I was on my last deployment to Afghanistan, I was ready to get out, didn’t really have a plan or knew what I was going to do, I started reading a ton of books like Rich Dad Poor Dad, investment books, I decided to give real estate a try. So while I was on my last deployment, I was scooping the MLS, I found a 20-unit apartment building, contacted the realtor, the realtor told me, “Hey, the seller is interested in owner financing,” came back, talked to the owner face to face, worked out a deal, I ended up getting out of Marine Corps in end of August, closed September 1st, and essentially, I house-hacked a 20 unit apartment building. From there, I started buying all these houses off the MLS, because it’s a good time to buy all these foreclosures. I buy them, flip them, rent them out. I was doing that for a while, and then eventually I got tired of the single-family houses and started going to apartment buildings, and that’s primarily where I’m focused at now, is value-add apartment buildings, usually 24 units or more, usually a mix of at least half two-bedrooms.

Theo Hicks:  So you house-hacked the 20-unit. What were the seller financing terms? Maybe walk us through that negotiation and how did you even determine what would be a good price, since you were so new?

Matt Deboth: Well, I’ve done my research. I realized how to use Microsoft Excel, how to run all the numbers… And the seller couldn’t sell it because the market was bad, nobody in town is really buying large multifamily like that… His terms were $50,000 dollars down. I think it was 12.5% interest for three years, and the first six months were interest-only payments. And even with those crazy terms, it was still cash-flowing like crazy, and I was living there rent-free. So to me, it was a good deal. Plus I bought it at the bottom of the market, had a ton of equity into it about a year and a half later. I purchased it for $500,000; a year and a half later, I think it appraised at $950,000, and then about a year ago, it appraised for $1,150,000. So it’s been one of my better deals I purchased.

Theo Hicks:  After the three years, did you refinance it into a loan to pay back the first owner?

Matt Deboth: I did. I had to pay him the payments up for the first 18 months ,and at month 19, I walked into the small hometown bank and threw it all on the table and said, “What can you guys do for me here?” They helped me out, they got me, I think, at the time, 5.25% was my interest rate.

Theo Hicks:  Okay, and so after that, you said you transitioned into buying single-family foreclosures; you’d buy them, fix them up and then rent them out?

Matt Deboth: Yeah. At that time, you could throw a dart at the MLS and hit a foreclosure and get a good deal. So I was buying them like crazy. I was cross-collateralizing them with the 20 unit apartment building. Sometimes I’d have a little bit of cash to put into them. I was doing all the sweat equity myself, getting them ready to flip, getting renters in there, and then I would refi out… And I was doing the BRRRR method before I think the BRRRR method wasn’t even coined or I didn’t even know what it was at the time.

Theo Hicks:  Okay. And then after that, how many deals did you do before you decided to transition back into multifamily?

Matt Deboth: I think, at the time, I was around 30 houses I had done. I sold off about half of them and I currently have about 14 single-family homes I’m holding on to.

Theo Hicks:  Okay, and then what was the first multifamily deal you did after buying all the single-family homes, and maybe walk us through that deal the way you walked us through that 20 unit?

Matt Deboth: The next big deal I bought was a 17-year-apartment building in the same town. It was actually owned by my property manager, who was going through a divorce. He wanted to get rid of it, I was in the time to buy… I had a ton of equity in that first 20 unit building, so I used that as cross-collateralization for the down payment. I think I paid $425,000 for it at the time, and it just appraised about 30 days ago for $750,000. So I get a lot of equity in that. I’m gonna use that to roll over to another project here soon.

Theo Hicks:  So when you say cross-collateralization, are you saying that you went to a bank and rather than give them money, you put up your 20 unit as collateral?

Matt Deboth: Yeah, in these larger deals, and even when I first started off in these houses I was doing, I had so much equity into it that instead of doing a refinance cash out, I would leave all that equity on the books in the property, which helped me out a lot, because it keeps my mortgage payment low, my debt to income is low, it keeps my DSCR (debt service coverage ratio) high. So the banks love that because they’re in a better position, and I use that equity in property A to finance a down payment for property B, and then as soon as property B is stabilized and on its own, usually within six to 12 months, I’ll refinance that so the two properties are not tied together anymore. That way you don’t have a house of cards; in case you lose one building, you’re not losing them all. So it’s usually a short time, usually between 6 to 12 months that they’re actually tied together on the same mortgage.

Theo Hicks:  That’s very interesting. So it sounds like this cross-collateralization strategy is very low money down, if you can find the right deals and force that appreciation… Because it sounds like you used this 20-unit deal to buy a lot of different deals, and then you just refinance once you’ve added equity to the other deals. Is that what you did? Is that your strategy?

Matt Deboth: Yep. The only deal I’ve ever really had to put money down to these multi-families is that first 20-unit; I put $50,000 down and that was part of a savings that I had from deployment. It’s on a credit card and peer to peer lending. But everything else I bought from then on out has all been zero money out of my pocket. And I’m not buying deals that are at 3, 4, 5 cap. They’re all value-add, they have a ton of equity in them already, they’re a distressed seller, they need a little bit of rehab, the banks love them… So it’s a pretty good money down strategy. I haven’t had any problems with it yet. I don’t see that many things since I’m buying on actuals and cash flow and not proforma.

Theo Hicks:  Then that’s huge. So let’s talk about the 48-unit deal. So before I go into detail, is this another deal that you’re using cross-collateralization on, or did you put money out of pocket for this?

Matt Deboth: No, I cross-collateralized the 22-unit building to buy this. So I purchased it for $2.5 million, 100% financed and the bank also financed $1.2 million for the rehab.

Theo Hicks:  And it’s 100% financed because of the cross-collateralization, right?

Matt Deboth: Yeah, I had to use the cross-collateralization for the purchase price, but the building appraised– can’t remember. I think the building appraised for about $3.8 million. So I had a ton of equity into it for after repair value that the bank pretty much gave me the repair costs to put into it. So I’m using that right now to rehab the entire property. And as of right now, I think our rents are going to be about $100 more than what we’ve forecasted, so that’s just icing on the cake for the deal.

Theo Hicks:  So the $2.5 million purchase price, and then the bank gave you $1.25 million in repairs?

Matt Deboth: Yes.

Theo Hicks:  Okay. So correct me if I’m wrong, but 50% of the purchase price, you’re using that amount to repair the property. So does that take a while to do? That’s a long process?

Matt Deboth: Yeah, it will. It’ll probably take about 18 months. It’s one property, but it’s four 12-plexes. So we’re just doing it one building at a time. That way, we have the other three buildings paying rent, we still got cash coming in. So we’re just– as soon as one building is up and ready, rehabbed, we’ll rent that out, see what we can get for actual on rents, and then we’re going to move to the next building and go from there. Just do it chunk by chunk, instead of kicking everybody out and trying to do everything at once. Especially now with the market the way it is, nobody knows how this whole Coronavirus is hitting everything, so we’re just taking it slow and doing it step by step.

Theo Hicks:  How did you find that 48-unit?

Matt Deboth: I had a broker bring it to me; a broker that had brought me a few other deals. He had been working this one for a while. The seller never wanted to sell, she was just dead set on holding, and I think one day, she just randomly called him and said, “Sell the place. I’m tired of dealing with tenants.” So he knew I was in market for something that size and that price range, and I was the first on his list.

Theo Hicks:  Why were you the first on his list?

Matt Deboth: Networking. I had already done about $4 million with the deals with him in the past. I would talk to him on a regular basis, probably two, three times a week. I’d referred him multiple times; he’s got a couple of good clients from me. I think it’s just networking and staying in a circle, keeping in front of him the whole time, telling them what I want, and he knows I’m a closer; I’m not retrading on deals, I had the financing already in place for something of this size and he took it serious. Is that how you’re finding all of your deals now through these broker relationships, or do you have another method for generating leads? Mainly brokers. I’d say my next biggest one is just networking, meeting people that want to sell. I’m not doing any direct mailer or anything like that. I’m just going to real estate meetups and talking to people, trying to get out there and see what value I can add to other people, and then it turns around and gifts you with things like other deals and stuff. I don’t buy everything that I come across, but I definitely try to hook people up with other buyers that I know that are looking to buy stuff.

Theo Hicks:  Are you still having a pretty easy time finding these value add deals in this market?

Matt Deboth: It’s a little tougher than it was a few years ago, but they’re out there. Obviously, they’re not gonna be blast on the MLS or LoopNet, but there are definitely a lot of brokers out there with pocket listings that they’re trading at a decent price. I think the networking part is how you get those good deals though. They’re not gonna be blasted all over the internet for everyone to see; they’re going to be in that broker’s pocket and–

Theo Hicks:  For someone who wants to start the process of building that trusting relationship with a broker so that they can receive those off-market value opportunities, what’s the first thing that they should do, or what’s one thing that you do immediately to get the ball rolling on that?

Matt Deboth: I’d say, bring them value. If you can bring somebody value without looking for something in return, they’re gonna look at you higher than somebody who’s just wanting to get everything they can out of them. Network constantly, meet people, get out of your comfort zone, just start shaking hands. Oh, I don’t know now with the Coronavirus… Don’t be shaking everybody’s hand, but get out there and just meet people and go to real estate meetups.

Theo Hicks:  When you say bring value to brokers without looking for something in return, do you have any examples that people could follow?

Matt Deboth: Yeah, if you know somebody that’s looking to sell or buy and they’re in a certain niche, and you know another realtor that’s in that niche, look them up, see what you can do, don’t try and get something as far as a commission or a finder’s fee or anything into it. Just try and help people out. That’s probably the best way, I think, to meet people in this industry.

Theo Hicks:  Yeah. If you don’t know anyone who’s buying or selling, you can use the going to real estate meetups. That why people are there for – to find deals and things like that. Alright, Matt, what is your best real estate investing advice ever?

Matt Deboth:  I would say, network. Get out there, meet people, go to real estate meetups, get on websites, forums, constantly interact with people, get uncomfortable, educate yourself as much as you can.

Theo Hicks:  Alrighty. Are you ready for the Best Ever lightning round?

Matt Deboth: Let’s do it.

Theo Hicks:  Alright. First,  a quick word from our sponsor.

Break [00:15:22]:04] to [00:16:17]:08]

Theo Hicks:  Alright. What is the best ever book you’ve recently read?

Matt Deboth: That’d have to be Titan, the story of John D. Rockefeller.

Theo Hicks:  If your business were to collapse today, what would you do next?

Matt Deboth: I’d start over. I’d start hustling, start from the bottom again and try to get to the top.

Theo Hicks:  We talked about a lot of your successful deals. Is there any deal that you lost a lot of money on, and if so how much, and what lessons you learned?

Matt Deboth: I haven’t lost any money on any deals, but there has been a few deals where I thought I had lowballed them quite a bit, but then they accepted my first offer so then I started second-guessing myself. And then one deal, in particular, I went to the closing table and realized I probably could have got it for about $100,000 less, but at the time, I was too scared to go any lower, because I knew if it went to market, it would be gone and it’d be out of my price range.

Theo Hicks:  What is the best ever way you like to give back?

Matt Deboth: Probably attend meetups, educate people, get on the forums like BiggerPockets, help people out as much as I can, try to get people educated into real estate.

Theo Hicks:  And then lastly, what is the best ever place to reach you?

Matt Deboth: I’m on Instagram @MattDeboth, Facebook, LinkedIn, BiggerPockets and tripleholdings.com.

Theo Hicks:  What types of things are you doing on Instagram?

Matt Deboth: I’m just posting some deals that I’ve got, some rehabs stuff that we’re doing. I’m not as active as I probably should be on it, but I’m trying to get out there and reach people, and I meet a lot of people who have questions and I try to answer them, do some zoom calls with them and just help them out.

Theo Hicks:  Well, Matt, thanks for joining us today and sharing your story, your journey and what you’re doing today. I think the biggest takeaway, at least for me, and I’m sure for most of the listeners is this – a very low money down cross-collateralization strategy. Obviously, I’d heard of it before, but I hadn’t heard about it in this way. I haven’t heard about this rinse and repeat process. So you buy one property– for you, it was this 20-unit building that you bought for $50,000 down. It was an owner financed property, and you said that you bought it for 500k and it appraised for over a million dollars a few years ago. And then after 19 months you refinanced, got out of that really, really high-interest loan into a new loan, and then you created a bunch of equity in that property, and then you used that equity as the downpayment for another property, and you kind of rinsed and repeated. So after 6 to 12 months, you refinanced. They had to be value-add deals, so you can add value and force appreciation, and then you refinance so that those properties are connected, and then you got that collateral to use for another property. So it sounds like you’ve really just had $50,000 out of pocket upfront and were able to do all of these deals.

Matt Deboth: Correct.

Theo Hicks:  We talked about all different deals you’ve done – the 17-unit deal that you did, then we talked about your 48-unit deal that you did, all with cross-collateralization. We talked about how you’re finding your deals. Number one source is through brokers. Then you gave us some tips on how to get brokers to send you their off-market deals. One was to do deals in the past. You had done $4 million for the deals with this particular broker before he brought you the 48-unit deal. Speak to them; you speak to them three times a week, and then bring them value without looking for anything in return, and the best way to do that is to refer them people.

Matt Deboth: Yep.

Theo Hicks:  You also mentioned that your other way to find deals is through networking. So attending real estate meetups, browsing the forums and things like that, which was also your best ever advice, which is to network and also to get uncomfortable, and you gave the example of not a deal you lost money on, but a deal that you could have made more money on, but you were too afraid to get outside your comfort zone and offer something really, really low. So I think that’s really good, solid advice, as well as the cross-collateralization strategy. So again, Matt, thank you for joining us. Best Ever listeners, thank you for listening as always. Have a best ever day and we will talk to you tomorrow.

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JF2096: Going From The Medical Field to Investing With Victor Leite

Victor and his wife both started off in the medical field and started to feel burned out after working 70hr work weeks for 5 years. They both decided to leave their jobs to go backpacking and upon their return, they decided to purchase their first home and discovered it would need a lot of work. This started their journey into real estate investing, and now they have a business with 17 investors. 

 

Victor Leite Real Estate Background:

  • Entrepreneur and investor who owns multiple rental properties
  • Portfolio of rentals includes a mix of single-family homes and multifamily properties
  • Manages a high volume Fix & Flip investment group, they successfully completed over 100 rehab projects in 2019 – mostly with funds from private individuals
  • Based in Virginia Beach, VA
  • Say hi to him at https://www.lvrinvestments.com/ 

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Best Ever Tweet:

“Difficult roads often lead you to beautiful destinations.” – Victor Leite


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m your host today, Theo Hicks, and today’s guest is Victor Leite. Victor, how are you doing today?

Victor Leite: I’m good, Theo. How are you?

Theo Hicks: I’m doing great. Thank you for joining us today. I’m looking forward to our conversation. So Victor is an entrepreneur and investor who owns multiple rental properties. His portfolio of rentals includes a mix of single-family homes as well as multifamily properties. He also manages a high volume of fix and flip investment group. Their project has successfully completed over 100 projects in 2019. Most of the funds come from private individuals. So we’ll be talking about that. And he is based in Virginia Beach, Virginia, and you can say hi to him or learn more about his company at 258capital.com. Alright, Victor, do you mind telling us a little bit more about your background and what you’re focused on today?

Victor Leite: Yeah, sure, Theo. My background is not like most traditional stories. I was born in San Paulo, Brazil, which is one of the largest cities in South America, and during the late 70s, Brazil went through a lot of political-economic turmoil. So my family, we immigrated to the United States towards the idea of achieving that American dream. So I followed the traditional paths – I went to school, I got good grades, I worked multiple jobs, I went to university, I went to medical school, I got my various degrees and accolades, and I thought I finally had reached that level of American Dream that everybody’s in search of. But after five years or so, working private practice, working 60, 70-hour workweeks, being on overnight call, the corporate structures with the pressures from the medical business world, it started really taking a toll on me, and really felt that burnout coming than most medical providers feel. My wife also practiced medicine; she agreed.

One day after a long day, I came home and had a strong conversation about our lives and what we really wanted. So we decided that we needed to make a change, and we decided to press the reset button. So we literally packed our lives into two small backpacks and decided to take off to travel the world for a year; nomad style.

So during these travels, we did a lot of soul searching and during the process of soul searching, I did a lot of reading. I read a lot of the motivational books, the Tony Robbins, The One Thing, The 4-Hour Workweek that took me to the Rich Dad, Poor Dad, and then I started listening to a lot of podcasts, including the Best Ever Show. I listened to it; it’s a great show. And what really started resonating with me is that in real estate, it’s a place where anybody can get started, with or without any experience or money, and then with a little bit of hard work, it can really bring you some form of financial freedom.

So once we got back from that year-long travel, we had a little bit of money saved up and so we decided that we’re going to buy our first little home. It was a fixer-upper to us, and it was located in Virginia Beach, Virginia. So we got all of our small little items out of storage. We drove down to Virginia Beach, we had the keys in hand, really excited, put the keys in the door lock, we open up that door, and our mouth and our hearts just dropped. The whole entire first floor of the house was flooded. We think that the pipe had burst in the wall a few days prior and just ruined everything, and we were completely devastated. We didn’t know what to do.

So there’s that saying that difficult roads often lead you to beautiful destinations. So we brushed ourselves off, we became motivated, and we decided to connect with local contractors, handymen that really helped us repair and elevate this property to a state that it wasn’t even close to before. And we did such a great job that we actually turned this one into our first flip.

And then we thought to ourselves after finishing this experience, why can’t we just replicate this over and over again? So we began our process. We educated ourselves on this vehicle of real estate investing, we networked heavily, we became close contact with local contractors who focused on rehabs, we met with local brokers and agents who focused on foreclosures, HUD homes, VA homes. We networked with wholesalers who brought us off-market deals, we networked in JV with a few investors, and we finally got to do another project of our own. And then, like that law of those first deals, it snowballed, and two became four, four became eight, and so on, and now, which is point here today, just like you said, we’ve done numerous of projects, and now today we’ve transitioned our model over into the commercial multifamily space.

We had a thesis that we wanted to prove and that thesis was that we can take our systems from the residential rehab side and transition over to the commercial side, specifically multifamily, and we feel like we did a great job so far, and we’re looking forward to growing our goals and continue scaling upwards.

Theo Hicks: Thanks for sharing that. So a few questions… Before we talk about the multifamily, let’s about the fix and flips. So you mentioned in your bio that you raised money for these deals. So at what point did you tap out of your own funds, and maybe talk to us about that decision-making process to go from funding the deals yourself to raising capital?

Victor Leite: That’s a good question. In the beginning, we had a little bit of money left over. So we were able to start slowly by ourselves and we leveraged a little bit of the money with credit cards and things like that, but we got to the point where we looked at our funds, and we looked at the project that we were going to do and we hit a roadblock. So we reached out to our network and we reached out to family, reached out to friends, and we showed them our business plan, we showed them what we were doing and they believed in us. They came in and started investing with us, and then from there on, we wanted to scale even further out. So we really began a philosophy of OPM – other people’s money. So we started with word of mouth, going off to friends of friends and college friends and co-workers and things like that, and we’ve definitely been using private money to get our business scaling to the point that we are today.

Theo Hicks: How many investors do you currently have?

Victor Leite: Currently, our company holds about 16 total investors. They’re a mixed bag – they’re retirees, they’re self-directed IRA investors, they’re cash investors… A very mixed bag of people investing with us.

Theo Hicks: Okay, and then what I’m leading to is I want to know what types of returns you’re offering to them, but I guess I’ll ask it in a little bit different way. So you say you’re transitioning into multifamily. So what has changed about your approach towards your investors from fix and flips to multifamily? So when you were doing the fix and flips, what was the compensation structure, what were the returns offered, what was the frequency of those returns, and then now that you’re doing multifamily, how has that changed?

Victor Leite: Okay, so in regards to residential real estate, we really began with more of note lending. So we were trying to offer something that was competitive with the market, but also not too high that we couldn’t guarantee those returns. So we went initially between some years ago, but we started at 5%, 6% returns, up to 10% to 12% returns for investors in residential real estate, and then now when we’ve transitioned over to the commercial space, we really try to push for larger returns with our investors in the low to high teens, and we try to give them their regular mailbox money returns, and then our goal is to run a product through the whole cycle and give them a return also in the end.

 

Theo Hicks: Then what types of conversation did you need to have with those investors when you transitioned from the fix and flip to the multifamily? …just because again, the returns are different for both. So were they onboard right away, did you guys do something convincing, or how did that conversation go?

Victor Leite: That’s another good question. We’ve developed these relationships, and everybody trusting us with their investments, and the majority of our conversations was that we really wanted to scale into a larger space where we had better returns, better asset protection, more consistent returns. We had depreciation and deduction opportunities for everybody… And because of the relationship that we’ve built, they were trusting of us to really follow through with what we were seeing, since we had done it so far over the last years that we’ve been working with them.

So we explained to them the differences of benefits from a residential fix and flip investments from a long term commercial buy and hold investments that we’ve been discussing with them. So that’s more of the differences in conversation. There was not much fight from that standpoint. Everybody was really happy to really have their investments grow for long-term.

Theo Hicks: How many multifamily deals have you done so far?

Victor Leite: So as a company, we’ve only done one official multifamily deal by ourselves. We have been working on junior venture partnerships, general partnerships and limited partnerships with other operators, but us as ourselves, we’ve done one so far in 2020.

Theo Hicks: Okay, and can you tell us about how you found the deal, purchase price, how much money you raised and the returns you offered to those investors and how many investors you have in that deal?

Victor Leite: Okay, so we did a small multifamily. We found this through a lead that we had, through one of the brokers we had a relationship with. It’s a small project. It’s a six-unit in Downtown Norfolk in Virginia. It’s literally a block from the hospital, a block from the university, a block away from the downtown shops and restaurants. We purchased this deal for $400,000, so it’s a $67,000 per unit, and like I said, we developed the same system to fix and flip and we moved it over to the multi.

So when we purchased this property, two of the units were vacant because they couldn’t get them rented out. It was the two top units. So what we did, we decided to go in there and we did our full interior upgrades of the units like we always do, and I can go into details about that if needed, but we did a full interior upgrade of the units, we brought them back up to pretty much be the best units in that building. We did two units and we found that there was a basement area of this property that in the entire history of this property nobody has ever utilized.

So we went there and we’re looking at opportunities of whether we can put a unit down in that basement, and the city gave us a little bit of a tough time doing that. So we transitioned over to our plan B which we turned it into an amenity. We did washer dryers, we did storage lockers, we did bike hookups, we did seating area, TV down there and we put a [unintelligible [00:13:08].12] on the outside, things like that… And we got all this done in ten days. We spent a total of $12,000, and we took the rents from where they were, which were $700 per unit, which was about 85 cents per square foot, and we moved it up to now they’re $1,000 per unit which moves our rent per square footage at $1.66. So we were pretty happy with how it turned out.

Theo Hicks: So you bought it for $400,000, you put 12k into it… Can you tell us a ballpark of what it’s worth now?

Victor Leite: Yeah, we had it appraised. It appraised at $510,000. So we have a little bit of equity left in it.

Theo Hicks: So when you bought that deal, did you bring investors in it, or was this out of your own pocket?

Victor Leite: This was out of my own pocket, because we wanted to show that we could transition our teams over fluidly without any hiccups… And it was a smaller deal so we really didn’t need any private investing for this deal. But now we’re using it as a case study for all of our future projects.

Theo Hicks: Perfect. The future plan– is the next deal you’re gonna buy on your own or are you gonna raise money?

Victor Leite: No. Next deal, like I said, right now we’re currently working on general partnerships on a 100-unit deal, on a 96-unit deal, on an 80-unit deal with partners in our Mid Atlantic region, and we’re going to try to be a strong partner. What I didn’t mention is that 258 Capital is our Capital Group, but we also have in-house, 258 Contracting. So we’re an all in one investment group where we have in-house contracting and labor force that can really go into a deal, and we can really make a really nice deal, a really great deal by controlling the renovations.

Theo Hicks: That makes sense, how you were able to deal with those two units and all that stuff in the basement, for 12 grand. I was like, “Wow. 12 grand…” are you just saying the basement or is that all in? Because it sounds like you were talking it was all in.

Victor Leite: All in.

Theo Hicks: It sounds like it’s definitely an advantage of having the contractor.

Victor Leite: Correct.

Theo Hicks: Alright, Victor. What is your best real estate investing advice ever?

Victor Leite: Okay, best advice ever. So I mentor a lot of young investors and things like that, and I say, the best advice I can give somebody ever is don’t be afraid to just take the action. Going back to my story, if we let our situation really discourage us, we would never be to the point we are today. I took action without really knowing where it really would lead us. So I say to the listeners that are listening now, you’re learning a lot of information, you’re taking it all in, but if you’re doing nothing with that information, information is just worthless.

So taking action on the information, whether it’s educating yourself on the vehicle of investment that you want, or developing or building your team. I can’t do this alone; I have a large team behind me that backs me up, and I’m talking about not just from contractors, but from partners, from project managers, from attorneys, CPAs, from my landscapers – everybody’s got a piece to play in this game. And then also you’ve got to network with like-minded individuals who are doing what you want to do. It will really raise your standard and your standard bar.

Theo Hicks: Alright, Victor. Are you ready for the Best Ever lightning round?

Victor Leite: I’m ready.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:16:03]:03] to [00:16:48]:06]

Theo Hicks: Okay, so you said you like to read a lot of books… So what is the best ever book you’ve recently read?

Victor Leite: Okay, so I’ve read a few books recently. Now I gotta say, you guys are not paying me this or anything like that for the plug, but the Best Ever Apartment Syndication Book, we as a group just finished that and that book is awesome. It is a roadmap to really doing an apartment syndication from different angles, that other books don’t really talk about. So y’alls book is really a great book that you put out there. And I read a lot of mindset books, and The Power of Positive Thinking – I just recently just finished that. It really was a great mindset shifting book to really focus on confidence and restoring confidence and focusing on what are your fears and attacking those fears so that they don’t hold you back from inaction.

Theo Hicks: Well, thank you for that shout-out for the book.  It’s  The Best Ever Apartment Syndication Book, pick it up on Amazon, people. Okay, if your business were to collapse today, what would you do next?

Victor Leite: So if our business were to collapse today, which we have a lot of diversity, so we hope it never happens, but I think we’d go back to what really inspired me to do real estate in the first place. I’d go back to traveling again. Traveling opened up our eyes to different cultures and different mindsets and really allowed us to really press that reset button and get off our ridiculous crazy hustle, 9 to 5, and just say, “Hey, what is really truly important to us?” Also maybe, possibly volunteer. Volunteer medical services abroad. When we traveled, we saw a lot of people who are in need. There’s a lot of people in need all over this world. So I think that’s what we would do next.

Theo Hicks: What is the best ever travel destination?

Victor Leite: Oh, do you want my top three?

Theo Hicks: Yeah. Quick top three; just give them to me.

Victor Leite: Okay, quick top three. So obviously, I’m from Brazil. So a lot of people don’t know Brazil because Brazil doesn’t speak a lot of English, but the Northern part of Brazil is some of the most beautiful coastlines you would ever see. Also, Brazil is vast. So there’s a lot of things to do, but secondarily, if not Brazil, I would say, Vietnam. I know the US and Vietnam are not the best of friends based on history, but Vietnam – also beautiful landscape, beautiful ocean, beautiful people and great food. And lastly, we really enjoyed spending time in Bali. We really were able to really spend time in doing all that reading and tapping into our mindsets and focusing on ourselves. So those are my top three for your listeners who are looking to cut the cord and travel.

Theo Hicks: Perfect. I had to switch out one of the other questions because you answered it already.

Victor Leite: Oh, I did? Okay.

Theo Hicks: Yeah… Which is a good thing. So thank you for sharing that. So what deal did you lose the most money on and how much did you lose?

Victor Leite: We’ve done numerous rehabs, and to be honest, we’ve never really lost money. We’ve not made the returns that we were projecting. There was a deal where we made 1,000 bucks, but we didn’t really lose any money because we bought the deals right. We don’t just buy everything and anything that comes on the table; we have certain specific criterias that we look at with our business model and we try to avoid making mistakes, especially from others, who just think they can do anything and sell anything. So we’ve really not lost much. We just haven’t really met the marks we really wanted to on certain deals.

Theo Hicks: And then lastly, what is the best ever place to reach you?

Victor Leite: Alright, so to reach us, you mentioned it, 258capital.com. It’s a place where you can reach out to us with regards to the commercial space. Lvrinvestments.com, that’s our rehab fix and flip business. You can see the projects we’ve done there. We can do a lot of stuff on social media now. We have Instagram and Facebook @LVrealty; you can follow us there. And right now, we’ve been really working on providing educational content on YouTube, so we started a platform called Thinking Thursdays, and that’s where we really try to interview high-performing people and try to learn their various habits that drove to their successes. So those are the areas that you can reach out to us and we respond pretty quickly.

Theo Hicks: All right, Victor. Well, again, thank you for joining us today and telling us about your journey into real estate investing. You talked about how you started off doing the typical corporate job and then ended up a nomad for about a year, and then eventually got into real estate, bought your first fixer-upper in Virginia Beach. It didn’t initially start off as planned, but you were able to connect with local contractors, fix the property up and now it’s your first flip, and you asked yourself, “Why can I just do this same thing over and over again?” So that project lead to another project and it has snowballed into a fix and flip business, and then you talked about how you wanted to essentially take the systems and processes that you created for your fix and flip business and use that in multifamily. That’s what you’re focusing on today.

We talked about raising money, and how you started focusing first on family and friends, showed them your business plan, they started investing, and then when you wanted to scale further, you reached out even more to friends of friends, college friends and co-workers. So you have 16 investors [unintelligible [00:21:28].00] retirees, self-direct IRAs and cash. You talked about the differences between the returns offered on residential and multifamily and that you were able to transition those investors into multifamily because they trusted you and you were able to tell them about better returns, better asset protection, and you really just followed through on what you said you were going to do in the past, so they trusted you to do it again in the future.

We went over your multifamily example where you bought a six-unit in Downtown Norfolk, Virginia. That came through a broker relationship, bought it for 400 grand, two units were vacant, you upgraded those units and then added some amenities to the basement. All in 12k because of your in-house contracting and labor force, and you were able to increase the rents from $700 a month to $1,000 per month increasing the value of the property to $510,000, so a great success story in the first deal.

And then your best advice was threefold, which was one, don’t be afraid to take action; two, make sure you develop and build your team and recognize that everyone has a role to play and you can’t do it all yourself; and then three is to network with like-minded individuals who are doing what you want to do.

So again, thanks for joining us, very solid advice. Best Ever listeners, as always, thank you for joining us. Have a best ever day and we will talk to you tomorrow.

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JF2085: Fake it Till You Make it With Aaron Fragnito

Aaron is the Co-Founder of Peoples Capital Group and the Host of New Jersey Real Estate Network. Aaron is someone who developed a plan to become a real estate investor and went after it right away. He shares his journey from no experience to a realtor, wholesaler, flipper, and now syndicator. He shares some of the mistakes he made with management companies and how he is able to keep his 4 core investors even when he was making mistakes to now 30 investors.

 

Aaron Fragnito  Real Estate Background:

  • Co-Founder of Peoples Capital Group (PCG)
  • The host of New Jersey Real Estate Network
  • A Licensed NJ Realtor and a Full-time real estate investor.
  • He has Completed over 250 real estate transactions, totaling more than $40M, Fixed & Flipped over 50 houses, wholesale 100+ properties, and Manages an 8 Figure Portfolio of Private Real Estate holdings
  • PCG Works with qualified investors to create passive returns through local commercial real estate.
  • Say hi to him at: https://www.peoplescapitalgroup.com/
  • Best Ever Book: Mel Robbins books

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I am always educating” – Aaron Fragnito


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, today’s host, and today we are speaking with Aaron Fragnito. Aaron, how are you doing today?

Aaron Fragnito: Very good, Theo. How are you doing today?

Theo Hicks: I’m doing great, thanks for joining us. Looking forward to learning more about what you’ve got going on. Before we get into that, let’s talk about Aaron’s background. So he’s a co-founder of Peoples Capital Group, PCG. He’s the host of New Jersey Real Estate Network and is a licensed realtor in New Jersey as well as a full-time real estate investor. He has completed over 250 real estate transactions totaling more than $40 million. This is included over 50 fix and flips, over 100 wholesales, and he currently manages an eight-figure portfolio of private real estate holdings. PCG also works with qualified investors to create passive returns through local, commercial real estate. You can learn more about his company at peoplescapitalgroup.com. So Aaron, do you mind telling us a little bit more about your background and what you’re focused on today?

Aaron Fragnito: Sure. So I got started in real estate about ten years ago. Initially I was turned on to do it by Rich Dad, Poor Dad, of course. I’m sure everyone says that same story. I hear it all the time. So I read Rich Dad, Poor Dad around senior year of high school. I was an entrepreneur, major at Rowan University, wasn’t exactly sure what I wanted to do with my life, but I figured I did have a passion for real estate, and after reading that book, I recognized that the tax code is actually in favor of people who pay themselves through ownership of real estate. So I figured that out, and then I started reading David Lindell and Trump University, and I think I even looked into some Joe Fairless stuff at the time.

About ten years ago, Joe was getting started, the syndication space was really new then as well. So I knew I want to own a lot of real estate and want to make passive cash flow throughout, but just didn’t know how to get there. So I made a list and I said, “Okay, I want to own $10 million real estate and have a net worth of a million with $100,000 passive cash flow in ten years.” So that was about ten years ago; that was my goal. I wrote it down, and I said, “Okay, well, I’m gonna work backwards from here. I need to make connections, learn the industry, save some money, figure out how real estate syndication is created and run… And to do that – maybe I’ll get my real estate license to start.”

At the time, I actually moved out to Colorado to teach kids how to ski for six months after I graduated college, read a bunch of books on how to start a real estate investment company, they all made it look so easy, moved back to Jersey, got my real estate license and started executing on that plan.

I made a lot of mistakes, teamed up with the wrong people for my first fix and flip, lost a little money, did a lot of the wrong things, didn’t do the right due diligence, hired the wrong contractors – I got tons of stories – hired the wrong management companies getting started, ended up having to develop our own management company… But a couple years into the business, working as a realtor, you learn short sales and start to make some money.

I started working with Seth Martinez who is my business partner today, and we really complement each other’s strengths and weaknesses. So he’s great at operations and management of the real estate and improving our systems and strategies here in our business, and I’m more on the branding and fundraiser investor relationship side. So we work really well together. We bought a six family from a We Buy Houses sign that used to work really well, that I would staple on telephone poles in a suit and tie in the middle of summer. I’d get a bunch of listings and deals with those We Buy Houses signs. So we’ve had a six family back in 2013 or so, I bought it for about $220,000, put $50,000 into it, bought, renovated, refinanced out, it appraised for well over $400,000, got our money back and a little bit on top, and raised some capital and built on to the next level and got up to about 100 units over five years, all while flipping a lot of houses as well, and wholesaling at the same time with our residential division. So pretty busy and engaged so far.

Theo Hicks: That’s great to hear, and we do apartment syndications, so we’ve got a lot in common and I’ve got a lot of questions for you. Let’s talk about your first syndication deal. So did you syndicate that six-unit deal?

Aaron Fragnito: We didn’t actually syndicate it. Our first syndication deal was a 25-unit in South Jersey, and we put together four investors who all brought in $100,000 each, and we bought a 25-unit for below market value. We took the cash flow from it, put it back into the building, hired a few management companies. One was stealing money from us, it was a disaster, we had to take them to court. Another one just really over promised and under delivered. So by doing that 25-unit, we learned that sometimes you want something done right, and if you’re going to build a big portfolio in one central location, it makes sense to actually have your own management company.

So we developed our own management company through necessity with that first 25-unit, because like I said, the two management companies we hired, one was bad, the other one was worse. So we were like, “Well, if we switched to a third management company and they screw us too, we’re going to look really bad to our tenants in this building, and we’ll go downhill.”

So we developed our own management company about seven years ago, and that is our competitive edge now today that allows us to really reposition these buildings like a fine-tooth comb. So many moving pieces when you buy a mismanaged apartment building, and you’ve got to really knock it out of the park for your investors. So relying on other management companies was a risk I found and a flaw in the overall syndication model. So we tried to correct that with developing our own management company here. It does limit where we can buy, but we love this North Jersey market, and we do very well here with this North Jersey market.

Theo Hicks: You’re really good at proactively answering my questions. I was gonna say, “Oh, what are some of the pros and cons of having a management company?” but you answered all those for me. So we’ll talk about the investors instead. So your first 25-unit deal, you said you had four investors. Who were they and how did you get them to invest?

Aaron Fragnito: Well, let’s see. One of our first investors– great story. Well, the first monies I raised in real estate was actually for fix and flips, but those investors, I rolled them into buying the apartment buildings over time… Because in the fix and flips, we weren’t successful. I would like fail at a fix and flip, and be like, “Here’s what I did wrong. Here’s how I corrected and I got rid of that partner etc” They would reinvest me, so I salvaged those relationships. I also wrote checks to the closing table to make sure no one ever lost money as I was learning the business… But what I did is I went to real estate networking event and I made a beeline for the owner of the event, and I said, “Let me talk about what I’m doing. I’m learning short sales, I’m getting into a fix and flip, and my topic is going to be Fake It Till You Make It.” So I literally did a presentation called Fake It Till You Make It, and it was probably not a very good presentation. By the way, my wife today was in the crowd. I met her that night, ended up marrying her few years later. So just a wild story. The first presentation I did in real estate ended up being about how I met my wife, but different story…

So there were some people in the crowd that were intrigued with what I was doing, and I always enjoyed public speaking. They saw my passion for this industry and they decided to invest, and that was how I got one investor around $100,000 and another investor was from Seth’s network, actually. He knew a very wealthy individual in New York City that owns his own real estate, that he had worked with before in the medical building industry. So Seth had sold a medical building company, and he knew this doctor. Yeah, it’s great business to meet doctors. So just because Seth knew him through medical building and that relationship, it didn’t mean he couldn’t convert that trust into investing in us in real estate. Even though it was our first syndication and we, really looking back now, didn’t really know what we’re doing and had a lot of challenges in front of us.

