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

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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

JF2085: Fake it Till You Make it With Aaron Fragnito

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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

 

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Best Ever Tweet:

“I am always educating” – Aaron Fragnito

JF2023 : Teacher Flipping Houses With Eric Helbock

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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.

JF1952: FOMO Leads To Flipping 1100 Houses with Michael Green

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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

 


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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. 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.

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

Listen to the Episode Below (00:25:24)
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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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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.

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

Listen to the Episode Below (00:25:50)
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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.

JF1824: Doing 18 Deals In 18 Months with Dave Dubeau

Listen to the Episode Below (00:26:15)
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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

 


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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, 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.

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

Listen to the Episode Below (00:28:53)
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Best Real Estate Investing Crash Course Ever!

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

 


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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, 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.

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

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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!

 

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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.

JF1782: Overcoming A Bad First Flip To Over $40 Million In Multifamily with Ola Dantis

Listen to the Episode Below (00:22:21)
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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.

JF1762: Flipping Houses, STR’s,Passive Investing, & Multifamily Syndication with Ashley Wilson

Listen to the Episode Below (00:33:48)
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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.

JF1740: How To Complete Over 500 Rehabs & Transition To Multifamily Investing with Jim Huntzicker

Listen to the Episode Below (00:24:09)
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Best Real Estate Investing Crash Course Ever!

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


 

JF1733: Selling More Than One Home Per Day For The Last Eight Years with Dan Plowman

Listen to the Episode Below (00:27:30)
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Best Real Estate Investing Crash Course Ever!

“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.

 

JF1720: Building A High Volume House Flipping And Turnkey Rental Company with Antoine Martel

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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.

 

JF1706: Transitioning From 100% Passive Real Estate Investing To 100% Active #SkillSetSunday with Lennon Lee

Listen to the Episode Below (00:23:57)
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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.

 

JF1705: Making The BRRRR Method Simple & Easy To Understand #SituationSaturday with David Greene

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David is now co-host of the BiggerPockets podcast, and author of a book focused on teaching the BRRRR method. He has a lot of experience as an investor, agent, and educator, now he’s finding new ways to share his knowledge with his book. We’ll cover what you can expect to learn by reading his new book, and cover the BRRRR method a little more in-depth than we ever have. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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“If more people did that, they just wouldn’t suck at life” – David Greene

 

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

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a situation for you – it’s Situation Saturday. The purpose of Situation Saturday is should you come across a particular situation like we’re gonna talk about today, well, you’ll know how to handle it, because our Best Ever guest will talk us through it.

Today we’re gonna be talking about the BRRRR rental property investment strategy, and it’s gonna be made really simple, which happens to be the title of today’s Best Ever guest book, David Green. How are you doing, my friend?

David Green: Good, Joe. How are you doing, man?

Joe Fairless: I am doing well, and welcome to the show. A little bit about David — and Best Ever listeners, you know David; you have listened to his episode before on this show… And then also, he is the co-host of the Bigger Pockets Podcast; he’s also a Keller Williams Rookie of the Year, or he has achieved that, and he is a real estate agent, obviously, and real estate investor.

He started investing in ’09, as a refresher, and he’s got a portfolio of over 30 single-family homes. He’s also got shares in apartments, he’s got mortgage notes, note funds etc. Based in San Fran.

First, David, how about you give a little bit of quick background of yourself, and then let’s roll right into some lessons we can take away from the book that’s come out recently.

David Green: I’ve been a police officer for about ten years. I started buying rental properties with money I made working overtime. I was on your show number #806, and we kind of talked about ways that I go buy fixer-upper properties, add value to them and then refinance them, which eventually became the BRRRR strategy, which is the book that I just wrote, kind of detailing how other people can do that, too.

When I wrote my first book, “Long-distance real estate investing” about buying houses in other markets, because California and the San Francisco Bay Area is just stupid expensive – you can’t buy anything here – I started getting interviewed on other podcasts to talk about it, and then that eventually led to me getting to take over as a co-host of the Bigger Pockets Podcast. So now I do the same thing as you – we teach people how to build wealth through real estate, and get into this awesome thing that we figured out.

About two years ago I stepped away from being a police officer, I went full-time into being a real estate agent, as well as an investor, just because I got the bug for real estate. I really liked it. I started doing good, sold a lot of houses… It turns out that really most real estate agents kind of suck, if we’re being honest, and it wasn’t too hard to start doing well with that… So now I’m building a real estate team and I’m helping people to buy real estate, and I just love to talk about real estate all the time.

Joe Fairless: Yeah, I have noticed a lot of agents are terrible… What did you to see “Okay, here’s what they don’t do, and here’s what I’m gonna do”? What are some specific points? I wanna get into the BRRRR stuff, but I’m curious about what you did, that you saw they weren’t doing.

David Green: I think that’s such a good question, because what I did was I looked at everything that frustrated me, and I said “How can I solve that problem, rather than just letting the frustration take over and make me a negative person?” And I’ve found that’s actually become a super-power of mine. When I get really frustrated with “Man, I can’t just get this piece to work in my life…!”, I work really hard to solving that problem, and then I go teach other people what I did, and people really like it.

My problem with real estate agents was I knew more about real estate than they did. I’m hiring them to help me either buy a house or sell a house, or figure out how to solve this problem of how do I take a junk house and turn it into something nice, and they don’t know what to do to help me. They really just know how to fill out forms and be friendly and nice. Most of them are trained in sales skills, but they’re not really trained in real estate skills… So I was always frustrated by that, and when I got my license, I basically kind of branded myself as “I’m okay to not be the nicest guy in the room.”

If I don’t have the coolest-looking Instagram or I don’t have the most inspiring quotes all over my Facebook, that’s alright… But I’m gonna know what happens in a transaction. I’m gonna have the best home inspectors, I’m gonna get you accurate rehab bids, I’m gonna help run numbers for you… I’m gonna paint that picture as clear as I can for my clients, the same way that I would if I was the one buying or selling that house. And there’s not many other people doing that, because frankly, most real estate agents don’t know real estate. It’s kind of a tricky genre, where you’re in charge of finding your own business and then serving your own business, so what happens is agents focus way more on how to find business than how to serve it.

And because there’s not many people that were doing well, we did really good, so now one of my goals is to be the top agent in the San Francisco Bay Area and in the Sacramento market, and give people an option when they wanna buy or sell a house from someone who actually knows how real estate works, as well.

A side benefit of that has been all the business skills that I’ve learned having to build a business, like I’m sure you’ve learned, too. They really do help in the investing stuff, as well.

Joe Fairless: Now that you’re an agent and you’ve got the process, certain things that are identified now, you are the solution to those challenges, with things that frustrated you – which is exactly what I do, by the way, whenever I’m writing a book; I read the books that are out there on my topic or similar topics, I read the reviews on Amazon, and I read the negative ones and the positive ones, and especially focused on the negative ones, I make sure I address the negative ones proactively in my book. [laughs]

David Green: It’s so genius, Joe. I mean, if more people did that, they just wouldn’t suck at life. People are giving you the answers to the test when they criticize you. They’re telling you “Here’s what you got wrong.” And when you’re thin-skinned or you’re afraid to hear that, and you avoid it, and you only go to people that tell you what you wanna hear and you just stay the same all the time… But if you can embrace that… “Okay, let me address where I did better”, eventually you just won’t make any mistakes and you’ll be the best at whatever you do.

Joe Fairless: So let’s talk about your book, “The BRRRR rental property investment strategy made simple.” First off, for anyone who is from Pluto, what is BRRRR, and then roll right into how do you structure your book.

David Green: Alright, so BRRRR is an acronym for “Buy, Rehab, Rent, Refinance, Repeat.” It’s just the order of how I buy rental property, and the book  – I basically split it into five parts. There’s a Buy part, a Rehab part, a Rent part, all the way through… And I say “This is how you become really good at each of these things. This is how you buy deals, this is how you rehab a house. This is how you analyze and rent it out. Here’s how you refinance it. This is what you need to know about loans”, and then the final chapter, the Repeat, is how you build systems to do that for you over and over.

My philosophy is if you master the BRRRR strategy, you will then inherently master real estate investing, because you’ve done every part of it that makes you a good investor. And the whole beauty of the BRRRR strategy is that you don’t leave equity in a deal. You get your equity back out, which you can then go to use to buy another property.

It’s my belief that the only time in a real estate deal that we actually make money is when we buy that deal under market value, or when we add value to it through the rehab process. That’s the only two parts, right? And you need capital to do both of those things. You need capital to buy something, and you need capital to fix something up. So if you’re leaving all your capital in the deals that you’re doing, it looks great on your spreadsheet, but you can’t go buy new deals, unless you get capital from somewhere else.

So that’s basically why the BRRRR strategy works so well – I can go in there and I can buy a property, fix it up, pull all of my money out, or maybe a little bit less than all of it (sometimes more than all of it) and go buy the next house. And the more I do this, the better I get; the more practice and repetitions I get, the better investor I’ll become.

Joe Fairless: And if you take all the equity out, or even more equity than you put into it initially, do you have a requirement that the property still needs to cashflow, because obviously if you take more out, then you might have some higher expenses on the debt side…?

David Green: That was my first concern when I started doing this at a higher volume… And what I’ve found is interest rates are so low and the price points of homes I’m buying at is so low, it very rarely affected my cashflow. I mean, it can be a difference of like $75/month, to pull out a lot of money. So I stopped being as concerned about that as I was.

I used to have a requirement that every house I bought needed to cash-flow, and as my real estate agent business did better, and some other businesses that I bought did better, the actual cashflow from rental property became less important to me… And what I cared about more was the equity that I had in that deal, how much value I added to the home, and what neighborhood it was in; how well it was gonna do over a long period of time.

So I stopped looking at “In the next six months, what is this house gonna make me?” and I started looking at “30 years from now, am I gonna be glad I bought this house?” So now I’m playing  a different game, where I’m saying “30 years from now…” — God, if you look back at what home prices were 30 years ago, it’s sickening. How many people do we know that wouldn’t wanna go back in time and buy all the real estate they could? I’m trying to operate from that perspective, and I’m doing it in a way that’s responsible, so that I don’t get so over-leveraged that I literally can’t afford my payments. That’s where you’re gonna get in trouble.

Joe Fairless: And let’s talk about not getting over-leveraged… What’s your approach?

David Green: I personally believe that cashflow itself is nice, but it’s not an offensive metric. Cashflow is not really designed to build you wealth. Equity is designed to build you wealth; running your property efficiently and effectively will end up building you wealth, and holding it for a long period of time will build you wealth. Paying down that loan and letting it appreciate in time.

So I am a bigger proponent of cashflow as a defensive metric. This is what you need so that you don’t lose the property. And having a very healthy amount in reserves. I look at people that lost their homes in 2008-2013 when the market was rough – all of them did not have enough reserves to weather that storm. They didn’t know if it was gonna cashflow or not. They literally didn’t even understand what cashflow was when they bought their house, and they didn’t have any money in reserves. That’s a recipe for disaster. I make sure that I leave a ton of money in reserves, so that any storm that hits, me I can weather. All my properties either cash-flow, or if they’re losing $100 or $200/month, I don’t really care if that goes on for a couple years and then the rents increase and I’m in the positive again.

Joe Fairless: Specifically what’s your reserve requirement for your properties, and then do you have a loan-to-value approach or guideline that you use?

David Green: Well, most banks will only let me borrow 75% of the appraised value, which is what I go for. So you’re buying a house in really bad shape, and then you’re pumping up its ARV (after repair value) as high as you can get it, because that’s what you’re gonna be able to draw against when you go to take your loan out. But you’re always gonna be leaving 25% equity in that house, just because the banks are gonna make you in the majority of the time.

So what matters is is the house in such a high price point that to pull out 75% of its value will now make it cash-flow negatively? And most rental properties – they’re not.

This isn’t a problem that comes up very often if you’re buying in areas that are close to the 1% rule, because they’re gonna cashflow so strong, they just cash-flow a bit less. I like to have six months of reserves for every house, put aside in an account, as well as probably $30,000-$40,000 at any given time to cover unexpected capital expenditures. A hurricane blowing a tree onto one of my houses and the roof getting broken, or something like that.

And then the other thing I take into consideration is let’s say I was retired, Joe – those reserves would be even more than that. But I’m still working, and I live way beneath my means, and I have lots of money coming in. I don’t need to be as conservative, because I’m replacing money every single month that I’m sticking in an account.

I’m at a point in my life now where 100% of the money I make, I invest back into real estate… So maybe I just take 10% of that that I would have invested and I put it back into my reserve account, and I invest 90% of what I make.

Joe Fairless: And when you say six months of reserves for every house, what are those reserves covering for those six months?

David Green: If you take your mortgage, your property tax, your insurance, your property management, your capital expenditures, your maintenance and your vacancy – which on most of these houses that are $100,000 or $120,000 it’s really not that much.

Joe Fairless: It sounds like a lot…

David Green: Well, maybe $600-$700/month is what I might have to spend. I’ll just take that times six. So if it’s $700/month, I’ll put $4,200 aside for each one that I do. But when you’re first buying a house, and then you rehab it, you’re renting it out, I don’t always go get a loan immediately and pull the money out. Sometimes I let it sit there for 3-4 months without a mortgage on it at all, so my cashflow is really high. That might be 60%-70% of my reserves that I’ve built up, just the house paid for itself. I didn’t even have to take my own capital. So there’s only a little bit of money of my own that I have to put aside in that reserve account, and then boom, I’m on to the next one.

Joe Fairless: Okay, alright… So you delay the refi a little bit, build up the cash reserve; there’s your cash reserve, you keep it in the account, and then you move on.

David Green: Yeah, I let the real estate pay for itself. It puts its own money aside in that reserve.

Joe Fairless: Do you have separate bank accounts for each of the homes?

David Green: Oh, brother, that is such a mess, honestly… [laughs] I’ve got like 8-9 different bank accounts all throughout the country. The problem is financing becomes very hard once you start to get a lot of homes. So you’ll have a bank that will say “Yeah, I’ll let you refinance this one, but you have to do the loan through our bank. It’s a portfolio bank, so we’re not gonna sell it. And you have to pay the mortgage from a checking account that you have with us.” So now I have to open a checking account with them, and I have the mortgage getting paid from them.

I have to move money from a mother account into that account every month, so that they can pay the mortgage, and I have to see if I can get my property manager to deposit my rental checks into that account, for that house. Sometimes they won’t, because it’s a small known bank in another area, so they put it into the mother account… It’s kind of a complicated spider web moving around, and that’s one of the reasons that I would say to people who wanna expand really big – single-family is not a very efficient way if you’re looking to expand a portfolio really big. You start running into problems like this that you don’t have with other asset classes.

Joe Fairless: So why would you do that, versus buying 40-unit apartments?

David Green: So the first reason is it’s really hard to get into that space right now, because everybody’s there. Money is kind of cheap, and there’s a ton of people getting into multifamily investing. So for the guys that have been doing it and know what they’re doing, they can do well. To try to break into that space brand new, you’re already at a bit of a disadvantage, and you don’t know what you don’t know.

Even that though, I know that I could get into and I could do it. I have a lot of buddies that are doing it. But the timing it would take me to learn that asset class would literally lose me money that I could be making working on my real estate business, or buying single-family homes. So single-family works for me because it takes very little time. I’ve got systems put in place that I talk about in the BRRRR book, so that when a deal crosses my desk, I don’t really do anything. I just forward it to the right people, they have criteria and standards that they’re held to, they start the process, they end up putting the house under contract, managing the rehab, getting it rented out, finding a bank to refinance it… I don’t really have to do anything.

My overall goal is to continue buying houses under value, adding value to them, renting them out and refinancing that money short-term to go buy more, and every time I do that, I’m adding a good chunk of equity, like $30,000-$50,000 to each house.

At a certain point, when I feel like the economy is reaching a peak, maybe like a 2005 or so, I’m gonna sell them and 1031 that money into something that I feel is really solid, that will kind of weather any storm. Maybe like a multifamily property in Indiana, or Kansas, or one of those bomb shelter states that is rarely affected by the overall economy… And leave it in a big multifamily property there until I see another crash. Then I’ll be like that little gopher that comes out of its hole, or the groundhog, and looks around, and is like “Oh, it’s safe!”, and go out there and buy a bunch more single-family again.

Joe Fairless: Okay, I get that. I was gonna play devil’s advocate on why single versus multi– again, whatever a listener wants to do, I don’t care; I’m just wanting to play devil’s advocate on two things you mentioned, and I’d like to hear your thoughts… So less competition – usually that’s what commercial real estate investors say about single-family. That’s why they go into commercial real estate, because — I would say there’s certainly a lot more single-family home investors that commercial, but there are less commercial properties than single-family, so I guess it depends on your market…

But as far as the other one, time to learn the asset class – basically, you’re talking about the opportunity cost, where the time you’re learning, you could be closing on more deals… But I think you could buy a 30-unit and spend significantly less time on that one 30-unit transaction than 30 single-family transactions…

David Green: Well, I think you’re right about that. Factually speaking, you’re accurate. I think that is the case. What I’m probably gonna end up doing is adding equity to all of these properties that I’m buying individually, and then converting that equity into the 30-unit, or into the 50-unit.

Joe Fairless: And that’s where you sold me… Because I was gonna ask you — you said cashflow is playing defense, and you’re using equity as your offensive strategy, and now I completely understand your approach… Because if you’re not focused on cashflow, cashflow does pay for you to go on trips, and do all the other things – well, what’s the end game here…? And then you proactively answered my question – you’re planning on taking these 30 or so properties and then when the time is right, packaging them up, selling, doing a 1031, and then getting something that is cash-flowing heavy, plus also has some scalability for you and your time.

David Green: Yeah, and I should have qualified that – cashflow is a defensive metric in the single-family rental space. Single-family homes were not built with the intention of building cashflow for their owner. They were built with the intention of somebody living in it and raising a family, or holding all their stuff. Multifamily properties were built with the intention of being run like a business. That’s why we value them differently. Multifamily properties – their value is based on their NOI. Single-family properties are built based on a comparable sale. It’s just the single-family space is not a business-oriented space, so you’re not gonna really get a lot of cashflow that way; or at least you’re gonna have to work a lot harder to make it work… Whereas what you’re doing in the multifamily space – it was designed for exactly what you’re talking about, and that’s a very fair point to make. If you want cashflow, that’s the space you should be in.

I’ve found this little hack where I can build equity really quick in this space, and then convert it into the space later where the cashflow is bigger, and I think that when I get there, my cashflow will be a lot more than if I’d just started trying to do my first deal a 30 or 40-unit property.

Joe Fairless: A huge part of this is finding a property that you can buy that is under-valued, or you can rehab it and then get some equity built into it… So how are you finding those properties?

David Green: The first thing I do is I target a house that nobody wants. I look for distress. There’s three kinds of distress. You’ve got market distress, which is the whole market is for sale  – 2010. You’ve got property distress – that’s where the house itself is in really bad shape and no one wants it; or personal distress, which is where the person is in some kind of distress – medical bills, you lost your job, foreclosure, bankruptcy, those kinds of things.

It’s easiest for me to target property distress. Personal distress is kind of what wholesalers would be targeting, or people who are out there beating the bushes, looking for a good deal. I look for junk houses. I look for the houses somebody else started the rehab on and couldn’t finish. Or in a market where to spend 50k on a rehab is like three years of their salary. That’s a lot of money in some of these Southern states, or Midwest states. But for somebody with California or New York money, that’s not hard for us. We can go raise that pretty quickly from other people that need somewhere to put their capital.

Once I find a house that I know is in bad shape, I look at what it would be worth when it was done, and I work backwards. We call that the ARV. Okay, if this house was fixed up like that, it would be worth $120,000. And I figure out what  it would cost to get us there.

Let’s say it would take $30,000 to fix it up. Well, I know that I wanna be all-in for 75% of the ARV when I’m finished. So I know that if it’s gonna be worth 120k and it’s gonna take 30k to fix it up, I can spend up to $60,000 to buy that house, which puts me all-in for 90k, which is 75% of the 120k that it’ll be worth… And those are the houses I write offers on. I’m not the guy who writes 100 offers a week. I find that to be really time-intensive, not very efficient.

I target houses that have been on the market for a long time. Then my agents are like, “Hey, I think we’ve got a good shot. We can get this house.” I go buy it, I have my rehab crew get out there, they fix it up; once it’s done, I talk to the bank, they get an appraisal, they let me borrow 75% of what it appraised for, I take my money out and I go buy the next one.

Joe Fairless: Anything else real quick that you think we should talk about as it relates to the BRRRR approach that we haven’t discussed already?

David Green: Yeah, the biggest reason I think the BRRRR approach is the best approach to take is that I used to do it the old way, the traditional approach – I would save up 30k, I’d go buy a house, I’d spend 15k to fix it up. $45,000 later, I’ve managed the rental property and I’ve gotta work for another year to save up more money. It was extremely slow, and I did not get very good at being a real estate investor because it’s hard to get good at anything that you do once a year.

Once I got into the BRRRR strategy, I could buy two houses a month instead of two houses a year. I started getting the wholesalers bringing deals to me first. I started getting contractors giving me better bids. I started going through contractors and finding the good ones a lot faster. I found better property managers. The whole thing just became a lot more efficient when I was doing something at a higher scale. And that’s what I want people to understand – you’re never gonna get good at anything if you just do it very rarely. The people who are good at stuff just get thousands and thousands of repetitions in doing the same thing… BRRRR enables you to do that, and you can build your business around it, as opposed to the traditional method, which really has a lot of natural things that will hold you back.

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

David Green: You can get it on Amazon, it’s “Buy, Rehab, Rent, Refinance, Repeat – The BRRRR Rental Property Investment Strategy Made Simple.” You can follow me on Bigger Pockets, or your best bet is probably to follow me on Instagram – I’m @DavidGreene24. That’s the easiest way to get a hold of me.

Joe Fairless: Cashflow is a defensive mechanism in the single-family space. Perhaps that is mind-blowing for some people, and I hadn’t heard it talked about that way, so perhaps it blew my mind as well… But it makes a lot of sense, at least for my own portfolio of my three single-family homes that I’m looking to sell right now, because there’s 350k in equity in total in them, and I make about $300/month from those…

David Green: And Joe, I hear this all the time. I looked at mine and I saw the same thing. If you looked at your ROI, it’s not bad, but if you looked at the return on your equity, you’re like “Man, I’m making like 1% on my equity on these deals.” But what happened is now you’ve got 350k that you can go put into an asset class that does make cashflow, and you’ll make so much more money with that 350k than if you had tried to just buy that multifamily place right away, and had to save up that $350,000 to do it.

Joe Fairless: True. It’s a great point. It’s very true. The first house – I had $20,000. That would be challenging, to buy a multifamily property for 20k in [unintelligible [00:23:54].27]

David Green: [laughs] That’s what’s awesome about real estate investing – we’ve got all these different strategies and mechanisms and synergy that we can kind of combine together to make this really cool finished product… Like this Voltron of wealth-building when you add it all up.

Joe Fairless: And thank you for using the word Voltron. That’s one I’ll have to look up afterwards. Thank you for being on the show. I hope you have a best ever weekend, and we’ll talk to you soon.

David Green: Thanks, Joe.

 

JF1679: Going From Part Time Flipper To Full Time Real Estate Investing with Ryan Naish

Listen to the Episode Below (00:22:19)
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Ryan was like many new real estate investors, had a good job and wanted to get into real estate. He started flipping houses part time, and did that for about 10 years before going full time as a real estate investor. Hear how he was able to leave his job, and how he’s scaling his flipping business in Cincinnati. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Everything I made that was extra over the years, I just kept re-investing” – Ryan Naish

 

Ryan Naish Real Estate Background:

  • Real estate investor since 2006
  • Flipped 18 properties in Cincinnati since 2006, flipped 5 of them in 2018
  • Licensed Realtor and has handled 35 purchase and listing transactions
  • Based in Cincinnati, OH
  • Say hi to him at 513.535.648zero
  • Best Ever Book: Am I Being Too Subtle?

 


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

Ryan Naish: I’m well. How are you, Joe?

Joe Fairless: I’m doing well, and looking forward to our conversation. A little bit about Ryan – he is a real estate investor, and he has been one since 2006. He’s flipped 18 properties in Cincinnati, Ohio, and he flipped five of them last year. He’s a licensed realtor and he has handled 35 purchase and listing transactions. As I mentioned, he’s based in Cincinnati, Ohio. With that being said, Ryan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ryan Naish: Okay. Thanks for having me on here. Gosh, my background is actually a lot of sales. I was selling various forms of construction; I was always in outside sales, since 2006, and it wasn’t until 2016 that I quit my job, and got my real estate license, and started becoming a full-time property investor.

My current focus right now is just house flipping, while keeping an open mind for getting into rentals, maybe multi-unit buildings. I have the down payment for a multi-unit building, I’m just waiting for the right building… Kind of softly getting into that right now, just waiting for the right timing of the market.

Joe Fairless: So you were doing fix and flips for ten years, while you had a full-time job… How were you able to pull that off?

Ryan Naish: You know, a lot of it involved waking up extra early, and just kind of working it in. With sales, I could work in things in between appointments… But a lot of times I’d wake up at 6 AM, not get home till 9 PM. During the last stage of that period I was definitely working myself into exhaustion… So it was really nice when I got to quit the job, and finally built up the capital enough to just go on my own.

I would say the primary way I handled it was don’t try  and do everything yourself. Delegate as much as possible. I used to always try and get all the materials ready in there for guys, and… Eventually, I just started saying “My time is worth it. I’ll go ahead and pay them more for them to get it there.” Come up with some way of utilizing your time better… But primarily, delegation was how I got things done.

Joe Fairless: When you decided to quit your job and focus full-time on real estate, what was the milestone that you reached that gave you comfort to quit what you’d been doing for ten years plus, and then do full-time real estate?

Ryan Naish: I would say for me personally – and it’s not the same for everyone, because a lot of people really love financing – it was when I just had the cash to do it all. I just wanted to fund it all myself. I think that was the milestone. It also was combined with a really nice deal, that I’ll mention when you ask later probably… Unless you want me to mention it now.

Joe Fairless: Yeah, let’s talk about it. What was the deal where you were like “Okay, I’ve got the cash, and this is a deal that is really nice, so I’m gonna focus on this, and off I go.”

Joe Fairless: Well, essentially, I bought this house in Pleasant Ridge, right before Pleasant Ridge just completely exploded in property values… And I knew it was on the upswing, but I had no idea how fast it was gonna go up.

So I bought this deal, and I was planning to live in it, and just keep working. Then I fixed it up very nice – I put a lot of money into it – but I bought it for 90k and sold it for 283k.

Joe Fairless: Dang! How much did you put into it?

Ryan Naish: It was 90/90/90, actually. 90k rehab, 90k profit. It was the best deal I’ve ever had. It’s never that good. That one, because I lived in it, I didn’t flip it right away; I didn’t sell it right away, and it just kind of worked out, just because the market grew like crazy.

I was really not sure about selling it, because I wanted to live there, but I was like “You know what, I could just be confident in my own business plan, and feel comfortable doing it if I sell it.” So I sold it, and it just made sense to sell it, as much as I loved living in that house, and the location.

Joe Fairless: With the financing of the future deals, are you buying them with your own cash, or are you using a group to help you get the initial financing for them?

Ryan Naish: My very house I paid cash for, in 2006. I spent $16,000. I had a pretty good sales job and I did well that year, so I just paid cash for it.

Joe Fairless: $16,000 was the purchase price?

Ryan Naish: Yeah. [laughter] And then I just fixed it up and rented it out and got an equity line, which as you know, an equity line is a revolving credit line on a house, so you can continue to use it. It turns you into a cash buyer, because you can borrow against it whenever you want, and then pay it back down to zero, and do it again. And I did that with flips, slowly, over time, while working full-time. So I was a cash buyer because of that strategy my entire time.

I just kept using my cash only. Everything I made that was extra, I reinvested, over the years. I just kept reinvesting, reinvesting, growing the capital.

Joe Fairless: You were using your cash initially, and then you would just recycle that; you’d use a line of credit, but then you’d pay it down and then you’d just keep on using cash, or the line of credit.

Ryan Naish: Yeah. Eventually, I didn’t need that line of credit anymore; it was just on that one property. Because I just kept paying it back down to zero, and then I’d buy another house, flip that one,  pay it back down to zero, buy another house, flip that one… And that’s why it happened slowly at first… But I just wanted to grow it and see where it went.

Joe Fairless: It sounds like it went up.

Ryan Naish: It did. [laughter] I flipped five properties last year and I didn’t ask for financing from anyone. I funded it myself, and it’s just kind of nice.

Joe Fairless: And why not use funding from someone else, or a group that can provide that to you?

Ryan Naish: I’m not large enough yet… For what I can get done right now, I can do it with the cash. I definitely wanna keep an open mind for financing, especially when I start getting into bigger deals… Because that’s one of my real estate goals – one, I wanna do it at the right timing. I wanna wait for another correction. So I’m slowly flipping to keep building capital right now, and waiting for the next correction, whatever it may be; it might be small, it might be large, but I’d like to wait for another correction and start getting into buy and hold.

Will that be a commercial building, or a mixed-use building, or a 60-unit…? I’ll put a down payment down. I have the down payment for a relatively large deal right now. I wouldn’t say it’s huge, but you know… I have the down payment, and there’s financers out there that will finance a commercial loan as long as the building cash-flows; that’s really what they’re loaning on, is what I’m told… They want you to have the down payment and a building that has good numbers. [unintelligible [00:08:39].16]

Joe Fairless: That $16,000 purchase price house, the thing that started this – how much did you put into it?

Ryan Naish: Hah! I was a rookie, for sure. I put in about $60,000. [laughter]

Joe Fairless: And how did you get that money back out?

Ryan Naish: That one was a rental property that I just held on to for a long time… But it opened a lot of doors because of that credit line. It made up for itself. I didn’t make a whole heck of a lot of money on that one, but it opened doors because of that equity line and cashflow.