So again, one investor I had messed up with a flip and made good on it, and she decided to reinvest in me. Another guy was a doctor I knew from a whole other industry, and doing business with years earlier, and just cultivated that relationship into investing them, and then one was actually some people on Seth’s family as well, and then just another investor, but I think it was actually one of Seth’s aunts. So luckily, Seth was a little older and had a little more capital and had good resources there. So I think, actually, three out of the four investors were from his network and I brought in one investor as well. That’s why it’s so important to have partners that have great networks and complement what you’re doing so that you can make sure you raise the capital and have those resources of private investors that Seth brings in and I bring in as well.

Theo Hicks: So for your first deal, you had about four investors, you said, and you mentioned how you found them. That was five years ago, you said?

Aaron Fragnito: That was back in 2013.

Theo Hicks: Okay. So six, seven years ago. How many investors do you have now?

Aaron Fragnito: Over 30.

Theo Hicks: Over 30 investors. So do you wanna talk about how you grew from 4 to 30?

Aaron Fragnito: Sure. Well, it was quite a journey; a lot of hard work behind the scenes. Just recently, I have really, in the last two years, made a conscious transition in my business to not only just stop working so much in my business and more on my business, because as any entrepreneur, I get really caught up answering emails, moving deals, and I’ve really got to focus on my systems overall, and what’s my main goal five years down the road… So in the last two years we really redeveloped our branding system into being more of a thought leader, more polished and professional, but also aimed at just high net-worth individuals, people in this area in North Jersey here. There’s a lot of wealth, and we do events in our office.

I have an office here in Berkeley Heights, and I used to throw a lot of money into fundraising. I’d go into the Hyatts, fancy hotels; I’d put down $3,000, get everyone dinner, and I would do a lot of networking events in there, and that was great; we raised a lot of capital that way. So we started a real estate networking event. We went on meetup.com, we started New Jersey Real Estate Network, and this was about eight years ago or so as well, and I started raising capital that way.

So I would do dinners every month at a hotel and people would come, and I don’t think I made any money on the events. I would charge money to get in, I’d have some sponsors, and at certain times, it felt like I was more of an event planner than a real estate investor, but those events really helped us build our brands. I would then go out and speak in other REIAs. Again, I would go to networking events, I’d make a beeline for the owner of that group, and a lot these guys, they need investors, they need people to come in and speak. They want people to speak at the events, they need a new speaker every month. So even if you’re starting, that could be a great story. Talk about your first fix and flip or whatever it is, your first gig you’re doing, and that’s how I would also meet investors. So I’d speak at events, I’d be honest, I’d talk about my starting points and then my struggles there, but how I powered through them and made good to my investors, and I built the brand that way.

I’d get people to come to my event, I’d feed them dinner, I’d tell them about what we’re doing, and I’d raise capital, and quite frankly, it was very easy to raise capital for fix and flips. So I kind of got off track for about three or four years with Seth, and we did about 50 fix and flips. We had some crazy projects going on, and we got off track with that, but it was a great way to bring in a lot of investors, because people love the idea of getting a first lien position, getting a 12% interest rate and getting their money back in a year or they could take the property back. It’s a pretty good position and it’s pretty quick turnover for investors.

So we raised a lot of capital that way and flipped a lot of houses and made some money and lost some money, and around 2016 or so, we started to recognize that scaling up a house flipping business is, in my opinion, really not all that profitable. It’s not the most profitable part of the business. What’s the most profitable part of real estate is being a listing agent or owning apartment buildings, in my opinion. So we realized that and about two to three years we focused on our apartment building syndication business. As we sold that 25-unit, we made a nice profit, our investors were very happy, and we said, “Wait a minute. It’s actually easier to buy and reposition a 25-unit than it is to flip a dozen houses in a year, and we make the same amount.”

So what we figured out was we want to really double down on that, and then I changed our brand a little bit to attract longer-term investors who were looking for a passive investment, and that’s really a different person than the house flipping individuals you meet at REIAs and such. They’re looking to be more hands-on, and they’re looking to really do a quick investment, get in and out, maybe make an interest rate. What works better for us are individuals that are busy working nine to five, maybe they’re a doctor or a banker or just a high net worth earner, or they just have an IRA with $30,000, they can self-direct into a syndication with us, and they’re looking more for a longer-term passive investment. It’s a different type of investor than the ones you might find in a real estate networking event.

So I had to consciously convert my fundraising brand and my fundraising message to attract the right type of investor over the last two years, which has been one of the bigger challenges for me, not only raising capital, but figuring out who I want to get in front of, what’s that ideal investor I want, and then getting in front of them, whatever that means. Facebook ads, marketing ads, whatever it takes to get in front of that person in the right professional manner, and then know what to say when you finally meet with them.

Theo Hicks: So for the fix and flipper investors, you’d find those at the meetup groups like in-person events, and then for these longer-term passive investors, you’re finding them through online ads?

Aaron Fragnito: Correct. Facebook marketing. I do four seminars a month here in my office in Berkeley Heights. I do six webinars a month as well. I teach how to self-direct your IRA, I go over case studies, I go over current offerings we have on buildings, I have realtor events, I have luncheons, I have evening events, we feed you here as well. So I do roughly the same seminar twice a week or so, but I get all new people coming in to see it, I put different spins on it, but I am just always, always educating. Fundraiser in the syndication space is really just an educator. Now we don’t sell education, we don’t sell books or CDs, we focus on just selling one product we have here which is a turnkey investment into New Jersey apartment buildings, but I’m always educating and it’s all free, and that’s how we raise capital. We build relationships with investors, they come to our events, they see us here, they see another 12 or 15 investors here at the luncheons and whatnot, and it’s chance to ask a lot of questions, listen to a 60 minutes seminar, and about half the crowd usually decides to fill out a form to move to the next step, and that’s a great turnaround, I think, as far as sales goes.

Theo Hicks: Yeah, thanks for sharing that. So we focused a lot on the raising money. The other thing I wanted to talk about a little bit more was the property management company. So I’m going to merge that together with the money question. So what is the best ever advice you have for– well, I guess, a little more context. I know a lot of syndicators will do third party, and you mentioned why you don’t do third party, but now I want to talk about the how to start your own management company. So what’s your best ever advice to an apartment syndicator for starting their own in-house property management company?

Aaron Fragnito: That’s tough; there’s so many moving pieces to a management company. I’d say, the first thing is working with good technology. We do work with AppFolio, which is a very helpful technology, and there’s tons of things like that. We feel like AppFolio is one of the best, so we went with that, and that really helped organize our business and it  allows us to scale up to managing 100 units without having to staff up. It’s almost like bringing on a staff member. Secondly, I have a phenomenal property manager. I have a phenomenal employee, A. Delgado, who does all of our property management, and she’s one of those individuals who, I think, was born to be a property manager. She’s so organized, she’s so good with the tenants, she’s so patient. I couldn’t do what she does. It’s really hard to be a property manager, it’s a thankless job, and there’s so much little nitty-gritty detail to it, and of course, tenants are going to lie to you and break your heart and it’s a tough gig. Same like working with contractors; Seth’s really good with that and I’m not.

So a good system overall also, just not only working with AppFolio, but working with our systems here in office. When work orders come in, working with the right contractors – that took years. I used to have a really good contractor, then I’d put him on payroll and started paying him hourly, and all of a sudden, the jobs took twice as long and cost me twice as much. So I realized you’re actually better off having the contractors as independent contractors, get multiple quotes, make sure they understand they’re not always going to have a job here, they’ve got to give us good production, good service and show up on time and get the job done properly. So we have a lot of good boots in the ground, great contractor relationships here. We’ve got the right small handymen, mid-level handymen, plumber, electrician etc, the right people for the right things… And then just the small guys too that bring out the garbage and clean the hallways. When you have enough units in one place, you have economies to scale, so I can have someone do all that, shovel our walkways when there’s snow, for a lower price, because we have a bunch of units in one area, and these individuals will work for us for a better price because of that.

Theo Hicks: Alright, Aaron. Are you ready for the Best Ever lightning round?

Aaron Fragnito: I think so.

Theo Hicks: Let’s do it. First, a quick word from our sponsor.

Break: [00:19:32]:04] to [00:20:18]:04]

Theo Hicks: Alright Aaron, what is the best ever book you’ve recently read?

Aaron Fragnito: That’s a tough one. I get that a lot on podcasts. I never really have a good answer. The book I’m reading right now is by Mel Robbins. My wife actually turned me on to her. She dragged me to a thing in the city that she was doing the other week, and I actually enjoyed it and got the book and I’ve been reading it a little bit. So Mel Robbins is a self-help coach, and her thing is when you’re grounded by anxiety or stress– and there’s a lot of stress and pressure being an operator, being a syndicator, having to raise the money in time, find the right deal and execute on your projection, so it’s a stressful gig; it’s not for everyone. She does this thing where you count down five, four, three, two, one to get yourself moving in the morning or get yourself not thinking about an issue and just move on. So it’s a lot about just motivating yourself to take action.

One thing I loved about what she said, you’ll never feel like doing it. “If it’s the right thing, you’ll love it every day and you’ll always feel like doing it.” Well, no, that’s not it. I love real estate, I love what I do, but there are days that I don’t want to be here. It’s a tough job. I work 60 hours a week, I got a luncheon on Sunday. I don’t want to be here on a Sunday. I want to go be with my family and friends, but I work hard at it, and I have a passion for it. So not every day’s fun, and that’s what she’s saying. You just got to go for it, get yourself moving, and just keep that mental focus, and she’s like just count down from five, four, three, two, one whenever you’re in a spot and you’re stagnant to get going.

Theo Hicks: If your business were to collapse today, what would you do next?

Aaron Fragnito: Well, first of all, I have a ton of real estate equity. So we do stress tests here. How much can the market drop? What if rents just stopped growing? What if this deal didn’t work out? So I have a good amount of real estate equity. So everyone’s like, well what if the market drops out? Well, we just buckle down the hatches and keep collecting cash flow. Our business is based on actual holdings of real estate, so I could slow down now and still be okay. The North Jersey real estate market is strong, the demand is strong. If there is such an economic collapse or New York City gets nuked or something and disappears, then we have bigger problems than our real estate values.

So whenever people say worst-case scenario, what if there’s no demand to live around Manhattan anymore? Then I say, well, honestly, where would your stock market be then? What’s this terrible, terrible scenario where no one has any money anymore and no one can live around Manhattan? So we do think we’re pretty recession-resistant. I’m not sure what will cause our business to fall, but we don’t have to sell any widgets. We have the buildings with the cash flow. We’re not selling coaching, we’re not selling anything else. So really, at the end of the day, we just have to keep raising capital and buying buildings, and if we decided to stop doing that, we could just maintain our holdings and maintain our rent growth there through time.

Theo Hicks: What is the best ever way you like to give back?

Aaron Fragnito: We give back in a lot of ways. I personally donate about 10% of my income between my church and different things like World Vision and Compassion International, which is great. If you go to their website, you can actually sponsor specific kids in third world countries. It’s really crazy stuff. So I love it. It’s such a great feeling. I have almost a dozen kids I sponsor between those two things. And there’s also in general here at Peoples Capital Group, we give back to Mission Clean Water, which brings clean water to Africa, and we are a member of three different Rotary clubs, donate to all the Rotary clubs and different events they have going on, and we sponsor lots of Rotary events, things like that locally. So big Rotarian here.

Theo Hicks: Then lastly, what is the best place to reach you?

Aaron Fragnito: Our website is peoplescapitalgroup.com, and you can check us out there. I have a podcast myself called The Passive Cashflow Podcast, but our website peoplescapitalgroup.com has information about our business. You can apply to qualify for an upcoming investment opportunity. We actually have buildings people can invest in in the next 30 days. So again, that’s our website, peoplescapitalgroup.com to qualify for that investment.

Theo Hicks: Perfect. Alright, Aaron. You’re [unintelligible [00:24:14].26] full of knowledge. I’m gonna try to summarize it, but I’m not going to look at everything because you said so much, and just a lot of solid advice. Everyone who’s listening should definitely relisten to this podcast. We talked about raising money and we talked about private management companies, but we first talked about how you got to where you are today; started off with Rich Dad, Poor Dad, you had made a list of what your goals were – own $10 million with the real estate, $1 million net worth, $100,000 passive income, and then made your plan of action to get that. You started with your real estate license and fix and flipping, and then moved into syndications. We talked about your first syndication – a 25-unit with the four investors and how you’ve had issues with your management company and eventually started your own.

You found your first investors from your fix and flips. So this is your first syndication – from your fix and flips, and then your business partner had a doctor and then this aunt or someone in the family invested, and then one of them came from your Fake It Till You Make It seminar, which also resulted in your wife. That’s awesome. Then we talked about how you grew from four to 30 investors, and you talked about the differences between raising money for fix and flips and raising money for syndications, and you realized that the type of person who’s interested in investing in fix and flips is different from the kind of person who’s investing in syndications. So you had to redevelop your brand in order to start targeting those people who are interested in longer-term, more passive investments, as opposed to the fix and flip investors who are more interested in higher returns, being active and getting their money back early quickly.

So you said that going to meetup groups, and REIA meetings was good to get fix and flip investors, whereas doing something more personal seminars and webinars and lunch and dinner events, Facebook ads and marketing ads to get the passive investment leads.

One thing you did say that was interesting was that these meetup groups and REIAs are always looking for a new speaker. They need a new speaker every single month or week or however often they’re doing it. So just because you haven’t done a ton of deals doesn’t mean you can’t speak at these events. If you’ve done one fix and flip offer, talk about your fix and flip, and then that will help you get the ball rolling on your brand.

You talked about your management company, which you started six-seven years ago, and your four pieces of advice on starting on time management company was one, make sure you’re focusing on technology. So you use the app Appfolio. AppFolio helps you scale without having to bring in a bunch of team members. Number two is have a great property management company, and the characteristics were organized patient and works well with tenants, and your property management company, you said, was born to be a property manager. You talked about having independent contractors as opposed to having one GC on staff, and then you talked about the advantages of having a scale by having a lot of units in one area. So you could have one handyman apply to all properties, one person shoveling snow and raking leaves and things like that. So again, jam-packed with information, definitely worth a relisten for Best Ever listeners. Aaron, thank you again for joining us today. Best Ever listeners, as always, thanks for listening. Have a best ever day and we’ll talk to you soon.

Aaron Fragnito: Thank you.

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JF2023 : Teacher Flipping Houses With Eric Helbock

TRAEric Helbock is the definition of hard work and making things happen. He is a full-time teacher who did his first flip in 2010, which took 2 ½ years for him to sell because it needed so much work. He ended up picking up odd jobs to help fund his flip and he was doing the rehab himself because he didn’t have the money to finance anything out. His story is inspiring because he purchased a property most would have given up on, but instead, he figured it out by putting his mind to it.

Eric Helbock Real Estate Background:

  • Full-time technology teacher.
  • He is also a Real Estate Investor; Has bought 8 SF rentals, 10 condos, and 15 unit building, he does his own rehabs, self manages and never buys from MLS, only buys distressed deals.
  • First Flip was in 2010 and it was a flop, taking 2 ½ years to sell it.
  • Poughkeepsie, New york
  • Say hi to him at ibuybrokenhouses@gmail.com 

 

Best Ever Tweet:

“If you’re going to waste the time to go look at something, make the offer. Even if you think it’s too low, there might be someone like me on the other end who might really need it.” – Eric Helbock


TRANSCRIPTION

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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Eric Helbock. How are you doing, Eric?

Eric Helbock: I’m doing very well, thank you.

Joe Fairless: Well, I’m glad to hear that. A little bit about Eric – he’s a full-time technology teacher. He is also a real estate investor (surprise, surprise). He’s bought eight single-family rentals, ten condos, and a 15-unit building. He does his own rehabs, he self-manages, and never buys from the MLS. He only buys distressed deals, under market.

His first flip was in 2010, and it was a flop. He took 2,5 years to sell that puppy. Based in Poughkeepsie, New York. We’re gonna have a fun time, I think. Eric, first, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Eric Helbock: Sure. So my current focus is I’m looking larger, I’m looking at either multifamilies, maybe 15 to 30-units, or I’m looking for self-storage units. I’ve put out a very small, handwritten batch of yellow letters – I think it was about  22 – and I got a phone call almost right away for a 75-unit self-storage with four commercial and four residential apartments.

I didn’t actually end up being able to close the deal. 1031 money got in the way, and someone [unintelligible [00:02:08].05] we were supposed to have our second meetings. So then I said, “Alright, I keep buying these single families, I keep buying condos, and looking at small multifamilies… What am I gonna do if I really do get an accepted offer? How am I gonna pull the trigger on this right away?” So I started selling off some of my smaller stuff, and I stacked a bunch of cash, so hopefully I could pull the trigger next time.

Joe Fairless: Okay… Well, let’s rewind. Let’s go back to the first flip that was a flop – your words, not mine. It took 2,5 years to sell–

Eric Helbock: No, no. I appreciate it.

Joe Fairless: So what happened?

Eric Helbock: So I was as green as the [unintelligible [00:02:39].29] I went to a couple of tax sales, I went to a couple of foreclosure sales… I was looking everywhere; I was looking at MLS properties… And one day I tried the Putnam County tax auction, which is probably about 45 minutes from my house… And there was a house that really no one was bidding on. I ended up picking it up for $30,000 site unseen. I got there very excited… I think I had $3,000 to my name. $2,700 of it was with me, and $300 was in another bank account. You need 10% down to close, so I had them transfer the money so I could actually at least accept my deposit.

Within 27 days I needed the other $27,000. I begged, borrowed and stole from friends and family (minus the stealing part), and I was able to close. I got there, it was a shell. The front looked pretty decent. It had new windows… There was a huge gap under the front door, and when I went in, it was a hoarder. The person had crazy signs on the wall that I think used to be posted on the front lawn, about the town. It was  a very bad situation. There was [unintelligible [00:03:42].01] there was no sheetrock, there was no electric, there was no plumbing… It took me almost a year just to get permits. They just kept fighting me on everything, and I think it was bad blood from the last owner.

The walls were 2 by 4, the ceiling was 2 by 6. They would tell me I had to go to 2012 energy codes, and they wanted me to build out all the walls, build out the ceiling. It was pretty much a nightmare.

Joe Fairless: Okay, so you have $2,700 in one account, $300 in another. That was your 10% down payment, and you still hadn’t seen the property…

Eric Helbock: Yup.

Joe Fairless: Did you see the property before you then borrowed from family and friends the remaining 27k?

Eric Helbock: I saw the outside… [laughs] I will say, I’m very enthusiastic… So I was going through it no matter what. I wasn’t gonna lose my $3,000. The lemons was gonna become lemonade. I kind of peeked through the window… I had an idea of what I was getting into, but not really.

Joe Fairless: You didn’t have access to go inside at that time?

Eric Helbock: Oh, not at all. Now.

Joe Fairless: Okay. But you could get a good idea by looking through the windows from the outside, what you were about to undertake…

Eric Helbock: Oh, yeah…

Joe Fairless: So you were full-steam ahead regardless at this point in time, and you’re like “You know what – I’ll find a way.”

Eric Helbock: And that’s it. That goes into my best real estate advice ever – no matter what, take action. I hear guys all the time, that are green as I was, that listen to podcasts… At that point I didn’t know anything about podcasts, I didn’t know anything about even meetups, or anything… I just knew I wanted to do this.

I hear guys tell me that they’re not finding any deals, and I’m like “Well, how many offers did you make last week?” “Well, I looked at one house…” “But how many offers?” At the end of the day, you’ve gotta take action. Without it, you’re really not gonna be able to find any deals.

Joe Fairless: So 2,5 years… How did it turn out financially?

Eric Helbock: It was great. I’ll tell you a horrible story; I thought it was funny. Chase came out with the “Take a picture of your check and it’ll go right into your account.” In New York state you need lawyers. I didn’t bring a lawyer, and I still was able to close somehow. I took a picture of the check as it was being handed. I sold it for 130k. I bought it for 30k. I put a little time into it… I didn’t lose any money; I didn’t make a ridiculous amount. I think I made 50k or so profit, but it took a long time.

Joe Fairless: 50k?

Eric Helbock: Yeah, I think I made 50k or maybe 60k. It was my college education. So I took a picture of the check and the lawyers asked me what I was doing. I said “Oh, just depositing in my account.” He thought I was being funny. They were totally freaking out, because I didn’t actually close on it yet.

Joe Fairless: [laughs]

Eric Helbock: I thought this was funny… You know. They didn’t find it so funny. I said “To be honest with you, I’ve just never seen a 100k check before.” I grew up with not so much money, so… That was my first deal.

Joe Fairless: Alright… And why did it take 2,5 years? Because the permits took a year?

Eric Helbock: The permits took a year, I was doing everything nights and weekends, and like I said, I really had no money, so I was taking on side jobs to pay for material… And then I was doing the work myself after work, and on weekends. Again, still not knowing about the network, not knowing about hard money or private money… At some point I actually even got so desperate that I saw those signs that we call bandit signs; at the time, I didn’t know what they were. I just knew that I was hurting. And I’ll tell you the truth, I still use that pain every time I make an offer; I think about I might be actually helping them by buying their place, because I know if someone made me even a halfway decent offer, it would have been really helping me. But the tenacity got me through it, and I ended up doing pretty well because of it.

Joe Fairless: You made the phone call… What happened as a result of that conversation?

Eric Helbock: I think they made me such a low-ball offer… Almost what I originally paid. And at this point I was already a year-and-a-half, almost two years into it, and I think they made me a $45,000 offer, or something like that… And I think I was probably about 60k or 65k into it. I just said “You know what – I’ve made it this far, I’ll figure it out. I’ll get this done.”

Joe Fairless: What were those closest to you saying about the project when  you were at that stage in the process?

Eric Helbock: It’s really crazy, because I didn’t really have too many naysayers… Even my wife was very supportive; when I brought her to the house, and the trees were growing into the house, and there was a pile of dirt in the front of the house, and I walked her in and  it was literally a hoarder, so it was full… She’s like “Alright, cool.” And when I brought my mom there, I’d cut down the tree… And the tree was hollow on the inside, so it actually fell into the house… And I grabbed the extension cord and I pulled it out of the house, because it was a pretty thin tree… And she’s like “You’re gonna figure this out. You’re gonna do it.”

So it was kind of crazy, because everything says I should have failed, or everything in my head said I should have failed, but I didn’t. Like I said, I still use that same feeling to this day. Every time I’m gonna make an offer, I think about “You can do this. You’re probably helping the other person… Do something that works for you.”

Joe Fairless: How many family members were involved on that deal?

Eric Helbock: It was me, and actually my mom lent me some money. I think she lent me 20k or 25k. Then I basically worked a lot to get the rest of the money to finish the rehab.

Joe Fairless: So now let’s move on to how you parlayed that into building your portfolio. How did that take place?

Eric Helbock: So shortly after it actually closed – I think it was a matter of two months – I went to the Dutchess county tax foreclosure auction, and I picked up a condo. I got there and I opened the door; it was unlocked. I’m looking around, and it was a drug den… And it was actually in a pretty nice area.

Joe Fairless: How did you afford it? It sounded like all your money was going towards that house at the time.

Eric Helbock: Oh, once I sold — I’m so sorry. I sold it, I got 130k, I paid back my mother, I went to [unintelligible [00:09:13].29] with my wife, and I bought a small backo, because every guy needs a backo, right? I still had a large amount of money left, and I went to this tax foreclosure auction, and I said “Hey, I might as well try this again.”

Joe Fairless: Okay.

Eric Helbock: So I bought this condo that was a crackhouse, and I’m looking around like “Oh, my god, I did it all over again. What am I getting myself into?” And one of the neighbors comes in and says “Does Anthony know you’re here?” And I said “Who’s Anthony?” He said “The guy that lives here.” I said “I just bought this tax auction.” And they’re like “He’s in jail.” I said “Uh-oh… What for?” They’re like “He’s a violent man, and he assaulted one of the neighbors…” I said “Alright, great. It sounds like I have to go to prison.”

So I went down to the jail. I had to call my lawyer, my lawyer told me I had to evict him… And it took about three meetings with him, and he basically said “What are you proposing?” I’m like “I’ll put all your stuff in self-storage until you get out, and I’ll give you a couple hundred bucks.” He more or less told me that anything of value was stolen already, so I didn’t have to put anything in storage. I said, “Great. So I’ll double the amount of money I was gonna give you.”

So for the next week or so I put money in his [unintelligible [00:10:16].06] because you can only do a certain amount a day… And within a week I pretty much had that place gutted, bathroom redone, kitchen redone, the walls painted, and I was just waiting for carpets. So I think about three weeks after I spoke to Anthony and had him agree to our terms, I had a tenant in there.

Joe Fairless: That’s great. That’s a quick turnaround, because if one would describe the situation leading up to that – hey, you’ve got a house that has had a lot of drug activity, and the person there is in jail, so you’ve gotta work this all out and then turn it around… I’d bet the over on — if someone said a month on getting it turned around, I’d certainly say way more than one month.

I just wanna clarify – it was three weeks after I actually spoke to Anthony in the prison and he accepted for me to discard all of his stuff. So it was probably a little over a month. Maybe a month and a week, or so. But yeah, the condo turnaround was really quick… And within that time, the same real estate agent I continued to call over and over called me, and I was just at the last legs of turning this, and he said “Hey, I have an off market deal.”

Then within the next couple of months I bought a couple more condos, and condos became my wife’s favorite thing, because she knew I was in and our really quick. I think the fastest condo we ever did is two weeks from the time I started talking to them… And the thing that takes the longest was getting carpets.

Joe Fairless: And you’re flipping these condos, correct?

Eric Helbock: At one point I had a nice portfolio of condos as rentals. I think I had seven. But I did flip quite a bit of condos… And one of my favorite techniques is I get the owner to agree to allow me to do the work before I own them. So basically, for them the only risk would be if someone got hurt, I guess… But I’m not that type of guy anyway. But the reward was if something was to happen and I didn’t close, they got all the repairs for free.

So yeah, I did that quite a bit of times. I wanna say not this summer, but the summer before I did two condo flips. I was able to do the rehabs before I owned them. One had an accepted offer before I even owned it… And I was selling them off-market, like Facebook, Craigslist… And it was through an agent — and the agent called me and said “Eric, your name’s not on it. I have to write the address”, and I said “Let me just send you a copy of my contract from the other owner. I want you to know that I’m not lying here, and I’m closing next week.” She said “Alright, I’ll explain it to the new homeowner.” The day I closed we went under contract for me to sell it to the other person.

Joe Fairless: What is it about condos that makes it so quick relative to homes?

Eric Helbock: On the condo the only thing I’m really rehabbing is either one or two bedrooms. Usually, we’re painting the walls, patching the holes, we update all the lighting and all the outlets, as well as all the switches… Stainless steel appliances… If the cabinets are in decent shape, I paint them; if they’re in horrible shape, I buy [unintelligible [00:13:03].23] And the bathroom – we usually can keep the tubs, and we just do the tiles around the bathtub over.

So it’s really in and out. Literally, I’ll drop a guy off for work, and when I get there, I’ll work until 9, 10 o’clock, and then start all over the next day. So it’s a lot of painting, a lot of fluff and buff, or lipstick on a pig, get her ready, take her to the dance.

Joe Fairless: So let’s talk about the 15-unit building… How did you get that deal?

Eric Helbock: Alright, so I was finishing a house… It seems like the last ten years has been non-stop – finish one house, start over, do it all over again. So I was finishing a house, and I bought another tax sale… And now it’s probably February, late February. I just got a tenant, and I tell my wife “I’m gonna take a little time off.” We have two crazy dogs, we [unintelligible [00:13:54].10] and my mind just keeps going back to real estate. So I’m mowing the grass every night, I’m calling every wholesaler I know, everyone I know from networking, from going to all the local meetups and real estate meetings, and nobody sees any deals. We’re talking 2018, March.

So the market is actually pretty strong, and nobody has anything. So I said “You know what – I’m gonna start cold-calling.” And I started going on Craigslist, I started going on Facebook… People that had things listed for rent, I’m asking if they ever thought about selling. A good friend of mine, Bob – he’s a genius, he’s great. Me and him sit together and we made a list of 4 to 20-unit buildings in the Dutchess county area, outside of Poughkeepsie city or  Beacon. And basically, I just sat there and I looked up all their names, I’d find them if they had an LLC, I would basically find out what address their mail was going to, and a lot of times it was their own primary address… So I’d look up who owns that house and then I’d call.

I got to a lady named [unintelligible [00:14:53].21] who owned a 15-unit building in Wappingers. She was like my third appointment out of the 144 unit list. I had three appointments [unintelligible [00:15:02].27] so something about her said “Go to this one first.” Which I did. I sat with her for probably three hours, for three days in a row. On the third one, I’m like “We have to talk money.”

I think he had it listed two or three years prior to that at 1.2 million. She tells me that she wouldn’t take a dollar less than 800k. So we talked back and forth, and then I said “Oh wow, this is gonna happen.”

So I said “I have to raise some money.” I put it out to my network, and I was very surprised I had 300k-400k lined up within a couple days… And then I wasn’t sleeping at night. So I called up everyone and said “Hey guys, I’ve done a lot of single-family, I’ve done a lot of condos… I’ve never done a multifamily. I’m a little nervous, and I can’t do this to you guys, so I’m gonna bow out gracefully.”

So I took money out of my retirement, I took money out of whatever funds I had – I think I refinanced a property – and I came up with 180k. I think she wanted 350k down. So I reached out to a guy that I mentored, another teacher, who had just finished a BRRRR. He did a nice rehab, and then he took all his money out a year prior. I’d been mentoring him probably a year, a year-and-a-half… I said to him “Hey, I know you have the cash… I’m gonna offer you something and I think you’d be crazy to say no.” And he jumped all over it. Within 9-10 months we had the rent roll…

Joe Fairless: What did you offer him?

Eric Helbock: I offered him half. I gave him everything, 100%. 50/50.

Joe Fairless: So 50/50 ownership… And then what was his role?

Eric Helbock: Basically, we self-managed everything, we rehabbed everything ourselves, and we basically are partners. He had to come up with 175k and I came up with 175k. I think it was roughly 350k, and I think she was gonna hold the note at 454k. I think the total was 754, but them we wanted a little slush fund for repairs, because there was a lot of deferred maintenance… So I think the total we brought together was 805k or something like that.

So we went from a rent toll of $10,200 to around $14,300 right now, a year and a couple months in.

Joe Fairless: Wow.

Eric Helbock: Yeah. But within the first nine months we were pretty stable at $13,800 or $14,000, something like that.

Joe Fairless: What were some challenges post-closing that came up?

Eric Helbock: Actually, there was none. The hardest thing for me was to finish up some projects… Because of my cold-calling efforts, not only did I get that property, but I also grabbed two condos and another house, and I was flipping all three of them. So the two condos already had sold, and the house I was trying to finish… I tried to actually sell it off to a couple other investor friends I know. That didn’t work out. I was so close to the end, and I think I was just asking 140k [unintelligible [00:17:46].21] But I think at that point I just said “You know what – Barbara, do you mind if we just hold off a couple more weeks, so I could just wrap up this current project?” I was also having my second job, so I had a lot going on. The day of my inspection I had my daughter Olivia… She actually told all the tenants that we were gonna do a walkthrough, and then she postponed it. She was great throughout the whole process.

Since I’ve sold a lot of properties, this year my goals was to get ready for a larger unit or self-storage and have a nice down payment; a couple hundred thousand. Because I wanna look at 2-3 million, so I wanted to have a nice chunk down. So when I was selling off my properties, I actually offered to buy her out of the mortgage that she’s holding for us… And she started to cry. She said “Eric, you guys have been great to me. Please don’t sell it. Please don’t refinance. Please don’t give my money. I look forward to this money every month. You pay me early…” I didn’t need to buy her out; I just assumed it would be a win/win. So she’s still holding to the note…

Joe Fairless: When you started cold-calling, you mentioned it briefly, but I’d like to learn more about it… What sources did you use to find the owners to then call?

Eric Helbock: See, I’m 41 years old, but I’m so technology-illiterate, it’s insane. I literally go on Facebook if I see someone renting a place. “Hey, how are you? I’m Eric Helbock. I buy houses. Have you ever thought about just maybe selling?” I go to the town, I ask if they have any leads, or if they know anyone that’s been hit with violations…

Joe Fairless: What office in particular?

Eric Helbock: Dutchess county — the building department in Dutchess county, in Poughkeepsie.

Joe Fairless: Okay, alright.

Eric Helbock: So I talk to everyone, I’m very friendly, I offer people money… I currently am working on a flip that my lawyer gave me… I gave him a nice tip, I gave his assistant a nice tip as well; paralegal, I apologize. I believe in taking care of the people around you, but I’m not very computer-savvy… So if I see someone listing a place for rent or for sale, I call them.

Joe Fairless: And before the 20-unit building…

Eric Helbock: Oh, now — my friend Bob is very computer-literate. He’s also an agent, so I told him to pull any off-markets… And he asked me “how far back?” and I said “As far as you can go. I don’t care. As long as it’s from 4 to 20 units” that was ever on the MLS, on LoopNet or whatever sources he has. So we get together once a month to network and just to hang out, [unintelligible [00:20:11].04] and he handed me a list and I went right to town on it. I actually still haven’t even phoned everyone on the list.

Joe Fairless: How many were on the list, approximately?

Eric Helbock: 144.

Joe Fairless: 144. Now, an ambitious guy like you, it surprises me you haven’t called everyone. How come?

Eric Helbock: Because now my mind is thinking bigger, and I’m afraid that [unintelligible [00:20:34].25] one shoulder; he’s always saying “Eric, what are you doing? Stop getting distracted. Stay focused. Do you want multifamily?” Because I’m an opportunist. Right now I’m JV-ing two deals. If I see an opportunity to make money, I get involved. I love this business, I really do.

So I do tend to get distracted, and I’m afraid if I start cold-calling these people, I’ll be busy tied up for another six months. I wasn’t looking for the current flip I’m involved in, and now I’m hopefully closing in the next month or so on another flip, which I wasn’t looking for as well… But they keep happening, and I guess when you fill up that funnel, it just keeps dripping down. So these are old things that just kind of happen.

Joe Fairless: You mentioned it already, but if you have any additional advice, we’d love to hear it – what’s your best real estate investing advice ever?

Eric Helbock: One was take action, and make the offer. If you’re gonna waste your time looking at something, if you’re gonna go there, make the offer. Even if you think it’s too low, there’s someone like me on the other end that might really need it. You might actually be helping them out.

The lady that we bought her building – her husband was very sick. Timing was perfect. The last time [unintelligible [00:21:39].27] I think about half the building left, because it went up for sale. So I happened to reach out in a perfect timing. Same thing – just make the offer. That’s my best advice.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round? First, a quick word from our Best Ever partners.

Break: [00:22:02].13] to [00:22:48].27]

Joe Fairless: What’s the best ever resource you couldn’t live without as a real estate investor?

Eric Helbock: The people around me, the network. It’s really unmatched. It’s really nice to have good people around you.

Joe Fairless: What deal have you lost the most money on?

Eric Helbock: I’ve never lost money.

Joe Fairless: What’s the best ever deal you’ve done?

Eric Helbock: Last summer when we bought the building, one of the three flips I bought for very little, and I’ve made a little over 100k in less than two months.

Joe Fairless: What would you attribute that to?

Eric Helbock: Against what everyone says, I’m there, I’m working, I’m there doing the work with the people. I’m managing myself.

Joe Fairless: But you’re doing that with others, so… Comparing that one to the other ones, what made this one stand out?

Eric Helbock: I bought at the right price. I bought that for 54k, I put 50k or so into it, and we sold it at 212k.

Joe Fairless: And what allowed you to buy it at that price, versus others buying at that same discount?

Eric Helbock: [unintelligible [00:23:39].04] best resource was, the one thing I couldn’t live without – my network. I happened to sit next to someone at a real estate meeting, and the guy asked me if I’d look at a house with them. I did. He asked me what I thought of it, and how much I thought the repairs would be. I told them 90k if you’re paying people. And he said “Oh my god, I bought into this program. We buy only houses”, and it came up exactly 90k. He’s like “That’s way too much work for me. Would you wanna buy from me?”

We went back and forth on the price. I think he had it under contract for 40k. We settled at 54k that I’d buy it from him. Instead of 90k, I did work with some contractors as well, and I think we were at 50k and 54k, so like 104k.

Joe Fairless: Best ever way  you like to give back to the community?

Eric Helbock: I host a local meetup, I help people… Unfortunately, sometimes I’m brutally honest with them. I’ll say things like “How many offers do you make? What are you doing?” There’s a famous quote that I love – if it’s important to you, you’ll find a way. If not, you’ll find an excuse.”

I talk to other investors, I talk to my students at school… I tell them “You can’t be upset with the results if you didn’t do the work.” I talk to people, we meet up on Saturday mornings at Starbucks before my kids are awake, and I’ll drive people around, show them what I’m doing… I love networking. That’s how I give back.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Eric Helbock: They could call me. I think you’ll put my phone number and my name on your show notes. Ibuybrokenhouses [at] gmail.com, or my phone number is 845 444 6053. That’s my cell. I answer my calls. I’ll call  you. Leave me a message and I’ll call you back right away.

Joe Fairless: Partnering up with someone, picking up the phone, calling people who have a place for rent, and then also when you found those 4 to 20-unit properties, or specifically the 15-unit that you purchased, and have increased NOI substantially in a year and change.

It is partnering up with someone who can pull off-market leads, and then reaching out to them, and giving them a call. Simple as that, but it takes effort, it takes consistency, and there you go. Thanks so much for being on the show. I hope you have a best ever day, and Eric, we’ll talk to you again soon.

Eric Helbock: Thank you so much. I really do appreciate it, and I appreciate your podcast.

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JF1952: FOMO Leads To Flipping 1100 Houses with Michael Green

Michael has flipped over 1100 houses in his 10 year flipping career. Joe and Michael will discuss some mistakes he’s made, and what we can learn from those mistakes. We’ll also get some actionable tips from Michael on how to find and negotiate deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Take everything to the next level” – Michael Green

Michael Green Real Estate Background:

  • Investing in real estate for the last 10 years
  • Has flipped over 1100 houses in that time
  • Based in Baltimore, MD
  • Say hi to him at www.theflipfactor.net
  • Best Ever Book: Start with No

 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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 of that fluffy stuff; we hate that fluffy stuff, so we don’t get into it. With us today, Michael Green. How are you doing, Michael?