Joe Fairless: You were able to get a line of credit with that house as collateral?

Ryan Naish: Yeah… Essentially, you have to wait a year, because they’re always gonna use the purchase price until a year has gone by… But I slowly fixed it up over that first year, and then I got it rented… And then after that first year, the equity line – the bank said “It’s worth $64,000. We’ll give you 80%.” So they gave me a revolving credit line, basically, of $43,000, something like that. So I had access to that $43,000 at that time. And as you know, everything was cheaper right after that market crash, so you could start getting some stuff done… And plus the money I had in savings, from the sales jobs.

Joe Fairless: Yup.

Ryan Naish: So that’s what started it all.

Joe Fairless: Where did you get the line of credit from?

Ryan Naish: [unintelligible [00:09:55].06] Just who I banked with. It was really straightforward and simple for me.

Joe Fairless: You’ve done 18 flips over the last 12 years, and five of them just last year, because now relatively recently you’re full-time… Give us a horror story. Clearly, you’ve got some horror stories from all these flips.

Ryan Naish: Okay. [laughs] Some of these flips were rentals for a time, and then sold them… But I bought a house on auction once in Blue Ash, and it was just crazy; everybody was there, the owners had stuff all over in the basement… Everything was stowed away in the basement. And you can’t really get that inspected… I don’t do inspections anymore. I haven’t done inspections on houses in years. I would for different situations later, but right now for house flips I don’t do inspections; I just — cash, no inspections.

But it was this property in Blue Ash… The whole basement was filled with stuff; I went through it. We were all there, and we’re literally bidding with this auctioneer… And I was younger, and I don’t know, man — I just got carried away and I didn’t wanna lose that house. [laughter] So I completely overpaid for it… And then to top that off, when I went and acquired the property after closing, the basement was cleared, there was nothing in there, and there was structural work that needed to be done… And it was hidden by all that stuff. I was like, “Oh, man… You’ve gotta be kidding me.” Not only did I get carried away, because I wanted to win this dumb auction, I ended up having to pay a little extra for the structural work.

I fixed it up, and I got a structural engineer in there… And usually, I run for the hills when it comes to structural; but I got a structural engineer in there, and he gave me  a simple fix… And then I was very upfront and honest to people about it. I found these buyers, and of course they inspected it again, and they asked for some money off… And I broke even.

Joe Fairless: That’s good!

Ryan Naish: I was so happy that I was breakeven on that. And then another quick horror story – one of my tenants, their child was playing with a lighter and lit the place on fire.

Joe Fairless: Everyone okay?

Ryan Naish: Everyone was okay. That was the greatest thing about it, was no one was hurt. That was on Thanksgiving.

Joe Fairless: Oh, my gosh…

Ryan Naish: Yeah. All my family was in town, and I had to leave. Everybody ended up being okay; the insurance company took care of it. The tenants — I said “You guys can break lease, whatever you need to do… Just go find a place to live, because I don’t want you guys to be homeless.” So they found a place to live right away. Everybody was okay, everything worked out, the insurance company paid for it… But that was when I was working 80 hours a week with this one sales job that was pretty intense.

Joe Fairless: Wow. Yeah, any lessons from working with an insurance company when your house burns down?

Ryan Naish: [laughs] The biggest thing I would say is you have restoration companies that the immediate thing they wanna do is take control. Literally, they’ll come in and they’ll say “Oh, give me the keys. We’ll board up the house etc.” And what they’re doing is they’re taking control of your project… And what happens is you pay their markup. So what you can do is as long as you talk with your insurance adjuster — in my case, I was able to become the contractor in that scenario. So because I had experience in all that, I was like “There’s no way I’m gonna pay another contractor to do that.”

Joe Fairless: But why does it matter, if the insurance company is paying for it?

Ryan Naish: Well, what happens is these guys just kind of mark it up extra-high, because it’s insurance work… And sometimes it might not all be covered. You risk getting into a fight with the insurance company.

Joe Fairless: Okay, got it. Switching gears a little bit – you said your background is doing sales, and selling various forms of construction equipment… Did I hear that correctly?

Ryan Naish: Actually, it’s residential construction. I worked for Bath Fitter, I worked for Granite Transformations, and I worked for Kaiser Siding & Roofing.

Joe Fairless: Okay, so clearly very relevant to fixing and flipping… So perhaps my question is gonna be a bit obvious, but I’m still gonna ask what I was gonna ask – what are some things that you took away from your sales experience, that you’ve applied to what you do now?

Ryan Naish: I would say with sales you have to be adaptable, you always have to be available… It also helps with your networking, just being in sales. In sales you’re always talking to people, you’re always in front of people, so you’re constantly networking… Which I think helps in anything that you do.

Networking has been important in this business too, whether it’s for contractors, for labor, or finding deals, or being an agent for someone. I made extra money being an agent for clients; I didn’t see that coming. I mean, I did kind of see it coming, but what I meant was I never got the license to be a  full-time agent; I just got it to handle my own transactions and save money there. It turns out a lot of friends and family, when I said I became an agent, they asked me to be their realtor, so it was a nice extra income that I wasn’t planning for.

So the networking, and just being willing to talk to people really helps in many ways, in any entrepreneurial business.

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

Ryan Naish: I would say be adaptable and aware… I guess because it doesn’t always happen the way you think it will. You have a plan, which is good, but sometimes you can get one-track-minded and get yourself deeper in a hole… And sometimes it’s just better to move on, or find a different way.

The market is always changing, so what you do now isn’t always going to work. Switching gears. In my case, I used to do more involved projects; and I still will do them, the ones where you’re taking out walls, and changing floor plans, getting permits, and hiring the architects that help with the permits… I’ve done those projects, but you’ve gotta be aware of the market. Right now, labor is expensive and tough to find, so right now I’m doing the quicker flips.

You’ve just gotta be kind of aware what’s happening. You’re never gonna be perfectly right about anything that’s just nice to get. Networking. Networking helps you figure out what the word on the street is, what is everybody else experiencing. So that’s why I say be adaptable and aware… And a way to be aware is reading books, educating yourself, or being networked with other people, and then adapting to that awareness – what is the market telling you to do?

One of the ways I did that is I had a property that luckily I bought it very cheap, I bought it right, and I could not get guys to show up. I would even take whatever price they gave me, and I said “Sure, I’ll do it.” They’ll say “Okay, I’ll get started Monday”, and then the next thing you know, four tries later they’re still not starting. And it’s just dragging out, and dragging out… I was like, “You know what, I bought it decently enough; I’m just gonna mark it up and sell it to a bigger investor, who has cheaper labor and more access to labor.” And that’s what I did. I made a quick profit, and then I didn’t have the headaches to try to get all these guys to show up.

Joe Fairless: Yup. Makes sense.

Ryan Naish: I had to adapt to that, because for whatever reason — maybe it was the house being a big project, I don’t know; I could not get people to show up… So I just said, “Alright…” The group that I sold it to, they’re gonna do great with it; they’re gonna make killer numbers on it. They have everything in place to crank out a big project like that – because it was pretty big – and then everything worked out. So they were happy, I was happy, and I moved on from it.

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

Ryan Naish: I sure am.

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

Break: [00:17:56].29] to [00:19:18].27]

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

Ryan Naish: Sam Zell’s “Am I Being Too Subtle?”

Joe Fairless: That’s a great book. Very entertaining.

Ryan Naish: Yeah, it is.

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

Ryan Naish: That Pleasant Ridge deal.

Joe Fairless: What’s a mistake on a transaction we haven’t talked about already?

Ryan Naish: I’ll come back to that. What’s next?

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

Ryan Naish: I like to make myself available for coffees and lunches, just for anybody interested in getting into this, and picking my brain if they want. I’m no genius in this, and there’s always more to learn, but if I can help somebody, I will. I’ve already had quite a few lunches with various investors that are trying to get into it.

At one point, earlier in my twenties, there were these older investors that I played soccer with – they had no problems talking to me about things, and I found that really helpful… So I hate to say it again, but it just ties back into networking. So that’s kind of the way I like to give back – just do what people did for me when I was younger.

Joe Fairless: What’s an area you’re working on to improve right now?

Ryan Naish: The way I’d like to improve is getting into financing more. I’ve not used it for so long; I feel like my knowledge base is not very strong there right now, and I’d like to figure out how to fund larger deals… So I think that’s an area where I need to grow.

Joe Fairless: And if you didn’t notice, I replaced the mistake on a transaction with that one; I just rephrased it for you, but with a slightly different angle. How can the Best Ever listeners learn more about you and what you’ve got going on?

Ryan Naish: Feel free to contact me. I can give out my cell phone number.

Joe Fairless: Sure, of course.

Ryan Naish: 513-535-6480.

Joe Fairless: Well, Ryan, thank you so much for being on the show, talking about your fix and flips, the stories of deals that did not go according to plan, but all is well that ends well, with the auction breaking even, and the house that burned down, and no one being injured, plus the insurance company paying for it, plus working on the GC stuff yourself… And your approach for that one house in Pleasant Ridge, which is an area within Cincinnati; you bought it for 90k, you put in 90k, and sold it for 283k, 90k profit(ish).

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

Ryan Naish: Alright, thanks a lot, Joe.

JF1673: IT Guy Realizes Retirement Looks Bleak – Turns To Real Estate Investing For Help with John Fortes

Listen to the Episode Below (00:27:59)
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At some point, most of us start thinking about retirement. John was ahead of the curve for most people and at a younger age started projecting out his income and savings. He realized retirement was not looking great, tried to figure out the stock market, then fell in love with real estate investing. Now he’s got a large portfolio and currently working on a 41 unit deal. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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“It’s all about partnerships” – John Fortes on his real estate investing success

 

John Fortes Real Estate Background:

  • One of the founding partners of Community First Investment Group
  • has 62 units under management and is currently syndicating another 41 units
  • Based in Boston, MA
  • Say hi to him at https://www.cfigwealth.com/
  • Best Ever Book: The Third Door

 


Sponsored by Stessa – Maximize tax deductions on your rental properties. Get your free tax guide from Stessa, the essential tool for rental property owners.


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. With us today, John Fortes. How are you doing, John?

John Fortes: Hey, Joe. How are you doing? I’m doing good. Thank you for having me.

Joe Fairless: Well, I’m doing well, and I’m glad to hear that also. Well, looking forward to this conversation. A little bit about John – he is one of the founding partners of Community First Investment Group. He’s got over 63 units under management, and is currently syndicating another 41 units. He’s based near Boston, Massachusetts. With that being said, John, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

John Fortes: Yes. I have a background in IT, but back in the day I noticed that the 401K situation wasn’t gonna help me retire. I presented this to my wife, and I stumbled upon multiple other things. I went through five years of just researching, and I finally decided to do it.

I valued real estate over stocks, so that’s how I got here, and it led me to form the company, Community First, with my two other partners, and… Now I’m here on your show.

Joe Fairless: So you were looking at your retirement plan, and what indicated that “Hey, this isn’t gonna work out. I need to do something else”?

John Fortes: Great question. Projecting it out. I started working, and then nine years later I’m projecting it out to see in another nine years what it would look like, and I said, “Hm, this is very shaky to me.” It’s not much to live off of, so I said,  “I’ve gotta figure out something else.” I literally turned to stocks, I tried to figure that out, I could not make sense of it. Real estate really was understanding… And I could completely understand real estate because I went through the process of buying a house and seeing how equity worked.

Joe Fairless: So how long ago was this?

John Fortes: Five years ago, in 2013. Six now, yeah.

Joe Fairless: Okay, five to six years ago. And what did you do immediately after, to prepare you, to where you are today?

John Fortes: I presented it to my wife, and I went through a huge growth process from 2014, 2015 and 2016, and in 2017 I finally joined Bigger Pockets. From there I did a bunch of research, and just kind of networked with a few people and just poked holes in a few arguments that I had, but nothing really fell through the concrete, so I was like “Okay, it’s got some legs.”

Then I started looking at my own home in value, and how it’s appreciating, and how basically if you buy right, you can really enjoy the benefits of the appreciation… But when I go back and look at it if I have a tenant doing everything that I’m doing in my own home, I saw crazy value in that.

Then when I purchased my first single-family – kind of like you; you have a few single-families…

Joe Fairless: Yup, I do.

John Fortes: I’m always kind of surprised that you still have them, but you said they cash-flow well…

Joe Fairless: You want them?

John Fortes: [laughs]

Joe Fairless: 175k per single-family. I’ll give them to you; we’ll do the contract right after we get done with this conversation.

John Fortes: I’ve shifted my focus since then… [laughs]

Joe Fairless: Oh, darn it! Okay…

John Fortes: [laughs] I purchased mine and then I saw the value of multifamily, because I wanted to scale… So that’s when I reached out to my first partner, who’s my tax accountant. He runs my analysis for me, and he’s great with numbers; I don’t wanna do anything with numbers. Now I wanna focus on investor relations, raising money, raising capital, broker relations, looking for the opportunities and presenting it to my partner… Because he doesn’t wanna be the face of anything, meaning he doesn’t wanna speak to people really…

Joe Fairless: [laughs] I know the type, yeah.

John Fortes: Yeah. He’s awesome when you get him to talk, but he just doesn’t wanna go ahead and look for it.

Joe Fairless: Yup.

John Fortes: But with that said, my other partner’s the same way, but he has a focus in inspection companies. He has an inspection company on the residential side, and then he has a multifamily inspection company as well, so… He helps us with boots on the ground and what we’re looking for when we’re looking through the property, when we’re walking through the property; he knows exactly what to look for. So we really, really help each other. We form a nice little team.

Joe Fairless: Oh, absolutely. Yeah, so you’ve got someone who is good at the underwriting, you’ve got someone who’s good on due diligence, and you’ve got someone who’s good at bringing in the capital… What about asset management? Is that the inspection person who focuses on asset management, or the accountant?

John Fortes: Well, it’s the inspection person who focuses on the asset managing, making sure everything’s going according to plan, and then we’ll all get on a call with the PM if we have to, and just say “Hey, why is this happening, why is that happening? Can you explain  this to us? We expected this…”, or something like that.

Not that any call has gone bad or anything, but we just have a good sense of what we’re looking at when we’re dealing with certain things, when we have to reach out to the PM.

Joe Fairless: Got it. So let’s talk about this – is it 63 units that you have under management?

John Fortes: It’s a 62-unit, yeah. A 62-unit in Johnson City, Tennessee.

Joe Fairless: Alright, 62 units in [00:07:24].20] You are near Boston, Massachusetts, which is not close to [00:07:30].04] I imagine. I know where Tennessee is, I don’t know where Johnson City, Tennessee is. How did you find the property in Johnson City, Tennessee?

John Fortes: One of our partners in the community that we’re part of–

Joe Fairless: Which one?

John Fortes: [unintelligible [00:07:41].25]

Joe Fairless: Okay. Yup.

John Fortes: They’ve been good to us. And everybody in the community has been kind of really formed like a brotherhood/sisterhood, and it’s tightly knit with anybody that’s actively in the communities… So they found an opportunity and they had someone drop out, and my team was literally looking; it was a JV opportunity, and after we did our due diligence and looked at everything, and we knew we had another member as boots on the ground in the area, it made sense to do it. We would have been crazy if we didn’t do it. Everyone in that JV opportunity has been wonderful to work with. Had we not been part of the community, we probably wouldn’t do the deal because we wouldn’t know them like we did. So that was important.