Michael Green: I’m doing great, Joe. Thanks for inviting me on, man.

Joe Fairless: Well, I am glad to hear that, and it’s my pleasure. A little bit about Michael – he has been investing in real estate for the last ten years. He has flipped over 1,100 homes in that time. Based in Baltimore, Maryland, which I was commenting to him prior to recording, I really enjoyed visiting Baltimore a year or so ago. Not enough good things get said about Baltimore; just a great town. With that being said, Michael, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Michael Green: Absolutely. I’ve been investing, like Joe said, for ten years in real estate. I got started in 2009. I started in there — I’m an analytical guy, so I read books for six years before I made my first offer; it’s just the way I am. I like to read, study… It wasn’t until I was playing poker with a friend and I was telling him I wanna invest in real estate, and do this stuff… He was like “Let’s just do it.” Obviously, for him, seven seconds in he’s ready to flip  a house. I’m six years in and I can’t even make a choice… He was like “Let’s do it!” I gave him about a hundred reasons not to; he actually started just seeing houses, he was like “Dude, with or without you…” And eventually, I started to get some FOMO, so I’m like “Alright, I’ll do it with you.” He was the reason I did my first deal. I’m very thankful. Obviously, awful business partner, because he didn’t think through things, and all that… But so much gratitude, so much love for him, because without him I might still be reading books and waiting to make my first offer.

So I got started about ten years ago; it went really well, surprisingly. The first house was hard, it took us like four months, but because of the six years of studying, I think I was pretty well prepared for it. I made some good choices; I still made money (about $30,000 on my first deal), split it with him, he was really happy, and then we went on to do a bunch of deals after that.

So to this day, I’ve done about 1,100 deals. The spread for me is kind of the separation. I’ve done about 800 flips, fix and flips, and a bunch of wholesale deals, too. I like to balance everything out. When deals come in, I wanna make sure that — if the deal fits really well, they don’t keep it as a rehab. If it doesn’t, I’ll usually wholesale it off. Just timing, money, manpower…

Joe Fairless: Yup. What were you doing over those six years?

Michael Green: I was a hardwood floor installer. That’s how I got into it. Everyone says “Well, you’re a contractor, so it was easy for you.” I was like, “Well, I only do the hardwood. There’s like 50 other items that you have to do.” So yes, the hardwood was very easy for me, but nothing else was. I didn’t know anything about construction other than how to put a hardwood floor in. That was it. So yeah, that’s what I was doing. And I hated it, by the way. I got in trouble as a kid, didn’t graduate high school, I didn’t have very many options, so my stepfather was willing to teach me how to do hardwood. It was the biggest gift I could ever have as a kid who really didn’t have a lot of prospects, didn’t have an MBA, a college degree… So I ended up making pretty good money. Obviously, I was making well over 100k a year as a high school dropout, and I was impressed with myself.

Joe Fairless: Wow.

Michael Green: Now, the problem was I was making about 100k a year and spending about 120k. The American dream, right?

Joe Fairless: [laughs] And you said you were studying over those six years… What did you study?

Michael Green: Well, back then we didn’t have YouTube, podcasts, all this stuff ten years ago it wasn’t really out.

Joe Fairless: So 2003 to 2009, I guess?

Michael Green: Yeah, you got it right. So it was books, some random books by random people… And it was some online stuff, we had online, but it wasn’t like today, where there’s a million people teaching so much amazing stuff. Getting access to that stuff was near impossible. As I started to put it out into the world when I decided to do this flip, I actually was out doing some hardwood for  a guy who was actually a flipper, and he invited me to a free seminar, which is very common now, but there was like one in the country going on back then… And this guy said “Hey man, you’re making all these mistakes”, and he was 100% right; he’d been doing it 30 years… And I ended up paying him 15k to coach me, and that was my first coach.

Joe Fairless: What were the mistakes?

Michael Green: I didn’t know anything. I was just making offers, I didn’t know the numbers… My numbers made no sense, obviously. So he started to teach me the numbers, he started to teach me how to go direct to private seller versus MLS, and really how to compete, how to negotiate, just how to do everything at a much higher level.

Books are really big at just giving you a very vague overview. He really got me into the science of negotiating and marketing, and going direct to seller, and creating processes and systems. He was really good; he wasn’t the best coach, but some of the stuff he was great at was how to find a deal and how to negotiate a deal, and I obviously still use his stuff today.

Joe Fairless: Well, let’s talk about how to find a deal and how to negotiate a deal. Let’s talk about the first part first. How do you find a deal and go direct to a private seller?

Michael Green: Finding a deal direct to private seller… Everyone asks me “Michael, what’s your secret?” I do a lot of volume every years, and they’re like “What’s your favorite thing?” What I’ve realized in the last couple of years for me, my big takeaway, and how I’ve really shifted my business in the last couple of years has been everything about being productive and being efficient.

Right now I do about 20 deals a year on the MLS, I do 10 deals a year from wholesalers, I’m doing direct mail, which everyone’s saying it doesn’t work anymore… It’s definitely taken a downturn as far as conversion as far as how many calls you get for how many letters you send out… But where we’ve made up for that is instead of worrying about the fact that the mail is not working as well, I’m now converting at double the rate that I was converting before. Three years ago, one in 22 calls I would get a deal. Now I’m like one in 8 to one in 10. And what I do differently is I’ll spend about two hours on an appointment, where before, because I had so much volume, I would only spend 30-40 minutes and it was all about getting in, getting out. Now it’s about building rapport, and really taking it to that next level.

So really everything works. It’s hard for me to say, “Hey, Joe, this is my secret weapon, this is my thing.” If you really take everything we’ve always done and you think of it at a higher level, you realize that you can actually do everything that you’ve done before, but just take it one or two steps above, really roll out the red carpet, treat your sellers with a high level of respect, build rapport with them… Actually come from a place of gratitude and giving back to them in service… It’s really been my secret weapon.

My new sales technique is I don’t sell anymore. No more closing. I literally am just super-transparent and people are really loving it right now… Because I think they’ve been indoctrinated with all the car-salesy stuff over the years.

Joe Fairless: Let’s talk about that… You said you’re converting at a rate double as what you were converting before, and it’s because you’re spending about double the amount of time per appointment, building that rapport, having the giving back mentality… So talk to us about what a typical meeting was like when you were doing well, but you were spending 40 minutes, and then we’ll talk about the two-hour meeting.

Michael Green: When I would do 40 minutes — obviously, five years ago the market was amazing for us. It was so easy to get deals. We were totally in a buyers’ market then, and now we’re in a sellers’ market. Back then people were very distressed, so you could just be a jerk and get deals. It wasn’t really an indication of you doing a great job if you went out and got deals, because people were so motivated. Now they’re not as motivated. They know they have options, they’re certainly in power. So now they’ll pick you based on whether they like you and wanna do business with you.

Joe Fairless: I doubt you were being a jerk, so tell us just high-level – will you walk through the 40-minute meeting first? Like, you arrive, you knock on the door… What next? Or maybe we should start a little bit before that, you tell me.

Michael Green: Basically, the 40-minute – a quick call, the basic information, what condition is the house in; everything you’ve heard, you’re learning, we were doing back then. We learned from FortuneBuilders and all the different gurus. It worked really well. It worked enough for us to do a lot of houses… But we would really cut things short. If they wanted to talk about their grandkids, and pictures and all that – I’m a very impatient person, so I would always circle things back and I’d be like “Alright, let’s get down to business.” And that worked really well back then.

Now I can spend  two hours and legitimately 10 or 15 minutes will be about business, and the rest will be about personal stuff. I’m actually encouraging them to talk about personal stuff. I want them to like me so much that if I can’t buy the deal because they have a higher offer, I’ll be very honest and tell them to take the higher offer, but I want them to be sad that they’re not working with me. That’s my different approach today, and it’s what I’ve had to do in order to combat how competitive it is. And it feels better, by the way. I feel like I’m coming from such a better place these days than I was back then.

What questions do you ask them to generate the type of feelings of “I want them to be sad if they don’t work with me?”

Michael Green: A lot of them it is building rapport and just showing a true empathy. When you’re really honest and transparent with people, it’s gonna gain a  lot of rapport. Questions I’ll ask is “Tell me what’s important to you about this deal, or what are you trying to accomplish? How long have you lived here?” When I get into those – those questions are my starters. But when they give me the answers, instead of just stopping there, I’m using questions like “Oh, that’s interesting. Tell me more about that.” “Oh, I’ve never heard that before. What made you do this?” It’s just these [unintelligible [00:09:58].18] to the questions. So it’s literally like this rabbit trail that we can go down.

We start with a question you’ve probably heard and many people are using, but it’s really what I do after the question, where I’m going and taking it. We’ll go from “Tell me what’s important to you about selling the house” and they’ll be like “Okay, this, this and this”, the standard stuff you hear… And they might just say one little thing “It’s important so I can spend more time with my grandson.” “Oh, your grandson… How old is he? What’s important, what do you love to do with him?” “Oh, I love baseball.” “Baseball? Really? I used to play baseball when I was a kid.” “What positions did you play?” And from there, next thing you know we’re talking about politics religion… Who knows. All the stuff we shouldn’t talk about, but I take a very neutral position, easy to get along with…

And man, we’re just the best of friends at some point, because it starts from there, but it’s about being willing to just let it go anywhere it wants. And I used to hate this, by the way. I was totally against this, because I had a partner at the time, and he was that guy; he was the guy who wouldn’t close the deal, but we would get invited to a cookout…

Joe Fairless: [laughs]

Michael Green: He was just so awesome. When I look back at it, the perfect version of a real estate investor is half him, half me. I got to the point, he just built rapport, they hugged him at the end… Now I’m getting the hugs, but I can’t get the business… And I know when it’s time to  get to business, but it’s often well after we’ve really gotten in some deeper, personal stuff. And I think it’s meaningful to them, because a lot of my competitors are coming in and are like “Hey, don’t waste any time…” It’s a very surface, a very superficial conversation, where ours is very deep and very personal.

Joe Fairless: Well, I’m really glad you mentioned the former partner, where you wouldn’t get the close, but he’d get invited to the cookout… I love that. And you just mentioned that you got the rapport built, now you know also how to make sure it connects back to business… So that can be a tough transition; clearly, it was for one person that you know… What are some tips for how to transition into the business side of things, and make sure that you are getting invited to the cookout in order to sign the contract to close?

Michael Green: I love that. It’s free burgers AND a signed contract. That’s amazing.

Joe Fairless: [laughs] Almost as amazing as free burgers and free property. That’s how you’d really know you built rapport.

Michael Green: Yeah, that’s the ultimate peak. So look, I let them choose. I’m very regimented; I’m like “Okay, at this point we’ll do this, and that…”, and I’ve really let loose of that, because I believe that’s been my downfall in the past, and what’s really taken away from my ability to do this at a high level. So if they wanna talk for two hours about family, at some point obviously we’ll have to stop, but I can tell when we’re starting to get winded…

Or I’ll say “Well, man, it’s been great talking with you, Joe. You’re really awesome to get along with, and we just have a lot in common…. And I really wanna do this deal with you. Let’s talk a little bit about the numbers, let’s talk a little bit about business, because I really would love to do this for you and help you out, and get this deal done, and get you the money your family wants.” By that point I know everything that’s important to them, so I can really just list the benefits of what they want and how I can help. And I kind of went from telling, where I would just be like “Here’s what we do, here’s how long we’ve been in business”, to just really repeating now what they’re into and what they want, and nothing more. It’s really all they care about, by the way.

Joe Fairless: Now let’s talk about what you said earlier, the science of negotiating and marketing. So you’ve built rapport with them, you know they’re selling because they wanna spend time with Junior, who is playing baseball and they wanna play catch with Junior all the time, and be closer to him… And they have certain terms that would not work for you to do the deal. How do you approach negotiating?

Michael Green: For me, it used to be I would tell them what the market values were, and I’d say “Okay, here’s what things are…”, kind of do the math for them essentially… They would hear it, and it would work sometimes. What I’m doing very differently now is I went from telling to showing, so instead of telling them, I’ll literally say “Let’s talk about the numbers a little bit. Let’s look at some properties. You know the neighborhood, Joe. I’d love to get a little bit of feedback on what your beliefs are, the values, and how these are comparable to you.” So I start with like “Hey, 123 Main Street – are you familiar with that property?” and they’ll literally say “Yeah, I know that one.” “Is that one pretty similar to yours?” and they’ll be like “Yeah, it’s just like mine.” I’m like “Great. Well, that sold for about 110k.” And I’m showing them as-is comps, because essentially, most people just wanna know they got a fair deal. When they give you a number, it’s just really not based in any factual thing; it’s tax assessments, what a friend told them… It’s no real facts there. But they don’t wanna take and go from that belief to another belief without facts and proof… So I now get them engaged and I really work on getting buy-in from them.

So buy-in and a couple of things that are really important… Number one is buy-in on what the as-is value of the property is based on other properties that are similar to theirs, and I show them the properties, I get their feedback, and I really lead them to telling me “Yeah, that’s just like mine. Well, that only went for 110k… I felt that would have been more.” And then I show them two more… Now I have the buy-in. I now ask them at the end, before we move on, “Is there anything different about that, or do those houses seem pretty consistent with yours as far as the value and condition and everything?” They’re like “Yeah, man. It’s pretty consistent.” Then we’ve got buy-in on what we would call the as-is value.

The next thing is I show them the renovation costs, because I wanna be transparent and show them what I’m gonna put into it… And I show them “Look, here’s my costs, here’s what I’m doing. Do you agree with about 50k? Does that sound about right to you?” If they say yes, we move on. If they say no, I literally have a line item budget where I can start walking them through and then saying “Okay, let’s walk through this  a little bit, and just give me some feedback on what I might be overdoing, or just not doing correctly.” And by the time I walk them through the list, they’re usually completely bought it, because most of the time the reason they thought it was 30k instead of 50k is they just weren’t considering a lot of the things that were gonna be done. This happens to a lot of renovators too, including me, by the way – we’re just not detailed enough and we miss a lot of things.

So once we get buy-in on that, on what the house is worth and how much I’m gonna put into it, I literally have a computer, I pull a deal analyzer out, the standard one – we all have our own deal analyzer, a little tool that works – and I just show them the math. I’m like “Look, I’m making money; obviously, you know why I’m here. I’m not gonna try to hide that. I don’t make a lot. I make a small amount, because I do a lot of value… And here’s what I’m making,  by the way. If you were doing an investment like this, Joe, you’d wanna make about that, wouldn’t you?” And I get 100% yes on that, every single time… So now I’ve gotten buy-in that it’s okay for me to make money, so at this point it’s really been working well…

Now, this is a process, by the way, but when I do this, 100% — I won’t get yes’es every time, because that’s impossible, and no one can create that, but what I get is I get a lot more people who are bought in, and even if it’s a no and they just need more, or for whatever reason they’re just not gonna take this now, I always get the “Hey, I see the numbers, I really appreciate you sharing those with me. We just need more.” And now we can start a dialogue around numbers, math, and how I might be able to help.

If they’re at 130k and I’m at 100k, it might be “Hey, listen, if you really need 130k, I’d be willing to put it under contract and present it to my investors, and see if I can find one willing to pay 130k.” This is usually how I back into a wholesale, but it’s very transparent and honest. It’s not “Hey, I’m gonna buy it”, and then lie to them, and come back later, and fight with them… This way I’m leaving the door open to come back later and have a conversation. They’re usually very willing to do that, as long as they get their 130k.

And then 30 days later, if I couldn’t find someone to buy it for that number – because there’s a lot of people that have different investment criteria than me. So I might find someone willing to pay 135k for it. If I do, I’m just gonna sell it and make 5k, call it a day. I did a great service for them, got them a great number, makes me feel good… Great way of doing business, in my opinion.

If however everyone’s coming in at 110k and I can’t get anyone above the number or closer to the number, I’ve left the door open to come back and have a conversation. “Hey, I got all my investors through… Here’s where they’re coming out with.” 30 days later it’s usually a very different story, because now they know that I’ve went out and worked hard for them, that I’ve put a lot of effort in getting that number for them, and it just isn’t gonna happen.

This is what I call staying in the inner circle, because a lot of times we make offers, it doesn’t work out, we just send them out to the world… We know a wholesaler is gonna put them under contract, or an agent is gonna list it for them… My belief is stay in the inner circle with them, so that way if 30 days later they are gonna take a little bit less, I wanna be the guy there. So it does require a little bit more work, but I get a lot of deals done because of it.

Joe Fairless: And how do you stay in the inner circle?

Michael Green: I stay in the inner circle by either getting it for the price that makes sense for me, or tying it up for a price that’s higher, but being very upfront and honest that I’m only gonna be presenting it to investors to see if I can get them that higher number. And they’re usually more than willing to do that, because it’s no cost to them, there’s no risk to them. It literally is just me going out, seeing if I can get another investor to pay more.

Joe Fairless: You go into the conversation very prepared then…

Michael Green: Yes.

Joe Fairless: And the conversation you just mentioned – and educate me on if it’s one conversation or many… First off, is it one conversation or is it usually many conversations?

Michael Green: We’re getting into a lot like deep stuff, obviously…

Joe Fairless: I’m talking about when you present to them the comps and the renovation cost, and you show them the math. That part. Is that a phone call, or is that multiple conversations, phone calls and in-person?

Michael Green: Two ways to decide that – I have a way of rating the prospect. The prospect is anywhere from one star to five stars. If they’re four or five-star prospects, they usually have a sense of urgency. So if they have a sense of urgency, I’m gonna go there prepared to present to them and try to close the deal. We usually book three hours for that appointment. I’ll come there prepared with comps, prepared with a renovation budget that I can do on my computer, right in front of them, and a deal analyzer I can pop up, and I can do it all in real-time right there. In ten minutes or so I can run these numbers.

I come there prepared to do business, because I know if I don’t, someone else might get them under contract, because they’re highly motivated.

If they’re a one to three-star prospect, then the timing would be incorrect to present to them. They might need a few weeks to make  a decision. Then I would intentionally stall it out a little bit, before I presented the numbers to them.

So I would break it into a two-part series, where I go and build rapport, spend time, look at the house, and then schedule a second appointment, and I would be very slow about it if I knew it needed to be slow. “Hey, how about we talk in 7 to 10 days. You need about two weeks anyhow to get this and this together. We can meet then and I’ll present all the numbers to you and make you an offer.” I’m doing that intentionally, because I don’t wanna present now and then they just sit on the offer for two weeks, and then give the whole world an opportunity to just one-up my offer, and potentially lose that offer. So that’s usually how I do it… It’s depending on how hot the prospect is.

Joe Fairless: Last question and then I’ll ask you the question I ask everyone on the show – how do you determine the difference between a three and a four-star when you rate the person?

Michael Green: How I rate people is if somebody is willing to talk to me on the phone and share information, that’s a star. If somebody is willing to be friendly and conversational, that’s a star for me. If they’re selling their house in the next 30 to 90 days, that’s a star. It’s a really big star, by the way. If they know what they want, it’s pretty big to me, meaning they know they’re gonna sell their house 100%, and there’s no plan B. “We’re not gonna potentially stay if we can’t get a number. I am selling this house, I just wanna get the best number for it.”

And then the last piece  is if I know that they need me and they would like me to help them. So if they’re really “Mike, we’d like to have an offer from you.” If all five of those things happen, that’s a five-star. If you start taking a couple of these things off and only got two or three our of five, then that’s a three-star. When we start to get to four out of five, you really have a hot prospect, someone who’s really checking a lot of the boxes. I generally just try to get in front of those people. I don’t qualify them like crazy  on the phone. If they’re only hitting about one or two stars, I dig deeper and I try to get those stars up. If someone they don’t get up, then that’s gonna be a really bad use of my time, to spend three hours with that person.

Joe Fairless: What’s your best real estate investing advice ever?

Michael Green: Best advice ever is just take everything to the next level. When it comes to doing sales and negotiation, and really trying to get deals done, we often are just minimizing things instead of maximizing. So let’s take as much time… Treat it like you can make 30k-40k on this deal if you renovate it. A lot of times we go out and we’re treating it as if it’s just an appointment for an hour, but it really represents the potential to make 30k-40k, so treat it as that.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Michael Green: I’m ready, man.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:21:44].19] to [00:22:27].03]

Joe Fairless: Okay, best ever book you’ve recently read?

Michael Green: Best ever book is Start With No, Jim Camp. I’m loving that book, I’m reading it for the second time now. It states and says that all of us are so afraid of getting rejected and getting a no that it’s really important to just go ahead and start with no. A lot of people will qualify and come back. So it’s pretty different than the way I believed, but when I was reading it, it made a lot of sense, and it’s been really impactful to my business.

Joe Fairless: A mistake you’ve made on a transaction.

Michael Green: A mistake I’ve made on a transaction – probably my biggest loss I’ve ever taken in flipping was a 55k loss. I bought a house with well and septic, and I got a very loose opinion that the well and septic was good; come to find out it was not good. And not only did it cost — normally, it’s about 20k-30k, but we ran in a lot of problems with it and it ended up being about a 50k-60k problem. So really doing more due diligence with things that are out of your control, like well and septic.

Joe Fairless: What was the role for the person you asked about it, who ended up not being right?

Michael Green: It was actually a well and septic guy,  and he came out and said “Hey, it’s all good. You need like 5k in repairs.” So we were like “Cool, 5k. No big deal.” Well, we go to pull the permits and the county disagrees and says “No, you need to do this… And not only it’s not Perc-ing, so you have to go from a normal septic system to a holding tank”, which really decreases your value, because somebody asks to pay money to pump it out every couple months, and it’s just very undesirable. So that was number one.

Number two part of that was the well ended up not yielding like he thought, and we had to draw a hole for a new well. That hole didn’t hit water, so we had to drill a second hole at 7k. Five holes total, it ended up being 28k later… So I now try not to buy well and septic, because it’s not needed where I’m at… But if I do, I make sure that I pull permits and everything before I settle, just to make sure I know what I’m doing.

Joe Fairless: [laughs] What’s the best ever deal you’ve done?

Michael Green: The best ever deal I did was about nine months ago. I bought a house about a mile from DC. We’re very close to DC and Maryland. It was in a really rough neighborhood; I was definitely not sure about this one. Actually, in the middle of the renovation a guy just came and walked in the house, and  locked himself in the bathroom and started smoking crack. My guys called me and said “What do I do?” and I’m like “I don’t know. Hopefully he’ll leave. If he didn’t leave in 20 minutes, call the police.” He did eventually leave, and I was just completely weirded out by this house, thinking “What did we get into?” I come to find out a big lesson for me was this was a very desirable neighborhood, because it was on the Maryland side of DC, and DC is highly expensive… This was still a very affordable place, so we ended up selling this house for 289k list price, and we got about 15 offers, so we got up to almost 60k over list. So it ended being about 105k net profit after my hard money fees and all that… In a house where someone walked in and smoked crack in the bathroom, so who would have guessed…?

So yes, it was a bad neighborhood, but it was a highly desirable bad neighborhood, apparently…

Joe Fairless: It might have been a good luck charm. Maybe take him to all the houses to christen them before you flip them.

Michael Green: I have a different perspective on it now, for sure.

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

Michael Green: Best way I love to give back is last year I did an emotional intelligence training at this place called ChoiceCenter, and it’s been really big. I like to give back to people in our industry. Everything we do is about giving back, and for me it’s been — anyone who reaches out and says they wanna have lunch, they wanna do a quick call with me, I literally jump on the phone. I make time every week for the last year just to talk to people that are aspiring to get into the business, struggle in the business… And it’s just been a lot of fun doing that. I’m very connected to the community, and it’s just been a great way for me to give back.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Michael Green: You can reach me at the TheFlipFactor.net, that’s my website.

Joe Fairless: Well, then I will make sure that is in the show notes. Michael, thank you for being on the show and discussing with us how to find private sellers, and also how to negotiate with them, and how to close more deals by building rapport, having true empathy… You said at the very end of our conversation that you took a class or a course on emotional intelligence training… I’m gonna look that up. You said Choice Center? Being a good listener, and then knowing how to combine that with business, and how you’re closing twice as many leads when you do visit with them through those techniques… And it’s almost not giving them justice when I call them techniques, because really it’s just an approach; it’s just how you interact with people. I feel like technique makes it sound gimmicky, which it’s not, and I appreciate you sharing your process. It was very valuable information, especially for those who are doing wholesaling and fixing and flipping… But even those who are doing apartment investing and bringing in private capital to deals, this is certainly some things to take away.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

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JF1914: From House Flipping To Mobile Buying To Mobile Home Park Investing with Andrew Keel

Andrew is here to add some value that we don’t get a lot of on this show. We cover a lot of investing areas, but mobile home parks are not a common subject. That changes today and Joe and Andrew dive into his investing story and then get into specifics on a couple of mobile home park deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“When buying a mobile home park, due diligence is very, very important” – Andrew Keel

 

Andrew Keel Real Estate Background:

 


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Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Andrew Keel. How are you doing, Andrew?

Andrew Keel: Good, thanks for having me on the show.

Joe Fairless: My pleasure, and looking forward to our conversation. A little bit about Andrew – he’s a mobile home park investor and has been one since 2015. He owns and operates 971 lots in 16 parks across seven states. He’s based in Orlando, Florida. With that being said, Andrew, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Andrew Keel: Yeah, definitely. I started out actually rehabbing and flipping houses down in the Orlando Florida area. I also was wholesaling… Eventually, through my marketing efforts, I came across a couple of mobile homes that were very cheap, and I didn’t really know what to do with them, because they didn’t have a deed. They were a lot different, because they were personal property, kind of like a vehicle; they have a title. So I ended up doing some research and on YouTube I found a guy by the name of Lonnie Scruggs, who wrote this book called Deals on Wheels, which I highly  recommend, and I ended up reading. It just talks about buying mobile homes, and selling them on contract, and creating mailbox money.

I ended up buying about 19 of those individual mobile homes, selling them on contract, and then through the process I met a couple park owners. One of them told me the real wealth is built through owning the land, not the individual mobile homes. That was like a game-changer for myself, and I instantly just dove in — I went to Frank and Dave’s bootcamp, I went to another mobile home park specific investing bootcamp, and dove in. I was fortunate enough to have the wholesaling background, so I was cold-calling and sending letters at the same time to find motivated sellers. I ended up at the Frank and Dave bootcamp actually meeting some passive investors that wanted to invest in deals. We put some deals together; since then we’ve done five deals together with the guy that I actually met at the bootcamp, and I’ve brought on other JV partners since then, and other private equity partners from doing syndications and so forth.

So it’s been an awesome ride. We’re looking to continue buying properties, larger properties. We just closed a few months ago a five-part portfolio, and we have a couple under contract now, so… Just continuing to grow and acquire more affordable housing units.

Joe Fairless: Where is the five-park portfolio located?

Andrew Keel: That is in LaSalle County, Illinois. It’s about an hour and a half west of Chicago.

Joe Fairless: Tell us about that deal.

Andrew Keel: So that deal – it was a pocket listing through a broker. We ended up doing quite a lot of due diligence on it, and negotiations were very slow. From when we actually went under contract it was March or April, and then it ended up closing in December of 2018… So it was just a long, drawn-out process. The sellers really wanted to go through and vet everything through their attorney, so… It kind of dragged on a little bit, but thank goodness we did. We were able to get a decent concession from the seller after due diligence and doing some research.

I actually moved on-site February, March and April of this year, and through that process we bought and brought in 23 used mobile homes, along with 17 brand new mobile homes. Just a massive infill project, value-add to the max… And now our property is worth about double, so I’m really excited about that property.

Joe Fairless: You’ve given me so many things to ask questions about. Thank you for that. [laughs] Okay, a lot of due diligence you said was done on that… Will you elaborate?

Andrew Keel: Yes. When you’re looking at five parks versus just one, it’s very intensive, because you have to look at the utility infrastructure of each… When buying a mobile home park, due diligence is very, very important. Utility infrastructure specifically can make or break a deal. So some of the properties had private utilities, which means that they would have a well, or a septic that we would be required to maintain… So we did specific inspections through experts in plumbing and electrical in those private utilities to make sure that the infrastructure was intact and was going to last in the future… And if it did need repairs, what was the number that we needed, either as a concession from the seller, or that we would need to budget for to improve it moving forward.

Joe Fairless: Is it ideal to have public infrastructure?

Andrew Keel: 100%. If you can get city water, city sewer, that is the best type of park to buy.

Joe Fairless: Okay.

Andrew Keel: Some of our parks — just because they’re city water, city sewer doesn’t mean that that’s the end-all, because most of the parks are master-metered, meaning there’s just one bill that comes in from the local utility company that charges the park for all of their usage, usually for water and sewer… So then what a lot of park owners should do – if they haven’t already – is sub-meter; put individual meters on all of the homes, and then read those meters on a monthly basis and bill the tenants based off of their usage.

A lot of the mobile home park owners today are mom and pop owners, and they don’t have it sub-metered, and they just include the utilities with lot rent, so that’s a value-add component that we can add immediately when we buy these properties to increase the asset value.

Joe Fairless: So utility infrastructure was one thing that you did… And you said there five different parks. How far away are they?

Andrew Keel: They’re about 20 minutes apart from each other. Two of them are very close together… But they were a good distance apart, so when we would set out — when I was on location, I’d literally be hopping from park to park every day, and it made for long days.

Joe Fairless: What’s the smallest lot and what’s the biggest lot of the five?

Andrew Keel: The smallest one had 31 lots, and the largest had 78.

Joe Fairless: So what were some unique things that you came across from a due diligence standpoint that you wouldn’t normally come across if they were just all in one location?

Andrew Keel: That’s a great question. One of the items is — we’ll go back to the private utilities, because that’s where most of our headaches come from…

Joe Fairless: Okay.

Andrew Keel: One of the properties that was probably in the best city in terms of demand and size and employers – it had both private utilities; it had well and septic. So that just – for a lack of better terms – opens up a can of worms… Because you’re now charging people — we go in and sub-meter that park, because it wasn’t metered… So now we’re charging people for their water usage to basically cover our costs to run both the well and the septic… And the septic system was an aging system (we knew that going in), and we had three different excavations/septic expert companies come out and inspect this system… And one of them told us we had a 50/50 chance at surviving and lasting another 5-10 years, and then the other two said it was completely fine.

So with that information we had to make an educated decision on negotiating with the seller as to that septic system. We basically got the seller to guarantee the system for a period of 12 months, and if it failed during that 12 months, they agreed to pay a certain amount of money to help with either a new septic system we would have to install, or connecting the city sewer, which is by far the best bet.

Unfortunately enough, the septic system went bad in the spring, when we have the high water table… Luckily, we did have that guarantee–

Joe Fairless: Unfortunate for them, but really fortunate for you, I imagine…

Andrew Keel: It is, and we’re in process now, working with engineers to get it hooked up to city sewer, which is by far gonna be a way better situation… But yeah, that’s just the kind of stuff that we have to deal with. Actually, all of the other parks have public water and sewer, so that right there makes it a good deal. That was the only one that was kind of a headache.

Joe Fairless: How much does it cost to get it hooked up to public?

Andrew Keel: It really depends on the distance away from where the current main line is. In this situation it’s gonna cost roughly $200,000.

Joe Fairless: My eyes got really big. You can’t see me, but… [laughter]

Andrew Keel: Yeah, it’s a big ticket item.

Joe Fairless: How much did you buy the portfolio for?

Andrew Keel: We bought the portfolio for 3.2.

Joe Fairless: Okay.

Andrew Keel: It makes sense. Even if we would have paid that extra 200k, the purchase price made sense. We’re purchasing these at a 10%-11% cap, so the returns were there, it was just — mainly the project management of now having to oversee that is the painstaking process… But on the other end of this, the property will be worth maybe 8% or 9% because now it has that connection.

Joe Fairless: Right. And you mentioned earlier that you got concessions from the seller, so clearly that was one thing where you had that contingency… Anything else?

Andrew Keel: Some of the electrical… We always inspect the electrical in these parks, and a lot of these parks were built in the ’70s, so they have older electrical infrastructure… And a couple of the parks actually had electrical issues, that weren’t immediate — it wasn’t like “Oh my goodness, they don’t have power”, but they were rusted meterbanks and things like that, that needed to be addressed to help us out. So they agreed, they had an electrician that was going to take care of all of that before closing… And that unfortunately didn’t happen, so we had to put some money in escrow at closing and oversee that project to make sure that it got finished… Which it did, it just took a little bit longer than we would have liked.

Joe Fairless: And you moved on-site for three months… Tell us about that.

Andrew Keel: Yeah, my wife is by far — she’s fantastic.

Joe Fairless: Very understanding.

Andrew Keel: Very understanding, very flexible, and she gets what we’re building, so I’m so thankful to have her in my life. Her and my two-year-old daughter moved up to Ottawa, Illinois, and we rented a little Airbnb up there, a nice little spot… And they moved up with me, and I was working on the parks day in and day out.

The main thing – when we purchased the property, there was poor management in place. There was one manager overseeing all five parks, and it was kind of like chaos. Every day you would talk to her there was some new fire that she was putting out… So we ended up putting a new on-site manager at every property. That instantly gave us eyes and ears in each of the five properties, and helped with our communication of what was going on inside of those locations. That helped tremendously.

Joe Fairless: What are some benefits from a bottom line P&L standpoint that you saw as a result of being there for those three months?

Andrew Keel: Yeah, the toughest part in this business in terms of creating value is gonna be bringing in new homes and used homes, and also renovating existing homes that for whatever reason are not occupied, and in some sort of disrepair. Because unlike traditional multifamily and other asset classes, you can hire a general contractor that’s licensed, insured, and has been doing this and has a track record of doing these construction projects… However, when you’re renovating mobile homes and doing work on mobile homes  you get a different quality contractor, and they require more babysitting, quite frankly. And with that, if you’re on site, you can save yourself money, compared to being a thousand miles away and trying to make a decision off of photos or walkthrough videos.

So we’ve been burned and learned from that experience, and found out that it’s just so important to be on-site. We saved thousands of dollars being able to point out, “Hey, you did replace the glass in this window, and you can send me a picture showing me you did that, but if I didn’t walk through after you did that, I wouldn’t have noticed all of the broken glass that’s now laying on the ground… Just laying there. You sent me a picture of the window and it looks good”, right? Normally, people would just send out a check. But since I can go now to that property, I can see the glass laying on the ground and making the property look worse. A little kid can come and cut themselves. So that’s the kind of stuff that we’ve found being on-site really helps us out with.

Joe Fairless: You’ve mentioned bringing in used homes and new homes are one of the hardest parts… Will you elaborate on what you’re talking about?

Andrew Keel: Sure. When you’re bringing in used homes – I’ll start there, because I started out, my background as a [unintelligible [00:13:54].22] helps me where I can access used homes very quickly. If you talk to anybody in the mobile home park space, they’ll tell you that used home inventory is very small, and they have trouble finding used homes to fill vacant lots. So with that, I actually find several used homes in a given week through different avenues, and I used technology to do so, and have different marketing  tactics to be able to do that… So that’s a process in and of itself, to find the used homes.

Then you have to hire a transporter to go tear it down, put axles on it, put the hitch on it, get it moved into the park… And then you have to hire an installer to then block-level, tie down, put skirting on it, steps… And then you also have to get all the utilities hooked up – electrical, plumbing, gas if there is that… So it’s a multi-stage process, and as with any project management, there’s gonna be some time involved with that, and being on site is very helpful in that aspect.

Bringing in new homes – there’s HUD laws per each state with new homes, of how the site prep needs to be set up, meaning the lot… If we need to pour concrete down below the frost line – that’s something that needs to be done prior to the home even being brought in… There’s just different regulations that HUD requires for brand new homes, so making sure you have an experienced transporter and installer to install the homes is very important, otherwise you can have brand new homes just sitting there, not occupied because they haven’t passed inspection… And obviously, that’s just a waste of time and money.

So having all  those things happen at once, in a period of three months, was a little ambitious, I’ll be honest. We’re still working on some of those projects, but overall occupancy and demand for these mobile homes is so off the chart that we’re definitely profitable, so that’s great.

Joe Fairless: What are some common reasons why homes don’t pass inspection?

Andrew Keel: Number one – this is for new homes – the grading of the ground has to be so that water doesn’t sit underneath of the homes. Even though there’s skirting around it, if water can sit under there, that’s a reason the inspector doesn’t like it. It can attract mosquitoes, attract moisture, which then would rot out the sub-floor… So you have to have proper grading, and you also have to have the concrete runners that meet the local code, which would depend on the depth of the frost line. In Illinois we had to go 48 inches deep with concrete runners, so that when it does freeze and thaw it’s not going to adjust the level of the home. So those are just a couple reasons…

Joe Fairless: What’s a project you’ve lost money on?

Andrew Keel: Projects I’ve lost money on…

Joe Fairless: Or maybe the most money. Let’s go with that – which ones have you lost the most money on.

Andrew Keel: Lost the most money on… We’ve been very fortunate in the mobile home park space where we’ve bought some off-market properties, so thank God we haven’t lost money in the mobile home park space… However, when I was a home flipper in Central Florida here I bought into a property, I paid too much for it, and I was able to sell and not make all of my money back. I think I lost about 4k-5k on that property… I paid too much for it going in, took a chance, and ended up losing a bit of money there. And you don’t account for the time that you lost as well, of getting that property ready.

So yeah, it was 4k, but really that was 3-4 months of work that also went into that, so it was quite a bit more than that.

Joe Fairless: How are you finding off-market mobile home parks?

Andrew Keel: We start out cold-calling…

Joe Fairless: How do you know who to cold-call?

Andrew Keel: Cold-calling – it’s pretty simple; you can type in “mobile home parks” into Google, into a certain search criteria, based on a certain area, and then you just basically call off of the Google Places numbers. A lot of the times you’ll reach managers, and you have to somehow strategically get them to present your information to the seller…

Joe Fairless: How do you do that?

Andrew Keel: I try to just build rapport with them, and kind of get them to like me, kind of prove that I’m not just joking around, or a joker-broker kind of thing… I try to build rapport, and then if they don’t wanna give out the owner’s information – which is ideal if they will – then I will sometimes mail a letter to the tax assessor address on file for the owner, after I talk to the manager. I mail them a letter to where they get their tax bill and say “Hey, I’m interested in buying the property. If you’re interested in selling, please give me a call. If not now, sometime in the future.” We’ve had success with that.