Joe Fairless: What did you all bring that was missing from the partnership?

John Fortes: We brought capital, but also we brought another level of looking over the analysis of the work, and then another level of being able to walk the property, and with my partner Matt give a great detail of what the scope of the work that needs to be done there in the inspection period.

Joe Fairless: Okay. And how many other partners do you have besides your team of three?

John Fortes: There’s seven of us total in that deal.

Joe Fairless: Wow. So seven total people, or you three plus —

John Fortes: Yes. I’m counting us as an entity, yes.

Joe Fairless: Okay, so you three is one, and then you’ve got six other people who are in the deal?

John Fortes: Yes.

Joe Fairless: And are they six other entities, or are there literally six other people?

John Fortes: I believe some came in as entities and some came in as just an individual.

Joe Fairless: Okay, so there’s probably more than six–

John Fortes: Oh, no, no, we know everybody that’s part of the deal, but some people wanted to come–

Joe Fairless: Oh, right, right, right. So it’s six people behind the entity, or six people, plus you three. So there’s nine of you on the general partnership side, correct?

John Fortes: Yes.

Joe Fairless: How did you structure the general partnership?

John Fortes: We came in with a per capita amount, and that’s kind of how we came through with it. The person that found the deal got a little bit bigger piece of the equity as well.

Joe Fairless: Okay, so someone who found the deal got a piece of equity, plus it was split up among you all based on the capital that you brought to the deal.

John Fortes: Yeah. And then another partner – I wanted to mention this because he’s been very important. One of our partners, Darren – he has been boots on the ground, because most of us are all out of state. So he got another additional piece of the equity as well as part of the structure, for his hard work in that. That’s very important, because he deserves it.

Joe Fairless: Yeah, that’s very valuable. So you’ve got someone who found the deal, they get equity; someone boots on the ground, they get equity, and then those two people may or may not have raised money, but everyone gets equity based on how much equity they brought to the deal.

John Fortes: Yes.

Joe Fairless: How do you make decisions on which direction to take the property, on which direction to take the property?

John Fortes: This is the fun part – we all get on a call and we discuss the two different options that we need to decide on, and we all make the decision on the call. So that’s really, really been a great experience, because in the other syndication the pool is smaller, and now we have a better understanding of how to tackle certain things because of this project, the 62. So we do make a decision by getting on a call, presenting the details first and then presenting the options.

Joe Fairless: What were you making the decision on on the last call you did with everyone?

John Fortes: The last call we had to make the decision because when we hired a contractor for a particular piece of the project, when he presented us a bill, his bill was a little bit higher than what he already negotiated on…

Joe Fairless: Imagine that…

John Fortes: [laughs] Oh man, you’ve gone through that too? [laughter] So with that said, we had to decide on how could we pivot for this, and good thing we work with a great PM that could outsource different project to different people to bring at different phases of the project… And it’s a very, very highly intense project. We have one building down, but two of them still with some vacancies in it… But we are still cash-flowing about $3,000/month. So that’s a testament to the underwriting that was done on this project.

Joe Fairless: How much higher was the bill than what they quoted?

John Fortes: I believe it was like — it had to be over 50k, because we weren’t comfortable…

Joe Fairless: Dang…

John Fortes: I can’t remember the exact number, but it was like “Are you kidding me?” And we were looking at the itemized — it appeared he was charging an hourly rate for just like a light fixture, or something like that…

Joe Fairless: Oh, wow…

John Fortes: Something insane. And when we went through and itemized it, because we’re questioning everything on that, and it was ridiculous from what he already told us… And it was certain things like that lightwork that could have just been done by a handyman, and8 he just really, really overcharged us on those things.

Joe Fairless: So when you have those calls, how do you structure the conversation with — I’m sure not all nine of you are on every call, but I’m sure there’s more than three or four of you on every call… So how do you structure a conversation with that many people?

John Fortes: Well, it’s all about communication. If we know certain people are not gonna be on the call, we try to present what is actually happening and what will be discussed and what needs a decision on, and we try to give everyone an opportunity to have a voice. That’s very important. And that’s been very, very awesome with this group, because we all have the same end goal, we all have the potential of this property, and we all know exactly what we need to do.

We also present options, the worst-case scenario and the best-case scenario during those calls, and we make sure that whoever can’t make it knows exactly everything that we are going to discuss, and we try to get something beforehand, for their not being able to make the meeting.

Joe Fairless: Yup. It sounds like you get along really well with the other partners, and you have a lot of respect for them. You can tell just by hearing how you talk about them.

John Fortes: Oh, they’ve been great. It’s been an awesome partnership, and I know there’s a bunch of us in it, but it was everybody that wants to learn, everybody that wanted to do this, and anybody that just had the desire, the passion to just be able to go ahead and let’s make this happen.

Joe Fairless: How much equity did you bring to the deal?

John Fortes: As my group, we brought in 81k of the raise.

Joe Fairless: What was the total raise?

John Fortes: It was 550k, I believe.

Joe Fairless: Okay. And what structure do you have with investors?

John Fortes: Everybody that’s in it — we don’t have any passive investors in this deal.

Joe Fairless: Okay.

John Fortes: So that’s why on this one, the 41, we are syndicating.

Joe Fairless: Okay. Of the nine people that you have on the GP side, is that everyone in the deal? The equity actually came from all nine of you?

John Fortes: Yes. Everyone has equity in the deal.

Joe Fairless: Okay, got it. Did you personally invest in this one?

John Fortes: Yes, we all did. My whole Community First did, we invested in this deal, and everybody else that is part of the GP contributed to the deal.

Joe Fairless: Is the plan to renovate it, reposition and refinance out, or what’s the exit strategy, if there is one?

John Fortes: The exit is pretty unique. We have a worst-case and a best-case. The worst-case is we stay in the bridge loan, and we have options to be able to go out. The best-case is to refi after repositioning, and… As a matter of fact, the last conversation we had, the property is going to be one of the best in the area, so we will be able to [unintelligible [00:15:42].01]. We can command – or whatever we wanna try to do – market rate, and maybe even a slight bump, but I’m not even entertaining that; market rate would be great.

Joe Fairless: This 41-unit that you’re syndicating – where is that located?

John Fortes: In Chattanooga. It’s quite a way.

Joe Fairless: In Tennessee…

John Fortes: Yes.

Joe Fairless: And how many partners do you have on that one?

John Fortes: There’s five of us on the GP side, I believe.

Joe Fairless: Oh, that’s nothing.

John Fortes: [laughs] That’s nothing anymore, right?

Joe Fairless: Yeah. You make a decision in the blink of an eye.

John Fortes: Yeah. It’s basically a lot of people from the first deal, that came on this deal… So it’s great. It’s a great opportunity again, and the raise was, I believe, 600k, and it was recommended by us to syndicate this one. We kind of fell into syndication, and it was funny, because we had  the money raised to complete the deal before we even kicked off the meeting with the syndication attorney. It was just that quick for us to raise.

Joe Fairless: And what’s the business plan with this deal?

John Fortes: It’s gonna cash-flow from day one. It is under-rented by $75 to $125 in certain units, and it’s a light value-add play where we can turnover units as people’s leases come up, if they don’t choose to stay… And we can kind of be able to position a unit for them to get the bump increase, and just really, really light value-added, and complete that for a five-year hold on that one.

Joe Fairless: And when you take a look at this deal, compared to the other deal — I know you said the other deal you came across through the group that you’re in… How did you come across this deal?

John Fortes: The same person that found the other deal was like “Gosh, are you guys ready to rock ‘n roll again?” We said, “Absolutely!” We work well together, it’s a great opportunity, and it’s all about partnerships… Because sometimes it might take you two years to find your own deal, and if you wanna hold on to whatever you have for two years, or you wanna rock ‘n roll with someone else – you’re still doing what you want to do, it’s just someone else found an opportunity. It doesn’t matter at the end of the day. You’re all doing it and you’re all going to benefit from it at the end of the day as well… So partnerships are important, and I preach it heavily everywhere; I don’t know if you’ve seen me screaming from the hills… I really believe in it, because there’s a lot of people in the industry, and it’s built off partnerships. I can’t probably name one person that’s doing it alone.

Joe Fairless: Yup. Well, when you look at the two deals and you think about the lessons you’ve learned so far, what’s something that hasn’t gone according to plan? …other than that contractor, which clearly that’s an issue, but you resolved that… What’s something else that hasn’t gone according to plan? Probably the 62-unit, since the 41-unit is still in motion.

John Fortes: Yeah, funny you ask… It’s been the 41-unit. The reason why is we’ve pivoted lenders twice. Was it twice…? Once, once. The other time was a back-up, just in case we needed to… So we were going to with agency debt, and they didn’t approve of our seasoning from the 62-unit because of how fast we went under contract with this one; we were supposed to close in December 21st, or something like that… And we’ve extended twice since we actually — we’re supposed to close tomorrow, but we’re extending out to the 8th, and it’s only because we had just received approval from the lender, we shifted to a community bank, and… If all went according to plan, we would have had this thing closed already; it’s just we had to move from the agency debt to community bank debt. We got the approval… And I think that was all in part to maybe the government shutdown, because it slowed a lot of things down; we don’t know, I can’t pin that down for sure. But yeah, that’s the only thing.

Joe Fairless: Are you signing on these loans?

John Fortes: Yes.

Joe Fairless: And are they recourse?

John Fortes: Yes, they are recourse.

Joe Fairless: How do you think about that in terms of your personal financial stability?

John Fortes: Well, it doesn’t bother me, because of the fact that the business plan — I’m confident in our underwriting, I’m confident in our business plan, I’m confident in our strategy, so it doesn’t bother me as much as it would for maybe someone else… But I do see the power of non-recourse, and I completely get it, but when you’re trying to make things happen in the beginning, why not…? I mean, come on…

Joe Fairless: [laughs] Yeah, I get that. Based on your experience, what is your best real estate investing advice ever?

John Fortes: Partner up. Find partners that complement you, and just go for it.

Joe Fairless: And clearly, you’re living and breathing that advice. I don’t think I need to ask you to elaborate, because we’ve already talked about the power of partnerships with what you’re doing.

Alright, we’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

John Fortes: Let’s do it.

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

Break: [00:20:57].05] to [00:22:14].19]

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

John Fortes: Best ever book… The Third Door, by Alex Banayan I love it.

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

John Fortes: When I bought my single-family home, I wanted to do the BRRRR strategy, but when you buy turnkey, you can’t do the BRRRR strategy… [laughs] So that was my mistake, but it’s still cash-flowing well, it’s doing good, and… I just can’t refi out of it, so hence why partnerships is important when I kind of ventured out.

Joe Fairless: I would think in Boston it would have appreciated just because the market went up enough, even if it was turnkey… Not the case?

John Fortes: I failed to mention that, but my first investment was in Florida. [laughs]

Joe Fairless: Oh, okay… What part?

John Fortes: Cocoa. right next to my sister-in-law, because my wife’s parents have a home in Cocoa Beach, and their daughter lives in Cocoa, and I was like “Hey, I’m just gonna look in the area.”

Joe Fairless: Well, I’ve never been to that area of Florida, but I don’t feel sorry for you, because you mentioned that it’s Cocoa Beach, so…

John Fortes: [laughs]

Joe Fairless: …it sounds like you’re still enjoying yourself, and you got some life experiences from the transaction.

John Fortes: Yes, yes.

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

John Fortes: My own personal home. The reason why is when I was going through those periods of 2014 through ’16, I saw the value of how appreciation worked with every paydown when I paid my own mortgage… So when I incorporated that and made sense of it, saying “Hey, what if I had someone else do this for me?”, I saw that basically an investment home could be a big piggy bank for you.

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

John Fortes: I love [unintelligible [00:23:53].19] my church and helping my friends and family with realizing the power of real estate. Like I said, you don’t need me to say it again, but I’m gonna say it again – I scream it from the hills, and I blast it and I try to promote it as much as possible, because I think it’s important. Because where I grew up, no one was telling us this stuff; schools ain’t, we don’t have a lot of people around us that tell us these things, and we don’t grow up around certain people that kind of know better, so… When I took my education in finance and it kind of shifted into this, then I scream it from the hills.

Joe Fairless: What was the point in time during your path where you had to put the chips on the table, and you were financially really strapped, at what point in time — if any; perhaps I shouldn’t imply that there was, but usually in any entrepreneur’s journey there’s a point in time where it’s like “Okay, I really stretched, but I believe in this.” Is there a part that you can think of?

John Fortes: Man, this hits home, because right now, the reason why I say that is had I not put all of this in motion — and this is the first time I’m gonna speak on it publicly, and I thank you for the platform, but I think it’s important… I was laid off in November. So right now, right now is the time.

Joe Fairless: You’re all in.

John Fortes: Going through it, yes. I am living it.

Joe Fairless: Well, it’s impressive what you’ve done, and the partnerships that you’ve created as a result of the value that you’ve added to all the people, and the communities that you’re actively participating in. Before we started recording, you and I hadn’t had a conversation before, but I’d seen you on my Facebook community, BestEverCommunity.com, and other places, and I told you (I think I said) “I feel like I know you already because of how active and how involved you are”, and also in the Bigger Pockets community… You’re always encouraging others. That type of stuff – well, “Service to many leads to greatness.” You’re an example of that.

John Fortes: I appreciate that, thank you. I believe firmly in the giver’s gain. I don’t do it for that reason, but it’s something of a mantra that me and a fellow person recite back; one of my brothers in this community – we say it back and forth to each other, and it really resonated between us because it helps us in certain situations, so I appreciate you saying that. Thank you.

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

John Fortes: I’m all over social media, John Fortes. I kind of use Instagram every now and then, but www.cfigwealth.com.

Joe Fairless: John, I’m grateful that you were on the show, thank you so much for joining us. Thanks for talking about the power of partnerships. That’s one components of this, it’s a main component, but I think the primary component is you being resourceful and putting yourself out there and adding value and wanting to help and contribute, and as a result, you find yourself in situations where you’re attracting others who want to be around you, and then you’re adding value, and then you all go together, and you’re just scratching the surface right now.

I’m excited to interview you at this stage in the game, and then I’m excited to bring you back in a couple of years once you continue to do what you’re doing now, for even an extended period of time.

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

John Fortes: I appreciate you. Thank you, and God bless.

JF1658: Own 75 Units While Working On 6 Fix & Flips with Daniel Kwak

Listen to the Episode Below (27:47)
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Daniel and his parents immigrated to the United States in 1999, they faced tough times growing up as the family struggled financially. Daniel bought his first deal specifically for his parents and their retirement at the age of 22. Now he’s scaled his business to owning 75 units and is also fixing and flipping multiple properties at the same time. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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

Daniel Kwak: What’s going on, Joe?