Joe Fairless: How do you transition the conversation when you call the mobile home park, from “Hi, my name is Andrew” to “What is the owner’s contact information, so I can reach out to him/her?”

Andrew Keel: Yeah, that’s a great question. Usually, when I call I try to downplay it and just say “Hey, this is Andrew. My wife Katie and I are interested in buying this mobile home park. We’re looking to get into the business and we like this area, and we like the size of this property. Would you be interested in selling?” And I ask the manager. I assume that they’re the owner.

Joe Fairless: Right, yeah.

Andrew Keel: And then they say “Oh, no, I’m not the owner. I’m the manager.” I say, “Oh, I apologize.” And then I just kind of talk in and say “Oh, well, how long have you been managing the park? What do you think about the business?” I just try to get them talking… And after a little while, they kind of elaborate and tell me about the owner a little bit, about how long they’ve owned it, if they own any other properties, what other business avenues they own, if local – because a lot of these parks are owned by local mom and pops that have other business ventures… One time they said “Oh yeah, he owns a car dealership, and this and that, but I can’t give you his phone number.” So I ended up calling the only car dealership and I got a hold of him… So there’s just ways to kind of get around.

Joe Fairless: Yeah, very resourceful. Your wholesaling days served you well, I imagine, in that regard.

Andrew Keel: They definitely did, yeah. You’ve gotta keep going deeper. The deeper you go, the more you’ll find.

Joe Fairless: Huh. Taking a step back, based on your experience, what’s your best real estate investing advice ever?

Andrew Keel: My best real estate investing advice would be to go bigger faster, and to raise money faster. A lot of investors start out with their own money, and when they run out of money, they stop and they don’t look at continuing to acquire real estate. A good friend of mine – he has a nice little savings account, but he won’t put any of his money in deals… And he only raises money for all of the real estate that he purchases. There’s many different operators and ways of doing it, but I would just encourage people that your friends, family, potential investors out there – you’re doing  them a disservice by not allowing them  to invest with you, because the rate of return that they’re gonna get with you potentially could be a lot higher than any other program, or annuity, or CD that they could ever invest in.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Andrew Keel: Let’s do it.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:20:42].11] to [00:21:40].00]

Joe Fairless: Best ever way you manage properties in seven different states, in terms of a process? What’s a best ever process that you use?

Andrew Keel: I would say we use a software called Slack; it’s our messaging software. Every single on-site manager is in their own channel, based on that property… And instead of phone calls, we make the managers communicate with us through Slack. That way, everything is in a nice, concise, little blurb, instead of talking with managers. Sometimes you’ll find that you’ll be on the phone for an hour when you only needed 30 seconds to get an answer… So that’s one process that I’ve implemented that has worked tremendously for us.

Joe Fairless: What about the reverse of that, where if you just jump on a phone call and you can get through it in five minutes, versus going back and forth on chat for 15?

Andrew Keel: To be honest, usually what happens when we hop on the phone is we end up talking about her sister’s brother who got in a motorcycle accident, and broke his leg… You’d be surprised, man. The conversations go on and on and on. So in Slack, there’s nothing really very complex that we discuss. It’s “Hey, did lot 29 pay?” It’s more like a yes and no type of thing, so… We don’t really have a lot of back-and-forth, I guess is what I’m saying.

Joe Fairless: Fair enough. What’s the best ever deal you’ve done?

Andrew Keel: The best ever deal I’ve done… I was able to secure seller financing on a property that I won in Ohio, and was able to secure 75% loan-to-value, 5% fixed. We have a 20-year note… And the property, when we purchased it, had like 40 tenants. We’ve been able to increase that just by implementing some marketing and some other strategies. Now we have 64 tenants… So that’s my best ever deal.

Joe Fairless: Best ever way you like to give back to the community?

Andrew Keel: Best ever way to give back to the community… I’m pretty active in church, so I give back through that. We also have an angel program my wife and I donate to for kids in the Dominican Republic.

Joe Fairless: Best ever way the listeners can learn more about what you’ve got going on?

Andrew Keel: Check out KeelTeam.com, my website. Always looking for new investors and partners. Even if you’re interested in the mobile home park business and you’d just like more information, I’d be happy to chat with you. You can go on my website and set up a free consult.

Joe Fairless: I enjoyed our conversation, I learned a lot… From ways new mobile homes wouldn’t pass inspections, or common things for why they don’t pass inspection – you talked about the grading of the ground – to getting your hands dirty and living in the area of something you closed on, and what you were doing to help the P&L statement… And then also the private versus public utilities and how much that could cost to actually connect into public… So – lots of stuff we talked about; I’m grateful that you were on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Andrew Keel: Awesome.  Thank you so much for having me, Joe.

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JF1861: How To Raise $1 Million To Fund A Fix And Flip Business with Rocco Montana

Rocco left his sales job that was leaving him unfulfilled and underpaid. Real estate investing was what he wanted to do, and now he is a successful real estate investor, syndicating deals and flipping houses. We’ll hear a lot about how he was able to raise over $1 million to fund his flips. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:
“Be grateful for how far you’ve come” – Rocco Montana

 

Rocco Montana Real Estate Background:

  • Created a multifaceted real estate business from scratch in just over 2 years
  • He is an active realtor, AirBnB Superhost, house flipper, and multifamily investor
  • Raised over $1 million in private capital to fund his flips in his first year
  • Based in Boulder, CO
  • Say hi to him at https://www.jrocproperties.com/
  • Best Ever Book: Never Split the Difference 

 


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TRANSCRIPTION

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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff; we hate that fluffy stuff, so we don’t get into it.

With us today, Rocco Montana. How are you doing, Rocco?

Rocco Montana: I’m doing good, Joe. Thanks for having me.

Joe Fairless: Well, it’s my pleasure, and looking forward to our conversation. A little bit about Rocco – he has created a multifaceted real estate business from scratch in just over two years. He and his wife are active investors. He is an active realtor, he is an Airbnb superhost, he is a house flipper and he is a multifamily investor. Raised over a million dollars in private capital to fund his flips in the first year. Based in Boulder, Colorado. With that being said, Rocco, will you give the Best Ever listeners a little bit more about your background and your current focus?

Rocco Montana: Yeah, absolutely. My wife and I are both active realtors. I had success in a variety of different sales roles, different industries over a few years, and got kind of tired of working hard and making everybody else money, and getting a really small piece of the pie, and figured I’d make a bigger pie and take small pieces. That’s kind of what drove me into real estate, and multifamily is the future for me as well.

I can’t do any of this without my wife. She has a master’s degree, actually; she’s managed eight-figure budgets for a private university, she worked for DU for a while, and hundreds of employees… She’s kind of the operations, I’m a little bit more of the face. She’s kind of like my right arm, I couldn’t do anything without her.

We both come from sales, we met in a sales job together, and… Yeah, Airbnb was kind of our start, and I got licensed, she got licensed, we’re passive investors, we’re gonna syndicate our first deal this year to GPs, and… Yeah. Where do you wanna go from there?

Joe Fairless: Well, I’d like to know how you raised a million dollars in private capital to fund your flips in the first year.

Rocco Montana: That’s a great question, and I’m happy to share… I’m gonna write a book at some point when I build up a little bit more experience, and it’s gonna be something along the lines of creating success or creating your business one beer and coffee at a time. It really just comes from networking. My wife and I invested in a coaching program…

Joe Fairless: Which one?

Rocco Montana: Fortune Builders.

Joe Fairless: Okay.

Rocco Montana: [unintelligible [00:04:25].15] do wholesaling, then do flipping, and then do buy and hold. And that helped me get in front of a lot of people. Then I created a meetup based here in Boulder. Actually, some of you might know who Adam Adams is. He created the Real Estate Lunch Club of Denver. I run the Creative Real Estate Lunch Club of Boulder, and honestly, most of it came from there. My family was not my first investor, but I’ve got my family on board now, so that helps… And yeah, the meetups, and getting out there.

It was so hard for me to believe even investing in something like Fortune Builders and meeting other successful people of varying degrees and varying asset classes in real estate… “Where do you find your deals, where do you find your capital?”, and they all say networking. It’s underrated, and I think a lot of people are doing it wrong. There’s not always an intention. They refer to it as edutainment. You take these classes, you go to these groups, you invest in these programs, and you’re having fun and you’re learning, but are you actually executing? Having an intention with networking, knowing who you’re looking to meet, researching the group that you’re going to see, the people that are gonna be there and having an intention and goal…

I heard an interesting statistic not too long ago from one of the coaches I was working with – 95% of people never make a follow-up call after a meetup.

Joe Fairless: I believe it.

Rocco Montana: All these business cards you hand out or receive… If you actually schedule a coffee or schedule a phone call, you’re in the overwhelming minority.

Joe Fairless: Yeah, it’s pathetic, but I believe that it’s true… Which is good — and pathetic, because people should do it, but it’s good because people who do do it, surprisingly, they stand out. They shouldn’t, but they do, because most people don’t do that… So yeah, I’m glad that you mentioned that. It’s the small things that can help.

Let’s get into a little bit of the specifics of that million dollars in your first year though. I hear you on you joined Fortune Builders, you co-host a meetup, you’re intentional when you are attending places to know what you’re looking for, but now let’s talk about the actual million dollars within your first year. How many people approximately did that comprise of?

Rocco Montana: Honestly, a surprisingly few amount. It’s only about four.

Joe Fairless: Four people, okay. So on average 250k, or was one person 900k and the others were a smaller amount?

Rocco Montana: I’ve got one person over 500k, and the other three comprised the other 500k.

Joe Fairless: Okay, cool. So you’ve got one person at over 500k, and – the other three over 100k each?

Rocco Montana: One is about 200k, and the other two 150k.

Joe Fairless: Someone invested a good chunk, you’ve got another person investing about 200k-250k, and then you’ve got two others that are doing about 150k. Alright. So how did you meet that person who has invested over 500k?

Rocco Montana: It’s kind of the little things, like we said earlier, Joe… I tapped somebody on the shoulder, I was working with a hard money lender for a  flip, and the timeline didn’t work out, even though the hard money lenders can close fast… I needed a little bit faster or I was gonna lose the deal. I already had earnest money up… And I tapped them on the shoulder after they were in my meetup for about a year. We built a relationship, a little bit personally, but mostly meeting once a week. This year we’re doing once a month or twice a month in Denver and Boulder meetup… And she had faith in me and gave me an opportunity.

In that first deal she went first position, took up the whole loan, purchase price and repairs, for 280k, and now she’s in four other projects with us.

Joe Fairless: So you approached her when you had a deal and the timeline wasn’t working out with the other hard money lender? Did I hear that right?

Rocco Montana: Yeah, so I clarify the difference between a hard and a private money lender as the hard money lender is like an asset-based lender, that’s typically a fund or something like that, private equity funds that focus on fix and flip real estate… And the private money lender is exactly that – a private individual. The hard money lender – I was pre-approved, I had worked with them, and I was kind of ready to go with my first big flip. I did a small flip, a little [unintelligible [00:08:38].27] I actually lent personally on it, with a little experience from the lender side as well… And I just reached out and they were like “Yeah, we can’t really quite move that fast.” I thought they could.

I tapped this woman on the shoulder, who was becoming a close friend of ours as well, which had been part of our business, and she said “Yeah, I’ll help you out. You can secure me with a lien and a promissory note.” The return sounded awesome – double-digit annualized returns, backed by insured, hard assets…

Joe Fairless: So path A wasn’t working, path B ended up working… You said you had known her for a year… How did you initially meet her?

Rocco Montana: Through the meetup that I was hosting.

Joe Fairless: So you were hosting a meetup for how long? At least a year, I guess… Prior to you doing this first big flip.

Rocco Montana: January 18th I started my meetup, and tapped this lender on the shoulder in July or August. This was a weekly meetup, she was a regular attendee. She manages a small portfolio of condo rentals in Boulder, and she was looking for more passive opportunities. She had been self-managing so many units, and it was a lot of work, she was kind of doing 30, 60, 90-day rentals because they have short-term rental regulations in Boulder and Denver, so she couldn’t give the nightly stuff… And it was a lot of work. She had some capital, and she took a chance.

My sales experience definitely helps in negotiations, and being able to communicate with people and articulate your point, and a value proposition… Stuff guys like you and I do all the time in raising capital or meeting new partners. She was into it.

Joe Fairless: And in January when you started your meetup, did you start it as a result of something else taking place, to give you the idea to start it?

Rocco Montana: So Adam Adams, who is a multifamily syndicator himself, based out of Denver, started the Creative Real Estate Lunch Club of Denver, and he wanted to expand it to other places. We know that Boulder is a pretty affluent area, and it was a fairly affluent city as well, and he said “Well, why don’t you take lead and host a Boulder chapter, if you will?” He was doing every week on Thursdays through 2016 and 2017 – or maybe just 2017 even – and then in 2018 I started in Boulder, another guy started in Fort Collins, and they tried to start one in Colorado Springs… Today it’s just Denver and Boulder that still exist.

Joe Fairless: Okay, so you’re holding strong, and you have seen the benefits of doing it… So I’m glad that we dug in there. What value did you see for starting that meetup in Boulder, that perhaps others did not?

Rocco Montana: The value we see is providing value to others, and meeting other people. It’s like a two-way street, right? We provide value first, create something that brings people together… Our format was a different speaker for every week. All the different sorts of real estate. No sales pitches, no “Sign up for my consulting program”, no “Buy my book.” Just “I’m a specialist in 1031 exchanges. We’re gonna talk about that for 40 minutes.” “I’m a specialist in multifamily syndication. We’re gonna talk about that.” “I flip” etc.

We did that, and it brought people together to talk about real estate, people that are interested in real estate. And then the other side is I knew by providing value first, that in some way, shape or form, even with not a clearly defined goal  at the time, I would receive value in return. It’s karma, if you will, and you can call me a Boulder hippie if you will, but it’s just karma, and putting good energy out there and helping other people and bringing people together. That comes back twofold, and it has, in a short time.

Joe Fairless: Segueing to something else, unrelated – you’re an Airbnb superhost… How much Airbnb stuff do you do right now?

Rocco Montana: We have two properties. We listed six different listings with just two properties. That could definitely be a fairly long conversation in itself. It is mildly passive. We airbnb our condo in Boulder. Sometimes my wife and I literally sleep on our couch and rent out our two bedrooms. Another thing that people think we’re nuts, but it’s temporary and it’s helping us get to our other goals, and it just generates enough revenue that it’s worth it. And we have a nice couch in front of the fireplace… [laughs]

So we’ve been doing that for about 2,5 maybe 3 years now, over about 500 guests, 260 stays, maintaining that superhost rating, so we’re in the top tier of feedback… And we got into that because we did Uber/Lyft for a little while, while starting out, just being young, newly married business owners… It was difficult to just keep food on the table, especially because real estate has a bit of a longer sales cycle, as you know and most of the Best Ever listeners would know. It’s not a weekly paycheck, like the 9-to-5 deals. And there wasn’t a lot of value in it, dollars versus time.

Airbnb really gaining popularity about three years ago, we figured we’d try with one bedroom, then we’d try it with two bedrooms, then we actually put our whole house on Instant Book, after we had purchased another property… That was actually a bad partnership, and we bought a partner out and ended up keeping the asset. It was supposed to be a buy and hold, like a BRRRR method; we were gonna buy it, renovate it, refinance it, rent it, repeat. It didn’t work out so well with the partner. We bought it… It was in a floodplain, after the fact; standard rent wasn’t really gonna cover it, long-term rent [unintelligible [00:14:17].03] so now we airbnb that house as well, which – in our experience, Airbnb brings in 1,5x-2x what long-term rent does.

Joe Fairless: In terms of profits or in terms of income?

Rocco Montana: Gross income. Gross income is typically 1,5x to 2x for short-term than it is for long-term rentals. I wish I could cite where I’m getting some of the data from… But there’s less wear and tear on short-term rentals. People show up, they shower, they shave, they sleep, and they go out. Especially in Boulder and Denver.

We learned the hard way, through a certain price point; [unintelligible [00:14:54].08] come to Colorado to smoke weed and sit on your couch. [laughs] It can’t go less than $50/night, or you’re gonna get that clientele. [laughter] More than $50/night per bedroom, people come that go out to dinner, they go to a show, they go to a conference, they go to CU, their kids are there,  a graduation, a show in town… It’s endless, the amount of stuff to do in Boulder and Denver.

Joe Fairless: And then they come sleep on your couch?

Rocco Montana: No, they sleep in bedrooms. My wife and I sleep on our queen-size pull-out couch.

Joe Fairless: Oh, got it. You two sleep on your couch, and they sleep in your bedrooms. And you said you had six listings with two properties. Help me with that math.

Rocco Montana: Yeah, so we have the whole house listing in Boulder, and then we have two individual bedroom listings. So either you get a private bedroom in a shared house, or you get a private two-bedroom condo. And then the other property has three bedrooms. We actually keep one bedroom for ourselves, so we do a lot more sleeping in that bedroom now than on the couch… So we have two separate bedrooms there that we rent out, plus the whole house listing.

So two houses, at least two bedrooms for rent, could actually be six listings – as individual bedrooms or as whole house listings. The calendars sync up, so if one’s blocked, you can’t get the other one etc.

Joe Fairless: Let’s go back to the million dollars in the first year of flipping. We talked about the first person… What about the second person, who brought about 250k or so? How did you meet him/her?

Rocco Montana: The second person was actually a family; a successful investor in their own right. They created a business, did really well, we showed them that we were executing on the bigger vision. We actually approached the family first, when we first started. We invested in Fortune Builders, and… Some people hear the term “friends, family and fools”, so we started off–

Joe Fairless: [laughs] I’ve never heard that before.

Rocco Montana: Oh  yeah, you start off with friends and family, and they’re like “Yeah, that sounds really great. Show us something.” And it’s like “Well, I’ve invested in this education program”, and pamphlets, and brochures, and… The sort of blue-sky thinking, if you will. “Oh, it’ll work out.” And once we started to do deals, then a family member was like “Cool, I’m there for you.” Obviously, they get a rate of return, just like any other private investor, so it’s mutually beneficial.

Joe Fairless: What’s something that has gone wrong in your path so far, in the last couple of years in real estate?

Rocco Montana: Something that has gone wrong is I let a small amount of earnest money go hard, and lost if, because I had enough information to be dangerous, but not enough to complete the execution. Part of it might have been fear at the time. So one of my first deals I lost my earnest money on a single-family house.

Joe Fairless: How much?

Rocco Montana: $2,500. But when you’re starting out and you’ve only got so many resources… My wife and I were still both working full-time, and it hurt. But we got through it, because we also did a wholesale in the same day and made 16k. So we didn’t feel it as bad.

Airbnb – we had our first negative experience with guests about two months ago. They really trashed the whole room. We had to replace linens, pillows, carpet even, the mattress we threw away… I don’t know what they were doing, but Airbnb covered almost all of it, which was really cool… Which not everybody can say.

Joe Fairless: Were you staying there with them at the time?

Rocco Montana: We were staying there, they were in the bedroom, we smelled something funny… It definitely wasn’t marijuana. We addressed it, we tried to not be judgmental of the people based on [unintelligible [00:18:20].29] It was a last-minute booking; we don’t get a lot of them… I’m talking like same day… We have a cut-off at 9 PM. So you can book at [8:50]. “Hey, I’ll be there in ten minutes.”

And our success came from being a little loose in the beginning with the guidelines, and letting people come in. Now we’ve tightened it up a little bit, and we haven’t seen any lack of business, because we have great reviews and a great experience.

Yeah, they trashed the whole room, and I don’t know what they were doing. And it was a bit of a nightmare, because it’s our primary residence in Boulder where we live, and it was just like “Oh, my gosh…” We had other bookings, and we just kind of grit our teeth and bear it… Being in flipping, we were able to get the carpet replaced in 12 hours. We made a phone call and  a guy showed up with four samples, and ripped out the carpet and redid it.

We own a design company, Jmix Design – my wife and a girlfriend of hers started that. It helps with staging and design in our flips, and as retail brokers, as real estate agents, which is kind of our day-to-day stuff, it puts food on the table today, while we build our long-term future in multifamily and flipping and all that. But that was pretty crazy.

Joe Fairless: What’s your best real estate investing advice ever?

Rocco Montana: It might be life advice, but gratitude, hard work and patience is something my wife Jami and I live by. Everything stems from “Be grateful for how far you’ve come. Put in the work to get to your next level, and then have patience to let it all play out.” Gratitude, hard work and patience is what we live by.

Joe Fairless: I like it. I think that is a wonderful recipe, in my humble opinion. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Rocco Montana: I am ready.

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

Break: [00:20:02].13]

Joe Fairless: Okay, best ever book you’ve recently read?

Rocco Montana: Never Split the Difference, by Chris Voss, about the strategy of negotiation, and a lot of psychology around it. A former hostage negotiator with the FBI wrote this book. Again, Chris Voss. He’s got great stuff on YouTube, and I believe he’s in a TED talk… Fantastic book on negotiation.

Joe Fairless: Yeah, he’s been a guest on this show as well. Best Ever listeners, you can just search “Chris Voss Joe Fairless” and you can listen to that interview. What’s a mistake you’ve made on a transaction that we haven’t talked about already?

Rocco Montana: Being too personal almost. Not wanting to give bad feedback to a client because of fear of their reaction… And I think we could have served that client better by being a little bit more direct. It’s a deal we actually never fully executed on. It was a listing, we were selling a property for somebody; they were in a difficult situation, and I was more concerned with the emotion, as opposed to just being like “Hey, we’re professionals, this is what we do. This is their experience, and this is the next step to get to success based on your wants and needs.” We didn’t handle that appropriately.

Joe Fairless: What’s the best ever deal you’ve done?

Rocco Montana: Best ever deal I have done is marrying my wife, Jami. [laughs] Punching outside my weight class, as they say; she’s just a phenomenal woman and business partner and friend… But I’ve got a kind of little bit of a shameless plug for the love of my wife there.

Joe Fairless: Speaking of wives, mine – as you probably saw – was coming in and out. She was wonderful enough to make me lunch, so… She did not know we were doing video. [laughter] If you can rewind it, anyone watching on YouTube, you’ll see her expression as soon as she realizes we’re doing video and she was not aware of that.

Best ever way you like to give back to the community?

Rocco Montana: My wife and I are CASA advocates. That’s the Court Appointed Special Advocate program. It’s in a lot of counties, a lot of states; I don’t know how big it is… But we are the only non-biased, one case-focused advocates for children who are victims of abuse and neglect. So as you’re 18 years old, the judge here in Boulder county likes to have a CASA appointed. I’m like  a therapist, or a lawyer, or a case worker for a social services person.

We’re not trying to fit these kids in a box. We just meet with them a on a minimum of once a month; my wife and I pride ourselves on more than that… We figure out what their needs are at a human level. We only get one case at a time, and then they report back to the court. Kind of like a mentoring program, guidance, if you will… But we’re really passionate about helping out our community.

I’ve got some family that had some issues with drug abuse, and we don’t need to get into that, but it’s a really personal way for us to give back. My wife loves it, I love it, and we just like to help other people.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Rocco Montana: JROCProperties.com. Jami and Rocco. You can also reach me directly; I’ll give you my cell phone even – 908-420-4052. I would love to talk to any of you about investing, real estate, life, whatever… Networking and small things make such a big difference, like I said.

Joe Fairless: Well, Rocco, thank you for being on the show, talking about your journey, talking about  how you got into it, and over the last couple of years how for the year one you raised a million bucks. How you did that – well, you started a meetup, started to add a whole lot of value to people on a weekly basis… I think there’s a key there – it’s not only that you started a meetup with a friend of yours (an extension of a friend of yours, of Adam Adams), but you did it weekly. And then when you had an opportunity – and really a challenge, but then also an opportunity – for someone to partner with you, you had the network already built, and you simply offered an opportunity where it was mutually beneficial.

And now, fast-forward the year after that – ish, if I’m getting the timeline correct – she’s brought over 500k to your deals, and you have other investors who have as well, so I know that’s important to talk about… As well as interesting stuff about Airbnb. I did not think about the shorter-term rentals have less wear and tear than longer-term, and I agree with that. I know you talked about the horror story with people doing meth, or crack cocaine, or whatever the heck they were smoking… It wasn’t pot, apparently, according to  you… But I agree – short-term rentals probably would have less wear and tear, and I never thought about that. I think it’s counter-intuitive, so I’m glad that you mentioned that.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Rocco Montana: Thanks, Joe.

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JF1824: Doing 18 Deals In 18 Months with Dave Dubeau

Many new real estate investors, and even seasoned ones, would love to do 18 deals in 18 months. We’ll hear how Dave was able to do exactly that in this episode. We’ll also hear how Dave helps other investors raise capital.  If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Start with your sphere of influence” – Dave Dubeau

 

Dave Dubeau Real Estate Background:

  • Real estate investor, best selling author and a trainer and consultant
  • Began his real estate investing career in 2003 doing 18 deals in 18 months
  • Has done rent-to-own deals and now invests in apartment buildings
  • Helps real estate entrepreneurs grow their portfolios
  • Based in British Columbia, Canada
  • Say hi to him at https://davedubeau.com
  • Best Ever Book: Dream 100 Book by Dana Derricks

 


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


TRANSCRIPTION

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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Dave Dubeau. How are you doing, Dave?

Dave Dubeau: I’m doing awesome, Joe. Thanks for  having me on the podcast.

Joe Fairless: Yes, my pleasure, and looking forward to our conversation. A little bit about Dave – he’s a real estate investor, he’s an author, a trainer and consultant. He began his real estate career in 2003, doing 18 deals in 18 months. He has done rent-to-own deals, and now invests in apartment buildings. He is based in British Columbia, Canada.

With that being said, Dave, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dave Dubeau: Yeah, so my background is I’ve been self-employed since early 20s. Marketing is my main interest, so I’m a marketer first and a real estate investor second. I got into real estate investing after living overseas for about 14 years. So I kind of started from scratch, and got into the creative, wonky, no-money/low-money down type deals. Those were those 18 deals in 18 months… Which might sound kind of impressive, but if I had understood the power of using other people’s money, I would have been a lot further ahead.

Fast-forward a few years, I got into rent-to-own kind of deals, focusing on what I call tenant-first properties. I had some pretty good success with that, until the market kind of turned around. Then most recently, starting about 2013, I started focusing more on multifamily properties.

My main thing, Joe, in addition to real estate investing, is helping mom and pop real estate investors attract money partners, attract investors, and raise capital. That’s really what it’s all about.

Joe Fairless: Okay. Let’s talk about 2013 and on. You said you’ve been focused on multifamily properties. What have you purchased?

Dave Dubeau: Well, right now the biggest deal is two buildings, actually, outside of Ottawa, Ontario, and I also have three sixplexes myself as well.

Joe Fairless: Okay. That 54-unit – are you the only partner on that deal?

Dave Dubeau: No, I’ve got joint venture partners on those deals. On all of the deals.

Joe Fairless: Okay, cool. Let’s talk about it. When did you buy the 54-unit?

Dave Dubeau: That was in 2013.

Joe Fairless: And what was the purchase price?

Dave Dubeau: The purchase price was 4.9 million.

Joe Fairless: Alright. And what’s the business plan, and can you talk to us a little bit about how much you are investing into that business plan, and how that’s gone?

Dave Dubeau: The investing plan is we’re actually looking at divesting ourselves of that property right now. The local market in that area has appreciated more than we thought it would, and it looks like it’s a pretty good time to divest… So we’re in the process of that.

We have a  buyer on board that we’re just in the process of seeing if he can get qualified for financing for that property… So yeah, basically we’re looking at getting out of that one.

Joe Fairless: Okay. So what are you selling it for?

Dave Dubeau: I believe we’re gonna be selling that for 6.5 I believe is what we’re gonna be getting for that.

Joe Fairless: Okay, and then what was your role in this whole deal?

Dave Dubeau: What I do, Joe, is I partner up with people that are smarter than I am, and better at dealing with the tenants and the toilets, and all that kind of stuff. I take an equity position in the properties and I help raise capital to buy the deals.

Joe Fairless: Okay. How much equity was raised for this purchase?

Dave Dubeau: That was approximately $800,000.

Joe Fairless: And when you bring capital and partner up with people, what is the equity ownership that you typically receive for doing so?

Dave Dubeau: Well, it depends on the size of the deal. For that one it was 15%. For other deals – it really depends on the size and how many partners I bring on board.

Joe Fairless: And was the $800,000 all of the equity required to close the transaction?

Dave Dubeau: It was, yes.

Joe Fairless: Okay. And $800,000 divided by 4.9… That’s only 16% of the purchase price. That surprises me that it’s so low. Was it owner financing?

Dave Dubeau: It wasn’t, actually. It was just very good financing at the time. The active partner that I’m partnered up with in that deal has a pretty significant portfolio and a very good relationship with the lender that we used.

Joe Fairless: Okay, so it was a local lender… What was the business plan for that deal?

Dave Dubeau: The business plan was to hold on to it for five years and then refinance, and ideally pull out a good chunk of the investors’ initial investment, and then keep holding on to it. However, after reevaluating the property, it looks like it’s probably a better idea to divest, because the price is right, plus we’re looking at some probable capital improvements that have to happen over the next few years, so we’ve decided as a group we’d rather sell.

Joe Fairless: Sure, okay. Yeah, sell before you have to invest in those cap-ex projects.

Dave Dubeau: Yeah. We already had to replace an elevator, and that was pricey.

Joe Fairless: Okay… How much was that?

Dave Dubeau: I think that was $120,000.

Joe Fairless: $120,000 to replace an elevator.

Dave Dubeau: I believe so, yes.

Joe Fairless: Dang… Okay.

Dave Dubeau: Everything’s a little more expensive up here.

Joe Fairless: [laughs] Right. Well, in terms of the business plan, just so I’m understanding it, did you all do anything to the properties, to the units? Any renovations, any cap ex projects, starting out?

Dave Dubeau: Nothing big. These properties were in pretty good shape. They were more 55+ focused for the tenant profile, so… No, they were in good shape. We did have to replace one boiler, as well as the elevator, which we already knew about ahead of time, so that was already contemplated… Other than that it’s been just the normal stuff.

Joe Fairless: Okay, cool. And then you mentioned — did I hear you say three fourplexes?

Dave Dubeau: Sixplexes, yeah.

Joe Fairless: Three sixplexes.

Dave Dubeau: Yeah. These are interesting. These are in a different area of Canada, kind of a slightly different business model. These properties we’re focusing on furnished rentals. Short-term rentals – not Airbnb short-term rentals, but 3 to 6-month type situations. It’s almost like an aparthotel concept. In order to crank up the cashflow on these properties, we actually rent out the properties by the room.

Joe Fairless: Okay. And you say “we”, so you mentioned you have business partners on all your deals…

Dave Dubeau: I have. Again, the smarter guy that’s actually running the business – that’s my partner. He’s got a lot of experience with that, as well as a pretty significant portfolio focused almost exclusively on the whole medium term furnished rental.

Joe Fairless: Okay. And did you buy these three sixplexes all at once?

Dave Dubeau: No, one of these sixplexes I’ve had in my portfolio for quite some time. The other two – he actually got kind of a  bulk deal direct with the seller; the seller had built these when times were good. Times went bad pretty quickly after he built them, so he’d been sitting on these properties, underperforming… So we were able to get in with owner-financing. Not complete owner-financing, but definitely some vendor take-back to make the deal work a lot better. No realtors involved, just drumming up business himself.

Joe Fairless: Sure. With the purchase of these three sixplexes, you have a business partner; is the equity to purchase the properties – I know you said some were owner financing, but was the equity required your money, or did you bring it from other partners?

Dave Dubeau: A bit of both. I had put some of my own money into one of these properties and brought on investor partners for the others.

Joe Fairless: And how do you structure that?

Dave Dubeau: Well, we structure this as a joint venture, and it depends on how much equity is brought in by the individual investor. I believe the minimum is a 10% equity stake in the property, and moving up from there depending on how much they put in.

Joe Fairless: So it sounds like one sixplex came first, and then you closed on these other transactions, correct?

Dave Dubeau: Actually, he got into both of these sixplexes with hard money lenders, and is now replacing those funds with investor partners.

Joe Fairless: Okay, but in terms of the sequence of when you purchased these properties, how did that flow?

Dave Dubeau: It flowed that it was — I believe he bought two of them at one time, and then within the next six months or so he bought the other two.

Joe Fairless: And where does the 54-unit fit on that timeline?

Dave Dubeau: It doesn’t. That’s a completely different deal, completely different partner.

Joe Fairless: Right, but I’m just talking about your portfolio; so when on your timeline of purchasing property was the 54-unit compared to these three sixplexes?

Dave Dubeau: This was a couple years prior.

Joe Fairless: Okay. So the 54-unit came first?

Dave Dubeau: That’s for sure, yes.

Joe Fairless: Oh, cool. Okay. So was that $800,000 the first time you’d raised capital for a deal?

Dave Dubeau: No, I was raising capital when I was doing rent-to-own deals, from 2010 to 2012 or so, and then transitioned into the multifamily property.

Joe Fairless: Cool. The $800,000, looking at the investors who invested in that property, how much did the investor who invested the most invest?

Dave Dubeau: I believe it was 350k or 400k.

Joe Fairless: And how did you come across meeting that particular investor? Obviously, I’m not looking for any names or anything, but just trying to learn how you met them.

Dave Dubeau: Yeah, well I’ve been in the marketing and in the education business for some time, so this particular investor – I’d known her for quite some time; she’d been following me… Kind of like what you do with your podcast, I had done different things with paid membership programs, different kinds of things like that. I do a pretty good job of staying in touch with people that are on my contact list… So over time she just was watching what I was doing, and when I made this opportunity available, she reached out and she was very interested.

Joe Fairless: Okay, so it was just through marketing efforts; you weren’t able to pinpoint exactly which one, but just the holistic approach of marketing, and she was on some list of yours that when you sent out this opportunity to the list, she replied.

Dave Dubeau: Yeah. And the way I do is I really wanna focus on people that I’ve got a pre-existing – either personal or business – relationship with. This person had already done business with me on something different.

Joe Fairless: Okay. So you’ve got the 54-unit, you’ve got the three sixplexes – what’s something that’s gone wrong?

Dave Dubeau: What’s something that’s gone wrong… One of these sixplexes is not part of that portfolio with that partner. So the one that’s gone wrong has been a property that was inherited – one sixplex that’s part of my portfolio – and just long-distance management hassles… Having the challenges of inheriting a property, and the emotional luggage that comes along with promises made on deathbeds to my father that left us the property. So dealing with my brother on this, dealing with my father’s dying wishes about the property… All this kind of stuff has made a pretty messy and not a great investment.

Joe Fairless: What advice would you give someone who comes across a similar scenario that you had?

Dave Dubeau: Like the inheritance type thing?

Joe Fairless: Yeah…

Dave Dubeau: I think you’ve gotta look at it more objectively and try and take the emotion out of it. Because again, that’s what’s really been the hang-up – trying to follow our father’s dying wishes. But basically – long story short – it’s driving the value of the property down and making it more difficult to sell once we do sell.

Bottom line, he made us promise to keep his buddy on board as the property manager until he wanted to move on or he kicked off. And we kind of thought that was gonna happen sooner rather than later [unintelligible [00:14:02].15] so he just keeps holding on and holding on… [laughter]

Joe Fairless: Oh, man… Yeah, that’s a tough one. What are you gonna do?

Dave Dubeau: We’re going to basically bribe him to move out and sell the property with owner financing. We’re gonna give him a free place to stay for a while, and then bribe him to move on.

Joe Fairless: That sounds like a very fair solution.

Dave Dubeau: Yeah. It’s only taken about nine years to… [laughter]

Joe Fairless: Oh, my…

Dave Dubeau: But it’s all good. It’s part of the learning process. But it gets back to not letting the emotions override logic, I guess would be the short way to put that.

Joe Fairless: What project are you most proud of?

Dave Dubeau: You know what – this 54-unit deal I’m pretty proud of, because our investors are super-happy; it’s been a completely handsfree investment for them. My partner on the deal is doing just an amazing job on it… And actually, it’s one of those situations where you’re very easily able to underpromise and overdeliver. We’ve blown the projections off the roof with what we were telling our investors they’d be getting. It looks like they’re gonna probably be getting at least (by the time the smoke clears) about 50% more than they expected.

Joe Fairless: You purchased that six years ago… How come you haven’t been purchasing more since then?

Dave Dubeau: Well, that’s a good question. My main focus has been more on the marketing side of things, and I’ve just really decided to kick things back into gear. The partner I was partnered with on that is getting to the age where he’s starting to divest and sell off, and to be perfectly frank, my whole goal, Joe, was to partner up with other people that are actively doing this, and not be the active partner myself. I’ve found one of my clients, one of my students who is very successful at what he’s doing, and just within the last year (actually within the last six months) I’ve partnered up with him. Since then, we’ve purchased these two sixplexes… So I’m kicking it back into gear right now.

Joe Fairless: And when you are structuring partnerships and when you’re bringing capital to transactions, what type of tips would you give someone who hasn’t done it already?

Dave Dubeau: As far as finding investors, or structuring the deal?

Joe Fairless: As far as finding investors.

Dave Dubeau: That’s a good question, Joe. My typical people that I’m helping are mom and pops that are just starting to look for investors, looking to work with other people’s money. They’ve hit the wall when it comes to their own cash or credit… And what I always suggest is start with your sphere of influence. Start with the people who you already have that pre-existing relationship with. They know you, they like you, they may or may not trust you with their money yet, but at least we’ve got our foot in the door. Does that make sense?

Joe Fairless: Yup.

Dave Dubeau: Especially up here in Canada, we’ve got these things called securities commissions – the trade commission down in the States – and you have to be very careful about who you’re raising capital from, especially if you’re doing smaller deals and you’re not jumping through all the regulatory hoops. Always start with the folks that you have a pre-existing relationship with.

And then what I do a little bit differently, Joe, is I encourage people to reach out to me instead of me chasing after them. In other words, I apply marketing to finding investors and raising capital, and I try to avoid at all costs the so-called “common sense” advice of dialing for dollars, or turning every conversation into a real estate conversation, or being just that person that’s always networking and schmoozing. What I’d rather do is create curiosity, get people to reach out to me, put up their hand and say “Hey, you know what – I’m interested. Tell me more about the deal”, and then that conversation just makes things so much simpler.