Joe Fairless: I’m looking forward to our conversation. A little bit about Daniel – he started investing at 20 years old; he owns 75 units and has raised over 20 million dollars, and he’s currently doing six fix and flips. Based in Aurora, Illinois. With that being said, Daniel, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Daniel Kwak: Yeah, absolutely. I’m a Gemini, which means basically that’s everything you need to know about me…

Joe Fairless: [laughs] I am too, by the way.

Daniel Kwak: Are you really? When’s your birthday?

Joe Fairless: May 25th.

Daniel Kwak: Okay, got. My birthday is June 11th, and my girlfriend and I actually have the exact same birthday, we’re just one year apart… So it’s pretty cool ; that’s what happened, but… That’s awesome, man. But yeah, long story short, the number one thing about me is I’m a father of Christ. That’s the number one thing that I always tell people. And secondly, I am a real estate investor. I started when I was 20, like you mentioned already, and I’m actually an immigrant to this country; I actually came over in December 8th of 1999. I was five years old, I was this chunky little Asian kid. If you’ve ever seen the movie Up! that’s exactly what I look like; the little boy scout. Ironically, my dad had the exact haircut and glasses as the older dude. But you look at us, and we’re like the cast of Up! It’s pretty wild.

But obviously, for your listeners, immigrant life is not easy. My older brother and I have memories of sleeping in the car some nights, because our family couldn’t afford to pay the heat bill… Man, it was tough. Most nights we didn’t have dinner, and that was probably describing the first about five or six years of us being in this country… So I definitely had that growing up, and seeing that growing up, of just “no matter what, you make it happen.” That immigrant mentality.

Even when I was a kid, sleeping in the backseat of the car, my eyes would be closed and my parents must have thought that I was sleeping, because they would just talk about the financial hardship that our family was in. I remember a lot of times I would listen, as I was just in the backseat, eyes closed, just pretending to be asleep, my mom would whisper over to my dad “Hey, what are we gonna do about tomorrow? What are we gonna do about this, what are we gonna do about that?” and the one question that always came up from my mom to my dad was “Hey, honey, how are we gonna retire? What are we gonna do?” and I made it my goal to do something about that. I asked God in that moment, I was just like “Won’t you just provide for us?” That’s exactly what my dad said every single time, he said “It’s okay, the Lord will provide.”

The first deal my brother and I ever did – and I have an older brother named Sam, and we were in this business together. Him and I are a phenomenal team, we’re a dynamic duo… But the first deal I ever did – I was 22 years old, and we bought a rental portfolio for my parents’ retirement account. So it actually served as their retirement, the first deal we ever did. Pastors don’t make that much; I think combined my parents have never made more than $35,000 a year – combined, ever. So for us to do that, it was such an emotional thing…

Joe Fairless: Oh, I bet.

Daniel Kwak: And at the end of the day, wasn’t that why we were in this game, why we were in this business…?

Joe Fairless: So that was the first deal, and it ended up helping your parents have retirement income… How old are you now?

Daniel Kwak: I’m young, 24 years old right now.

Joe Fairless: 24 years old. You said your first deal was 22?

Daniel Kwak: 22, yeah. So I spent the first two years learning. I’m sure you get this a lot, and I’m sure you relate to this as well, but when I first got started in real estate, I was never really hungry to do a deal; I was just focused on learning. I was like, “Wow, this is a whole new world that I never even knew”, and I’ve gotta give credit to my older brother; my brother actually is the one who introduced me to entrepreneurship. If he hadn’t introduced me to entrepreneurship, I would probably be dressed up as the kid from Up! and make money going to parties, and getting played as like a Cosplay actor… [laughs] Yeah, he introduced me to entrepreneurship, and that was my very first deal – a portfolio of single-family houses in Central Illinois.

Joe Fairless: So that was the first deal… How did you all pay for that deal?

Daniel Kwak: Obviously, I was broke, so fast-forward to when I’m 20, I still remember to this day looking down at my phone – I had negative $187.65 in my bank account.

Joe Fairless: At what age?

Daniel Kwak: At 20. When the number is negative, they actually turn it red. I didn’t know this, but they turn it red… And I remember calling the bank — obviously, I’m not gonna say the name of the bank, but I called them and I remember I was in tears; I was like, “Please, I’m just a poor college kid; you’ve gotta help me out. There’s gotta be something I can do.” And then on the other line, I think they said something along the lines of “Oh, I’m sorry, we can’t do anything”, or I just heard “click!”, and then I didn’t hear anything.

I was on my drive home, and it was an hour and a half, and I remember just weeping that entire time. So I had negative $187.65. I had a couple maxed out credit cards. My credit was in the dumps, and my brother and I actually at one point found ourselves eating out of a dumpster. It was at Dunkin’ Donuts, and we were just like, “Man, if we go at exactly [8:15]…”, that’s when they throw out donuts that weren’t eaten.

I actually learned how to raise capital, and that was kind of referring to my older point of the first two years – I just focused on learning. I fell in love with the process of learning this real estate investing game, which is also another reason why I love being on this podcast right now, because I can’t wait to see what I can learn from you, Joe. So I just kind of fell in love with this game, and just learning every bits and pieces. I found out you can do deals with other people’s money, and I got really good at providing other people value. Once I started doing that, people wanted to work with me. So that deal – I raised the money…

Joe Fairless: How much did you raise?

Daniel Kwak: It was owner financing, so I raised only about 10% of the entire deal, which I think came out to about $17,000-$18,000.

Joe Fairless: So it was one property?

Daniel Kwak: No, it was four single-family houses.

Joe Fairless: Okay, four single-family houses, you did owner financing, you raised $17,000 approximately, and that cashflow was the cashflow that helped your parents have some cash for whenever they retire?

Daniel Kwak: Yeah, absolutely. I’m actually selling that portfolio right now as we speak, because I’m actually having their income come from different apartment complexes I own now, which — now I’m more in love with apartment complexes than I was… But a lot of my units that I own currently are apartments. So I transferred in terms of how they get their money into other portfolios.

Joe Fairless: Sure. So the first deal you raised $17,000. How many people?

Daniel Kwak: It was just one.

Joe Fairless: One person. How did you meet that person?

Daniel Kwak: It was actually warm market.

Joe Fairless: It was what?

Daniel Kwak: Warm market. You know, like people you know already.

Joe Fairless: Oh, I hadn’t heard of — warren market? I hadn’t heard of it…

Daniel Kwak: Oh, sorry, warm market.

Joe Fairless: Oh, I haven’t heard that term before. Okay.

Daniel Kwak: Yeah, so that’s a sales word, I guess you could say; it’s more of sales lingo. But yeah, I always say warm market. Contact the people that you already know, that are your friends and whatnot, because it’s good training wheels for you to be able to raise capital. So that’s who I started with.

Joe Fairless: I just googled that search, “warm market.” You taught me something new. I’d never heard of that.

Daniel Kwak: [laughs] That’s awesome.

Joe Fairless: But specifically, how did you meet this person?

Daniel Kwak: It was actually a friend of my dad’s. My dad’s a pastor, and this guy was also a pastor… And my Korean is a little off, so my brother actually was the one who had that conversation with him, because his Korean is a little bit better than mine. Well, a lot better than mine. And that first deal, honestly, gave us enough credibility for me to go out to a lot of other lenders and start having conversations.

Joe Fairless: So you raised $17,000 on that first deal. This was two years ago, correct?

Daniel Kwak: Yeah.

Joe Fairless: And then how many deals have you done since then?

Daniel Kwak: I did a 36-unit, a 24-unit, and then a four-unit, and then an eight-unit… So I would say in terms of multifamily we’ve done about six deals. In terms of fix and flips we did two. We did them in Illinois, and I didn’t like the Illinois market that much. I would say probably after doing some apartment complexes I started learning about interest rates, and monetary policy, and I became a really geeky, macro economical nerd, and I got really into that, so we’re actually doing deals now across the country, where it actually makes more sense, where it’s more economically viable. So I’d say we probably did around 19-20 deals total in our career.

Joe Fairless: Wow. So when I was reading your bio, it says you’ve raised over 10 million dollars… 10 million dollars at 35% down, that’s 28 million dollars worth of property, so what deals did you raise the big chunk of that 10 million into?

Daniel Kwak: I’d say a lot of our deals that we did were seller financing, because the more I got into microeconomics, I learned that right now it’s probably not the best thing, especially for the average investor, to go to an institution. Obviously, with rising rates and the way monetary policy works and how that affects reserve requirements and whatnot… So I learned if I wanna keep myself safe and I wanna be able to control the terms and not overpay – because I will just meet seller after seller after seller, and I remember I was on a kick for I think about 18-19 weeks in a row; I met with 4-5 different sellers a week, just negotiating on properties… And even myself, in 2018, I had about 1,600 deals sent to me, whether it was from virtual assistants, whether it was from me looking at them myself… 1,600 deals I looked at, and I only made offers on 12. And I actually went after about eight. Because I was just extremely conservative. So I knew I had to do seller-financing, or I had to do contract for deed, not only to set myself up for a low fixed rate, but at the same time be protected to the point where I can have second layer of financing if I need it.

For some of these deals I only raised 10%, 15% down. I had an eight-unit I bought no money down, because I was able to add value to the seller in different ways besides just the down payment.

Joe Fairless: Okay. Yeah, we’ll talk about that… Just for my own clarification, when you mentioned that you’ve raised ten million dollars, you’re grouping that raise into owner financing that you’re receiving from the owner. Is that correct? So it’s not necessarily private investors, it’s also owners who are financing the carry. Is that how you’re defining it?

Daniel Kwak: No, I’m defining it as like the down payment also. When I do owner financing, obviously, they still want me to have some skin in the game.

Joe Fairless: Okay.

Daniel Kwak: I’ve done some owner financing deals where we had to raise a  little bit more than the traditional 20, so I group that in there as well. And also obviously for my fix and flips, too.

Joe Fairless: Okay, so in two years you’ve raised over ten million, correct?

Daniel Kwak: Yeah.

Joe Fairless: Okay, so where is the chunk of that money? What deal did a chunk of that money go to? Because when I hear 36 units, 24 units, 4 units, 8 units, I’m thinking, “Well, that’s not ten million in equity”, so where is the ten million in equity? What deals did that go into?

Daniel Kwak: I would say mainly probably my apartment complexes, and also in terms of the money raised, probably a lot of our fix and flips, because obviously we do everything cash with our fix and flips. We’re not financing any of that. So I would say probably the two biggest ones would probably be my 36-unit that I bought with using bank money (institutional funds) and then also the fix and flips.

Joe Fairless: Okay. So let’s talk about the 36-unit, because we’ve got a bunch of multifamily investors who are listening to this. How much did you raise for the 36-unit?

Daniel Kwak: Well, for the 36-unit we didn’t have to raise that much, because our purchase price was 1.6 million dollars, so we only really had to raise about 350k.

Joe Fairless: 350k.

Daniel Kwak: Yeah.

Joe Fairless: Okay, so help me understand – you raised ten million dollars in two years, and you said the largest amount of the raise went to the 36-unit and your fix and flips, but the 36-unit was $350,000, so there’s a gap of 9.5 million dollars… So where is the 9.5 — I just wanna learn in what deal, where did the 9.5 million dollars–

Daniel Kwak: Honestly, my biggest problem right now, Joe, is I have people on a waiting list, I have investors that are ready and I just can’t find a deal, to be quite frank.

Joe Fairless: Okay, so the ten million dollars that you mentioned you raised, it’s not money that you’ve actually put into deals, it’s money that’s been verbally committed, but you haven’t put into deals.

Daniel Kwak: Yeah, I would say so.

Joe Fairless: Got it. I was like, “Wait a second, this math isn’t working.” Okay.

Daniel Kwak: [laughs] Right.

Joe Fairless: So you have investor interest of ten million, and you could bring that into deals when you find the deals.

Daniel Kwak: Yeah, that’s exactly right.

Joe Fairless: Okay, cool. So let’s talk about the 36-unit. You brought $350,000 worth of equity to that deal… You said you did bank financing – how did you find it?

Daniel Kwak: Well, I actually had a partner of mine who also is a property manager and he had an old friend who actually owned it himself; so I got connected with the property manager, and we sat down and we said “Hey listen, we should work together. I have something to offer, you have something to offer…” So he ended up having a friend who ownes that 36-unit and quite coincidentally I think about a couple months later his friend called him up and said “Hey listen, I wanna sell my building. Let’s talk.” Originally, I obviously tried to go for contract for deed, but his needs and the value that he wanted to be created from us wasn’t towards that direction. So we ended up just going with bank financing. That’s how we found it. I guess through warm market, right? The new lingo we just learned.

Joe Fairless: [laughs] Yeah, you taught me that. So the 36 units – you’re based in Aurora, Illinois… Where is this located?

Daniel Kwak: Aurora, Illinois — I would say about 40 minutes West of downtown Chicago.

Joe Fairless: So  this 36-unit is located where you are located, in Aurora?

Daniel Kwak: It’s actually in a small town called Plano, Illinois. It’s actually about 20 minutes further West from where I live.

Joe Fairless: Okay. And what’s the business plan for the 36-unit?

Daniel Kwak: We’re actually doing some value-add stuff right now, just because our understanding and our philosophy right now – and especially last year when we did the deal – was the rates are going up, can’t lie about that one, and we often know how rates will affect the value of apartment complexes. So what we did is we decided to actually do some value-add, and we raised the rents about $300 on half the units right now, and we’re looking to raise another $300 on the other half.

Based on my math and just kind of adding that forced appreciation and seeing how that’s gonna turn out, we actually saw that it was gonna raise the value by about 1.1 million. So it’s gonna kick that NOI up a little bit more than what I thought actually when I first came into the deal. So I’m really excited to see what that valuation is gonna be like. But of course, the offset to that is the fact that I’m actually not taking any cashflow from that 36, just for the sake of making sure that value-add strategy is more sustainable than others, so to speak.

Joe Fairless: You mentioned something earlier that sounds very impressive, and that’s you had 4-5 meetings with sellers, so owners of properties, a week, for about — and it was very specific, 19 weeks in a row…

Daniel Kwak: Yeah.

Joe Fairless: Did you have a quantifiable goal that you were looking to achieve, and that’s why you were tracking the 19 weeks in a row of meeting a certain number of sellers in a week?

Daniel Kwak: Yeah, that was about five months, and that was about the summer of 2017 was when I had those meetings. My goal, honestly, I just wanted to get as many units as possible. I was definitely a little bit more flashy back then in terms of number… Because I was 22 and I was single at the time, and I just imagined and visualized me walking into a party and being like, “Yeah, I’ve got this many units, I’ve got that many units…” But no, I honestly just learned a ton about negotiating and just adding value to even sellers.

I did have a quantifiable goal – I wanted 250 units by the end of 2017, and I ended up getting 75.

Joe Fairless: And the ways you were getting the meetings with the sellers were – what?

Daniel Kwak: We fired on all cylinders. We did mailing campaigns… And thankfully, I have a brother who’s very technologically gifted, so I would say he’s more stereotypically Asian than I am… Because obviously, you heard earlier, I’m pretty bad at math, so… [laughs] But anyways, we fired on all cylinders – with the mailing campaigns, with networking events… And what I used to do, actually, was every week for about three hours a day (and I was doing this three times a week), I would literally go out and drive, and just anytime I saw a “For Rent” sign, I would just call it and asked if they wanted to sell.