Joe Fairless: What are some tips to  having investors who you’re looking to potentially partner up with reach out to you, versus you reach out to them?

Dave Dubeau: Well, the first tip is to avoid the biggest dumbass mistake I made when I first started this, which was just kind of blasting everybody cold with  a version of “Hey, it’s Dave. I’ve got a great deal, are you interested?” That really didn’t go over well, and in 20/20 hindsight  I see why it didn’t.

What I think you really need to do is you need to break the ice with people on a non-business topic first, and then start talking business after that. What I suggest, Joe, is people warm up their contacts; first of all, I highly recommend that you target in on a couple hundred people. Create a list of prospective investors, and then focus all of your attention on them. I always encourage people, let’s come up with a list of 100, 150, 200 people that you have a pre-existing relationship with, then start things off by having a warmup, or breaking the ice with them. There’s a couple different ways you can do that, Joe. One is we send out a quick little email which is kind of a catch-up email; saying something like “This is Dave. Chances are it’s been a while since we’ve been in touch. I thought I’d try something different and just reach out to  you, let you know what I’ve been up to”, and then just do kind of a brief synopsis of what you and the family have been up to for the last 3-5 years. Then at the end of the email you say “Well, that’s what I’ve been doing… But how about you? Please hit Reply, let me know what you’re doing. I’d really love to hear back from you.”

You send that out, and then as soon as people start replying to you, make sure you have a little bit of back and forth with them. Three or four days after that, I highly recommend that people send out a second version of that, but this time a little video message… Just because video is so much more personal. So they click on the link, they watch your video, they see you, they hear you, they see your expression, and again, the call-to-action is for them to reply to the email and just catch up. And then you catch up with them.

Then the third message is what I call your transition message, which is now where you give them the heads up that you’re gonna start changing the conversation, talking a little bit more about what you’re up to with real estate, and then inviting them to reach out for more information if they’d like to find out more. Does that make sense?

Joe Fairless: It does make sense. With the initial email, has there ever been complaints about it being disingenuous, because they kind of see through that you’re randomly reaching out to them after 3-5 years, or you haven’t really sent an email like that ever before, and then they see that you have that transitioning message where you talk more about the real estate stuff?

Dave Dubeau: Not very much, and I haven’t figured out a better way to do it. I’ll give you an example of what the transition — because the transition message is really important. So I’d say something like “Hey, it’s David. It’s been really good reconnecting with you over the last week or so. Moving ahead, I wanna do a better job of staying in touch with you, and letting you know what I’m up to with real estate investing. It’s something that I’ve been doing really well with; I think it’s the best way for regular people like you and I to get a really good, solid return on our money, backed by a tangible asset that’s real property. And then who knows, maybe sometime in the future you might even wanna partner with me and share in the profits on a deal. But if you’re not interested in real estate, that’s okay too. You can always click on the Unsubscribe button at the bottom of any of my emails. You’ll be taken off my list immediately, no hard feelings. In the meantime, if you haven’t had a chance, please get back to me and I’d love to catch up.”

And then we send that out. So we do give them the heads up, and we let them know that we’re gonna be switching gears. A lot of people are freaked out that 80% of the folks who get the email are gonna opt out… And what we’ve found, Joe, is actually very few people opt out. Once in a while you might get somebody who’s a little bit snitty, but not very often. It is very rare.

Joe Fairless: Sure. What type of email service do you use to send these emails out?

Dave Dubeau: I recommend one called GetResponse. There’s lots of them out there; MailChimp, GetReponse, Constant Contact… These are all email autoresponder systems.

Joe Fairless: And why do you like GetResponse?

Dave Dubeau: I like GetResponse just because they’ve got good customer service. A lot of people like to go with the MailChimp, because it’s free, but you get what you pay for. GetResponse I’ve found works pretty well, and the deliverability is good, too.

Joe Fairless: Based on your experience as a real estate investor, what’s your best real estate investing advice ever?

Dave Dubeau: Focus is the best advice ever. Focus on exactly what kind of real estate investor you wanna do and where you wanna do it. Invest in training or coaching or mentoring to get the education; it’s either that, or work for somebody for free. Don’t try and figure this stuff out on your own. It’s such a waste of time. So get the education, get the training that you need, and then if you’re nervous about it, partner up with somebody who’s doing what you wanna do, and partner with them on a deal or two before you jump in with your own two feet.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Dave Dubeau: Let’s give it a shot!

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:23:11].01] to [00:23:50].29]

Joe Fairless: Best ever book you’ve recently read?

Dave Dubeau: The Dream 100 Book. Dana Derricks.

Joe Fairless: What’s the best ever deal you’ve done?

Dave Dubeau: I’d say probably that 54-unit apartment building.

Joe Fairless: What’s a mistake you’ve made on a transaction, that we haven’t talked about already?

Dave Dubeau: A mistake I’ve made on a transaction… That’d be kind of like the worst deal ever, because it probably goes hand in hand.

Joe Fairless: Sure.

Dave Dubeau: Yeah… Worst deal ever was a rent-to-own deal I did years ago, where the whole strategy was a big flawed. I was basically buying houses for people and then turning around and rent-to-owning it to them over the next 2-3 years. Well, I got the absolute worst tenant buyer into a house because I’d heard about some tricky strategy to help them get the money they needed for the deposit. So the worst mistake ever was not making sure that the person had skin in the game. It turned into a disaster. I had to evict them… $18,000 worth of damages done to the property… I sat on it for like six months before I could get it turned around. And then the market went down too, so I had to rent it out for another 5-6 years before I could actually sell it. So… That one sucked. [laughter]

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

Dave Dubeau: You know, I’ve done some stuff with local homeless folks, and I’ve done a lttle bit of work overseas with some organizations in Nicaragua… But that’s a good question, Joe, and a good kick in the butt that I need to do more.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Dave Dubeau: Well, if they’re interested in attracting investors and raising capital for their deals, InvestorAttractionBook.com. They can get a free eBook version of my Money Partner Formula book, which goes through the whole five-step process.

Joe Fairless: Dave, thank you so much for being on the show, talking about the 54-unit, how you got the equity for it, the business plan, the $120,000 elevator, and the sixplexes, as well as the joint venture structure that you used to purchase the sixplexes. I really enjoyed our conversation.

I hope you have a best ever day, and we’ll talk to you again soon.

Dave Dubeau: Thanks a lot, Joe. Likewise.

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JF1819: He Just Quit His Full Time Job To Be A Full Time Real Estate Investor with Sean Pan

Sean is joining us today to share his real estate investing story. We’ll hear how he acquired his first deal, how he evaluates his flips, and ultimately how he was able to scale his own real estate investing business to a level that sustains his lifestyle and he was able to quit his full time job! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“I lost so much money on a deal that I ended up in Bloomberg magazine” – Sean Pan

 

Sean Pan Real Estate Background:

  • Real estate investor located in the Bay Area
  • Started his real estate investing career by buying a small portfolio of cash flowing rentals in Jacksonville, Florida and has since completed 5 flips in the Bay Area
  • Based in San Francisco, CA
  • Say hi to him at seanpanrealtyATgmail.com or www.everythingrei.com
  • Best Ever Book: Best Ever Apartment Syndication Book by Joe Fairless

 


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


TRANSCRIPTION

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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Sean Pan. How are you doing, Sean?

Sean Pan: How’s it going, Joe? Thanks a lot for having me on your show today.

Joe Fairless: Well, it’s going well, and you’re welcome. I’m looking forward to our conversation. A little bit about Sean – he’s a real estate investor located in the Bay Area. He started his real estate investing career by buying a small portfolio of cash-flowing rentals in Jacksonville, Florida, all across the country. And since he has completed five flips in his backyard, in the Bay Area. With that being said, Sean, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Sean Pan: Absolutely. Thanks again. My name is Sean Pan, I started as an engineer over in Los Angeles, making satellites for the government. I just realized over some time that this isn’t where I wanted to be 30 years down the road, and I wanted to find a way to get that financial freedom and be able to do things that I wanted to do. And that’s how I stumbled into real estate investing, and that’s how I stumbled into purchasing cash-flowing properties over in Jacksonville, Florida, and then later on I moved over up to the Bay Area. The Bay Area is a little bit different. People here are more interested in flipping homes. And just by hanging around so many flippers, I became a flipper myself.

Joe Fairless: Did you have a full-time job when you bought that portfolio in Jacksonville?

Sean Pan: Exactly right. I had a full-time job, I was saving money…

Joe Fairless: Do you still have it, or are you doing this full-time now?

Sean Pan: Actually, I just put my two weeks in…

Joe Fairless: Alright, congratulations!

Sean Pan: Yeah, thank you so much.

Joe Fairless: Wow! Alright, so you had your full-time job when you found the cash-flowing properties in Jacksonville, and then I interrupted you. Sorry, I just wanted to ask you… So please, continue.

Sean Pan: So then  I started hanging out with a lot of flippers in the Bay Area, going to a lot of the meetup groups in the area, and learning how to flip properties, and that’s just how I got into flipping houses.

Joe Fairless: Okay. Let’s rewind a little bit to the Jacksonville portfolio. When I say portfolio, I’m just repeating what I see in the show notes. What exactly did you purchase?

Sean Pan: Right now I have two single-family homes and one fourplex.

Joe Fairless: Okay, so two singles, one fourplex – six  total units. What was the total purchase price?

Sean Pan: Oh, geez. First one was about $80,000, the second one was an auction home, so $40,000 on that one; we’ve put another 15k to rehab that one. And then the last one was a fourplex we bought for about 250k.

Joe Fairless: Okay, so 250k fourplex, and 80k, and what was the other one?

Sean Pan: 40k.

Joe Fairless: 80k and 40k. One was from an auction?

Sean Pan: Yeah.

Joe Fairless: So you bought them separate times then.

Sean Pan: Exactly. It’s a portfolio that I bought over time.

Joe Fairless: Okay, cool. Auction – that was your second purchase?

Sean Pan: You know how it goes, when you buy the first one, you just want another deal…

Joe Fairless: Right, of course.

Sean Pan: So I bought my first one and I was like “Alright, this is pretty good.”

Joe Fairless: The $80,000 one?

Sean Pan: Exactly. I was like “It’s pretty good.” I bought it for 80k and it rents for $900. About the 1% rule, so… Good enough. My friend said he had a connect who actually worked on Auction.com, and he has a list of what the banks actually want for a property… So even though something says $60,000 as the estimate, they know that banks only want 40k, so I was like “Alright.” I put in a bid at 40k and we got it.

Joe Fairless: Okay. What did you do with the property once you purchased it, in terms of renovations and renting it out, or costs, the rent price, all that stuff?

Sean Pan: My property manager – he’s a god-sent. He took care of everything, basically. He went in there, it was a wreck. There was someone living there, a squatter. Luckily, we were able to do cash for keys. He just got six crisp $50 and just kind of wafted it in her face, like “You want these? Get out.” So she did, she got out for only $300, so we got pretty lucky there.

A $15,000 remodel in Jacksonville goes a very long way. We rehabbed it and we were able to rent it for $850.

Joe Fairless: Good for you. So all-in 55k, and… Six $50 bills? Did I hear that right? So $300. So all-in $55,300. And you are renting it for $800?

Sean Pan: Yeah, $850.

Joe Fairless: $850, sorry. I didn’t mean to short-change you on that. Okay. And then you bought a fourplex.

Sean Pan: Then I bought a fourplex.

Joe Fairless: How long ago was this?

Sean Pan: This was about two years ago.

Joe Fairless: Only two years ago? Alright. What were the numbers on the fourplex? You said you bought it for 250k. What about rehab and income that it generates?

Sean Pan: That one was pretty stable already. When I bought it, it was going for about $650/door. After we turned the units, now it’s about $750/door. Again, my property manager is the one that is doing all the work. Of course, we do repairs here and there, but nothing too major on the fourplex.

Joe Fairless: Okay, so you haven’t put substantial money into it for cap ex, or anything. You just bought it for 250k and you’ve been making any improvements from the cashflow of the property.

Sean Pan: Right.

Joe Fairless: Okay. What type of financing did you get on each of the three?

Sean Pan: The first one I wanted to get the deal. It was actually listed for 100k and I said “How can we negotiate down?” So I actually bought it with cash, and then we did delayed financing. So after we closed with cash, then I did a loan to get paid back.

Joe Fairless: Okay.

Sean Pan: The second one was a pure cash play.

Joe Fairless: Sure, yeah.

Sean Pan: The third one was traditional financing. For multifamily it was 25% down.

Joe Fairless: Okay. Have you since put a loan on that $40,000 auction house?

Sean Pan: I was going to, but then I got too lazy. And it cash-flows good enough, so it’s just there.

Joe Fairless: Yeah, I hear ya. So you’re in San Francisco, these properties are in Jacksonville. How did you end up in Jacksonville?

Sean Pan: I’ve been going to all these real estate meetup groups, and consistently Jacksonville hit those top ten “Best markets to invest in”. All of the other ten, I was like “I’m not sure about the weather here, I don’t know about snow, I don’t know about tornados…” And I thought, “Oh, Florida. It’s sunny, hurricanes aren’t that common”, and of course, after I bought them, Irma hits, and the other one recently hit as well… But luckily, none of my stuff got affected.

Joe Fairless: What type of expenses do you have on the properties, in terms of anything that is higher than what would be in other areas, to the best of your knowledge? For example insurance, or property management fees. You said your manager is really good. Can you just talk  a little bit about that?

Sean Pan: Sure. I’m not gonna lie, I’m pretty sure I’m paying more for my property manager. I’m paying him 10% a month. But it’s worth it. Property management is a  hard job, and at the end of the day, what’s 10% of a couple thousand dollars, right? Versus 8% that some people get.

Insurance is definitely higher because of the hurricane risk. It’s about $1,000 per door.

Joe Fairless: Okay. When you take a look at your portfolio in Jacksonville, you are cash-flowing, and it’s making you some money. Why did you decide not to continue to build that out in Jacksonville, and instead focus your efforts on San Francisco flips?

Sean Pan: I’m sure everyone has the same story, where they love buying rentals, but after a certain point they run out of capital. So what do you do after that?

Joe Fairless: Yeah, details… Right.

Sean Pan: You could raise the money, which I had no capability of doing that at the time, because I didn’t know anything about it… So I thought “How can I get more capital?” By hanging around investors here, there are a lot of people that I know personally that are making over seven figures a year flipping homes here in the Bay Area. And just talking to them, learning the strategies, it seemed “Okay, not too bad.” That’s why I focused on that.

Joe Fairless: Let’s talk about the first flip. What are the numbers, and – will you tell us about the project?

Sean Pan: Oh, yeah. The first flip was so interesting, because I spent maybe two years spinning my tires, sending out letters, cold-calling people, and nothing was happening. But it just so happened that I used to volunteer at a meetup group, and my co-meetup volunteer, my friend who sat next to me every time, she had a deal that she couldn’t handle because she had too much on her plate already… And she actually sent it to the other investors who didn’t want it, because I guess the numbers looked tight for them. For me, I knew the area pretty well, I thought it was pretty good, so I jumped in with her. We partnered on the deal.

We bought that one for 865k. 865k for a rehab, which might surprise a lot of your listeners, because to us that’s really cheap, for you guys it’s super-expensive.

We’ve put about 75k into it – complete rehab, changed everything; kitchen, bathrooms… And when we sold it, we sold it for 1.4 million dollars.

Joe Fairless: That’s a big profit.

Sean Pan: Yeah. So we got a huge profit on our very first deal. So here I am, sitting pretty, thinking “Oh, making money is easy.”

Joe Fairless: Well, let’s talk about it. You bought it for 865k, right?

Sean Pan: Yup.

Joe Fairless: And how much did you put into it?

Sean Pan: 75k.

Joe Fairless: 75k. So you’re all-in for less than 950k, and you sold it for 1.4. What were your carrying costs?

Sean Pan: We paid 2.5 points upfront, and I believe it was 9% annualized interest.

Joe Fairless: Do you know what roughly that amount totals up to be?

Sean Pan: I don’t remember the exact details on that one.

Joe Fairless: 50k, 20k, 100k?

Sean Pan: Probably about 30k… Because we held it for only three months.

Joe Fairless: Yeah, so you all killed it on this one.

Sean Pan: Oh yeah.

Joe Fairless: What do you think the difference was between what people at your meetup were seeing and what you saw?

Sean Pan: First of all, the other investors – they get tons of deals that come on their table, so they’re able to cherry-pick the very best ones. And of course, when you’re at the high level, everyone’s super risk-averse, so if they don’t need to take on a deal, they won’t take it. This one I guess just didn’t fit their criteria, and at the time maybe the [unintelligible [00:11:34].28] was a little bit smaller.

We definitely got even luckier, because when we bought it, and to the point where we sold it, the market actually increased about $100,000 in that neighborhood, just because it was so crazy at that time.

Joe Fairless: How did you line up the financing for this one on your very first flip?

Sean Pan: I reached out to my network on Facebook, asking if anyone knew a hard money lender. When you’re brand new and you have no connections, it’s pretty hard to get stuff done. But I was able to connect with a hard money lender down in South California, who worked with me even though it was my first deal.

Joe Fairless: Cool. Alright, so that was the first one. Then out of the five that you’ve done, which one was the least profitable or not profitable?

Sean Pan: You wanna hear some horror stories?

Joe Fairless: Yes, please.

Sean Pan: Alright, here’s some horror stories. Actually, my latest claim to fame is that I lost so much money on a deal that I ended up on Bloomberg Magazine. You may know me as that guy that lost a bunch of money on a  flip.

Joe Fairless: Okay, I haven’t read it, so please elaborate.

Sean Pan: I’ll send you the link later on.

Joe Fairless: Okay.

Sean Pan: Alright, long story short – for people who wanna skip to the end…

Joe Fairless: We don’t need to skip to the end. [unintelligible [00:12:44].15]

Sean Pan: Alright, we’re not gonna skip to the end; I’ll tell you the story. I bought this house in May of 2018. This is the peak of the market last year. This property was two blocks away from Apple’s brand new campus. Beautiful location.

Joe Fairless: Seems like a home run so far.

Sean Pan: Seems like a home run so far. The property was at first listed on the MLS for two million dollars; they contacted us because that house was sitting on the market and no one was buying it. So we went over and we thought “MLS property? There’s no way this is gonna be worthwhile.” But we dug deeper. We saw “Oh, the listing agent is from Turlock”, which is like two and a half hours away from where the property is located, so he wasn’t gonna come over to do open houses. He said “No open houses. If you wanna go inside the house, contact the seller directly.” No one’s gonna do that for a two million dollar house.

Second of all, he took pictures with a very old camera, and they didn’t even stage the property. They were still living there. So all that combined, we thought – okay, this is the reason why it’s not moving. It’s just unattractive because it’s marketed incorrectly.

Down the street there was a home that was being listed for 2.5 million dollars. Our house is a little bit smaller. We thought our ARV could be 2.2-2.3 million dollars. So based on our numbers, we thought “Okay, if we can get it for 1.8 million or lower, that’s a slam dunk right there.

Joe Fairless: Yup.

Sean Pan: So we actually put an offer for 1.7, kind of low-balling for a little bit, and they straight up rejected us. I was reading this book by Chris Voss called Never Split the Difference. Have you heard of that one before?

Joe Fairless: I have, I interviewed him.

Sean Pan: Yeah, great book. So he says that if you wanna negotiate and you want a lower number, use actual numbers. So you don’t end your bid with 000 in the thousands, because that just seems like you pulled that number out of nowhere. So instead we bid 1,747,923. I remember that number because it’s so weird…

Joe Fairless: [laughs]

Sean Pan: And when they got that offer, they looked at it like “What is this number? How did they settle on this number?” And they accepted it. Then the listing agent said “Alright, they accepted it. Write up the offer.” And so right there I was shocked. I was like “Oh my goodness, this guy doesn’t realize that we intended to use him as the buyer’s agent to represent us.” He told me to write the offer, and I have a license but I don’t really practice, so I learned on the spot how to write a contract. And just by doing that, we gained an extra $45,000, because we got 2.5% of that sales price.

Joe Fairless: Okay.

Sean Pan: So we thought we were sitting pretty. We basically got this house that we wanted for 1.8, for about 1.705 all-in.

Joe Fairless: Alright.

Sean Pan: So we thought we were good. There was a house across the street that someone was trying to wholesale for 1.825, that was in a worse condition, and on a smaller lot. Long story short, we thought we were great.

But then we started getting creative; we thought “What if we take down this wall here? What if we make an open kitchen layout?” That involves getting architects, and structural engineers, and more inspectors. All that stuff takes time. So after being delayed and working on this project for months, finally we were ready to go on the market.

Joe Fairless: What did you do that you hadn’t done in previous projects, that took a little bit longer, besides knocking down a wall?

Sean Pan: That’s basically it. We’d never worked with architects before, we didn’t realize that structural engineers could hold you back so long… Just all these serial tasks make it so that you project goes longer that you need it to be.

Joe Fairless: So how long did it take from when you had it under contract to when you were listing it?

Sean Pan: We bought it in  middle of May, and we listed it in the first week of November.

Joe Fairless: Okay.

Sean Pan: We thought we’d be in and out within two months, and here we are 4-5 months later…

Joe Fairless: So a total of 4-5 months…

Sean Pan: Yeah. But the thing about that is that’s when the market turned. See, peak to trough in our area was a 25% drop… From the hot of June 2018 to the low of November 2018. 25% delta. And when we listed the property, that same weekend we had these fires up in Paradise, California.

Joe Fairless: Oh, yeah…

Sean Pan: No one was walking around, or wanna go to open houses. I laughed that I was going to a restaurant with my friend and I was like “How come we don’t have to get a reservation today? It’s great.” So after a while — this house just sat on the market, no one was looking at it…

Joe Fairless: What’s a while?

Sean Pan: Surprisingly, a while was only two weeks.

Joe Fairless: Okay… [laughs]

Sean Pan: In the Bay Area if your property isn’t sold within ten days, then there must be something wrong with it. There’s a stigma to this property now.

Joe Fairless: Alright…

Sean Pan: So people started finding excuses why no one else was bidding on it, and they said “Oh. I noticed this two million dollar property has no garage.” In the Bay Area garages aren’t necessary, and for the most part, people don’t park their cars in the garage. They park their stuff. So that became a big anti-selling point for most people. They said “Oh, I love that house. It’s beautiful, the location is great… Oh, but no garage? Deal-breaker.”

Joe Fairless: Did the one that was — I think you said 2.5… Did that have a garage?

Sean Pan: That one did have a garage. And that  one ended up selling for only 2.3. Again, the market shifted, as well.

Joe Fairless: Okay.

Sean Pan: And don’t get me wrong, this property has parking. This property has a lot of parking, it has a carport, and it has a giant shed in the back. But because of setback laws, we weren’t even able to add a garage if you wanted to.

Joe Fairless: Okay.

Sean Pan: So we were basically stuck.

Joe Fairless: You said it has a carport?

Sean Pan: It has a carport.

Joe Fairless: Can you not enclose that?

Sean Pan: Unfortunately not, because of the setback laws.

Joe Fairless: Oh, alright…

Sean Pan: Yup. So basically it’s an overhang, but there’s no way I can add a wall in there because of setback laws.

Joe Fairless: Okay.

Sean Pan: So we went over the winter break, we just kind of had it on the MLS… We decided to take it down for a whole month, so that we could reset the days on market, to make it seem like it’s a brand new listing…

Joe Fairless: Is that what it takes? You’ve gotta take it down for 30 days in order to do the reset?

Sean Pan: That’s correct.

Joe Fairless: Okay.

Sean Pan: And we put it back on the market and it was still not moving. And this whole time I’m paying holding costs on a 1.7 million dollar hard money loan.

Joe Fairless: Yeah… That’s rough.

Sean Pan: And I was laughing.

Joe Fairless: Especially due to the time of year, too. Because it’s not just a little downturn in San Fran, but I believe you’re in November, December, January at this point in time, which – that’s not exactly peak buying time.

Sean Pan: Yup. Seasonality affected us as well. It just wasn’t moving.

Joe Fairless: What were the holding costs every month?

Sean Pan: For that one property I was paying $11,500, not including staging costs, or utilities, or those beautiful green envelopes called “Supplemental taxes.”

Joe Fairless: So all-in what were you paying a month, would you say?

Sean Pan: I leased 12,5k because of staging, and then supplemental taxes are these beautiful, green envelopes that say “Hey, you owe these extra taxes based on what you’ve bought, and what the previous owner had to pay in taxes.” Those were like $15,000 checks as well.

Joe Fairless: How often?

Sean Pan: Those only happen once or twice. It’s not recurring.

Joe Fairless: Once or twice over 5-6 months?

Sean Pan: Like the year.

Joe Fairless: Oh, wow. Okay.

Sean Pan: Do you know what supplemental taxes are?

Joe Fairless: Educate me.

Sean Pan: Basically, when the previous owner bought the property, he probably bought it 20 years ago for $300,000, so he property tax is based on that $300,000, and based on a [unintelligible [00:19:57].11] that property tax can only increase by about 1% a year. So he was paying a couple thousand a year for his property. But now here I come, new buyer. I buy it for 1.7 million dollars, so now I owe property taxes on that 1.7 number, versus $300,000. So that delta of property taxes – they send you an envelope saying “We need you to pay that difference.” That comes in these green envelopes, and that’s called supplemental taxes.

So I got that one the day of my Thanksgiving party, and I was very unhappy. [laughter] It’s like, “Alright, Sean, another $15,000.” I was like “Damn it…!” [laughter] And don’t get me wrong, I did very well my first flip, I did well in my career and investing in other things, but at this time I was invested in multiple projects at the same time and they were all going south. So it wasn’t just this 11.5k. I was paying 30k total a month, all my holding costs.

I was joking, because I went to Asia and I was hanging out with a friend in Taiwan, and I was asking her about her base salary. And I was like “Oh my god, I’m paying your base salary in holding costs alone every single month… I kind of feel like a boss, it’s pretty cool.”

Joe Fairless: Right. [laughs] So then what happened with the deal.

Sean Pan: It did not move.

Joe Fairless: [laughs]

Sean Pan: We basically held it on the market for five months, from beginning of November until March. It didn’t move, so we had to drop the price significantly, get off the books, and fire-sale it. We eventually got someone who came in and offered us — the best offer we got was $100,000 less than what we even bought it for.

Joe Fairless: Okay… So 1.6…

Sean Pan: We got 1.675.

Joe Fairless: 1.675.

Sean Pan: Yeah. So imagine, a whole year’s worth of holding costs on hard money. All the repair costs that we did, and the purchase price. We basically lost $400,000 on this one project.

Joe Fairless: Was it someone who was moving in, or were they also a real estate investor?

Sean Pan: Oh no, it’s a family.

Joe Fairless: Okay. So it’s their primary residence.

Sean Pan: This is a primary residence. And when we checked up on it a couple weeks later, we saw that they were making even more renovations, so… We were like “Great! Good for them.”

Joe Fairless: [laughs] Well, they had a two million dollar budget, and they were able to get a really good deal, so they had some money invest back into the property.

Sean Pan: If you’re willing to sacrifice a garage – yeah, you can get a great deal in the Bay Area, apparently. And it’s funny, too – so I told my story on Bloomberg Magazine, I got published, it became the number one read article, I got a bunch of people listening to me… A lot of [unintelligible [00:22:32].06] obviously. Like, “Oh, this guy’s stupid.” But whatever, it was fun.

The agent who helped buy that house actually contacted me and now I’m gonna get lunch with him next week. So you might as well get a connection while you’re at it.

Joe Fairless: Right, exactly. What’s done is done. You’ve done five flips; what number was that?

Sean Pan: Number three. Basically, number three and four are losers. Number five – I’m still in it, and it’s probably gonna be a big L as well.

Joe Fairless: Okay. Well, taking a step back now, this is the perfect time for this question, “What’s your best real estate investing advice ever?”

Sean Pan: My best real estate investing advice ever is that real estate investing is a business. I think this is being said very often, but it needs to be taken more seriously. Think about creating Facebook or LinkedIn – you probably don’t do this on the side, or just part-time. If you’re gonna do this seriously, you do this with determination, and you do it with extreme focus. My biggest mistake was that I outsourced too much responsibility. I thought that it was easy based on the experiences on my first flip, where you can rely on the other party to take care of everything. But your money is at risk, so you should be the one making sure that you have everything in line, and make sure everything runs smoothly.

Joe Fairless: And on that deal number three, the main thing was the delay, where instead of two months you’re in and out, it was four to five months, and then you finally listed it. That wasn’t outsourcing the process, but it was incorporating a new part of a process… So was that your idea, to knock down the wall and then try and do a different layout, or was that someone that you spoke to and they were like “Yeah, we should do this” and you’re like “Yeah, sure, let’s roll with it”, and then you just kind of sat back and watched it unfold.

Sean Pan: I take full responsibility for everything that happened. I don’t remember if it was my idea per se to knock down that wall, but once we all agreed on it, we did it. But what I should have done is I should have followed up… Because we had some issues in the middle. Basically, in the plans there was a specific choice that needs to be put down for the foundation, and I guess the foundation width was different than planned… So the inspector said “Get the structural engineer to write this document.” It took that structural engineer about a whole month to do it, because he had his own personal issues going on, he had too much work… That ended up being only three sentences, but that delayed us by a whole month.

Joe Fairless: Oh, my…

Sean Pan: So if I knew about it, if I was there, I could have 1) talked to the structural engineer and say “Hey man, it’s three sentences. I’ll write it for you, you just sign it.” Or 2) I could have found another structural engineer.

Another thing is that I thought I knew a lot, because I was successful, but I didn’t. I thought that not having a garage was no big deal, because I grew up in the Bay Area, in a different city, but we don’t care about garages. But if it’s like a two million dollar home, now they have their nice-looking cars – they probably want a garage. I didn’t know about that. I was just learning as I was going.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Sean Pan: Let’s do it! I know you’re ready. First, a quick word from our Best Ever partners.

Break: [00:25:40].29] to [00:26:42].21]

Joe Fairless: Okay, best ever book you’ve recently read?

Sean Pan: The best ever book is the Best Ever Apartment Syndication Book by Joe Fairless!

Joe Fairless: Alright! You like that one, huh?

Sean Pan: I do, I do.

Joe Fairless: I’m glad to hear it. What’s the best ever deal you’ve done?

Sean Pan: The best ever deal is that first one I did in Sunnyville, where I made around $300,000 in profit.

Joe Fairless: Best ever way you like to give back to the community?

Sean Pan: Right now I am also a podcast host for the Best Ever Real Estate Investing Show. I’m also a meetup group leader, where I bring people together to talk about events and different strategies… And I love just giving back, and writing blog posts, and giving out free notes. When I go to conferences, I just give away free notes for everybody, because I know they’re too busy to take their own.

Joe Fairless: That’s cool. And what is the best way the Best Ever listeners can get in touch with you?

Sean Pan: The best way to get in touch with me is by sending me an email at seanpanrealty@gmail.com, or check out my website, everythingrei.com.

Joe Fairless: Thank you so much for sharing your story. I know you’ve shared it already; I wasn’t aware of your story, but clearly you’ve shared it already in other channels… But thanks for talking about it, and then talking about the lessons learned… And boy, that structural engineer comment really resonates with me, because it’s about being educated on the process, and then also being tenacious and following up with certain team members who are holding up the process and offering up some solutions to them.

Thanks for being on the show and sharing your wins and losses and lessons learned. I hope you have a best ever day, and we’ll talk to you again soon.

Sean Pan: Thank you, Joe. Take care.

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JF1816: Making $100k In 3 Months As A College Student, Building A Buyers List, & Financial Future Questions #FollowAlongFriday

We’ll be hearing Joe’s favorite lessons learned last week during his interviews. He’s sharing lessons from Angad Guglani (http://cooperacq.com/), Felipe Mejia (https://www.sideguymovers.com/), and Jamil Damji (https://keyglee.com/). If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Working with REO companies and getting deal flow through them”

 

Free Document:

http://bit.ly/thelpstructure

 


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TRANSCRIPTION

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 pdocast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.

This is Follow Along Friday. Theo Hicks, I learned a whole lot last week during these interviews… And as a reminder, Best Ever listeners, the purpose of Follow Along Friday is to pull out some insights that we learned – in this case I did the interviews last week, so I learned last week – and share them with you as a sneak peek, and also so that you can (should you choose to) start applying them sooner, since they interviews that I did this past week will go live probably in 4-5 months from now; we’re that booked out.

So Theo, do you want me to just go ahead and get into it?

Theo Hicks: Yeah, let’s jump right into those lessons, Joe.

Joe Fairless: Alright, cool. Holy cow – his name is Angad [unintelligible [00:03:01].05] What an impressive human being, from a real estate standpoint. I met him through this interview, so I don’t have any preexisting relationship with him; he’s a 24-year-old real estate investor based in New York City… And as a sophomore at NYU, he identified a need for a student-run brokerage. He went out, got his brokerage license, and he and some friends were leasing apartments to fellow NYU college students, and I’m sure other college students.

He was making six figures a summer, for three months of work. Six figures. I have a hard time putting myself in that place when I was at Texas Tech as a sophomore, having an idea for a business and then earning over $100,000 for three months’ worth of work. Just an incredible entrepreneur. I asked him how much did he have by the end of his senior year, how much was in his bank account, and he said it was between 250k to 350k.

Theo Hicks: Wow…

Joe Fairless: As an undergrad who just got their degree, this person had over 250k in his bank account, and he had a college degree. Just so impressive. So one is if you are in college, and you’re looking to create a business, this is a potential opportunity. He capitalized on the New York City market, and  the way it’s structured, where you’ve gotta go through a broker to get an apartment… I know having lived in New York City, New York City is its own animal, so perhaps this exact strategy won’t be applicable to Best Ever listeners who are in college looking to create something, but… It’s just inspirational, at minimum. Perhaps some tactical components need to be reconfigured, but just incredibly inspirational.

Here’s a tactical thing that he talked about for how he has since then (surprise, surprise) grown his portfolio (he’s 24 years old) to 60 single-family units, 12 multifamily — so I should say 60 single-family houses, 12 multifamily units, and a self-storage facility. And the self-storage facility – I was like “Tell me about it.” He’s like “Well, it sounds more impressive than it is. It’s 20 garages, 4,000 square feet.” I’m like “That’s impressive. That’s very impressive.”

He bought that for $120,000, and he found it on the MLS. He talks about that during the interview, so I won’t go into that. But the tactical thing I wanted to mention is how he found 60 single-family houses and 12 multifamily units is by working with REO companies and getting deal flow through them. And I said, “Okay, I’m not gonna ask you which companies you’re getting deal flow from, because that gets into your competitive advantage, and I don’t wanna steal your thunder on that, but the question I have is if you were starting over and you didn’t have the current relationships that you have with REO companies, how would you go about replicating this process?” and he said that an attorney helped him get connected to the REO companies. So he said what he would do is he would focus on networking with attorneys, telling them what he’s looking for and seeing if they have any connections they can give him.

He said another tactical thing you can do is by looking at the deeds and the mortgages and see who’s selling a lot of stuff on the county website, and if they’re selling a lot of stuff, they might be an REO entity. So those are two tactical things that anyone can do to identify these REO companies that might be a good lead source for him to buy directly from.

Theo Hicks: [unintelligible [00:06:48].24] I remember all the way back, when I was close to his age, I did that for Cincinnati… So I know there’s a way to do it for all the county, but for Cincinnati in particular you can get access to the back-end of the auditor’s site. [unintelligible [00:07:06].08] every single property in Cincinnati. In this case you would just filter by — they actually have recent sales too, so you just download the recent sales and filter it by the name of the person selling property, and just see “Okay, this person sold 50 properties in the past month. Maybe they’re an REO company.” Maybe they’re just a big owner who’s selling properties too, so it’s not just necessarily REO companies.

And then going back to the school one – that’s interesting, because most people will graduate with as much money that he had in his bank account in debt. So he did the exact opposite of what people typically do. For me — I was in mechanical engineering, so I’m sure I probably spent a lot of time on school, compared to maybe other majors, but I still had so much free time that I spent on doing stupid things, that I could have spent on obviously doing something like this.

I’m not sure if people think this or not, but they might think “Well, I am a full-time student. How am I gonna have time to do this?” But if people really think about it, you’ve got way more time when you’re in college than you do when you actually graduate and get a real job. So it’s definitely possible, and as you mentioned, this is pretty specific to New York. I didn’t realize that you had to have a broker represent you to lease an apartment. But yeah, this is kind of more inspiration, to get the wheels churning in your mind to think of ways you can add value as a real estate investor to college students… Because every college student is renting, looking for a place to live; you can even be some sort of consultant the same way, even though it’s not a requirement.

This guy sounds like he’s very smart, and very entrepreneurial, and obviously it’s working out for him.

Joe Fairless: I believe it was the book “Things I wish I knew when I was 20.” It’s written by an Ivy League professor, and she talks about different things that she wish she knew when she was 20. I believe it’s this book – she mentions that she gives her students a challenge at the beginning of the year to make as much money as possible with $100. So she gives them $100 and like “Okay, go.” It’s an entrepreneurial class. “Go make as much money. Create a business. Whoever makes the most money wins”, and there’s other prizes, too.

Some people created a business around selling gadgets around campus, others did laundry services… But the winning team that earned the most money — I think it was a shorter period of time than a year. I think it was about a month. The winning team that earned the most money actually did something ingenious… They sold the time that they had to present to their fellow students their business plan and their business. So instead of creating a business, they simply identified a company within that area that would love to have a captive college student audience for 30 minutes, and then they sold their time to that business, and that business presented to the students, and as a result they got access to the students; and the students that had that idea earned the most money.

So along the lines of, hey, Angad’s business, if you’re not in New York City, that exact business might not work, but it’s the mindset of how do we maximize the resources that we currently have available – that’s what this is all about, and that example really came to mind whenever I was thinking about Angad.

The second thing – Philippe [unintelligible [00:10:43].19] He’s an entrepreneur; he scaled from a $3,000 mobile home park to owning ten units now. Based in Nashville, Tennessee. I wanna mention two things about my conversation with Philippe. One is that he had a six-unit that he has now sold, and it was in a college town. One thing that he did to increase the value – he bought it for $120,000, and two years later he more than doubled it in value. He sold it for $260,000. So actually I’ll give you two things that he did, and then I have another lesson learned from him. One is he changed it from tenants to the amount of beds that you can have within the residence. So he didn’t focus on “How many tenants should I have”, he  focused on how many — well, I guess I’m saying it incorrectly. He added more beds in the house. So he added two more beds in the house, and as a result he started charging per person, instead of per-bedroom. I guess that’s the proper way to say it.