So every time I went out it was about 3-4 hours, and what I would do the night before is I would plan my route, like a mailman. I would literally go to Google Earth, or I would literally just google “apartment buildings in Lockport, Illinois”, and I would just get a list. I learned if I find one apartment, chances are there’s other apartments around it. So anything from five units to a 78-unit complex, a 96-unit complex… And I would just drive around and calling the signs, and if I didn’t call then, I would still write down the address, and then I would go to the tax assessor’s office on the online website and I would figure out who the owners were, and then I would literally just google their name, find their phone number, and I would just call them. I got cussed out at a couple times, too…

Joe Fairless: Of course. Hey, that’s part of it, though.

Daniel Kwak: That’s part of the game, right.

Joe Fairless: And for the ones that you got cussed out at, I think we know how that conversation went, but for the ones that didn’t cuss you out, how did the conversation go?

Daniel Kwak: It was interesting. Obviously, at first we all suck; I literally can still remember my hand was shaking. I was like, “Oh my gosh, this is super-scary.” I was nervous even before this podcast, because I know myself and a lot of my friends idolize you, by the way… So I was shaking on the phone, like “H-hi, m-my name is…” They were like, “Sure, what’s your offer?” And I’m like “Oh, I haven’t quite thought of that.” [laughter] So I would get in the habit, and I had a couple mentors who were helping me at the time, and I was asking them “What do I say?” and they were like, “Well, simple – just what you do. You obviously wanna get them onto the phone, you wanna get information, so just ask them for a profit and loss statement…” And what I got in the habit of doing was asking people for their Schedule E’s or Form 8825’s. Because I found out with profit and loss statements, especially the first six months of me actually looking at deals, I found out there wasn’t a whole lot of integrity with a lot of profit and loss statements.

Joe Fairless: Imagine that.

Daniel Kwak: I know, right? Exactly. Humans…

Joe Fairless: Yeah.

Daniel Kwak: So I had an accountant at the time who said “Listen, why don’t you ask for their Schedule E? Ask for the Schedule E, because that’s the IRS tax form for showing expenses on a real estate property.” So I got in the habit of asking for their Schedule E and Form 8825 based on how they hold their property, and I just became a detective. I got really good at looking at that Schedule E and figuring out “Okay, what’s the story…?”

So first I got the Schedule E, second, I looked at it, “What’s the story?”, third, I used that information to see what value I could provide for them. So the next time I met with them or I was on the phone, I knew what questions to ask, because I already had that piece of information and I was able to draw out “What’s the story here?” And the fifth, I actually added  that solution and I added value, and I was able to formulate offers based on what they were telling me; not what I thought I wanted for the building, but based on what they wanted for the  building.

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

Daniel Kwak: Best real estate investing advice ever… So I had a bunch of people come up to me — because I’m sure you do the same, but I travel the country  a lot and I train… And I had a bunch of 18,19-year-old kids – they were girls – that came up to me, and I think I was in Minnesota at the time… They came up to me and were like “Daniel, how do I raise money? How do I do deals?” And I literally kind of just told them, “Listen, the best advice I can give you is the fact right there, what you just asked me. The advice is in the question you asked me”, which that’s the case, 99% of the time. I said “You’re just asking “How do I?” How do I do this, how do I do that, how do I raise this?” That’s honestly the best advice I could give you – just replace that word I with adding value.

I can formulate that probably with a story my pastor told me. And I don’t mean to make this religious or biblical, but this is just kind of who I am and I’m just being raw right now… He said, “Hey listen, there’s a beautiful scene in the Scripture where Jesus has this realization that God puts everything under His authority.” So it’s just almost like you’re the most powerful being on this Earth. And it just goes to show you, in that passage, where the very next thing he does is he actually does the thing that was reserved for the lowest-ranking servant, and he actually starts to wash his disciple’s feet.

I heard that story very young in my life, my dad being a pastor, and that was just one of those things that stuck with me. I’m sure, Joe, in your entrepreneurial journey you had things where your mentors told you, and it just stuck with you. Am I right?

Joe Fairless: Yeah, absolutely.

Daniel Kwak: That was something that stuck with me ever since I was eight or nine years old. And just the fact that the most powerful being, Jesus (and He still is, I guess), show to do exactly that. It was just beyond comprehension. So for me, that’s always my goal. My goal is always “How do I add value?” The same thing on this podcast, “How do I add value to your listeners?” And of course, I’m gonna ask you to be on my podcast, so you can add value to my listeners, right? So that’s exactly the best advice I could probably give in real estate investing.

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

Daniel Kwak: Yes, sir.

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

Break: [00:24:21].29] to [00:25:19].15]

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

Daniel Kwak: Best ever book I’ve recently re-read was Think and Grow Rich. But I read it for the sixth time. Oh, I’m sorry – Pitch Anything. That book is phenomenal. If you wanna learn how to raise capital like a wizard, Pitch Anything by Oren Klaff – such a phenomenal book. My favorite book on raising money.

Joe Fairless: And if you search “oren klaff joe fairless” you’ll hear — I’ve actually interviewed him twice on this show.

Daniel Kwak: No way!

Joe Fairless: Best ever deal you’ve done?

Daniel Kwak: Best ever deal I did was probably that eight-unit where I bought no money down, because I was actually able to help the seller from losing money, and I was actually able to give my investors the largest return.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Daniel Kwak: I trusted somebody without a contract. That’s probably the worst. I lost a couple million on that one.

Joe Fairless: A couple million?

Daniel Kwak: Yeah, in terms of capital that I actually raised and had verbally committed, and now it’s just gone.

Joe Fairless: But no one actually lost–

Daniel Kwak: No, no one lost it, but man, the guy just didn’t want anything to do with me, and it hurt me, because I’m the big relationship guy, and… Man, that for me still hurts. So yeah, I trusted somebody without a contract.

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

Daniel Kwak: The best ever way I like to give back is what I’m doing right now, honestly – podcast, trainings, videos on YouTube.

Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on?

Daniel Kwak: Look up on YouTube “the Kwak Brothers.” My brother definitely posts more stuff on there. We’ve just hit 34,000 subscribers, so I’m super-pumped. I know that’s not a whole lot to a lot of people listening, but I’m really excited, because that means that 34,000 that we’re serving, and metaphorically wash their feet.

Joe Fairless: Well, Daniel, thank you so much for being on the show, talking about how you and your brother have gotten to where you’re at with the 75 units, and the focus on seller financing or owner financing, the first deal, where you raised 17k from a friend of your dad, and then how you’ve built from there… And how you’ve found the deals, I found that most interesting – with just hustle and determination, quite frankly. Having those meetings, and then also being savvy based on what you’ve learned through your studies and how you approach business and life.

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

Daniel Kwak: It’s been a pleasure and honor, sir.

Joe Fairless & Igor Kajpust on Best Ever Show flyer

JF1644: How This 22 Year Old Profited $1.5M Last Year Flipping Houses with Igor Kajpust

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At a very young age Igor has figured out how to build a consistent and profitable house flipping business. Not only has he been exceptional at networking and establishing advantageous business relationships, his business is structured smartly and his team is performing very well. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Igor Mike Kajpust Real Estate Background:

  • 22 year old full time investor specializing in SFR
  • Purchased $8.5M of flips in 2018 across 35 flip deals, sold 20 of them in 2018 for $1.15m profit and have $1.25m in equity in the remaining 15
  • Goal is to do 500 sfr deals in 2019
  • Based in LA, CA
  • Say hi to him at http://amoove.com/
  • Best Ever Book: Principles

 


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

With us today, Igor Kajpust. How are you doing, Igor?

Igor Kajpust: Good, good, Joe. Glad to be on here with you.

Joe Fairless: Yeah, nice to have you on the show. Igor is a 22-year-old full-time investor specializing in flips. He purchased 8.5 million dollars of flips in 2018. That was 35 deals. He sold 20 of them last year for 1.15 million dollar profit, and has 1.25 million in equity in the remaining 15 of them. His goal is to do 500 in 2019. Based in Los Angeles, he invests in other markets – we’re gonna talk all about it. Igor, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Igor Kajpust: Yeah, totally, Joe. I’m predominantly a fix and flipper. The majority of our business is in Orlando, Florida and Denver, Colorado, both markets that I’m pretty familiar with. I spent about three years in Denver before moving out here to L.A, and built up the business there. My partner is based in Orlando. We’ve got a little bit of a team in both of those markets, so we really just focus on acquiring and flipping as many of those single-families as we can in those two markets, kind of with a systemized approach.

A little bit of background – I’ve been really interested in real estate ever since I can remember, and I was always trying to make money, and buy and sell stuff here and there… I ended up buying my first piece of property when I was 17, when I was in high school; it was a $750 vacant lot somewhere, that I still have… And since then, I’ve been really interested in real estate, and have been learning and learning as much as I can along the way.

I went full-time when I was 19, doing wholesaling at the time and really sharpening my skills on the off-market acquisition side of things during the last couple of years. More recently, all of last year I decided to actually close on and flip most of our deals, rather than wholesaling them. That’s the approach we’re taking on going forward, and just raising more funds and closing on everything that we can and capitalizing on all those opportunities.

Joe Fairless: Where did you get the money to purchase 8.5 million of flips?

Igor Kajpust: So 8.5 million is the retail value. It was about 5-6 million dollars of equity. That was all just private money, essentially, at hard money terms, through networking, introductions from different people to their lenders, and just being able to show my track record of wholesale deals that I’ve done the previous couple of years. They were like, “This guy knows how to find a good deal, we’ll give him a shot”, and it’s really grown. Those are five, six different lenders that I use, that basically supply us with all that capital.

Joe Fairless: Okay, so they’re not private individuals — or if they are private individuals, they do this for a  living, they lend hard money out for a living?

Igor Kajpust: Yeah, the majority of them. Two or three of them are basically full-time either retired real estate investors that just lend now, or they have a little hard money side to their business… But I would definitely consider them more as private individuals lending at hard money terms, rather than hard money companies.

Joe Fairless: Okay.

Igor Kajpust: So some of them have a full-time job or a business, and they’re just lending to me on the side.

Joe Fairless: What are the typical terms?

Igor Kajpust: It’s pretty much two points and 12% across the board that I pay, and then they get their first position lien.

Joe Fairless: Okay. And something  you said is they look at your track record for when you were wholesaling, and you were able to find a good deal – how do you find good deals?

Igor Kajpust: It changed over the years, but really the strategy that’s worked best for us and that we’ve doubled down on over the last year and a half has been cold calling, and more specifically cold calling on a targeted list… Cold-calling pre-foreclosures, tax defaults, probates, those more targeted lists, as well as — we also have a blanket approach too when we run out of those lists, but the strategy we’ve really seen the most success with has been cold calling. We’ve done some PPC and online stuff in the past, but cold calling has been what’s really been best for us.

Joe Fairless: And where do you get your lists?

Igor Kajpust: The majority of this stuff comes directly from the county. In all of our Colorado stuff it’s really easy; the deed of trust states — so we reach out to the public trustee, or access their portal online, and they’ve got all that information beautifully organized, with how much the people owe, how long they’ve been in default, name, address… Everything you really need, it’s just neatly organized for you online. So a lot of that information – there are different departments for it in different cities and counties, but a lot of it is available just through the local governments.

Joe Fairless: Same with Orlando?

Igor Kajpust: Yeah. Orlando, actually we used to scrape it manually off of there. It’s the same way, but Orlando is judicial — not to get into too complicated kind of stuff, but it’s a judicial foreclosure process, so you’re kind of scraping through court cases, and stuff, and it’s a lot harder to see the information. We use different list providers in Orland that kind of put all that information together, and then we just pay them for that service.

Joe Fairless: And how much do you spend annually on the cold calling tactic? …which includes the team, the list and all that.

Igor Kajpust: Essentially, how we structure it is we basically pay our guys commission-only. It comes out to $3,000 upfront for each deal that they get, and that’s distributed amongst maybe a caller, or someone that went on the appointment; they might each get $1,500 or whatever the case is, and then they get a bonus on the back-end, depending on what our net profit is on the deal; they get a 5% to 10% bonus of the net on that deal. I’ve got 19-year-old guys in the office that got a $15,000 check as their bonus off of that net.

Joe Fairless: That would buy a whole lot of $750 vacant lots.

Igor Kajpust: [laughs] It sure would, but they like to spend it on freakin’ Gucci shoes.

Joe Fairless: Oh, no…! You’ve gotta have a word with them.

Igor Kajpust: [laughs] Oh, they’re learning, slowly but surely.

Joe Fairless: That $750 vacant lot that you bought when you were 17 years old – what is it worth now, if anything?

Igor Kajpust: It’d probably be tough to find a buyer for it. It’s maybe a grand or two. It’s out in the desert in Colorado somewhere, with no roads or anything.

Joe Fairless: How did you come across it if you weren’t living next to it?

Igor Kajpust: It was actually a website I found on my crazy googling and researching I was doing when I was just super-obsessed with the idea of investing in real estate, and I found that website, which I don’t know that I’d recommend using, but it’s called bid4assets.com. Have you ever heard of it?

Joe Fairless: Bid4assets.com?

Igor Kajpust: Yeah.

Joe Fairless: No, I have not heard of it.

Igor Kajpust: I stumbled upon that and I just saw “One dollar, no reserve, vacant land”, and I was like “Oh, wow… Is that like $100? Awesome!” and I ended up winning the bid. I was hanging out with my friends in my room, senior year of high school, and I’m like “Dude, you guys, I’m gonna totally buy this land!” [laughs] That was the first one, and I ended up buying another property off bid4assets.com, which was my second deal a couple months later, with a friend. We threw in a couple thousand bucks each and bought a property in Indianapolis from a bank, for $7,500, through the website.

At the time I didn’t know what a quitclaim deed was, so we ended up buying this property, and we go to sell it and find out there’s $14,000 of liens on the thing. [laughs]

Joe Fairless: Aww….!

Igor Kajpust: Yes. So needless to say, we learned a lot with that experience, and I haven’t been back on bid4assets.com since then.

Joe Fairless: What happened?

Igor Kajpust: We put it back on the market, because we thought we were gonna fix it up. We were like, “Oh, it’s just gonna need some cabinets and some paint”, just based on the pictures; we never looked at it, or anything. And then I ended up taking a drive out there and it needed a lot more than some paint and some cabinets… [laughs] So we put that on Craigslist; it took months, we weren’t getting any action. We listed it with an agent, he got a buyer for $12,900 or something. We were super-excited. We got the settlement statement, and it was like “You guys need to bring 3k to the table”, or something. I was like, “What…!?” [laughs] But then we ended up finding some investor that was willing to take it subject to the liens for $8,000 and we basically got out of it, by the skin of our teeth.

Looking back now, I would have probably been able to — the municipal liens on there, we could have negotiated those liens, [unintelligible [00:10:23].06] and probably done a little better, but you kind of learn as you go.

Joe Fairless: Yes, you do. Thank you for telling that story. So your profit that I read in your bio was 1.15 million – does that factor in the commissions that you’re paying out to your people and whatever expenses you have, overhead for your company?