So he literally made the living room a place where two more people could live. So one, he changed it from a per-bedroom to a per-bed. Two – and this is what I thought was really interesting – is he had relationships with local vendors, and those vendors would send leads his way, because they’re popular spots for college students, and in exchange he would send his residents to those vendors. Some specific vendors – there’s a Mexican restaurant; a place called Grandma’s Pancakes, and a local coffee shop.

And he would put in the welcome packet for his residents when they moved in, he’d put these cards that the vendors/restaurants gave him, and the residents would show the cards to the restaurants whenever they arrived, and then they’d get exclusive discounts as a result of living at his place. So it was  a win/win. I did something like this for one of my properties, where I reached out to local businesses. I had a card that I printed out. And surprisingly, it was challenging for me to get local businesses on board. I offered discounts in general, but also I’d like to offer discounts that weren’t publicly available. But I went to tanning booths, or tanning salons, I went to a pet groomer, I went to a Payday Loan company… They were very interested; they were actually the most engaged. Surprise, surprise. I went to restaurants… And for some reason – maybe my approach wasn’t the right approach, or maybe the market wasn’t right, or something, but I didn’t have that  much success.

However, from a percentage standpoint, from the couple of companies that I did connect with – Dickey’s Barbecue was one of them; they were really onboard because there’s an entrepreneurial guy who owned that franchise location… The couple of them that were on board – they really helped me have selling points for residents who wanted to move into that apartment community, and it was a win/win.

So I’ve done this approach… It might take more effort than you initially think, but it was a good use of the team’s time to create something like this… Especially if you have a smaller-sized apartment building and you’re not looking to do this in multiple locations. Or maybe it’s actually — if you have one geographic location where you own a lot of properties, that’s good. If you are spread out across multiple markets, then it might not be an effective use of your time, because it just takes a whole lot of time to do it. But in my experience, it was worth it.

I’ll stop there. Theo, do you have any comments there?

Theo Hicks: I was gonna say – do you know if he had preexisting relationships with any of these companies, or did he just reach out to them randomly?

Joe Fairless: He went to the Mexican restaurant a whole lot, he said, so they might have known him. But I don’t think he had a preexisting relationship with them in a formal capacity.

Theo Hicks: I was curious… Because I’m sure that would probably be helpful. If you’re thinking about applying this strategy, think of the places you just go to frequently, and then bring that up in the natural course of conversation if you’re talking to that owner, or whatever.

Joe Fairless: True that, yeah.

Theo Hicks: I was gonna mention something else – we were talking about this on Follow Along Friday; it might have been when we were discussing someone who had a question about buying a smaller apartment, or that didn’t have any amenities on-site, around like a bunch of massive apartment communities that had top-notch fitness centers, and things like that… We talked about you can leverage the local businesses, like fitness centers, movie theaters etc. and try to get discounts from them, and then you can present your property as like a luxury experience, without the luxury price. “So a fitness center isn’t here, but because of that your rents are gonna be lower. But we’ve also got discounts at this coffee shop, this movie theater, this tanning salon, this whatever.” That’s another way that you said you can present this type of concept to your residents as well.

Joe Fairless: Yeah, we’re actually buying a property right now that fits into that category, where there is a fitness center on-site, however literally right next door there’s a state of the art fitness facility, and the management has negotiated only an $8/month membership fee for those residents. And that is an exclusive arrangement that our property has with the fitness center. I think that more stuff like that – exclusive perks… Because then you start moving away from being a commodity and you start differentiating your apartment community in a way that others can’t compete, because you’re not going back and forth on price; you’re actually talking about these additional amenities and relationships that they don’t have.

One other thing I’ll say about the interview with Phillippe – this reminds me of the example you brought up a couple times, Theo, of the gentleman who looked for properties that had a busted foundation. He would actually seek them out and he had a solution for it, where others would run away. In this example Philippe talks about how he noticed that the homes in a certain area had a double garage; they’re two-story, and the downstairs was a double garage. He would convert that double garage into three additional bedrooms. He had three bedrooms, a kitchen and a bathroom that he’d convert the double garage into, and he rents it out to construction workers.

So the house – upstairs it has three bedrooms, downstairs it has a double garage; well, now it’d have three bedrooms upstairs, and then downstairs it’d have three additional bedrooms, and he rents it out on a per-bedroom basis.

So just looking for situations in our market where there’s opportunity to reconfigure the layout of the property, and if you identify a bunch of homes that have a similar configuration and you have a certain business model like that, then you have the opportunity to make twice as much cashflow as someone else.

Theo Hicks: And the same thing can technically apply to apartments, too. Obviously, there’s demand for those larger units, but if you’re in a market where you find an apartment that’s got massive units, and the dollar per square foot doesn’t necessarily make sense, and you can just convert that to two bedrooms instead of one bedroom, and get way more money… Obviously, it depends. Same thing with an extra living space that might not necessarily be in demand in that market, converting that to a bedroom, or keeping it the same… Again, depending on the market.

Joe Fairless: Jameill [unintelligible [00:18:26].10] He is an investor based in Phoenix, Arizona. He specializes in wholesaling. They do over 70 wholesale deals a month. Their business model is to be the wholesalers’ wholesaler. When a wholesaler has an opportunity, cannot find a buyer, they go to Jameill’s group, and Jameill’s group has a list of 80,000 buyers with a 30% open rate, who he and his team send it out to.

The business model is not to be as focused – or nearly as focused – as finding the opportunities, but more focused on having a buyers list that is robust, and being the solution to wholesalers’ challenges if they don’t have buyers for their properties.

Clearly, I had to hone in on how did he create a list of 80,000 buyers with a 30% open rate when he sends out an opportunity. And he says he thinks of themselves as a tech and data company (surprise, surprise), and they have a two-step process. One is his business partner has a software background, so he has a software that they created that scrapes social platforms and the internet for a list of potential people who might be qualified buyers. Think of accredited investors – they look for that type of person.

And then Jameill’s team will actually personally reach out to these people and send them a note through that platform. He talks about what that note says. I didn’t write that down in my notes, but he sends them an intro message, and just by sheer volume of the amount of messages through that software platform that they initially find all these leads, they get a lot of people to say “Yes, I’d be interested in being on your list.” And he’ll search for [unintelligible [00:20:24].25] he’ll search for lawyers, he’ll search for accountants, Facebook groups… They’ll see what you have liked and map that back to if you’d be a likely real estate investor.

So just 1) having a business that is a solution for other people in your industry, who could be perceived as competitors; that’s interesting to me. That could be applied to any business. So one, quick, think of all your competitors. Two, how could you actually be of service to them, so that they pay you for your service. That could lead to some interesting stuff. That’s what he did. And then two is the one-two approach that he and his team take to building that big list. One is you write a software, two is you have individuals reach out to these people.

Theo Hicks: Is his business partner doing it, or do they have VAs doing —

Joe Fairless: VAs. Yeah, it sounded like they have an army of VAs.

Theo Hicks: I was gonna say, I can’t imagine him sending out 8,000 messages to people.

Joe Fairless: No, it’s 80,000 people on the buyers list. That’s an email that gets sent out.

Theo Hicks: It’s probably more than that.

Joe Fairless: But you’re right, if there’s 80,000 people on the buyers list, good point – they probably sent out half a million personal messages.

Theo Hicks: I think on MailChimp the average open rate for the real estate category – and again, this is just MailChimp – is like 10% maybe. So they’re three times what it usually is. So obviously that person will touch them, and rather than just stopping at step one and saying “Okay, here’s who we want to target”, and then kind of just like creating content and sending it out and hoping they see it, they proactively just go after that one specific person and send them a message… And obviously, that seems to be working out.

I bet it’s a very interesting interview, if you go into specifics on how he’s finding these people on Facebook, using the hashtags, or whatever software that he’s writing. Obviously, not every single person is gonna write the software, but everyone can navigate the Facebook, the Twitter, the LinkedIn search function. It might take a little bit extra time, but again, it sounds like they’re using VAs, and 30% open rate is pretty amazing.

Joe Fairless: It is. And I asked him “Do you send that list anything other than deals?” He says “No. I absolutely don’t.” That’s how we approach our private investor list. I don’t send them anything other than opportunities. There has been one exception where I asked them for thoughts on the book that we’re writing – what would they want in that book – because we were writing that book for them, to help them on how to think about passively investing in apartment communities. But besides that, I don’t believe I’ve ever sent an email to my private investor list about anything other than opportunities that we have available.

Cool. And then lastly, Jason Parker – he is an investor in Seattle, Washington, but he’s also a financial advisor with a focus on retirement planning. I enjoy talking to people who aren’t exclusively focused on real estate, so that we get a broader perspective. One thing he says when he sits down with potential clients – he asks them “What is the purpose of your money and why do you have it?” And when he was asking that question, I was like “Man, that’s a  good question.” What is the purpose of my money and why do I have it? I thought about it a little bit (not a whole lot) since then, and I view money as simply a  tool to exchange and to help build lifestyle and do things with. It’s not powerful to me, it’s simply a tool. And by thinking of it as a tool, it allows me to feel good about value exchanges, it allows me to invest in myself by going to a Tony Robbins program… And it’s just a tool to help me become a better person, in that example, or give to all the non-profits we give to at BestEverCauses.com…

So I think it’s just an important question to ask ourselves, “What is the purpose of our money and why do we have it?” I don’t know what the right answer is, but it hit me as something that is a question or two questions that we should ask ourselves, so I just wanted to make note of it.

Theo Hicks: I see it on here, “Not too concerned [unintelligible [00:24:38].18]”

Joe Fairless: Yeah, so you’re looking at some notes that I had during the conversation… And he said that potential clients, when he asked them that, they tend to not be too concerned about leaving money to their kids. They wanna have the same standard of living that they’re accustomed to. But they’re like “You know what – we’ve done what we needed to do for our kids, and at this point, kids, you’ve gotta make it happen or not.” Generally, that’s the sentiment from his potential clients.

Theo Hicks: That’s interesting, because you hear a lot of times people’s goal is the legacy, family wealth, leaving it to their kids… I have a five-month-old, so it might change, but I’m definitely on board with this guy. We could probably talk about that for ours, so… You can move on.

Joe Fairless: Cool. Alright. I think that’s all. That’s all I wanted to mention on that.

Theo Hicks: Okay. Those were really good lessons. I really liked the college guy. It reminded me back to when I was in school, and I did a few things — nothing like this, but I was slightly entrepreneurial while I was in college, to make some  money, just because I didn’t have anything and I didn’t wanna work a regular job at that time.

Joe Fairless: Colleen and I were on our walk the day after I did these interviews, and I was like “And he had $300,000 in the bank account after he graduated college…!” I was just so blown away. I still am. Very impressive.

Theo Hicks: Alrighty. Well, let’s move on to the trivia question. This is the Jeopardy month. Last week the question was “The U.S. state that is home to the two cities that have the lowest cost of living.” The answer was “What is Texas?”

Joe Fairless: Oh, Texas…! My backyard.

Theo Hicks: The two cities – I don’t know if you recognize these… Harlingen and McAllen.

Joe Fairless: Yeah, Harlingen is by the  border. I think they’re both by the border.

Theo Hicks: Okay. The cost of living was 20% below the national average, and way below the highest, which was obviously New York.

Alright, this week’s question is — Yardi Matrix (they’re a real estate research company) just released their biannual rental growth information… So this week’s answer is “The U.S. city with the highest year-over-year rent growth as of June 2019, 8.4%.” So what’s the question? What is that city?

Joe Fairless: Say that again?

Theo Hicks: The U.S. city with the highest year-over-year rent growth as of June 2019. The number is actually 8.4% rent growth in 12 months.

Joe Fairless: Okay, so in the last 12 months trailing June, so from June to June?

Theo Hicks: Yeah.

Joe Fairless: The U.S. city with the highest rent growth, 8.4%… I’ll go with Orlando.

Theo Hicks: Orlando. So the first person to get that answer correctly – you can either submit your answer in the YouTube comments, or you can send an email to info@joefairless.com – will get a copy of our first book.

And then lastly, the free apartment syndication resource of the week – I actually just finished recording the last series of the first part of Syndication School, which goes over the entire process… So we just talked about how to sell your deal. That will be coming out next week. Then we’re gonna go back over Syndication School and go into more detail on some of those episodes, some of those steps.

But anyways, we give away free documents for Syndication School, so we’re highlighting those on Follow Friday at the end. This week’s free document we’re gonna highlight is from series number ten, which is how to structure the GP and the LP compensation. That starts at episode 1597; I believe it’s a two-part series, so 1597 and 1598. First we go over how to structure the compensation for the general partners, so how the GP makes money, and then next one is how you as a  syndicator can structure the compensation with your limited partner. To help you with that, the free document is the LP structure decision tree. It’s basically a series of yes or no questions that you answer, and based on the answer to the previous question we’ll ask another question, and ultimately you’ll land on what’s the idea partnership structure with your investors, whether that’s debt equity, preferred return, profit split, what the limit should be… Things like that. You can download that in the show notes of 1597 and 1598, or in the show notes of this Follow Along Friday.

Joe Fairless: Well, very valuable resources, and they’re free, so definitely if you’re in the industry or wanna be in the industry, take advantage of that. Best Ever listeners, I hope you enjoyed this, and most importantly, got a lot of value from it. We will talk to you tomorrow.

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JF1782: Overcoming A Bad First Flip To Over $40 Million In Multifamily with Ola Dantis

Ola was a house flipper first, he and Joe will cover what house flipping taught him about multifamily investing. They will discuss Ola’s first flip that didn’t go quite as planned, Ola admits he had shiny object syndrome with this deal, and shares his lessons learned. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Make sure that they know their stuff so that you know what you need to bring to the table” – Ola Dantis

 

Ola Dantis Real Estate Background:

 


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TRANSCRIPTION

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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Ola Dantis. How are you doing, Ola?

Ola Dantis: Doing fantastic, thank you Joe.

Joe Fairless: I’m glad to hear that. A little bit about Ola – he’s the founder, CEO of Dwellynn.com. He’s a multifamily syndicator and has successfully sourced deals of over 40 million buckaroos. Based in Baltimore, Maryland. With that being said, Ola, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ola Dantis: Yes, thank you so much, Joe, and thank you for having me on the show. Obviously, I’m a big fan of your show, so it’s kind of surreal that I’m actually on the show. My name is Ola; I was born Niger, I lived in the U.K, and now I’m based in the U.S. I’ve been doing real estate for a few years now… I’m focusing on multifamily acquisitions, I’m syndicating deals and I’m sharing the profits with other investors. I’ve done a couple of flip deals as well. I’m based in Baltimore, Maryland… And I’m excited to talk to you here, Joe.

Joe Fairless: So you’ve been syndicating deals and you’ve done flip deals as well. Let’s talk about the flip deals first, and then we’ll get into the deals that you’ve participated in on the syndication side. What’s a specific project that you have flipped?

Ola Dantis: That is such a good question. We’ve flipped a house here in Baltimore, Maryland. It was a small house, just a townhouse, two-bedroom one-bath, but the unique thing is with our company Dwellynn, when we actually do a renovation we actually strip the whole house down to the studs, and obviously put it back together. And for those who know about flipping, that’s actually a lot harder than actually building a brand new house on raw land.

For our particular deal, we were lucky enough to buy that — I think it was about $75,000. The idea was to put in another, say, 50k-50k, and then sell it for 250k. That was our projection. Of course, for anyone that’s been doing real estate for a little while, that did not go to plan. [laughs] It was a very interesting project for us, but we were able to sell it. I think we ended up selling it for about 225k, which was not bad… But I think it wasn’t so much about how much we’ve made or how much we’d spent, it was just learning a ton about the mechanics of putting together a house, and just really enjoying that process and dealing with different characters, contractors. That was a  good lesson learned for us there, and then obviously we flipped others… But that was the first deal.

Joe Fairless: That was the first one… Where did you net out on that one, profit-wise?

Ola Dantis: Profit-wise I think probably about 50k. Just around about 50k, after all was said and done.

Joe Fairless: Over what period of time?

Ola Dantis: I would say about 4-5 months.

Joe Fairless: And if you were given the experience you have today, if you had that experience before that first project, what are some things that you would do differently?

Ola Dantis: Well, first and foremost, I would say I definitely have the shiny object syndrome. Obviously, our first investment property for my wife and I was buying a duplex; we were house-hacking and we were doing tremendously well, actually, with that property. Then obviously I reached out to a fellow called Joe Fairless when I heard him speak on a podcast, and obviously [unintelligible [00:05:33].08] So I was starting to get really interested in multifamily syndications, but then I kind of jumped to this plate; and we can talk about that, in terms of mindset and shiny object syndrome.

So from what I know now, I would definitely [unintelligible [00:05:43].27] at all. Just because it wasn’t the best bang for my time… Yes, I learned a lot about putting the house together, but I feel like I could have used that time wisely in looking for multifamily deals, looking for passive investors, trying to grow and build my multifamily syndication business. But flipping did suck a lot of time, because I’m a little bit of obsessive, so I was there every single day on the site, making sure that we’re on our project timelines, making sure that we’re on budget… So that would obviously take away from looking for multifamily deals and looking for multifamily passive investors. So I wouldn’t do it again.

To focus more on the project, definitely I would not strip a house down to the studs anymore. Definitely not. I think it was a little bit overkill. We were trying to strive for excellence… Which is great, but the reality is when the end buyer comes to buy the house and when they come to look, they don’t really know, or frankly they’re indifferent to the kind of insulation that you used, or the fact that the carved shower glass door was custom-made. They actually don’t care about that stuff. Obviously, we didn’t know that, and we were buying $2,000 custom-made shower doors, and when the buyer came, they didn’t even notice it. So not putting lipstick on a pig, but not necessarily going overkill on a project, for sure.

Joe Fairless: The experience you have had in flipping – what aspect of that experience has helped you with multifamily?

Ola Dantis: That is such a good question. Raising money. There are obviously different ways in which you can raise money, especially in our creative economy now, with social media. I raised some of the money from Instagram, from social media, so I’m now obviously using that medium to reach out to newer investors for our multifamily syndication. So I’ve started to realize that I can, through creative approaches, raise money using social media. It’s not the typical marketing, it’s kind of an indirect approach to marketing, to get people interested in what you’re doing and learn more about you, understanding your story and connecting with that story, with the intention – we call it call-to-action (CTA) in the marketing world – to actually invest with you. That was definitely something I could bring across to the multifamily syndication space.

Joe Fairless: And that’s because you were putting pictures of your flips on Instagram and gaining traction from an audience?

Ola Dantis: Correct, correct. And I actually wanna make a really quick point – at the time when I got an investor that reached out to me on Instagram, I think I had about 100 followers at the time on Instagram on the Dwellynn page. And on the Facebook page for Dwellynn we have about 5,000, and most of them were kind of latent; they weren’t very interactive. But then there was this page that only had 100 followers, and I had an investor that actually invested, that went through the process with us. That was really interesting.

Joe Fairless: What did that conversation sound like when you spoke to the investor and they came across you on Instagram? The very first conversation.

Ola Dantis: Yes. Basically, they’d come through the funnel. They would see one of our posts on Instagram. We basically optimize hashtags. Instagram allows you to use 30 hashtags, so we use all of that. The person would obviously look at our page, and then on our page he has a link that takes them to our website. Then when they get to our website, within seconds of the user getting to our website, then they get a pop-up, and the pop-up gets the email. When they give their email, obviously we’ll reach out to them pretty quickly and we get on a qualifying phone call with them to find out more about what they would like to do with us.

Joe Fairless: Now let’s talk about syndications. I mentioned it because I read it in your bio – “A multifamily syndicator who has successfully sourced deals of over 40 million dollars.” What does that mean exactly, you’ve sourced deals of over 40 million dollars.

Ola Dantis: Good question. We actually employ a software on Dwellynn , where we basically can reach out to the sellers – typically in the state of Texas – directly, and speak to sellers and get a deal either under contract, or get them connected with other syndicators that might want to do business with them.

So we found a deal out of Texas. It was a family actually, and I called the son. I normally have a script and say “Hey, it’s Ola from Dwellynn. We’re an equity group and we buy apartments in the state of Texas.” So we got that deal and then we passed that deal on to another multifamily syndicator in the country, and they kind of follow that process.

That was one deal, and then we kind of did the same thing [unintelligible [00:10:22].26] So far we’ve done about 40 million total of those kinds of deals.

Joe Fairless: On the deal that you were mentioning – about how big was it, whether unit size, or value, or purchase price?

Ola Dantis: Yes. The very first one was about 18 million in total. They had about three assets they were actually looking to dispose, just not so long before I called. We didn’t end up getting all of those. One of them I think [unintelligible [00:10:47].02] Frank beat us to it… But the other two we actually passed on to another syndicator that actually underwrote and continued that relationship with that family. And it was actually a local investor as well.

Joe Fairless: Who beat you to it?

Ola Dantis: Frank… It’s a broker.

Joe Fairless: Oh, got it, another broker. So 18 million in total was the first, but when I say the 40 million sourced, that means that you have had a conversation with the owner and connected the dots between the owner and buyer, correct?

Ola Dantis: Correct.

Joe Fairless: But what do you get compensated for that?

Ola Dantis: Typically, if the deal goes all the way to closing, what we say is “Look, we obviously are not looking for a windfall.” That’s not our approach at Dwellynn. So  we basically take a referral fee and kind of reinvest that into the deal.

There’s also a really interesting deal as well that I’ve found in Texas, and basically the seller didn’t really want to sell the deal to us, because the purchase price they were asking wasn’t what we were looking to pay for it. I’m sure you’ve [unintelligible [00:11:39].03] So what we did was we had a relationship with a broker in Texas, so we basically just passed that deal to that broker, and he then put it on his websites. It’s actually on his website right now. So if he does sell it at the price that the seller wants – I think it was like 5.1 million – then we get a cut off of that deal. Typically a 1%-2% referral fee.

Joe Fairless: Okay, cool. And 1%-2% of the purchase price?

Ola Dantis: Correct.

Joe Fairless: That’s what I was gonna ask. Okay. So how many deals are you in as a result of finding the deal through the software that I’m gonna ask you about in a little bit?

Ola Dantis: One so far. That’s where we’re at. We’re just hoping to perhaps close on another one in the coming month, hopefully.

Joe Fairless: Awesome. And how large is that deal that you’re in?

Ola Dantis: This is actually one that I posted on Facebook; I think you saw it as well. This is a court building and a police station in the U.K.

Joe Fairless: Oh, okay. So for the Texas ones have you received any referral fees from those? Or are they still pending?

Ola Dantis: They are still pending, correct.

Joe Fairless: They are still pending… But then you did it in the U.K. You took a right turn on me when I asked that question… [laughter] So now we move from Texas to the U.K, two very similar areas in culture… [laughter] Now we’re in the U.K. – I know you’ve lived there… What are circumstances where now you’re in a deal that — you said a court and a police station?

Ola Dantis: Right. They’re literally right beside each other.

Joe Fairless: How did you get into that deal?

Ola Dantis: Basically, we actually still do deals in the U.K. This is not the first deal that we closed in the U.K. We have a sister company called Realbot in the U.K, a really good friend of mine. I wish I’d told that story; that’s actually how I got into real estate. I went to meet him in Dubai; I think I’ve told that on different other podcasts… He has his own firm, and basically we kind of partner on deals. We’ve been going back and forth. He’s a [unintelligible [00:13:37].23] buddy in the U.K, and we’ve been going back and forth on that deal, and we closed — I think it took about six months just to close. It was different issues that we were having with the government, but we did get that deal, so we’re going to be converting the court building into an event center, and the police station into a co-working space. As you’d imagine, we’re getting really creative with what we’re going to do with the jail cells, if we’re going to remove them or keep them for the co-working space. That’s what we’re working on right now.

Joe Fairless: What type of ownership do you have in that deal, and how do you structure the partnership?

Ola Dantis: The partnership between me and my partner is 50/50. Of that 50/50, we have 20% of that on the GP side. We obviously syndicated that deal and raised 80% of the equity towards that deal.

Joe Fairless: And how much was that?

Ola Dantis: We raised about 1.1 million pounds. Not to be mistaken with dollars.

Joe Fairless: Sure. And how much of that did you raise from your network?

Ola Dantis: From my network about 250k.

Joe Fairless: How did you meet those people that you raised that 250k pounds from?

Ola Dantis: Just family and friends, people that we know from the U.K. coming together and raising funds. It’s a little bit easier to raise money where you’ve lived a long time. It was just kind of reaching out to family and friends, sending them the investment packet and raising funds. That wasn’t as difficult as we thought, actually.

Joe Fairless: You talked about you have a software that you reach out to owners directly. Is that a software that you have purchased, or is that something that you created?

Ola Dantis: It’s basically a software that we’ve purchased. We use that software in conjunction with scrubbing the lists, making sure that it’s the right owners that we’re reaching out to

Joe Fairless: Okay, cool. So it’s a software like Yardi, or CoStar, or something; you take it a step further and scrub the list, and then do the outreach and try to make that connection?

Ola Dantis: Correct.

Joe Fairless: If we don’t make that connection, then we’ll go out and send mailers to those specific sellers as well. A sophisticated letter.

Joe Fairless: How many conversations have you had from sellers as a result of your outreach?

Ola Dantis: That is such a good question. I think at the last count we were over — actual conversations with owners just over 200, but total calls I think were in the thousands. Most of the calls are voicemails, and trying to get past really savvy receptionists/gatekeepers.

Joe Fairless: Right. And how do you get past a really savvy gatekeeper?

Ola Dantis: It’s just the same script. We tell them we’re very transparent and we would like to speak to sometimes the founder or the CEO of a company, or the vice-president of acquisition, or disposition — some bigger firms in Texas would actually have an asset disposition team, so we’d try to get to someone on that team, if we can. If we can’t get past that gatekeeper, then we continue our scrubbing. LinkedIn – trying to find the owners and trying to reach out to them on LinkedIn. It’s a lot of work, it’s a lot of steps, but it works for us.

Joe Fairless: And who’s us?

Ola Dantis: It’s basically me, and I’ve got a guy in Houston, Texas that actually helps me to scrub out the list, and he makes some calls as well.

Joe Fairless: And when you say “scrub out a list from CoStar”, what are you scrubbing for?

Ola Dantis: Most times you would get numbers that you would assume that would be the number to access the person, but it would just be either a previous number that doesn’t work, or it’d be a number to a receptionist. So what we’re trying to do is get the actual person’s cell. That’s what we care about – to get closer as much as we can to that person.

We will take out numbers that aren’t working, we would take out emails that don’t match the firm of the company, if we know the firm’s name… So that’s kind of what we’re looking for. When we get to actually executing the list, we know that we’re as accurate as we can get.

Joe Fairless: Okay. And how do you find the cell phone numbers?

Ola Dantis: White Pages. It’s pretty accurate, for the most part.

Joe Fairless: Cool. And how much is that, do you know?

Ola Dantis: It’s not that much. There’s different tiers. I think it’s like $20/month. We have different tiers that we pay for.

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

Ola Dantis: Oh, man… I would just say try to focus on one thing and one niche as much as you can, but as quickly as you can… Meaning if you’ve given yourself a year or two in a particular niche or particular asset class and it’s not really working for you, maybe a year or two might be a good place to say “Hey, this isn’t working. Can I just pivot into something else? Can I try something different? Can I reach out to a mentor or someone that can help me with this particular niche or asset class that I’m looking at?”

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Ola Dantis: Let’s do it!

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:18:41].24] to [00:19:30].20]

Joe Fairless: Best ever book you’ve recently read?

Ola Dantis: Oh, man… As a Man Thinketh, James Allen.

Joe Fairless: What’s the best ever deal you’ve done?

Ola Dantis: The best deal I’ve done is actually my very first deal, my first duplex.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Ola Dantis: Trusting partners.

Joe Fairless: How do you protect against trusting partners? [laughter] You’ve got to trust partners eventually, I imagine… So what do you do to mitigate the risk of whatever happened not happening again?

Ola Dantis: Great question. I read this book by Ray Dalio, Principles, and he talked about you should actually have a believability factor. What that really means is if someone has done something more than three times, for the most part it means that they actually have some kind of strength or skill. When I talked about partnerships – your partners can actually make or break you, as you know… So partnerships are extremely important, especially in the syndication space. So you have to make sure that whoever you’re coalescing with actually knows their stuff, and if they don’t, it’s okay, but you should know that going in, so you can gauge their amount of effort and work or skill that you need to bring to the table… And if that would basically make it up for that weakness that the person has, as opposed to going in blind.

Joe Fairless: Best ever way you like to give back?

Ola Dantis: We have something called the 1HousePledge on the Dwellynn website, on dwellynn.com. Our goal is to try to give a house to a family every year. This has been a big challenge for us, but we’re still working hard to make that happen here in Baltimore.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Ola Dantis: The best place is InvestWithOla.com, or just go to our website, dwellynn.com.

Joe Fairless: Thank you for talking about the approach that you’re taking to find multifamily owners directly using CoStar, scrubbing the list, using White Pages to find cell phone numbers, and reaching out to owners even on LinkedIn if needed, having those conversations… And you’ve got some deals pending, as well as one that has taken place, across the pond. Thank you for talking about that, and lessons learned on the fix and flip stuff.

I hope you have a best ever day, Ola, and we’ll talk to you again soon.

Ola Dantis: Thank you so much, Joe. I appreciate it.

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JF1762: Flipping Houses, STR’s,Passive Investing, & Multifamily Syndication with Ashley Wilson

Ashley started her real estate investing with a single family home purchase that was meant for a normal long term tenant and a traditional buy and hold deal. That turned into a Short Term Rental, she flipped houses after that, started passively investing in larger deals, followed by being on the GP of her own large deals. Hear what it took to get where she is now, and what it takes to do her daily tasks with all these projects. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Until you have done the job correctly and have passed final inspection, I’m not paying you” – Ashley Wilson

 

Ashley Wilson Real Estate Background:

  • Co-Founder of Bar Down Investments LLC and HouseItLook LLC
  • She owns 450 units and oversees asset and construction management on 349 units
  • Has also completed 15 flips
  • Based in Philadelphia, PA
  • Say hi to her at www.houseitlook.com
  • Best Ever Book: Best Ever Apartment Syndication Book

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


TRANSCRIPTION

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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Ashley Wilson. How are you doing, Ashley?

Ashley Wilson: Great, thanks for having me.

Joe Fairless: Yeah, my pleasure, and looking forward to our conversation. A little bit about Ashley – she is the co-founder of Bar Down Investments and HouseItLook LLC. I love that play on words. She owns 450 units and oversees asset and construction management on 349 units. Has completed 15 flips and is based in Philly. With that being said, Ashley, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ashley Wilson: Absolutely. I got into real estate approximately ten years ago, with the purchase of a single-family rental property. We did actually short-term rentals  out of that property. We then continued to do short-term rentals for a couple years out of that property and moved into long-term rentals with that property… So we got a little taste of the rental side in terms of being a single owner of a property, both short-term and long-term, and dealing with tenant issues etc. So that was our taste of apartment ownership per se.

Then we moved a few years later into the flipping business. Our HouseItLook company has been in business for five years. We predominantly flip on the Main Line in Pennsylvania, which is outside of Philadelphia, in the suburbs. We typically focus on high-end renovations and historic homes, so the majority of our homes is within the 1900’s to 1960 era of construction, and we do full gut rehabs on those projects, so all six-figure type renovations.

Then within the past year we actually transitioned into the multifamily space. We passively invested in an apartment in Ohio that was 101 units, to get a little taste of the multifamily space. We’ve been educating ourselves on it for years, but unfortunately we lived overseas and we really didn’t think it was the best decision to get into the multifamily space while living overseas. We really wanted to be home for that. So once we got home, we did our first passive investment, and then that snowballed into co-sponsoring on our first deal shortly thereafter, 124 units right outside of Houston.

Most recently we just partnered with another company to pick up 225 units in Amarillo, Texas. So the two properties that we are GP-ing on, I am running the asset and construction management pieces of those properties. The first property – I ran it for the transitional period, for the first nine months, and then actually it’s transitioned since then; however, I’m running the asset and construction management piece on the 225 units right now, out of Amarillo.

Joe Fairless: Describe a day in the life of someone who’s overseeing the asset and construction management of a 225-unit property.

Ashley Wilson: Well, keep your phone with you at all times is something I would definitely recommend to anyone looking to dive into this space. You can get a call for any number of reasons, and I think when you take over a property – we prefer properties that are value-add, and obviously that’s the buzzword in the multifamily space right now; there are a lot of buyers that are looking for value-add properties.

The simplest way to think of a value-add property – I’m sure the majority of your listeners already know, but the simplest way and what I like to tell people who are new to real estate is it’s a flip on steroids. So you’re taking a property that is in some form of distress – it could be due to property management issues, it could be due to deferred maintenance… There’s a slew of reasons, even nature. If there was a storm and half the units are offline, and the previous ownership didn’t have the funds to renovate those units, that is another reason that a property might be in distress…

But what you’re doing is taking that property and you’re getting it performing optimally. That could be by means of a more efficient property management company, it could be through interior renovations or exterior renovations, amenities… Marketing is a huge game-changer as well… So there’s a lot of different places that you can take it. Each property is different and it has different needs. You need to really be on the pulse as to what the property needs and what the market wants, and pair those two together.

Joe Fairless: Let’s talk about your day… So you said “Keep your phone with you at all times.” What are some phone calls — maybe the last couple phone calls you’ve had with the on-the-ground management team about the property?

Ashley Wilson: We’ve had a challenge with finding good, reliable contractors in the Amarillo market. We have a different standard, I would say, in terms of what we’re used to and the contractors are used to working with… So I’ve been getting a lot of calls recently on our plan to tackle projects with the current workforce and options we have within that market. So that’s one of the things that has been a little bit challenging.

Obviously, time is money in this space, so you need to be able to balance the premium that you’ll pay for people who might need to come out of town to do the work, versus the time that it’s taking to have the work completed with the current workforce in that market. That’s something that I’m sure if you meet two different people, they would have two different answers as to what the solution should be… But I personally would rather pay a little bit more to have the work done sooner, because I  realize that ROI factor, and I think it’s more important to have ready product and to transition the property very quickly, so not only does the current tenant base notice the change of the tone of the new ownership, but the market does as well.

So that’s personally an example of something that has been a frequent call recently. But you can get calls about storms… In Amarillo obviously they have a lot of winds, because they’re in a panhandle… So we have a lot of wind storms, we have a lot of excess rain… So it’s very typical for properties in the Amarillo market to have some flooding issues from time to time. It’s very short-lived, because of the absorption rate of the ground; it’s very dry, so the water absorbs pretty quickly, it doesn’t sit, so that’s fortunate… But there’s all different types of calls that one can get.

I’m fortunate to have worked with this property management company previously, so we already vibe in terms of what type of information I need to be notified of immediately, versus what information that I trust and am confident that they understand how I would want it handled, and I trust that they handle it appropriately, too. That I think is a game changer, because the first time you work with a new company there is not only learning about the property and the property needs and the market needs, but also to the working relationship you have on the team.

Joe Fairless: Oh, yeah. Huge. I agree with your school of thought – pay a premium for people to get it done, even if they have to travel a bit farther to your place, versus if there’s a workforce that’s not cutting it, and it’s taking longer and “saving” money, when you really don’t save a whole lot of money.

What’s an example of a cap ex project that you’re working on right now that you have to pay a little bit more for, but you’re getting the high quality out-of-towners?

Ashley Wilson: One thing we paid a little bit more for was we switched out all the exterior lighting to LED, and when we priced it in the market it was a little bit cheaper, but the timeline that we were given by the contractors was much longer to accomplish. That’s something that you can realize right away on the cost savings from your  utility bills. So we have experience working with another company that is actually out of Houston, and because we had enough units that were offline when we acquired the property – because we’ve just acquired the property recently – we were able to house those people who came to do the work from out of town. So we paid a little bit more; fortunately, we didn’t have to pay for the housing factor, because the units were already offline, in the sense that they were in the process of being renovated, and the team was agreeable to stay in those types of units. Even though they weren’t fully-renovated, they were definitely habitable units… But that project then ended up being completed in a week and a half, as opposed to the one month timeline that we were given.

So that’s something that is an example of why I prefer to pay a  little bit more, especially with a company that you’ve already worked with before and you have that track record with them to know that they have good quality work, and they’re trustworthy, and when they tell you that the project will be completed by a certain date, it actually is completed by that date. That goes a long way. I’ve worked with contractors for a long time; my father is a general contractor, so I grew up in this space, which is why I think that I’ve come to find my niche in the multifamily space in terms of construction management.

I enjoy asset management, and it kind of came organically, but originally, when I first got into the multifamily space, it was via this construction management background. I think in the multifamily space you don’t’ see a lot of syndication teams that have construction managers or someone who’s actually really knowledgeable about construction on the team, and I think that’s a deficit. I know personally I would never invest with a group that didn’t have someone on their team, part of the GP, with actual construction knowledge and management experience… And the reason I say that is twofold. One is because I personally believe that when you outsource construction management, your interests are no longer aligned.

And to go into that a little bit deeper, I believe that when you outsource construction management, you’re paying a fee based on the total cost of that construction, or the cap ex, therefore that construction manager has no incentive to decrease the overall expense, nor do  they have an incentive to  decrease the overall timeline, because they don’t understand multifamily ownership and the game of syndication in terms of what one single day on a unit renovation equates to. So if you have a property that has 100 doors and it takes five days to renovate the unit versus four days, that’s 100 days of potential lost revenue that you’re losing out on, and a construction manager is not gonna have that incentive, no matter how you try to build that in, unless they are directly impacted, their compensation, their livelihood is directly impacted by it being more cost-effective and in a shorter timeline.

So I think everyone understands that concept when you’re speaking about asset managers, but I don’t think they relay that over to the construction manager, and I think that is a huge deficit that I see across a lot of different syndication teams. That’s where I’ve been able to really show what I’m strong at… And I’m not saying it just for me, I’m saying you should really instead of hiring someone, if you find someone and they’re very knowledgeable and they understand multifamily, consider partnering with them instead. It is much more advantageous, not only for you as a GP, but ultimately as a GP we are responsible for the LP investment. And to me, there is no better way to ensure the safety and security of the LP investment than overseeing all aspects of ownership, not just asset management.

Joe Fairless: What are a couple things that novice construction management managers would miss or overlook, that someone who has more experience would pick up on?

Ashley Wilson: There are a lot of examples. One example that I give quite frequently – I call it the patio example. A lot of these properties have patios, and often times when you’re in value-add situations and you’re looking at these patios, the patio sometimes appears as if they’re completely structurally unsound, when it might be only a minor structural issue. So what they do is they’ll bring in one contractor, and they’ll say “How do you think this patio should be repaired?” And the contractor will look at it and say “Okay, we’re going to jackhammer this concrete up, we’re going to redo all of the framing, put in new joists, new posts, and we’re gonna repour the slab.” Let’s say for example that was 3k.

What a novice construction manager would do is take that scope of work, cross out the bid price, the estimate, and get two additional bids, because everyone loves the rule of three – get three competitive bids. So they go out and they get two additional bids from two other people. Let’s say for example that it’s $2,500, and another one comes in at $3,200. So they look at the bids, they try to get recommendations of the company and look at their track record, and then they pick a company.

Well, someone like me, who has more experience in construction, would know that that situation could potentially be handled by just putting one additional post up. So instead of completely tearing down the structure and rebuilding the structure, it might only need one support post that is a few hundred dollars, to be honest with you. You could probably get it done max for $500, by doing a post. And then if there are cosmetic cracks on the concrete, you can just put over a new surface covering, so redoing the slab, instead of repouring the concrete. Putting over — they have these thicker paints that are binding, that last for definitely the ownership of these properties, because we’re in and out of them pretty quickly, as I’m sure you are and most of the audience is… So that could resolve the issue at $500.

Because someone is not very knowledgeable about construction, they take the word of whoever first comes out and looks at the property, and then use that to send to other people, without considering alternatives, because they don’t have the experience to know that there are multiple ways that you can solve an issue. So that’s one example.

Another example is we’re getting invoices, and — I could go on and on, I guess, but…

Joe Fairless: Please do.

Ashley Wilson: For example, we took over the property that we have one, and…

Joe Fairless: The Amarillo one?

Ashley Wilson: The Amarillo property; sorry, I should have specified. The Amarillo property… And there was an ongoing plumbing situation on that property, that the previous owner was handling, and then unfortunately we inherited it, but it was at the tail end of it being done.

So there was a change order, and which – by the way, anyone who has ever worked with me knows that, never send me a change order, because I’m not gonna approve it. It needs to be something significantly wrong, and that’s something that a novice person wouldn’t know either, because they wouldn’t be able to argue why you can’t give me a change order.

So I’ll give you an example of why I said that you can’t give me this change order. To finish the job that we inherited was approximately $10,000… And we agreed to that, to finish the job; that was definitely reasonable. And what happened was they went to get it inspected, and this pipe that they’d put in was not pitched correctly. With the plumbing, you need to position the pipe so that it can allow the waste to flow through the pipe, and if it’s pitched incorrectly, or if it’s even level, then it has a hard time of draining.

Long story short is they failed the inspection… So they called me to say “Okay, we failed the inspection, and we’re gonna need a change order, because in order to pitch the pipe correctly, we need to dig more etc.” And I said “Well, pitching the pipe correctly is a code requirement. There are actual specifications on how the pipe should be pitched. So are you telling me that the city wants it outside of those guidelines?” And they said no. And I said “Okay. Well, the job that I hired you to do was to pitch it correctly. So I don’t care whether or not you failed to pitch it correctly and pass the inspection, and I don’t care whether or not it’s going to cost you more money to do it correctly, but I hired you to do this, I’m not paying you until you do this. So until you have a final inspection and I receive that final approved inspection, and it gets notarized, then I’m not giving you any payment.” So this is where we stand.

They were arguing back and forth, and making reasons, and I said “I really don’t care. You can tell me any reason in the world.”

Joe Fairless: What were a couple reasons they were giving?

Ashley Wilson: They were giving reasons that in order to pitch the pipe correctly they would have to excavate more, because the brackets at which they’d adhered the joint to the pipe was corroded, so in order to attach it where they needed to they would have to excavate more, and then be able to put up these new brackets, and that’s something that they didn’t know going into it, when they were excavating. That’s all well and good, and I actually agree with that argument, that it is a very logical argument, but here is where someone who has more experience comes into play… My response to them was “Okay, well you knew that prior to calling the city and asking them to come out for final inspection, but you still made the call. So as soon as you made the call to the inspection instead of calling me and explaining this to me, you believed that you would have passed inspection.”

Their response was, “Well, we’ve passed before, where it wasn’t pitched according to code”, and I said “Well, that’s not what I hired you to do.”

Joe Fairless: Right.

Ashley Wilson: “So you need to pass the code, and if this had been a problem and you had called me in advance, that is a completely different situation, but that’s not the situation we’re talking about right now. We’re talking about the fact that you called the city and believed that you could pass the inspection, and you failed. So because you made that call, because you had that appointment, because you failed that inspection, I’m not paying you until it’s done.”

Well, guess what happened? They threatened to not complete the job, and I said “No problem, we’ll get our lawyers involved. We can handle this. We’ll notify the city, we’ll notify the Better Business Bureau, we’ll also get a hold of your insurance company, and your licensing… We’ll take care of it that way. If that’s the way you wanna handle it, that’s fine.” “No, no, no. We’ll handle it.” They handled it, no change order. Everything was completed, a week later it passed inspection.

Joe Fairless: [laughs] How much out of pocket costs would you say it was for them to complete it?

Ashley Wilson: Well, they were trying to charge us an additional $2,500 change order, which I think is a joke. When you see the scale of projects that you’re doing, if you’re gonna come at me with a change order, it better be significant, and not $2,500. On my single family and multifamily people know me well enough to never come at me with a change order unless it’s really extravagant… But I would guess that they’re probably up-charging us a lot, so I would say maybe between $1,000 and $1,500 that they were out of pocket on.

And you know what the irony of the whole situation is? We needed some additional work done, but because of this situation, we decided we didn’t want them to do it… So part of their job included back-filling everything and repouring the slab. Well, because we were done working with them and didn’t have a very good experience with them, we said “Okay, we don’t need you to do that anymore”, and they said “Okay, no problem”, and I said “And I’m gonna need you to credit that back to me”, because that was initially included in the scope. So not only did they do additional work for me, that they were trying to charge me $2,500 on, but I go them to give me a credit for $1,250 because I didn’t have them back-fill or pour a slab.

Joe Fairless: Wow. [laughs] The tenacity, but then also the knowledge, and sticking to your guns, and experience, too… There’s a whole lot of different components to being able to do that. I can tell you I don’t have that skillset, and I’m glad there are people like you who do, because it’s a tremendous value, that’s for sure.

Ashley Wilson: I think there’s a lot of other nuances too, like for example payment structure. I very rarely give a deposit. I don’t believe in that. It’s a service industry; I don’t pay for my haircut before I get my haircut, so I’m not gonna pay for any service before it actually occurs. Materials is a different situation, but in terms of actual service, I have known too many people who have been burned by that, I’ve been burned a couple times by it, and it’s something I don’t believe in.

Another thing too is taxes. A lot of companies will try to sneak by and tax you on the labor. You cannot tax on labor, you can tax on materials. So you just really need to know all of the details, and I think someone who – like I said originally, going back to why I think it’s critical you have a construction manager on the GP, is that if you don’t have someone who is really knowledgeable about all of those components and understands how that directly impacts your returns, your evaluation of that property, the overall success of the property, then I think it could be detrimental, to be honest.

Joe Fairless: Taking a giant step back, which you might have just mentioned, but what is your best real estate investing advice ever?

Ashley Wilson: I think that you can have a really good deal not come to fruition because the people that are running it and leading it are not the best-suited to do so. I think you can have a challenging property, but have an amazing team, and that deal do exceptionally well. We all like to talk about real estate, and we’re all in this because we love real estate. I absolutely love real estate, I can talk about it every day, all day, but at the end of the day, the successfulness of that real estate comes down to the people that are tied to it.

So I think really knowing the team that is operating the property, working on the property, boots on the ground – every single person that has any sort of decision-making power and how they all intertwine is really critical if you want to invest in real estate, whether it be passively or actively.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Ashley Wilson: I hope so… [laughs]

Joe Fairless: I believe you are. You seem a very prepared person. First though,  a quick word from our Best Ever partners.

Break: [00:26:31].19] to [00:27:17].25]

Joe Fairless: Okay, best ever book you’ve recently read?

Ashley Wilson: Well, I would have to say your book. Your book is incredible. It is so good I’ve recommended it to a lot of people who are not in syndication at all, who are just getting started, and people who’ve been in it for a while… But I really like it because you just come at it from a lot of different viewpoints, and I also think too that the readability of the book is so good. I read it so quickly, and enjoyed it.

There are a lot of books that try to cover the same topic, and it gets too dense, and it’s not very enjoyable to read. I really enjoyed reading your book.

Joe Fairless: Well, I’m glad to hear that. I am a rather simple-minded person, so I speak plainly in the book. Theo is not a simple-minded person, but I rub off on him a little bit too, when we wrote it together. What’s the best ever deal you’ve done?

Ashley Wilson: I hope in a couple years I can say the apartments, but the apartments haven’t gone full cycle yet, so I can’t say that yet. I had a couple single-families that we’ve flipped… The short-term rental we did was extremely successful. We were making over 10k/month on just one property, so that was very successful.

But one of the single-families we did – we were contacted by an agent who wanted us to come look at the property; they had heard about our company and they had heard that we’re guaranteed to close, no contingencies, they like the easiness of just being able to rely on someone to get to the closing table… The property was listed for 499k, it had been on the market for five days. We came out to look at the property, and after I looked at the property I said “Oh, I really don’t think that our number will be close to what you’re asking” and she said “Just write up an offer.” I thought “Maybe I’m missing something”, so I had my dad go back out and look at the property, because I was afraid that I’d miss something critical to do with the construction… And my dad went out and he actually had a smaller construction budget than I had for the project

So I talked to the agent again, and we ended up offering 315k. She insisted we write up an offer, so I offered 315k. The house had been on the market for seven days. I tried to convince her to just drop the price [unintelligible [00:29:47].08] whatever she wanted for it, basically. I thought she could get around 425k for it, from someone else… But she insisted we write up an offer, we got it for 315k, we renovated and we sold it for almost 750k. So that was a really good, unexpected situation that came up, but it also too, I believe, was a result of all the groundwork that we laid beforehand. That we really cared about our reputation. We still care about our reputation, but we made sure that anytime we worked with an agent, that we made it as easy as possible for them, so that any time that they got a distressed property, they would think of us first… And clearly, that paid off.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Ashley Wilson: This is a recent mistake that I’ve made on a transaction… I can’t even tell you — first of all, on every single property I’ve made a mistake, and the point is that you need to debrief constantly throughout the process, and make sure that you write down your mistake, you write down how you won’t make the mistake again, and you learn from the mistake.

On a property that we recently purchased, I underestimated the proximity of the two roads that were close to it, and the proximity of the commercial space that was near it. That’s on the single-family side.

On the multifamily side, understanding partnership and who gets the ultimate say is a mistake that I’ve made, too. Understanding dynamics within a GP. Looking back on a situation, I wish I had understood that better, and I think I would have made different decisions if I had known that.

Joe Fairless: Best ever way you like to give back?

Ashley Wilson: I like to give back to everything. My husband says I do too much, but any way possible that I can give back in terms of volunteering… I volunteer in a lot of different organizations; I still volunteer for my Alma Mater, serving as a co-chair for the class. I’m a huge animal advocate, so I support a lot of different organizations through different animal advocacy groups… And then also I run a meetup group, a subgroup of InvestHER in the Philadelphia suburbs, and I feel that that is another way that I like giving back, because I like sharing information and helping people, whatever they need.

A lot of people will come to me when they’re looking at other deals, other apartments to invest in, and I’ll tell them the pros and cons of that deal, and I’m not gonna tell them one way or another, whether or not to invest; that’s for them to make the decision. But I feel that if I educate them on how to run analysis on properties, they only get stronger. So I spend a lot of time giving back to people who are interested in learning more about real estate.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Ashley Wilson: You can find us at houseitlook.com, on the single-family side. On the multifamily side, investbardown.com.

Joe Fairless: Ashley, thank you for being on the show, talking about construction management and multifamily, giving real life examples that have happened recently, as well as how to work with contractors when you’re managing the process. Thank you for being on the show, I hope you have a best ever day, and we’ll talk to you soon.

Ashley Wilson: Thank you.

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JF1740: How To Complete Over 500 Rehabs & Transition To Multifamily Investing with Jim Huntzicker

Jim has done a ton of rehabs, and started getting into rental investing just a few years ago. He already has about 500 units under his belt, with a goal of 5000 in the future. Jim will break down a couple of deals for us, we’ll hear what went right, what went wrong, and what we should learn to implement in our own businesses. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“I didn’t get here by reinventing the wheel, I took one thing that worked and I did it” – Jim Huntzicker

 

Jim Huntzicker Real Estate Background:

  • Started his real estate business in 2005, has done over 500 deals
  • Focused on flipping for first 7 years – 95% of the 500 deals were rehabs
  • Based in Chicago, IL
  • Say hi to him at jimATjimhuntzicker.com
  • Best Ever Book: Tools of Titans by Tim Ferriss

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


 

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JF1733: Selling More Than One Home Per Day For The Last Eight Years with Dan Plowman

“I don’t want to list your home” – that’s the phrase that started everything for Dan years ago. As a new agent, Dan had to find a way to get some business from all of the FSBO’s in his area. Rather than door knocking and asking to list their home, he’d simply ask if he could take some buyers through the home, and help with the paperwork if they had a buyer. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“The biggest thing would be to implement a system, track everything you’re doing and eliminate the things that don’t work” – Dan Plowman

 

Dan Plowman Real Estate Background:

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


TRANSCRIPTION

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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Dan Plowman. How are you doing today?

Dan Plowman: I’m well, thank you. Thanks for having me.

Joe Fairless: I’m glad to hear that, and you’re welcome. A little bit about Dan – he has 28 years of real estate experience. When he started, he was rookie of the year, his first year selling homes. For the last 8 years, he sold more than one home per day. Let me just restate that – for the last 8 years, he sold more than one home per day. Based in Whitby, Ontario. With that being said, Dan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dan Plowman: Sure, absolutely. I came from the HVAC business originally, and although I was a pretty good mechanic, I was much better – I realized early on – with people; I enjoyed the sales side of things when I was doing heating and air conditioning. Any opportunity I had to talk to people was where I tended to shine. I think that’s important for everybody; the sooner we can figure where our unique abilities lie, the better or more happier we’re gonna be for a long period of time.

I transitioned into real estate, I got my license, and I never looked back. Actually, for the first ten years I tried to figure out as an individual how to get off that hamster wheel, being so busy sometimes that I didn’t have a life, and vice-versa – sometimes living life too much and I’m going broke, and I have to go back to real estate. It’s like that cyclical up and down that salespeople tend to enter into, especially commission salespeople.

I figured out a little bit how to leverage people, technology, marketing, and things went fairly well. We’ve developed and built a team that does extremely well, and here we are, selling more than a home a day, for the last eight years in a row, and we’re literally dominating our marketplace. I don’t say that to boast or brag, I say that as a testament to how well the systems works.

Joe Fairless: We’ll talk about the systems here in a little bit. Clearly, we need to talk about the systems you have in place. Let’s talk about your Rookie of the Year year. That was 28 years ago, yes?

Dan Plowman: Yeah, I started November of ’89, so really my first full year was 1990.

Joe Fairless: Okay, so first year, 1990, you achieved Rookie of the Year for selling homes in your area; what were some things that you did that other rookies were not doing?

Dan Plowman: I banged on doors. Talk about old school. I was in a market at that time (1990) when interest rates were 16% to 18%…

Joe Fairless: Oh, wow.

Dan Plowman: And people were handing the keys back to the bank and walking away… And as a result, people who did wanna sell their homes or needed to sell their homes but didn’t wanna go into bankruptcy or quitclaims – they were selling privately. And here was me, sitting there, cold-calling out of a phonebook, hoping to find people who might give me a lead or give me a listing. My fingers were bleeding from dialing so much… And I’m driving, passing by for sale by owners, and of course, they always said “No agents, please…” Everybody in this area seemed to have a pit-bull too, by the way. A big dog. So you didn’t wanna door-knock those…

Joe Fairless: [laughs]

Dan Plowman: But it was kind of insane, really. I’m trying to find leads and I’m driving by all these leads. One day I got the courage up to go and knock on a door. They slammed the door in my face, just like most calls that I was making – they’d slam the phone down. I learned a lot of swear words from prospecting cold-calling… And that was my intention, I wanted to get leads. So I changed the pattern in the language that I was using when I started to door-knock for sale by owners, and I’d get very well by them. When I started to knock on the door, the first thing out of my mouth was “I don’t wanna list your home”, and they were taken back by this, why you hear that. Because they can always tell you’re a real estate agent, for some reason, right?

Joe Fairless: Yup.

Dan Plowman: And when they heard that from me, they said “Then why are you here?” and I said “I’m here because we sell a lot of homes in the area. My company that I work with does.” And they did. And they said “Well, why are you here?” I said, “Listen, I work with for sale by owners. I wanna help you. If you can find someone on your own, that’s fine, but I also have people I’d like to bring to your home. I know you don’t wanna pay commission, and you don’t have to. If we find the perfect match for your home, you’re gonna be happy because you’ll maybe use me to buy your next home, so it’s win/win.” So right away they were warming up to me.

The point is I’d get through their house; more than half wouldn’t sell anyway, and guess who they listed with? It was me. And I also got their list of buyers that they had coming through. In exchange, all I did was offered to help, and if they did get someone or secured someone, I’d help them with the paperwork, maybe save them a few hundred bucks that went to the lawyer. So it was just a little system and a program I’d put together, and my first three months I’d listed six homes.

Joe Fairless: Wow. What a smart approach. I wanna make sure I heard that correctly… So you first said “I don’t wanna list your home”, and then their guard is no longer up as much. Then they ask “Why are you here?” and then you say “We do sell a lot of homes in this area, so I might be able to…” — go through that one more time, will you?

Dan Plowman: Sure, I will. My language and my scripting – my training company Dan Plowman Coaching goes through all this, but the specific language… If we’re not telling people what they wanna hear, or at least addressing what it is they feel is an issue – because I think a for sale by owner, we can all agree they’re pretty much saying “I want my home sold, and I believe there’s no value in a real estate salesperson, so I’m gonna do it myself and net more money.” That’s what they’re saying. And if we agree that that’s what they’re saying, and then knock on their door and try to give them a different opinion, you’re just gonna have a fight, a confrontation out the gate.

Joe Fairless: Yes.

Dan Plowman: And that’s what most people would do – they would knock on the door and say “Hey, you should list with me, because I’m this, or because my company is that”, and that’s not what they wanna hear. They’ve already made their decision, they don’t need you to try to convince them otherwise… And I believe that people still with their for sale by owner sign on the lawn have some fear, in that maybe they’re not doing it right; they’re not sold. They see other Sold signs from other real estate, so what are they doing wrong…? So when you offer them help and acknowledge it’s gonna be for free, their guard will come down. And there’s a certain language to use when doing that. But 9 out of 10 homes that I would knock on using the right language, I would end up with them touring the home, showing me through, and they wouldn’t let the pit-bull go on me. So we became friends.

Joe Fairless: Okay, so I got that, but in terms of the specific value exchange, so what they’re getting from this and what you’re getting – what is that, exactly?

Dan Plowman: The value exchange was “I’m going to send clients your way. We’re going to drive by your home anyway, and my clients are gonna ask if I know about your home. I’d like to be able to talk highly of your home, and send these clients your way. I can’t always find the buyer the perfect home. Yours may be a perfect match for one of my clients. And I’m okay with that, because I know if I do match a buyer for you, from my client base, you’ll probably be so happy and work with me you’re gonna buy another house anyway.”

Joe Fairless: Oh, okay.

Dan Plowman: “Not to mention, in exchange, I know you have a massive list of people who come through your home that is not a perfect fit for them. I want those names and numbers. It doesn’t cost them any money to use my services when buying a home as well.”

Joe Fairless: Beautiful.

Dan Plowman: Unless they can believe it’s truly a win/win and there’s not a one-sided catch, unless it doesn’t make sense, you will be turned away.

Joe Fairless: Yeah. So smart. How many homes did you send your clients to to purchase a for sale by owner?

Dan Plowman: It’s happened. It’s happened.

Joe Fairless: How many times, approximately?

Dan Plowman: I can remember vividly in my first year there were three. And that’s pretty high. Remember, I’m not doing a lot of deals my first year anyway, but my focus was for sale by owners. The market was ripe for it, because interest rates were high, a lot of people were trying to sell privately, and here’s me listing homes when other people are struggling to even find the next client, nevermind a listing. So it works, but it’s give and take, too.

Joe Fairless: Yup. So smart. Thank you for sharing that. So that’s Rookie of the Year… Holy cow, that’s 28 years ago, so clearly you’ve learned a couple things over the last 28 years… What are some things that you know now, that if you had employed them during rookie of the year, you would have done at least twice as much as what you did that year?

Dan Plowman: Wow, what a big question. It’s a great question. I often talk about this actually when I’m on stage, or speaking to other large groups… And one of the big things [unintelligible [00:08:33].05] I mean, isn’t that the key to life? “If I knew then what I know now…” I think that’s what you’re asking me.

Joe Fairless: Yup.

Dan Plowman: The biggest thing would be to have implemented and systemized what I was doing that was working, tracking everything I did, and eliminating the things that didn’t work. That’s the big one.

Joe Fairless: Okay.

Dan Plowman: And that’s a big question. I know I just gave you a quick, short answer, but there’s a lot to that.

Joe Fairless: Will you elaborate?

Dan Plowman: Absolutely. I know now that throughout my first ten years I sporadically did some great things, and I sporadically did some terrible things. And when you’re not tracking as a business owner and you’re not aware of what leads you’re purchasing or where you’re investing time and getting return or not getting return from, you’re spinning the wheels; you’re on that hamster wheel and you’ll never get off, and you’re just kind of spitting out the good stuff when it happens.  But you need to identify as quickly as possible where your highest and best use is, giving you the biggest return.

A prime example would be a real estate salesperson who goes to a convention, and he passes by all these booths, and he’s given all of these new, wonderful opportunities – “Try this, do this, do this…” And I was famous for buying them all. I’d  buy into everything. The easiest people in the world to sell stuff to are salespeople, right? So I would buy everything, and I had no idea what was working and what was not… So when I learned to systemize, and I’d track everything – I tracked my results and everything that happens – I’m able with my business plan at the end of the year to decide what we’re going to maybe pull some money out of and put more over here, because it worked well, and we are able to then see what market trends, what’s gonna change this year that’s gonna be sure to continue to have that same trending success… Or “Hey, this is done. I can see how this has died the last three years, because we’ve tracked it.”

So for me, to look back and implement wonderful things that I did really well, and to be aware of them, I think the biggest thing I would have done early on was track and be more aware.

Joe Fairless: Well, in that first year you mentioned some things that worked well and didn’t. The “didn’t” part sounds like from earlier it was the Yellow Pages, cold-calling, and what did work was the door-knocking. Anything else you’d like to mention for the first year? Then we’re gonna skip ahead to current…

Dan Plowman: Sure. I quickly realized that it was about relationships… And it’s really tough on the phone when you’re talking to people, even when people did start to engage and talk to you. It’s tough to engage to the point of making an impression. Two things are happening. One, quite often they’re just reciprocating and being kind, and the other thing that’s happening is me as a person on the phone, I’m trying to figure out if this is a viable lead; does this person have a motivation of any sort to move in the next two years? And people are being kind sometimes. Most people just hang up because you’re wasting their time when you’re cold-calling, which is nice and I appreciate that… But for the most part I realized that the real value in relationship building and the real ability to pull that off happens when you’re face-to-face, not on the phone. So that’s why the prospecting, I realized, wasn’t  a great thing… So I started to pick up open houses, even when I didn’t have a lot of listings early on, from other people in my office.

I would open-house to meet people face-to-face, because I think most people in sales – their unique abilities shine the most when you’re eye-to-eye, face-to-face. And let’s be honest, we’re in the relationship building business. We’re not salespeople. We just need to meet people and impress upon them, and there’s language you can use to break patterns when people are meeting. Like the for sale by owner example I gave you; there’s similar scripts and languages we can use that will stop people from ripping through your open house and not looking you in the eye, because they don’t wanna get caught, or they give you that conditioned response, “I have an agent.” That’s what they do, that’s what human nature is. There’s things you can say to break those patterns, so that you can stop people and they wanna get to know you. I think that’s the key.

I started doing four open houses a week, and as a result, I met a lot of people, and the more people you meet, the more relationships you build… And I genuinely believed in my heart that deals were just a natural by-product of more relationships and more impressions.

Joe Fairless: I certainly agree with that. Those four open houses a week you were doing – were they all of those your listings?

Dan Plowman: No, quite often not. Most people work amongst brokerages that have a lot of listings, and there are agents who’d happily let you sit and do an open house with their sign on the lawn, and who cares…? We know people coming through open houses aren’t there to buy the home; let’s be honest. It’s maybe 1 in 100 people that actually buy the house they go through for the first time or through an open house. It’s an opportunity to meet people. And when we look at our business and understand the time that we’re spending doing whatever we’re doing, if we just shift the purpose of why we’re there, it’ll help us understand what we’re doing.

Too many people sit in open houses and think “Oh, it’s just a free-for-all to go through.” Well, you might as well have the [unintelligible [00:13:09].24] That’s not what it’s for. It’s to meet people and to impress upon them what opportunity you have that’s gonna help them, whether they’re buying or selling, and to give your value props as quick as you can, but not so early that you push them back. So how do you make an impression on people that basically they walk away — people think one of two things: nothing of you, or they remember you made them feel good. Because people rarely remember what we say to them. They always remember how we made them feel.

Joe Fairless: Alright, so you or your team member have a house listed currently, and it’s an open house. My wife and I happen to be in Whitby, Ontario and house-shopping, and we go in. We talk, and then we leave. What’s your process for after the open house and after you’ve talked to someone?

Dan Plowman: It’s amazing, because quite often you’ll go through open houses and you won’t even talk to the agent, because they’ll say something like this “Hey, thanks for coming. Go through, and if you have any questions, I’m here.” And you’ll get to the door, put your shoes on and say “Thank you, goodbye.” And most agents don’t know what to do.

What the industry has done is we’ve slowly started to implement what’s called a sign-in sheet for security reasons. “Leave your name and number…” “Sure, I’ll leave my name. Joe Smith, and a false number, whatever.” So it’s just maybe a little way to break the ice, but it doesn’t work well at all.

What I’ve done with my partners on my team – we do open houses every weekend – is for three or four bucks you can have a swag bag, just a paper bag made with your logo on it, with that fancy paper come out the top… I don’t care if it’s photocopies of coloring sheets for kids with crayons from a dollar store. But you put 30 or 40 of these bags in a point of reference that people can see when they walk in, on the dining room table to the left; they see them, and they realize they’re getting free stuff. People love free stuff.

If you’ve ever been to a sporting event, we’ve all seen the big guy with a beer in his hand, spilling it over the top of the kids reaching to catch the towel before the kid gets it, or the free T-shirt… You know what I’m saying. So people love free stuff. This is called breaking the pattern. They walk through the house… I’ll give you an example – two weeks ago one of my partners was doing an open house and they said “I can’t believe how well the swag works.” They were talking to someone at the door, they were giving them a free little bag, and the people that were ready to leave stood behind in line like the wanted to wait until they got their bag.

Joe Fairless: [laughs]

Dan Plowman: That’s pretty cool now – we’ve got people lined up at the open house that wanna talk to you. That’s what I’m talking about. Break patterns. Now you have a chance to ask some questions, and it’s those questions that allow you that 60 seconds or that 120 seconds of engagement. Without it, what are we doing? We’re just standing there, opening the door to the house.

Joe Fairless: Yup. And then after they get their bag, they leave, open house is over, what’s the process?

Dan Plowman: Well, here’s the other thing, too… When you’re giving somebody something and you’ve asked them to sign in or sign out before they leave – however you do it – it’s usually sign in before you come, people are less apt to lie or to say something that’s not true if you’re engaged and looking them in the eye. So when I’m asking somebody a question and I’ve given them the swag bag (and it may be three or four bucks, like I said; that’s not the point), they’re getting something for free, and I look them in the eye and say “So, have you been looking for homes for long?”, people start to talk. They’ll open up. That’s called reciprocity. They feel the need to reciprocate, because you’ve given them something. Reciprocity is a valuable tool that we don’t use enough in our industry.

Joe Fairless: I agree. So then you talk to them… But then now it’s over. They’ve gone home to their other home. What do you do to follow up with them?

Dan Plowman: Well, I’ll tell you, in our industry there’s one of three things that happen with a lead. And in my opinion, every name and phone number is a lead. Most of them will be duds, some will be follow-ups, and others  will  be appointments. So if the category for which after meeting people in the open houses fall into follow-up, that’s awesome. I build as many follow-ups as I can, and I incubate that. That follow-up sequence has to be done properly – great notes, a proper contact relationship management system… If you don’t have a great CRM in this industry, you will not be comfortable pushing leads into it. A great CRM that works in our industry in my opinion is Real Estate Flow. We use Real Estate Flow, it’s the best; it’s built by realtors, for realtors… But I genuinely believe there needs to be more value placed on follow-up, more so than even the deals. Because the deals, again, are a natural by-product.

Joe Fairless: How do you determine if someone’s a dud or a follow-up?

Dan Plowman: Well, I’ll give you an example. If somebody says to me “No, I have an agent. I’m fully committed to him. I bought my last three homes with him. There’s no way I’m buying with anybody else” – that’s a dud [unintelligible [00:17:48].17] database.

Joe Fairless: Yup.

Dan Plowman: If somebody says “My mom is a realtor. I’m gonna buy with her or she’ll disown me and I’ll never have Christmas dinner again”, I’m not gonna put that in my follow-up system. But there are a lot of people with those conditioned responses that will say things like — let’s say we just had a registry sign-in sheet that says “Pam and David Smith”; one of the boxes that I don’t on some sign-in sheets [unintelligible [00:18:10].19] because we teach, coach and train people on how to build their business right across North America… And some of the sign-in sheets I don’t like is when they say “Do you have a realtor? Yes/No.” Everybody is gonna say yes, because they don’t want you to call them.

Joe Fairless: Right.

Dan Plowman: Especially when they’re just looking, “Leave me a alone. This is a free open house. Don’t ask me questions.” So this is why we try to break the pattern with the swag, and this is why I don’t think you should have that box. But I would still follow up with those people. There’s a language to use specific that can break that pattern as well, and bring that down. And when I’m able to say to people “If I could show you value, or some things that you maybe haven’t seen, would  you be open to it?”, quite often they’ll say “Well, I’m not really working with an agent. They’re just kind of sending me some stuff” – well, that’s not a commitment of any sort to me.

Joe Fairless: I’m gonna ask you a question you might not have an answer to, but that’s okay… It’s just something I’m curious to hear your thoughts on. And before I ask you that question, just a little bit of context. My wife and I have gone to a decent amount of open houses recently, in some nice areas; we’ll say we went to like 15. And these are nice homes. Of those 15, one real estate agent ended up following up and putting us on their e-mail list, but the other 14 – nothing. And we didn’t give any red flags to be categorized in the dud category; we didn’t mention anything that would put us in that category, so we should have been in the follow-up or appointment category. Why do you think by and large real estate agents don’t do this type of stuff? And if they haven’t come across you, or stuff you’ve been talking about – well, there’s still certain components of this, like follow up; it should just be something that they do. So why do you think that is?

Dan Plowman: Well, I believe without question it’s the old “20% of the agents make 80% of the money”, and I think I’ve watched that go to about 95% and 5% in the last 25, almost 30 years. In other words, the majority of the money is being made by less and less realtors and commission salespeople. And the reason for it is they’ve managed to make the shift, understanding that business is not like it used to be.

I go back 15 years, even 12 years I can go back, and there were people that were still further in the buying cycle be comfortable calling a real estate agent and talking to them. People have more access to things online now, they don’t need our services until really the very end. Quite often, people already know the home they wanna buy before they even call to see it… And that’s a problem for real estate agents that haven’t transitioned and understand that when people are enquiring or going through open houses, early in the buying cycle, if you don’t see the value in getting names, numbers and following up, you’re missing out, because the massive opportunity and the shift that’s happened in our industry – that’s what it is now; that’s what’s going on.

From those 15 agents I think you said one followed up – the one that followed up, I would bet, is either new in the business and enthusiastic, or has a successful team of some sort already. That’d be my guess. And I don’t know, I’d have to check… But I do know [unintelligible [00:21:10].29] they’re living paycheck to paycheck, they’re on the hamster wheel, and they’ve not built a viable business, and they don’t have a follow-up system, they don’t have Real Estate Flow working for them… They’ve just not leveraged people, technology and marketing. And it’s a mindset.

I think the shift has to happen in our industry, and until it does, there’s gonna be more and more people fumbling over, hoping to find the scraps of people who are now in business. It’s just not the same anymore.

Joe Fairless: Taking a step back, what is your best advice ever for real estate agents, since that was the focus of our conversation? What’s your best advice ever for real estate agents?

Dan Plowman: For anyone, whether they’re new in the business or coming in?

Joe Fairless: Yeah, pick whichever subset you’d like to pick, or all of them.

Dan Plowman: Okay. I think the best advice I could give someone is understanding that you don’t need more leads, you need to understand how to convert leads and be organized with the leads that you will have. Once you master that, then invest money on leads. Otherwise you’re gonna go broke and you’re gonna hate this business.

I’ve watched people who are veterans that still sit at my seminars and put up their hand as soon as I say “What’s the most important thing, your leads, or learning how to convert them?”, and they always say leads. I say “I can give you a bunch of leads right now and you’re gonna convert them terribly and you’re gonna tell me they’re a waste of money, and you’re gonna hate the business more.”

So I think getting organized and understanding the business side of conversion, what it means to establish relationships and value follow-ups… Because again, the deals are a natural byproduct of doing the right thing, so we don’t set our business up in that regard. We just jump into this business in knee-jerk, “How can I make money quickly?” It’s the wrong approach.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Dan Plowman: Okay, you hit me.

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

Break: [00:22:58].21] to [00:23:52].21]

Joe Fairless: Best ever book you’ve recently read?

Dan Plowman: Best ever book I’ve recently read would be High Performance Habits. That’s Brendon Burchard’s book. How Extraordinary People Become That Way.

Joe Fairless: And I know you’ve got some rental properties of your own, so among those rental properties you currently own or previously owned, what’s the best ever deal you’ve done?

Dan Plowman: I think the best ever deal I’ve done would be some of the larger plexes that I leveraged, filled up with tenants very quickly, and then realized the equity opportunity after new appraisals to leverage more money against them.

Joe Fairless: What’s  a mistake you’ve made on a transaction?

Dan Plowman: We’re talking investments still?

Joe Fairless: Yeah.

Dan Plowman: Okay. When you say mistake I’ve made regarding a transaction, that could be relationships too, right?

Joe Fairless: Sure.

Dan Plowman: I’m kidding, man… [laughs] That opens a whole new conversation. I think the biggest mistake I’ve ever made on a transaction – for a personal transaction, is that what you mean?

Joe Fairless: I don’t care, just any transaction… [laughs]

Dan Plowman: Okay, well from a real estate perspective, I remember taking a referral from somebody else and not doing due diligence to understand there was a pipeline in the backyard, and the client who purchased it wanted to put a pool in there, and I was sued. That was a pretty big mistake.

Joe Fairless: Oh, what happened?

Dan Plowman: Not doing the proper searches as a listing agent. Here we have a fiduciary duty and obligation to know everything.

Joe Fairless: Did you lose that lawsuit?

Dan Plowman: Oh, I lost the commission fully, and an additional $2,500. It was about $15,000.

Joe Fairless: Argh!

Dan Plowman: That was the first year in the business. That’s no excuse, but I’m glad I learned that one early.

Joe Fairless: That’s right, yes. What’s the best ever way you like to give back to the community?

Dan Plowman: We do a lot of work with people here at Christmas time. We feed a lot of people. Our last Turkey Drives that we did, we fed 300 families at Christmas. That was pretty cool.

Joe Fairless: Best ever way the Best Ever listeners can learn more about what you’re doing?

Dan Plowman: DanPlowmanCoaching.com. We teach, coach and train people on how to go to the next level, and I’m all about picking up an extra two deals a month as quick as possible. That may sound like a lot to some people… It’s not. If you’re doing 50-75 deals a year, I can get you to 150-200. We do it with coaching clients now; I’m selling 400 deals a  year. I know we can do it. And I really enjoy helping people do that.

Joe Fairless: Well, you’ve got a lot of really good things to say, and I thoroughly enjoyed learning from you today. A couple things that stood out – immediately address what someone thinks is the issue, and that’s how you were able to achieve Rookie of the Year status when you first got started. When you knock on the door, people don’t wanna talk to you, but then if you immediately address what they think is the issue, then you find a way to have that value exchange. Just incredibly savvy and effective move. That was beneficial to all.

And then also being able to convert those leads as they come in. And the open house. You ran a brokerage, other people had listings, they would gladly let you go help them make a commission by hosting the open house, and you used that as an opportunity to build your database and build your relationships, and as you said – I’m paraphrasing – deals are a by-product of our relationships.

Thank you so much for being on the show. I thoroughly enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you soon.

Dan Plowman: I appreciate the opportunity. Thank you.

 

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JF1720: Building A High Volume House Flipping And Turnkey Rental Company with Antoine Martel

Antoine has been investing in real estate for four years now, and he’s only 23. Turnkey was not always the business plan, but that is what the company has grown to. Just two years ago, they did 10 houses, last year they did 60, this year they’re on track to complete 100 deals. Learn what he does to grow his business to 100 deals per year in four years. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“From the networking, I had a pool of people that were interested in turnkey rentals” – Antoine Martel

 

Antoine Martel Real Estate Background:

  • 23 year old real estate investor
  • Does 100 flips per year (turnkey rentals), owns a 20 unit apartment building
  • Based in LA, CA
  • Say hi to him at https://martelturnkey.com/
  • Best Ever Book: The 10X Rule

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


TRANSCRIPTION

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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Antoine Martel. How are you doing, Antoine?