Igor Kajpust: No, that’s just the gross profit that’s basically what we got back from all the closings, after having paid for whatever expenses we incurred…

Joe Fairless: Sure.

Igor Kajpust: …dialers, or any expenses. So essentially that’s just the gross. The net is a couple hundred thousand dollars less, and then we’ve got that remaining 1.25 million that’s just properties that are getting wrapped up now, or on the market now, or under contract… I actually just had a closing today, so we’re selling off the rest of that stuff. It’s scheduled to close the next month or two here.

Joe Fairless: That’s great. So who’s leading the charge here? Is it you and a business partner? It sounds like you have a business partner.

Igor Kajpust: Yes. Me and my business partner are both 22 years old, and we met at Sean Terry’s Flip2Freedom conference a couple years back, and just started working together at that point. Now he runs pretty much the majority of the day-to-day out of Florida. Now that I moved to L.A, Denver reports to Florida, and he kind of oversees the majority of the day-to-day, and I help with business development strategy and raising money for all of our deals.

Joe Fairless: And you mentioned the net profit was a couple hundred thousand dollars less than the 1.15, which is still relatively speaking a whole lot of money… So what is that – like 850k, 900k. Is that just money that you and your business partner split 50/50 and you go buy some Gucci shoes, or what do you do with that 900k?

Igor Kajpust: [laughs] No, we’re reinvesting the majority of all that into the business. We basically had it structured in a way while I was running the Denver office and he was running the Orlando office, where we were getting a larger or smaller share of the profits based on our office’s performance. So it wasn’t an exact 50/50 split.

But we’re basically reinvesting the majority of that money. We’re looking to do some rental portfolios right now, and just testing some strategies, keep buying deals and keep growing the business. So no more Gucci shoes for me.

Joe Fairless: And the 1.25 million in equity that you have remaining in the 15 homes – those are homes that you’re selling, you just have that spread based on what you put into it and what it’s valued at currently… Is that correct?

Igor Kajpust: Exactly. That will come out to another 800k-900k in net profit after commissions and expenses once all that stuff is sold.

Joe Fairless: And with your fix and flip business – why did you choose to go from wholesaling to fix and flips?

Igor Kajpust: We just really wanted to get more into the ownership side of the business, not just assigning the paper and getting a small fee, basically. My long-term goal is turning hundreds (if not thousands) of single-family homes, large portfolios, and wheeling and dealing with the hedge funds, and that’s kind of just what I’m working towards. I feel like that was a step in that direction, and being able to secure our own financing, get the deals funded, close on them… We have to improve the properties… So we see them as just getting us ready for the next steps that we wanna take, and teaching us the necessary skills to get there.

Joe Fairless: And what’s the long-term vision with the hedge funds and the portfolios of single-family homes?

Igor Kajpust: We just wanna keep growing our acquisition systems and growing the business to be able to acquire hundreds and hundreds and thousands of single-family homes, creating rental portofolios, doing huge volumes of fix and flips, and just dealing in much larger volume with single-families.

Joe Fairless: So in that example, let’s say you came across a 500 single-family home portfolio, and they are distressed properties; your vision is to be able to buy those 500 single-family homes, fix them all up, and then sell them to someone, or a group…?

Igor Kajpust: Yeah, or acquiring 30-40 a month for a year, just through our call center, putting tenants in place, and then selling that portfolio to a fund for 25 million, or whatever the case may be, as like a performing package.

Joe Fairless: Okay. And with your deals that you sold last year – you sold 20 of them – I’ve heard some fix and flippers say that their approach is for every 2-3 homes that they sell, they keep one in their portfolio… That way, they’re not just constantly having to churn our deal after deal; they’re actually making some residual income, so they’re not chasing the next deal. What’s your thought process on that?

Igor Kajpust: I think that that’s a great approach. Personally, the market has just been too tempting to sell the last few months, the last year or two… I mean, when you’re getting 15 offers over the weekend and they’re all 20k-30k over ask, it’s hard to keep them. So my strategy is the next downward cycle that we have, as the market is slowing down here, and we expect the market to cool down – it’s already cooling down in certain areas, but it’s expected to cool down more over the next couple years… At that point, I wanna just raise a bunch of money and create rental portfolios then, rather than buying all this stuff at the top of the market. Just buying a couple for my personal portfolio and keeping them.

I’m still a young guy, so I’m kind of out there, willing to take the risk and go bigger, rather than thinking in the long-term… Although I know it’s beneficial to think in the long-term, but I’m a little more hungry for risk right now.

Joe Fairless: Yeah, the market has been very favorable to what you’re doing, but people have lost money even during favorable times, and you have made money… Certainly, the market helps, but you have to have a system in order to actually make money, otherwise you could lose money in a good market. You mentioned that getting 15 offers over asking during the weekend – how can you really turn that down, and I totally get that… So my question is “What is your approach when you’re fixing up a property? Actually, I’ll be more specific. When you’re pricing a property, prior to listing it, what is your approach to get the maximum price?

Igor Kajpust: Honestly, we didn’t even have too much of an approach, especially in Denver, which has just been an insane market. We hardly staged any of the properties. It would literally be like asking our agent what they think we should list it for, do a little bit of our own research, looking at comps on the MLS, put it within 5k-10k or the same of what other stuff is selling for in the area. Then we’d put it on the market, and then we’d end up still selling it for 20k more than we listed it for.

Denver over the summer was like a month’s supply of single-family, the price range that we were in, so everything would sell so quickly. It was crazy.

So basically we’d just look at the comparables, talk with our agents and see what they think, and just go with that.

Joe Fairless: And how do you determine what type of renovations you do at a property?

Igor Kajpust: Again, looking at the comparables. In some of the properties on the lower end we would be putting just cheap Home Depot countertops, cabinets, not even granite, and stuff would sell really well. On the slightly more expensive ones, if everything else in the neighborhood is at 350k and it’s demanding granite countertops and [unintelligible [00:17:46].23] shower, then we would put that, what it was selling for in the area.

Joe Fairless: How do you determine what your comparables are?

Igor Kajpust: Just the basic rundown of comparable single-family homes, looking at whether it’s the same style of home, if it’s a ranch home, split-level, bedroom/bathroom count, square footage, look at the street view, or look at the street in real life to make sure that it’s a similar neighborhood, similar vibe. Then the finishes – like I said, if the kitchen’s got granite, if it’s got hardwood floors, if it’s got [unintelligible [00:18:16].02] we would just try to mimic the other stuff in the neighborhood that it’s comparable to, so it’d look similar.

Joe Fairless: You did 35 flip deals last year… Which one made you the least money or lost you money?

Igor Kajpust: Okay, good question. There’s actually one that lost me about $10,000, on which my lender made like $25,000… [laughter] Basically, just the quick story of the deal – we ended up buying it, it was already a little bit slim; we bought it at probably 80%, expecting it to be a quick flip. The guy ended up not moving out. We didn’t do a holdback, so he stayed for an extra three months; we had to pay him an extra $2,5000 to get him out. My interest payment on that — it was a 275k purchase, so it was a $2,700 interest payment, and I had to pay that for 3-4 months.

We ended up doing a six-month hold all-in, costing us a bunch of holding costs, some fix-up, and then we sold it for 340k and lost 10k.

Joe Fairless: Having the circumstances presented to  you in a similar deal in the future, what would you do differently to mitigate that risk?

Igor Kajpust: Oh man, the holdback. The biggest thing is if there’s a tenant or a homeowner that’s living in the house and they wanna stay after closing, that’s fine, but hold back some of their money. So if they’re getting 30k in proceeds or 50k in proceeds, holding back 5k or 10k of that for when they move out, so you ensure that they move out. It goes off without a hitch, and then you just pay them that 5k or 10k. It’s held in escrow by the title company, so as soon as they move out, they can get that money. That would have saved us on that deal and we would have ended up making some money, rather than losing a little bit.

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

Igor Kajpust: Staying consistent, especially for a lot of the newer people out there. I didn’t get my first deal for 6-7 months. I know a lot of people that are now successful in the business that didn’t get their first deal, they didn’t get any traction for a long time, and it could be very discouraging to keep running into a wall, and not being able to find a solution… But if you stick with it, put in the work, 9 times out of 10 you’ll be able to punch through and succeed.

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

Igor Kajpust: I’m ready.

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

Break: [00:20:40].11] to [00:21:38].24]

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

Igor Kajpust: Best ever book I’ve recently read… Ray Dalio, Principles is a great book. It’s really long, but it’s awesome.

Joe Fairless: Best ever deal you did last year?

Igor Kajpust: I made $140,000 profit in about four months, on a single-family flip.

Joe Fairless: Was that flip through the calling?

Igor Kajpust: Yeah, that was a pre-foreclosure lead. We got it for 160k-165k, put a little bit of money into it and sold it for 355k. And I actually had no money — I’ve had probably like 5k into that deal. Because it was so cheap, my lender lent 100% of the money that we needed.

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

Igor Kajpust: Honestly, I like giving back to homeless people. Whenever I’m driving by, and they’ve got their sign out, and I give them $50, and $20, and they get so happy that it actually makes me feel good inside, and I give them a hug… I like to do that.

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

Igor Kajpust: Just follow me on Instagram, @whoiskaj, and check out my website, evolvepj.com, or amoove.com.

Joe Fairless: And we have that in the show notes. Igor, thank you so much for being on the show, talking about how your business does deals across a couple markets that you don’t live in, so how you structure that with your business partner, how you get the deals, and that was the challenge, I imagine, last year – finding the deals; because once you found the deal, you have the operations in place, but then you’ve also got a pretty friendly market, too… So it’s really just about finding the deals. And how you do that? Cold calling a targeted list of pre-foreclosures and tax probates… And deals that didn’t work out, as well as deals that did work out.

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

Igor Kajpust: Awesome. Thanks, Joe!

 

Eric Kottner holding a baby on a Best Ever Show banner

JF1634: 30 Units Owned & Doing 15 Flips Per Year | Cincinnati Investor Scaling His Business with Eric Kottner

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Today we’ll hear from a Cincinnati investor who is currently doing about 15 flips per year, and growing. Eric will share a lot of his experience with us today, he’ll reveal a lot of great information about the Cincinnati market and the range of deals he likes to tackle. We’ll also learn about his Master Lease Option deal that he is still working with. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Eric Kottner Real Estate Background:

  • Full time investor since 2006
  • Has done 15 of his own flips and owns 30 units
  • Based in Cincinnati, OH
  • Say hi to him at https://cincyturnkey.com/
  • Best Ever Book: The Productivity Graph

 


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

Eric Kottner: I am doing pretty good, Joe. How about you?

Joe Fairless: I am doing well, and looking forward to our conversation. Eric is a full-time investor and has been a full-time investor since 2006. He’s done 16 of his own flips and owns 30 units. Based in Cincinnati, Ohio. With that being said, Eric, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Eric Kottner: Yeah, sure thing. My current focus right now is fix and flipping. I actually got into real estate investing full-time as a property manager back in 2006, and did that for a few years. I managed about 56 units, got into some ownership of my own rental properties during that time, and over the course of a few years I realized I am horrible at property management, so in 2009 I got my real estate license. Perfect timing for that as well. I realized the headaches and challenges involved being a realtor in 2009. I decided I was gonna start a fix and flip business in 2011, and since 2011 I’ve been focusing primarily on fix and flip properties.

Joe Fairless: So what type of properties do you go after?

Eric Kottner: I like to go for the bread and butter neighborhoods. My ideal ARV areas are between 120k all the way up to 300k, and I really don’t try to go above 300k for the Cincinnati market, because the outskirts of the suburbs that I prefer, Butler and Warren County, once you go above 300k, it becomes a lot more of  a difficult remodel, because you need to have this right type of finishes done too, and the clientele during that time had certain expectations when it comes to the properties along those lines… So it’s a lot more difficult to have simple rehabs when you get above $300,000 in Cincinnati.

Joe Fairless: You’ve got 30 units that you own currently, correct?

Eric Kottner: That is correct. I am in a 50/50 partnership with a 12-unit, I do own an 18-unit that also has some commercial space with it as well, a triplex, and then also two single-family properties.

Joe Fairless: Oh wow, you’ve got a whole smorgasbord of properties. So you’ve got a 12-unit, and 18-unit with commercial… What else do you have, a triplex?

Eric Kottner: Yeah, a triplex, and then I have two single-families.

Joe Fairless: Two single-families, okay. Let’s talk about that a little bit… Which one is the best ROI?

Eric Kottner: Honestly, the best ROI right now is the 12-unit. That one we had some insider knowledge on. Essentially, what happened was – I’m gonna try to make this long story very short… This 12-unit – we had a property manager that we referred to that 12-unit a couple of years ago; they had a pipe burst, that pretty much ruined about seven of the units, and during that time the property manager was trying to report to this company that was in the state, a company down in Florida, to say “Hey, we need to do this, we need to do this, we need to do this”, and the asset management company was very difficult to work with… So what happened was all but one of the units became completely vacant during that time, and they put the insurance claim in for those units that got taken care of, so finally after a long ordeal they finally had all the units remodeled in that scenario, and they started renting them out again.

I think once they got to about ten of them rented, they decided to switch strategies and went with a different property manager. Then a few months after they went with a different property manager they called us and said “We wanna unload this 12-unit property. Do you know what anyone would buy it for?”

This 12-unit was located in Fairfield, and essentially we asked them how much they were looking to sell this property for. What they said was “Well, when we had our appraisal done, it was valued between 170k-180k.”

Keep  in mind, during this time when they told us this, they already had 11 of the 12 units rented out, as opposed to the one unit, and they already had the seven units that were destroyed during the busted pipe completely fixed… But they based it off the appraisal that they just had when they only had one unit filled out.

Joe Fairless: Got it, okay.

Eric Kottner: So essentially we got this $500,000 property under contract for $180,000.

Joe Fairless: [laughs] And who’s “we”?

Eric Kottner: This was my dad. My dad and I went 50/50 partnership on it, because my dad was a W-2 employee, very easy to get a bank loan done on that, so we kind of went into it together for the property.

Joe Fairless: And what have you done since you’ve owned it?

Eric Kottner: I’ve been collecting passive checks of $1,000 a month.

Joe Fairless: Well, that’s fun.

Eric Kottner: Yeah. Once we took back ownership again we put the property manager that I recommended to them the first time back into it, and she’s just been incredible with it.

Joe Fairless: That is the 12-unit, and you mentioned you’ve got an 18-unit with commercial space.

Eric Kottner: Yes.

Joe Fairless: Tell us about that one.

Eric Kottner: This one is actually the worst deal that I have done…

Joe Fairless: [laughs] But don’t you have a single-family home mess up–

Eric Kottner: Oh, I do, but this [unintelligible [00:07:06].13] The 18-unit on there was when I definitely got a little bit more ambitious. When I had ownership back then, I had three eight-unit apartment complexes, so what I wanted to do was I wanted to sell two of them and then upgrade into a bigger complex.

I noticed that two of my eight-units at the time were pretty much only grossing about $3,000, so two of those were only gross about $6,000, and this one, when I first saw the numbers on it, I saw that the potential of this property – I could easily reach up to $14,000/month on a gross. And when I did all my net, it was looking to about $3,500/month…

Joe Fairless: That sounds like a slam dunk.