Antoine Martel: Very good, how are you? Thanks for having me.

Joe Fairless: Yeah, my pleasure. I’m doing well, and looking forward to this. Antoine is a 23-year-old real estate investor who owns a 20-unit building and does 100 flips per year that are turnkey rentals. Based in Los Angeles, California. With that being said, Antoine, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Antoine Martel: Sure. This all started four years ago when I was 19 years old. I was in university, I went to Loyola Marymount University down here in Los Angeles. I didn’t wanna get a job after graduating, I wanted to go and do my own thing. I was studying entrepreneurship at LMU, and I wanted to really start my own company out of college.

While I was at university I went to a real estate investing seminar. They were talking about flipping houses, and wholesaling, and all the different ways that you can invest in real estate, and flipping houses was the most interesting to me… So I started to make all these offers in Los Angeles, but I didn’t have much money in the bank account; I was just a college kid, and my parents didn’t wanna fund a full rehab project for a million bucks here in Los Angeles, so after placing 20 offers a month for a number of months and never got anything under contract,  I realized I needed to change my strategy. That’s when I heard about rental properties out of state, and I thought that would be the perfect fit for my parents.

My dad owns his own company, my mom had her own company, so no retirement account, no 401K, but my parents had some money saved up, and I thought that it would be a great way for them to have a plan to retire at least, without having a 401K… So I started researching all these different markets out of state, and found a couple of good ones – Memphis, Cleveland, Birmingham, St. Louis. I went to Memphis, TN, bought a single-family home, renovated it, rented it out, and then did a cash-out refinance (the BRRRR strategy). My dad funded that first deal. We bought that first house in my last semester at university. Then I graduated in May and told them, “Hey, I can keep buying these properties out of state and keep growing the family portfolio”, so that’s what I did.

My dad paid for my living expenses for a couple of months so that I can grow the family portfolio, and by the end of that year we had ten single-family homes in Memphis. Then after that friends and family started reaching out to us to invest out of state as well, because they had never heard of people buying properties halfway across the country.

We started selling properties out of our portfolio to our friends and family, which led us to the company we have today, which is a turnkey company. So that’s what started it. We were like, “Oh, okay, we don’t’ have to refinance every single property. We can also sell it and make a profit, and then use that cash to keep growing the family portfolio.” Now we’ve built that company up the last couple of years to where we are today, and in 2019 we’ll do over 100 single-families and duplexes.

Joe Fairless: How many did you do last year?

Antoine Martel: Last year we did 60, and the year before that we did those 10.

Joe Fairless: Wow. Okay – 10, 60, 100. How did you go from 10 to 60?

Antoine Martel: Great question. I raised a lot of money here in L.A. So I was not only working on building teams on the ground in all these different markets, and researching markets, and finding the right projects, but then also we had run out of money, so we kind of started this whole thing with just $50,000. That first house – we bought it with $40,000, renovated for 10k, then did a refinance, and then my dad had all this money back because of the refinance and the way that we financed it. So we were able to pull all our money out and that’s how we grew our portfolio to ten properties.

Then after that I kind of built all these different case studies based on those ten projects, to show people that I knew what I was doing, and that I had rapport, and that I’ve done similar projects and similar project types in those neighborhoods… And then I would just network all day, every day, on Bigger Pockets, and go take people to coffee, or lunch, or dinner, and just share with people what I was doing. That in turn helped me grow my list, and grow my network from zero to 100 people, and those people started funding our deals then. They were equity investors on the turnkey flips.

We would buy a property, renovate it, rent it out and then resell it on our website, and people would fund those projects, they would fund 80%-90% of the project and then get a percentage of the profits. That allowed me to scale; with my $50,000, now I can just put $5,000 or $10,000 into each project, so it allowed me to go from one deal to ten deals really fast.

Joe Fairless: How much did you raise to the best of your recollection that year, from investors?

Antoine Martel: That year… So 60 projects, times $50,000 each, would be around how much I raised.

Joe Fairless: I will do that. Three million. Yup. You raised three million dollars. Approximately how many investors did that comprise of?

Antoine Martel: And again, people repeated their money, because these projects are very quick; they’re two or three-month projects in and out, renovations and reselling… Because we don’t have to list them on the market. So I had the investors — again, from that networking I also built a pool of people who wanted to buy turnkey rentals, so it was great. No matter what, I would walk into those networking meetings, or the coffee, or whatever it was, and I would get something out of it – either an investor, or somebody who wanted to invest in turnkey rentals. So it was perfect for me, because I got both ends of the spectrum.

The amount of investors – it was probably close to 50 investors, but the investors would keep reinvesting their cash over and over, because they would invest 50k, then they would get their money back plus the profit in 2-3 months, and then they were like “Oh wow, this is actually working” and then they would invest 150k. So it helped scale up very quickly the dollar amount that I was able to raise.

Joe Fairless: What were the terms?

Antoine Martel: It was a joint venture. Our LLC would buy the property, they would invest in that project and partner with us on that project, with our LLC, they would fund 80%-90% of the total cost, which is purchase price plus the rehab, and they would get close to 50% of the profits, sometimes a little bit less. So the annualized returns were incredible, because they were making a 10% return, but they were making it in 2-3 months.

I think it was worth giving that return at the very beginning, because then people kept doubling down their money and it helped me really scale the whole company.

Joe Fairless: And that’s why I said “were” those terms… What are the terms now?

Antoine Martel: [laughs] Yes, that’s something, too. We looked at those 60 projects at the end of the year and we were like “Here’s our profit, and here’s the payout to investors”, and it was literally like 50% of the payout. And then we had a little bit of overhead for other things that we don’t really put on a per-project basis.

We changed our model now… We still do joint ventures here and there to those people who are kind of grandfathered in and still have money with us, but we’ve kind of converted everybody to just being private money lenders, where people just lend money and they make 1% a month for a six-month project or less… So 12% annualized return is what we pay out to the investors, and first lien position, and all that kind of stuff.

Joe Fairless: Any points at closing?

Antoine Martel: No points at closing.

Joe Fairless: Okay, so just nice and clean, make 1% a month.

Antoine Martel: Easy. Right to their bank account, too. We just get their ACH, and then every single month they’re paid out. At the end of the project they get their principle back, hopefully they don’t want it back, and they just keep it with us and we keep growing their money.

Joe Fairless: What’s a deal that went backwards/sideways, just terrible on you?

Antoine Martel: I’m lucky enough to not have had a terrible deal yet. We’ve had some deals that have been pretty close to breaking even. We were lucky that we didn’t have any investors in those deals. That’s something else, too – we started doing more and more deals with our own cash, which helps expedite our growth of our own money as well. Raising private money, paying them 1% a month, but then also using our cash more and more to fund these transactions.

A deal that did go south – there’s a couple on the top of my head. One of them was stuff being stolen. We bought a house, and the day we closed, the furnace and all the ductwork was stolen out of the basement of this property in Cleveland. So I went and filed an insurance claim etc. They denied it. Then I replaced the furnace, I paid for it… The renovation was completed, and we were listing it on the market for rent, so whoever was watching the house knew it was vacant, because the contractors had left. Somebody goes back to the house and steals the brand new furnace again.

Joe Fairless: Ooh…

Antoine Martel: [laughs] So they must have been watching this thing, because… I don’t know. They timed it so perfectly. That eats your profits… A couple thousand bucks we had to pay out, times two, and our projects are pretty slim on the profit… There’s a big margin, but the profit dollar-wise is pretty small… So yeah, two furnaces and all the ductwork being stolen out can take a heavy hit on your profit… But we were able to probably break even on that deal still, even though we got all that stuff stolen from us.

Joe Fairless: Did you put another furnace in it?

Antoine Martel: Yeah, we had to, because there was tenants moving in.

Joe Fairless: Do you do anything to try and protect it?

Antoine Martel: We can do that with HVAC units. We can put cages around them etc. What we actually ended up doing was we waited for a tenant to set a move-in date, and then 24 hours before the move-in date we went and installed the furnace. These people who do this, who are stealing it, could be contractors, or contractors’ friends, or somebody who has a lockbox code… But they really watch the property and they check to see if the properties are vacant. They don’t wanna do it when somebody’s living there. Most of the time that doesn’t happen, so… We decided to just install the unit as soon as the tenant moved in.

Joe Fairless: How were they getting in?

Antoine Martel: There was a basement, and then from the backyard there was kind of a  barn door that would open with a left wing and a right wing, and they went and just popped off that lock every single time, because it was a piece of crap. So they just kept popping it off and breaking in through that little door in the back.

Joe Fairless: Isn’t there some video or security system, like maybe Simply for something like that, that you could install relatively inexpensively?

Antoine Martel: Yeah, we’ve never thought of that, because this doesn’t happen very often. We’ve done probably close to 100 projects now over the last couple of years and it’s happened twice where stuff has been stolen and restolen. Most of the times the insurance company will cover it, up to like a $10,000 a personal property… It just so happened that this time the insurance didn’t wanna cover it. Normally, we’re protected with that insurance company, just this time, for whatever reason –  it was the timing, or something – they didn’t wanna cover it.

Joe Fairless: Alright, we’ll move on. Contractors – I’m sure contractors are challenging. Do  you live in Los Angeles?

Antoine Martel: Yeah, I live in Los Angeles.

Joe Fairless: Alright, you live in Los Angeles. Your projects are not in Los Angeles. How do you navigate contractors, what are some tips you have?

Antoine Martel: Great question. I get this question all the time too, from people who are looking to invest out of state. One thing that I do where I haven’t had too much of an issue with contractors – I had only started having issues with contractors when I got into multifamilies. Again, I bought a 20-unit building back in December, a couple months ago, and we’ve only had troubles with contractors who are doing special things – HVAC, or electrical, or plumbing; just those contractors, the special contractors have been hard for us to find and navigate.

The general contractors have generally been – knock on wood – pretty good to us thus far. I think the reason why is just the method that I have used to find and vet those contractors. What I mean by that is I never picked up the phone and called a bunch of contractors and vetted them over the phone. I never went and visited, or shook hands with contractors, or personally chose a contractor for my project. The reason why is I’ve set up my teams on the ground to have a project manager (you can call it) for every single market, and those project managers have been people who have been doing real estate and renovation projects for many years in these markets, so they already have the contractors that they really love and like on speed dial.

I have been hiring these people to manage those projects, manage the contractors, and choose the contractors for me. I think that by doing that I haven’t had too many issues with general contractors, because I have that person who already has those pre-existing relationships with contractors on the ground actually manage the team. Some of these people – they go for beers after work, and they’re friends, and they hang out, and their families know each other… So if I just come in, the guy from California, and meet that guy from an ad, or calling him off of HomeAdvisor.com, or something like that, he may not trust me as much; but I think that putting that buffer in place – now it’s John’s project, and they’re friends with each other, but it’s unrelated to me, and they already have that pre-existing relationship.

Joe Fairless: How do you find the project managers?

Antoine Martel: There’s a couple of ways. Most of my project managers are either realtors, or they work in some fashion with the property management company. The most important thing for me, having a turnkey company and having rentals out of state, is the property management company. They play an integral part in the renovations, in taking the photos, in getting the properties rented… So a lot of these property management companies will have people already; a lot of them are required to have agents on board on their staff and on their team, in order to sign the lease agreements and all that kind of stuff. Many of those people also buy and sell real estate on the side…

So when I first go into a market, I try to find the best property management company that I can find; I don’t need it to be a huge property management company, with 3,000 doors. I’m fine if they have 300-500 doors or less; 200 doors is fine with me as well, as long as they can have somebody on staff who can help me grow my business, which therefore will help them grow their business. So if I can pay somebody off the property management staff, or just an outside realtor to manage my project, and then once that renovation is done, they help me take the photos, and then the property management company comes in and they’ll rent that property out… And they’ll be able to grow their property management business all because they helped me get the project from point A, which was unrenovated and not tenantable, to rented out. Now the property management company gets to grow their business by helping me take the project from unrenovated to renovated and rented out.

Joe Fairless: What fees do the property management charge you?

Antoine Martel: All of my property management companies charge first month’s rent as a lease-up fee, and then they charge 10% of collected rents on an ongoing basis.

Joe Fairless: Let’s talk about that 20-unit apartment building… When did you buy it, what are the numbers, where is it?

Antoine Martel: Sure. The apartment building is in Memphis, Tennessee. 20 units. We bought it in December of 2018. We bought it for a million dollars, so $50,000 per unit. The renovations entailed of full exterior renovations – painting, removing the bars off the windows, renovating the courtyard, installing all new doors, all new lighting, all that kind of stuff, and then also renovating the interior.

The rents when we bought the property were $550/unit. This is a B class, B- neighborhood. It’s in between a hospital district and a bunch of hipster upcoming hot spots. There’s a lot of young millennials, young professionals moving into the neighborhood.

Joe Fairless: What area of Memphis is it, for anyone familiar with it?

Antoine Martel: It’s in Midtown Memphis. The rents were $550/unit when we bought it. Our initial underwriting was we can renovate the units, renovate the exterior and increase the rents to $725. It turns out that we  were actually able to raise the rents — we spent a couple thousand dollars more per unit to get stainless steel, and granite countertops, and all this kind of stuff, and we were able to get the rents from $550 all the way up to $850, and we’re about halfway done with all of the units now, and just slowly as tenants leave we’re renovating the units and re-leasing them up for a much higher rent than we thought.

Joe Fairless: How much are you investing per unit?

Antoine Martel: Per unit it’s gonna be around $7,500.

Joe Fairless: That’s a 48% return. That’s pretty good.

Antoine Martel: Yup. [laughter] Yeah, it’s very good. And then the goal is to do a cash-out refinance with Freddie Mac at the end of the year, and just like we started with the single-family homes, do the same thing for the apartment building. We’re expecting to be able to pull out all our money at the end of the year, when we get long-term Freddie Mac financing.

Joe Fairless: A 20-unit last December, that is  a value-add deal… How did you find it?

Antoine Martel: Great question. For about nine months last year I built a list of brokers on LoopNet, and others methods, just collecting as many brokers in the multifamily space as I could, who are doing apartment buildings or multifamily in Memphis, Cleveland, Birmingham, all of my markets. And I collected this list of brokers and called them first, and told them who I was, what I was trying to do, what I was looking for, my criteria, and then every two weeks I set it up on just a calendar thing – every two weeks I would either call or e-mail these people, reach back out to them, ask them if they have any deals available, if they have anything that fits my criteria.

So every two weeks for about nine months I did that, and then it just so happened I emailed one of those brokers on a Thursday night, and he said “Oh yeah, I just got a deal that fits these criteria perfectly. I’ll send it to you in the morning.” Friday morning he sends me a little  jenky email with a couple of sentences and he says “Hey, you’ve gotta make an offer before we send you the financials.” I was like, “Okay, well, my offer is a million bucks then. There’s nothing else I can do.” The numbers worked at a million bucks based on the tiny information that I was given.

Joe Fairless: What info did they give you?

Antoine Martel: He told me 20 units, one-bedroom/one-bath units. He told me what the average rents were; he just wrote “Average rent – $550.” And then he told me the operating expenses, whatever the dollar amount was, and then like a taxes dollar amount, insurance dollar amount. And the last sentence – “You need to submit an LOI before we give you any other information.” I was like, “Okay…” He left me between a rock and a hard place.

So I just did a super-simple back-of-the-napkin thing, and the price per unit made sense, the rents definitely needed to be increased, so based on that we just submitted the LOI. And I wrote in the LOI that due diligence doesn’t begin until I get all the financials. I wanted to make sure that they actually had some financials, because trust me, there’s some landlords who just don’t even keep records, and they just keep it on a napkin as well.

Joe Fairless: Let’s go back in time – we don’t have to go back too far, because it was fairly recent, but… You said you did that for nine months. You made a list first, and then you called or e-mailed brokers from your list, every two weeks, and you followed up with them. Let’s travel back in time to month eight. So you still haven’t got a deal, but you’ve been doing this for eight months. What internal thoughts do you have at that point in time?

Antoine Martel: That’s hard… You just have to keep going, and I just kept listening to podcasts like this; people just kept saying “Yeah, just keep following up with the brokers, keep following up with the brokers.” So what I would do is I would just kind of keep changing my e-mail, and… I analyzed a lot of deals in those nine months, so I knew that it was working. It wasn’t like I wasn’t getting any replies, or I wasn’t getting any deals. Every time I would email, I would get a deal; maybe something on the market, or whatever… But sometimes I would get these off-market deals, I would run the numbers and go back to the broker and tell them “Hey, this deal is just way too overpriced. I can’t make this make sense at this price, but keep sending me stuff that you have.”

So there was this relationship that I was building, because I was replying to these people’s e-mails, giving them feedback on their listing from an investor’s perspective… So throughout those eight months – yeah, it was hard to keep going and to keep analyzing deal after deal after deal after deal, but I just knew that the break had to come eventually, and there had to be some landlord or some owner who was distressed, and it just so happened to be one month later, after those eight months of e-mailing and underwriting probably a hundred deals, that I was able to find the deal that made sense.

Joe Fairless: How many brokers were on the list?

Antoine Martel: I think 20, in a bunch of different markets, too.

Joe Fairless: How long does that take you to go through and follow up with 20 brokers?

Antoine Martel: Probably 30 minutes.

Joe Fairless: That’s it?

Antoine Martel: Yeah, because I had a template email just in my notes…

Joe Fairless: What did it say?

Antoine Martel: It was “Hey, my name is Antoine Martel. I’m a real estate investor, I own a turnkey company called Martel Turnkey. We buy, rehab and resell 100 homes a year.” And then I would say “Hey, I’m looking for apartment buildings in (whatever the market is) Memphis, Cleveland etc. I’m looking for 20 units or greater, less than 3 million dollars, cap rate between 7% and 8%, and I’m looking for 90%  occupancy or higher.” That’s kind of what the template said.

The last couple of sentences would be — I would change it up every single time. I would say something like “I just did a huge cash-out refinance…” I had a four-unit building last year that I bought as well, so I had done a cash-out refinance, so I would just include that little two-cent change in there as well. So I would say “Hey, I just did a cash-out refinance, and was able to pull out $250,000, and I’m ready to go. I just got the check from the bank.”

Every time that I would email, or every month I would kind of change up that last final sentence, to kind of tell them why I had cash and why I would be able to close, and that I just sold something, or I just refinanced something and got the money to be able to close.

Joe Fairless: And that’s the first email, because you’re not gonna introduce yourself to the same broker every two weeks, or else you’re gonna get in the spam folder, in his or her e-mail… So what were the follow-up e-mails?

Antoine Martel: The follow-up e-mails were very similar. Instead of introducing myself, I would just say “Hey, by the way, I’m still looking for apartment buildings. Here’s my criteria”, and then “By the way, I just did a cash-out refinance and I have funds available, ready to close.”

Joe Fairless: Every couple of weeks you’d just mix up the talking point. Sometimes you requalify yourself with “I just got a refinance”, sometimes it’s just other things about your criteria, or whatever else… Okay.

Antoine Martel: Yeah. And then let’s say I had a ton of cash in the bank one month, or one day – I would just take a screenshot of it and I would include that in the e-mail, too. Because I think a lot of these brokers get e-mails from California people all the time, and then they don’t really know that the people have actual money and they’re actually looking to close… So I think that showing them the bank account and showing them the number that I had… I kind of made it urgent, like “Hey, I need to get rid of this money. You’d better sell me something.”

Joe Fairless: [laughs] Oh, I love it. And how much was enough? How much would you be like “Okay, now I think I should send this” versus “Oh, they might laugh at me. I don’t know if this is enough.”

Antoine Martel: Since I was looking for 20 units, anything over 500k-600k I would just take a screenshot of it and send it. I think the first time I did it there was a million dollars in an account, and I just took a screenshot and I was like “I’m gonna use this for months.” [laughs]

Joe Fairless: Yeah, forever… [laughs]

Antoine Martel: So I took a screenshot of that, and then for a couple of weeks I would e-mail that and be like “This is urgent. I need to buy something. I need to get rid of this money.” So… yeah.

Joe Fairless: Wow. So smart. Thank you for sharing all of your stuff. I’ll summarize some lessons learned in just a moment, but first, what’s your best real estate investing advice ever?

Antoine Martel: Best real estate investing advice ever is to match your resources to the best strategy that makes sense for your resources. What I mean with that is a lot of people will do all this homework, and study all these different ways to invest in real estate, and buying 20 million dollar apartment buildings may be the most sexy or most attractive to you, but then look at your resources – how much time do you have? How much money do you have? What’s your experience level? Match those three things with the best strategy that makes sense today, that you can get started today… Because trust me, if you have $10,000 in the bank account and your end goal is to buy 100 million dollar or 20 million dollar apartment buildings, you’re gonna have to take a lot of steps to get there. Start with step one. That may not be even related to apartment buildings. It may be single-family, it may be Airbnb etc. But at least get your foot in the door and match the strategy today that makes the most sense for your resources that you have today.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Antoine Martel: Let’s do it!

Joe Fairless: Alright, let’s do it! First, a quick word from our Best Ever partners.

Break: [00:25:36].08] to [00:26:38].20]

Joe Fairless: Best ever book you’ve recently read?

Antoine Martel: Best ever book I’ve recently read was The 10x Rule by Grant Cardone.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about?

Antoine Martel: In Cleveland we have this thing called “Point of sale inspections”. When you buy a property, you have to put pretty much a hold, which the escrow company holds until the renovations are completed, and I just realized yesterday that I sold two properties a couple of months ago and didn’t ask for the POS hold money back.

Joe Fairless: Best ever deal you’ve done?

Antoine Martel: The 20-unit apartment building.

Joe Fairless: Best ever way you like to give back to the community?

Antoine Martel: I sometimes go to the Los Angeles National Forest and we plant trees and clean up the shrubs, and brush and replant new trees, and also clean up the existing trees in the forest.

Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing?

Antoine Martel: I post a lot on Instagram. My Instagram handle is @martelantoine. If anybody wants to reach out to me, all my contact info is on my website, MartelTurnkey.com.

Joe Fairless: I thoroughly enjoyed our conversation. I learned a lot. You’re very wise, and have some great perspective and resourcefulness. Just making a list of brokers from LoopNet, calling them every two weeks, or e-mail them, and doing it for nine months, and giving them feedback along the way when they do send you deals, and then ultimately sending deals and switching up the follow-up process. That’s just great.

And then I loved the “Match your resources to the best strategy to utilize those resources.” I might have butchered that a little bit, but…

Antoine Martel: No, that’s good.

Joe Fairless: That’s the paraphrased version. And also just how you got out of the gate, senior in college, and started the company with your family, and then have grown it from there… So thanks for being on the show; I enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you again soon.

Antoine Martel: Absolutely. Thanks so much for having me.

 

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JF1706: Transitioning From 100% Passive Real Estate Investing To 100% Active #SkillSetSunday with Lennon Lee

Today we’ll hear a case study from our guest Lennon, about how and why he started as a passive investor, and transitioned into active investing. Lennon actually started out with the intention to be active, but used the passive route to learn the business a little while getting returns on his money. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“I wanted to be active but learned the business by being passive” – Lennon Lee

 

Lennon Lee Real Estate Background:

  • Founder of BLD Capital Group
  • Has been involved in the acquisition of over 1,500 units of multifamily real estate with an approximate market value of $150 million
  • Based in Miami, FL
  • Say hi to him at https://www.bldcapitalgroup.com/

 


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TRANSCRIPTION

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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Lennon Lee.

First off, Best Ever listeners, and Lennon, I hope you’re having a best ever weekend. Because today is Sunday, we’ve got a special segment for you called Skillset Sunday. Today’s guest, Lennon, has gone from being 100% passive to 100% active, and he’s gonna talk about how he did that, so that if you choose to take that path, well, you’ve got a roadmap. Hello, Lennon.

Lennon Lee: Hello! How’s it going, man? Thank you for having me on the show. It’s my pleasure… It’s been a couple of years I’ve been on the other side as a Best Ever listener, and now I’m glad to be on this side, sharing some tips and knowledge and lessons learned.

Joe Fairless: Yeah, I’m looking forward to it. I’ve known Lennon for 3-4 years or so, and I consider him a friend of mine. And yeah, you’ve been a listener to this show as well, but then a little bit more about Lennon – he’s the founder of Build Capital Group. He’s been involved in the acquisition of over 1,500 units of multifamily real estate, with an approximate value of 150 million, both as a limited partner, as well as a general partner, in varying degrees. He is based in Miami, Florida.

So you started out as a passive investor 100%, and now you are an active investor 100%. The outcome for our conversation ideally would be for the listeners who are looking to be more active, but are currently passive, to give them some tips along the way, based on lessons you learned from going passive to active. What’s the best way to start out our conversation?

Lennon Lee: Well, I would say that in order to really understand not only the path of going from passive to active in multifamily, but I guess in life in general, if you wanna start a journey, I would have to say start with a goal in mind, and the dissect it, know what actions you need to take along the way, and then try to follow that map, even though it’s gonna change along the way… But if the goal is very defined, I think you’ll get there, one way or the other.

Joe Fairless: When you start out, you had the intention of being active, even though you were a passive investor.

Lennon Lee: Yes. When I started investing as a limited partner/passive investor in multifamily real estate, I did so with an operator that I essentially set out to meet and build a relationship with before I invested… But even before actually investing, I took the time to look at the asset class, understand all the trends and everything related to how it worked and how it was gonna be a good investment for me and my family… And I immediately said, “Well, I not only wanna be a passive investor here, but I wanna start my journey into actually doing the deals myself.” So yes, it was very clear from the beginning that I wanted to end up syndicating and sponsoring a big multifamily deal, and the first step that I took — and obviously there’s no right or wrong, but for me it definitely was the right step to take starting off.

Joe Fairless: And the first deal that you did passively – was that the one that you invested in one of Ashcroft’s deals?

Lennon Lee: Yes, correct.

Joe Fairless: Alright. I wanted to make sure [unintelligible [00:05:08].23] That’s cool, because I can think about it from my perspective when I was talking to you about that deal… So you were wanting to be active, but you wanted to first learn the ropes from a passive standpoint… So what are some things that you learned while investing passively, that you then used to transition into more active investing?

Lennon Lee: Well, initially, the main thing would be understanding how I wanted to be treated as a passive investor, because I knew eventually I would have limited partners or passive investors on the other side, that I would have to build a relationship with, communicate with, and provide education and everything in between… So I wanted to have that experience from that side of the business, of being totally passive; I wanted to understand as an investor first, because I did have some capital that I needed to move, and I decided to move it into multifamily… So I obviously wanted to get good returns, and I wanted to know my numbers, and everything.

So I would have to say that going as a passive investor first allowed me to not only start building a little bit of confidence in the asset class, more so beyond the educational part. I think that was the whole idea I wanted to understand first, before starting to get a little bit more active.

Joe Fairless: Did you choose the asset class and then find the operator, or did you find the operator, and then I was in multifamily, so then you decided “Okay, I’m gonna passively invest there”?

Lennon Lee: I chose the asset class first. I studied the asset class on itself, and I then actually started looking at the different strategies within the asset class, strategies that people use to invest, meaning actively buying a duplex, to syndicating 100, 200 or 300-unit deals. So I chose the asset class, then I started looking at the strategies, and I was trying to find the right fit for me and for my family’s capital, which was the passive investing side. Then I found out about syndication and how we had the opportunity to actually partner out with some proven operators that know the market and have done this, have done that, been successful at this… And I decided to go take that route.

Joe Fairless: So you invested passively in — how many deals did you invest passively in?

Lennon Lee: I invested passively, or as a limited — well, now I can’t say it is passively, but as a limited partner, I invested (I would say) on 90% of the deal that I’ve done, and I’ve done seven deals that I’ve been involved in… And I would definitely say at least six of them I’m a passive or limited partner in.

Joe Fairless: Okay. So you were a passive LP in six of them… And there’s a big difference from passively investing in a deal and learning things along the way, to actually putting an entire deal together and bringing your own investors. It’s an A to Z leap, so help us see how you went from A, B, C, D, E, F, G, H, I, J… All the way to Z. Because those are the two extremes, and a lot of people would love to learn about what you did to get there.

Lennon Lee: Yeah, definitely. The first thing I did was to get a mentor. In my case, it was [unintelligible [00:08:38].12] and in my particular case it was you and your consulting program… But in general I would say that’s a very, very important step to take. A lot of people are afraid to pay for mentorship, and sometimes they don’t believe it’s fair, but I do think there’s a lot of value in it, and it accelerates the learning curve on this business, which is a very sophisticated business, with all the moving parts that are going on… So that helped me.

So again, that intentionality of “Okay, I’m gonna start passive, but I wanna get there as fast as possible, to the other side”, and the step that I took was to actually get a paid mentor that was gonna show me the ropes and that was actually doing what I wanted to do at a higher level… And combined with that, two things. The key to the whole thing is based on the relationship-building, so focus on really building a trust-based relationship, because that focus allowed me to open the doors to actually starting becoming an active investor, joining the general partnership side of these deals, and bringing my investors, and then eventually building more and more partnerships, building a network, ending up choosing last month a 138-unit that we syndicated – that’s me and a couple partners.

Joe Fairless: So let’s dig into the trust-based relationships, because I think from a mentorship standpoint — well, alright, let’s dig into both of those components, but I wanna focus more on the trust-based relationships and learn exactly what you did there… But from a mentorship standpoint, what should people look for in a mentorship program, and what are maybe some things to watch out for?

Lennon Lee: The angle that I wanna tag this, I would say, is a little bit higher level… Because a lot of people have good practical advice on what to look for in a mentor, and that’s “Make sure you do a background check, and then get referrals, or a couple of phone numbers of people that have worked with that person that you wanna potentially work with… And not only talk to them, but then  ask them who they know that has worked with this other guy, so take it a little bit further”, and I think this is something that actually — I listen to Tim Ferriss a lot, and it’s something that he recommends, just to take it one or two steps further from that first referral that they gave you, to further your due diligence on the person. Check for their track record, understand their business model in terms of the numbers and the systems they have in place…

All that I think is fair and obviously it’s required – or should be anyway – but at the end of the day I believe that it boils down to trust for the relationship at a little bit more of a personal level that you end up building with that person… Because ultimately, there’s a lot of people out there teaching, or mentoring, or with coaching or consulting programs, that are very well prepared, they have a good track record, they have good systems in place, they differentiate themselves, they may be focused on different aspects of the business a little bit more… But ultimately, they’re all good people or good consultants or coaches. What you wanna do and identify is who you identify with in terms of “Okay, I understand this person has the integrity, and I trust this person more than I trust this other guy”, just because maybe you get along better.

I think that in my particular case that was very important… So that personal touch and personal feel to me was paramount, especially getting started. If you remember, Joe, I’m in Miami, and I actually flew to San Francisco, all the way there to meet with you in person, spend a couple days with you and understand who you were…

Joe Fairless: That’s right! I forgot about that. At Jay Martin’s conference.

Lennon Lee: Yeah, correct. Exactly.

Joe Fairless: Right! I totally forgot about that. Yeah, you did…

Lennon Lee: Yeah. So I look at it that way, and I identify with you as a person first… And then I got into the details, “Okay, let’s see what you guys have done. Show me your track record, how you do deals”, and all that. But only after I actually knew I liked you, and knew you had integrity, and everything else fell into place there.

Joe Fairless: So 100% passive to 100% active, what specific relationships — and I’m not looking for people’s names, but I’m looking for more roles… What roles do you need to fill in order to have the right team in place to be 100% active?

Lennon Lee: First of all, you need to understand what values you can bring to the table. In my particular case, luckily I had — like I said before, I was moving a small portfolio of properties that we had here in Miami, and I started to move the capital (or I had plans to move the capital) into multifamily… So I said, “Well, I have a little bit of capital that I can leverage”, so I built a relationship with local operators in Texas, Ashcroft Capital being one of them, the first one. Then some other partners in San Antonio; in that particular case, for example, they were needing someone to provide earnest money to get the deal to the closing table, or under contract, really… And they were able to offer me a partnership under that structure, where I bought the earnest money, I was helping them basically control the deal, and I actually joined the general partnership with them.

I also started raising capital from my investors network for that deal, and I started marketing the project, and working on all my ongoing investor relations on all those deals.

So there’s different aspects for the deal… Like, if you don’t have the capital, maybe some people come in and say “Well, I have the deal, but I don’t have the experience”, so you can join forces with a more experienced group.

For example, marketing – there’s a lot of groups out there that they’re very good operators, but they may be a little bit lacking in terms of their marketing strategies, not only for their company, but for certain materials, for sending the investments, and the PPM, and all this… I’ve known people that are actually very good at marketing, and design, and all that, and they bring this value to the table and say “Well, if I can get on the partnership side, even if it’s with a small share, I can actually take care of all your investor presentations, to make sure or to try to guarantee that you’re gonna have a better result when it comes to capital raising.”

Joe Fairless: I never thought about that. Thanks for bringing it up. I’ve never thought of a passive investor using their marketing skills to get in on a GP side to help an operator who’s already got some track record, but they need to maybe shift their focus from institutional money to private, high net worth individuals, or they just wanna scale their network. That’s interesting.

Lennon Lee: Yeah, exactly. So I think the key is to really understand at what level the operator or the syndicator that you’re trying to partner with is at in terms of “Okay, do they really need capital? Because I can raise a little bit of capital… But maybe they’re not looking for that.” Maybe they’re an old-school company, they have all the money they need, but they probably need a little bit of help with the marketing aspect. If you do the deal right, you might be able to get a share of the general partnership and get involved through that avenue. So again, there’s different avenues; in my particular case it was raising capital from my network, and providing some earnest money deposits, and all that, for these deals.

Joe Fairless: So you leveraged what you could bring to the table, and then you used that as a way – which was money for earnest money – to then get in the general partnership. But in order to come across that opportunity, you met them through the mentorship program, right? Those guys…

Lennon Lee: Yeah.

Joe Fairless: Okay. So you joined the mentorship program, then you networked and built relationships with people, and then people in that program had a need, you had a way to fill that need, so you got in a deal… So now you’re from 100% passive to — okay, now you’re getting more active; you got in a deal, through selling some properties to bring that earnest money… And also, now that you’re in the deal, you can bring your investors into the deal, because you’re a general partner in the deal, so then you became even more active, because you’re now bringing investors into the deal…

So at this point in time you’re partnering up with a group on a deal… And then how do you make the evolution from being invited into a deal, versus now you’ll want to have the deal yourself, and put all the pieces in place? How did you get to that point, make that jump?

Lennon Lee: Well, it’s all relationship-based, and obviously, as you get more active in the industry, you’re gonna start building relationships and networking with people that are at your same level, and that have similar goals and a similar vision for their company. So if you have the intention, you’re gonna eventually end up finding the right partners.

And the beauty of our business model, if you will, meaning the way we acquire properties via syndication, is that the structure is very flexible. You can do a deal with a few partners, and then the next deal – you can do it with different partners, until you actually maybe find a partner or a group of partners that you wanna stick with for more years… But even then, you always have that flexibility.

In my particular case, I first didn’t have the want of actually being an operator myself, but instead I liked the part of being on the investor relations side and equity raising. So I said, “Well, for now I’m gonna continue to do deals on a somewhat-active…”, meaning that I’m active because I’m raising capital, doing marketing, investor relations and all that, but I’m not talking to brokers, and finding deals, and underwriting myself. So I’m gonna stick to that, because I always look at everything that I do from a passive investor perspective first, because that’s what I am first… So I wanna set out to build what I like to call “a curated network of operating partners”, with whom I could under the same structure and flexibility partner up with on the GP side, and do more deals, and offer my investors the opportunity to actually not get stuck with just me as an operator… When I have my deal – okay, we’ll get it done, but we also have these other partners that we work with.

So the way I ended up actually doing and pursuing a deal and syndicating a deal was by sheer luck. I started talking with a friend out of Dallas, actually… We started talking about marketing, how to put together a thought leadership platform for immigrant investors, or for the millennial-type investors… That was the first conversation. And we actually ended up understanding that we had different skillsets; he was more on the financial and underwriting, and he was very active on building broker relationships and all that, and I was more active on the other aspect of the business… So we understood “Okay, we might have something here.”

We later started talking with our third partner. He was actually one of my first investors on the first deal that I participated in as a general partner.

Joe Fairless: What did you need him for?

Lennon Lee: Well, basically my first partner and I, younger guys, very active and oriented more (me personally) on the marketing side, in that aspects, and my other partner was on the financial side… So we needed someone to bring, first of all, the grey hair to the table, that obviously provided credibility to our team… Because he has a very, very good track record of being involved in businesses and in the  corporate world as well. So he brought the balance to the table, and a lot of the processes and systems building knowledge that is very important in our business. So he complemented what we were lacking, and that partnership came to fruition and we were able to start focusing on a particular market that we liked, then we built a broker  relationship, built a team, until we found the right deal, and then we were able to get it under contract.

Joe Fairless: So that is how you went from 100% passive to 100% active. Lennon, how can the Best Ever listeners learn more about what you’ve got going on?

Lennon Lee: Well, I’m really active on Instagram. The handle is @themultifamilyinvestor. But I actually also wrote an eBook recently that I would like to share with the audience. If you go to bldcapitalgroup.com, you’re gonna be able to download the free eBook. It’s specifically written more for the passive investor, that’s starting; it’s gonna save them a bunch of learning time. And not only will they get the eBook, but we’re doing actually bi-weekly newsletters that basically take the concepts that we learn in the eBook and we talk about how we’re either applying them on our active deals, but also lessons learned from that. Basically, it peels the lid back on all the concepts that we share in the book. Again, that’s bldcapitalgroup.com/join.

Joe Fairless: Awesome. Well, Lennon, thank you for being on the show, talking to us about the importance of trust-based relationships, as well as getting yourself in a community. So first, knowing what you want; start with the goal in mind, as you said. Then get yourself connected with a community of people who are doing what you wanna do, build trust-based relationships with them, identify what value you can bring to the table, then bring it, and continue to build those relationships and put the pieces in place.

Thank you so much for being on the show. I hope you have a best ever weekend, and we’ll talk to you soon.

 

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