Eric Kottner: Yeah, it sounds like a slam dunk, and the problem that happened there was I went with two eight-unit apartment-style complexes, I sold them, and then I pretty much bought this 18-unit that were townhome style. The expertise I had that made it so good with the eight-units didn’t transfer very well when it came to townhomes.

Joe Fairless: Why?

Eric Kottner: Well, because instead of A/C units I was now dealing with full HVAC systems, and also during that time, 2014, I think I maybe did four or five flips, so when I got the estimation of what it would take to turn this property around, I estimated probably close to about $90,000, when in retrospect it was probably close to $250,000…

Joe Fairless: Oh, dang…

Eric Kottner: Yeah… So I paid $500,000 for that one, and I think I had about $700,000 of my own money into it. At that point – I would say near the end of 2015, we were really close to getting above that hill; we only had two vacancies left, and then we had two dated properties out of the entire thing. Then just stuff happened and we went two vacancies back to six vacancies; one of the tenants complained about a bed bug issue, and the upstairs unit above where the bed bugs were coming from didn’t wanna do anything about it, so we pretty much had to wait till we got them evicted to take care of that issue, and then it just kind of spiraled back downhill, after being so close to it.

Joe Fairless: Oh…

Eric Kottner: And eventually – I think it was last year – I sold that on a master lease option, so I still technically own it right now, but in the next year or two I probably won’t own that property anymore.

Joe Fairless: For anyone who’s not familiar with master lease with option to purchase, can you just describe that, and then also maybe talk through the terms that you sold it on?

Eric Kottner: Yeah. The master lease option is essentially saying that I am giving this person the option to buy this property, as well as controlling the property until they decide to buy the property. A master lease option – I gave them control to turn over the units at their cost, to lease the units, and then the ability to collect rents, evict people, and all that stuff.

The terms that I had on mine were I sold it for $575,000, $60,000 down, and then anything past the current mortgage at the time, which was 469k, whatever principal they paid down, they got to keep. So when it comes time to sell the property, I should be receiving another $40,000 check back, from the 515k to the 469k portion of it. And essentially, I continue paying the mortgage and the insurance, they are paying for the property taxes, as well as the upkeep of the apartment complex… But they’re also collecting all the rents, while they just pay me one monthly amount.

Joe Fairless: And the commercial space that you mentioned – what is it?

Eric Kottner: I think as of right now it is vacant. When I took it over, it was previously a pharmacy, a CPA, and a barbershop.

Joe Fairless: Dang, was that big?

Eric Kottner: Yeah, this is probably about over 3,000 square feet on the main floor, and another 3,000 square feet on the bottom. Total, this is probably about a 6,000 square foot commercial space.

Joe Fairless: And what happened to those tenants whenever you first bought it?

Eric Kottner: When I first bought it, the pharmacy had just left the premises, so that just remained vacant and they just kind of left everything there, whereas the barbershop and the CPA essentially were still renting it out. Now, those two people were actually never on a lease; they’d been in that spot for over 25-30 years. The barbershop just retired last year, and I’m not quite sure if the CPA is still in there or not.

Joe Fairless: If you were to be presented an 18-unit with 6,000 square feet of commercial space, but a different one, in the area that you typically invest, what questions would you ask prior to doing the transaction on that new deal, that you perhaps didn’t ask or think through on this deal?

Eric Kottner: Well, on the commercial side right now it’s still really rough. The way I originally did that deal was I wanted the apartment complex to be good and cash-flowing based on my numbers, and then anything from that commercial space would have been like whipped cream or the cherry on top.

So the first thing that I would do is I would call up my buddy Osh and get his expertise on the matter of commercial complexes in that scenario, and I would pretty much ask him “How fast can this be rented out? Is it plausible to do a triple net lease to that, where I pretty much have to not worry about any of the maintenance issues?” Because I think that was one of the big hindrances as well – I treated that commercial side as you would a residential tenant, so if there were issues with HVAC, I would be the one taking care of it, and things like that. I think the only thing that I didn’t do was they paid for their own cosmetic fixes and cosmetic repairs, whereas I took over the mechanicals.

Joe Fairless: Okay. So now what’s your primary focus?

Eric Kottner: My primary focus is just continuing building up the residential fix and flips. The reason I like that is because I can use the KISS method of keeping it simple. To me it’s a lot easier to keep simple tactics on the residential side, that I haven’t quite grasped on the commercial side, to be able to take care of it.

Joe Fairless: What are some common mistakes that you see residential fix and flippers make that you’ve got that puppy down and you don’t make those mistakes?

Eric Kottner: One of the things I like to kind of pride myself on is the ability to calculate the numbers and rehab profits. I think what a lot of people get confused on is the fact that when they go and take a look at a property the first time, they wanna use the 75% rule. When you put down those numbers on there, you can calculate the 75% based on the ARV, minus the repairs, with your maximum allowable offer. One of the things that I usually do now is instead of doing a certain percentage, I just put a gross profit into what I wanna make on a property, as opposed to using a percentage. Because that way, when I’m walking through a property, while I’m talking to the seller, I’m just doing basic addition and subtraction in my head, as opposed to trying to do calculations of 5%, 6%, 2%, while talking and trying to calculate the rehab.

Joe Fairless: So you think of the gross profit you wanna make, and then…? Just walk us through your thought process when you’re looking at a property.

Eric Kottner: Okay, so if I get a seller on the phone that wants to sell me a property for $90,000, the property itself is probably worth about $150,000. When I go for $150,000 or lower, the minimum gross profit I wanna make is $40,000, so now I already know in my head 150k minus 40k – I need to be all in on this property for $110,000. So if the seller is telling me $90,000, all I need to do is walk through the property and see if it only needs $20,000, I can give them the $90,000. If it’s worse than that, say it’s $30,000, I then can immediately right away give an offer of $80,000.

Joe Fairless: Very simple and straightforward. You mentioned 40k profit on what price point?

Eric Kottner: 150k.

Joe Fairless: Okay, 40k profit on 150k ARV.

Eric Kottner: And it’s gross profit on there. I always say that it’s on the gross side, because when you’re talking with the seller and stuff like that you wanna just keep your numbers simple, and then once you get the property under contract and you’re ready to go through closing, then you can calculate more on the sale side of it, of what those hits are gonna be… Normally, because I’m a licensed realtor, what I do is kind of the catch-all in percentages on the inside. For people who are just starting out and they are probably gonna pay a retail agent and hit all the worst-case scenarios, I always tell them to calculate about 12% on the closing side.

So if it was a $150,000 house, you would wanna do $15,000 for 10%, and then add in $3,000 for the additional 2%. So 12% – you’d be looking at about $18,000 towards closing costs, where if I base it off the $40,000, I’m now looking at a net of $22,000.

Joe Fairless: And if it’s higher than $150,000 ARV, what’s the gross profit you want on those?

Eric Kottner: It ranges. Obviously, there’s other factors I kind of go in, but if we’re doing just with price point, I usually like to say for every $50,000 I increase it by $15,000. So $150,000 would be 40k, $200,000 would be 55k, and so on. So I would increase it per $50,000, 15k, or per $15,000 5k, and then just kind of range it that way.

Joe Fairless: Is that just something that you’ve seen that the market will bear, or is that something that you just really want in order to justify your time, or a combination…? Where do you get that?

Eric Kottner: For those who like to do the percentages basis, I’m buying properties at about 74% of the market, so I’m at 4% different of the people that use the 70% rule. So for me, I know that it is realistic in the marketplace to where we’re at, and I know if people who are newer wanna use the 70% rule, I know my offer is gonna be relatively higher, unless they see something where they’re only trying to say about $15,000 in repair, which is in reality about $30,000.

Joe Fairless: What’s the last deal you got under contract?

Eric Kottner: The last deal I actually got under contract was a wholesale deal I bought from a friend of mine. This was something I just kind of met over coffee, we talked about it, and he pitched it on one of the groups, and I was lucky enough to be one of the first ones to go through the property. It was a 3-bedroom, 1-bath house in Fairfield. I bought it from the wholesaler for $65,000, I did a joint venture with a general contractor on it, where we’re only in for about $26,000, and we’re actually just about to sell it at the end of February, and we’re selling it for $139,000.

Joe Fairless: You bought it for 65k, so you and the general contractor fronted the money to purchase it?

Eric Kottner: No, I got a private money lender at 11% to fund $60,000 for the purchase price. I put $5,000 of my own money to it, and the terms of the joint venture with my general contractor was he fronts all the money on the rehab side, as well as oversees the project.

Joe Fairless: Okay.

Eric Kottner: So he pays for all the repairs and what we assumed was gonna be the budget for the repair estimation, and then he also managed the projects as well. Now, I will give a caveat to new Best Ever listeners out there – I’ve done four other projects with this general contractor as just a standard general contractor, so I vetted him very thoroughly before I was looking to do a joint venture with him.

Joe Fairless: 50/50?

Eric Kottner: Yeah.

Joe Fairless: Cool. And it’s on the market now?

Eric Kottner: Well, it’s actually pending now. It should sell at the end of this month.

Joe Fairless: We don’t wanna jinx it though, do we?

Eric Kottner: Exactly.

Joe Fairless: [laughs]

Eric Kottner: The good news is we’re past the inspection.

Joe Fairless: Okay…

Eric Kottner: But we still have the appraisal side.

Joe Fairless: Cool. Good stuff. What is your best real estate investing advice ever?

Eric Kottner: My best real estate investing advice ever is, honestly, on the residential side, keep it is as simple as possible, and that goes to all aspects of it – keep it simple with your numbers… I like to do catch-alls as opposed to itemize every little item; whatever you’re more comfortable with, go right ahead.

Joe Fairless: Well, you now have the catch-alls – did you initially itemize every item to make sure that the catch-all incorporated all those items?

Eric Kottner: Yeah. One of my mentors local in the area, that does a lot of fix and flips, he used to be a CPA, so he was very into the itemize every little thing, down to the outlets, and stuff like that. He would itemize every outlet, every square foot of paint, every light switch plate, everything like that, and put it down… I tried doing that and I realized that I got upset very quickly when I learned that “Oh, I went a little over-budget on this side”, not realizing that I was a couple thousand under budget somewhere else… So for me it was just a lot easier just to have that kind of bucket there that’s saying “Okay, I have this bucket for this entire scenario.” That way, I’m not gonna worry if I go a couple hundred dollars over on electrical, or something like that.

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

Eric Kottner: Let’s do it.

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

Break: [00:19:41].00] to [00:20:42].04]

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

Eric Kottner: I actually like The Productivity Graph. One of the things they pretty much talk about there is finding out where are your areas where you work the most, and where you seem to lag behind. It’s a good time management book too, and it’s just giving you that thought process of where you can do the most productive portions of your day, and then learning where you can take a rest at, that way you can take a 25 to 30-hour workweek and make it feel like you’re working 60 hours a week, just through the productivity of listening to your body and doing proper time management in order to get the most productivity out of you.

Joe Fairless: It’s called what?

Eric Kottner: I think it’s The Productivity Chart or The Productivity Graph. It’s a blue book, that pretty much shows a graph chart with a line going up.

Joe Fairless: Cool. Best ever deal you have done?

Eric Kottner: Best ever deal that I have done… I would have to say that 12-unit.

Joe Fairless: And what’s a mistake you’ve made recently on a transaction?

Eric Kottner: A mistake I made recently on a transaction… The last flip I did – the one I did a joint venture on with the money partner – I agreed to oversee the rehab and also pay for the rehab costs. What looked like a $65,000 project turned into a $90,000 project; I just miscalculated about 500 square feet in the property. I also tried to over-improve the house, and stuff like that.

We still made money on the deal – I think we split $17,000 – but it was one of those scenarios where I caught myself where I have $90,000 of my own money into this project, and it went on for six months or so… And having that much money into one project kind of cramped my marketing budget, and it also really put a hit on my other cashflow needs for running the business.

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

Eric Kottner: I like to do donations to charity. I did recently tear my ACL, so I haven’t been able to go out and volunteer, either at Soup Kitchen, or something like that; I used to do it a few years ago… But I do like to donate monetarily, and as well as I love sitting down with people over a Starbucks coffee, just breaking down deals with them too, or trying to figure out ways that they can simplify their business… Or just listen into other people’s business, and if they want advice, I’m always happy to talk to them about it and see “Here’s what I saw in my expertise”, if I’ve gone through the same scenario, or give them a theory that might help them with a certain property or their business.

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

Eric Kottner: They could follow my company, Turnkey Renovations, on Facebook. We also have an Instagram page @cincyturnkey, where you can see what our past projects have looked like, and you can see where I went over-budget on a lot of over-improving these houses (but they look amazing). They can also reach me at eric@cincyturnkey.com, or just call or text me at 513-375-5819.

Joe Fairless: Eric, I really enjoyed our conversation about the different types of deals that you’ve done, from the 12-unit to the 18-unit, lessons learned on those, as well as your focus on just keeping it simple, and looking at, as you said, simple tactics on the residential side – calculating the gross profit and just simply backing out from there… And then how you found your recent wholesale deal – someone you had coffee with – and how you structured that deal too, with a general contractor, and the numbers behind that deal.

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

Eric Kottner: My pleasure. Thank you so much, Joe.

JF1581: Necessary Sacrifices & How To Successfully Operate 4 Strategies At Once with Shane Connor

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Shane has multiple successful strategies he uses in his real estate investing career. Hear the sacrifices he made to grow his business to where it is today, and how he is able to divide his focus across multiple strategies and businesses. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Shane Connor Real Estate Background:

  • Leader of Red Rock Capital, a private investing group providing access to opportunities in MF/Senior Living/ Storage and MHP
  • He’s also a part owner with ACM Senior Living
  • Based in Atlanta, GA
  • Say hi to him at https://www.redrockcapitalgroup.com/
  • Best Ever Book: 168 Hours

 

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JF1572: From Selling Cars To 86 Units Before The Age Of 21 with Tyler Hassman

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Tyler always knew he was an entrepreneur, wasn’t interested in college, so he took a car salesman job. As he was doing well there, he still wasn’t doing something to utilize his entrepreneurial skills. Enter real estate. He took a REI course and never looked back, purchasing a $1.5 million multifamily property right off the jump. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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

Tyler Hassman: I’m doing great, Joe. Thanks for having me.

Joe Fairless: Yeah, my pleasure. Nice to have you on the show. A little bit about Tyler – he is a co-founder and president of M&H Real Estate Investments Inc. He built a 12 million dollar real estate portfolio with over 86 units by the age of 21 years old. Based in Regina, Saskatchewan. With that being said, Tyler, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Tyler Hassman: Yeah, absolutely. Thank you for the intro, Joe. Right now I’m still 21, turning 22 in a week here, so… Obviously, super-exciting. But yeah, I’ve always been an entrepreneur, I’ve always wanted more to life, ever since I was young, I’ve always wanted that. I was super-smart growing up, skipped grade six, and then high school hit, grade nine, and I just couldn’t focus in school. I was like “I don’t wanna learn any of this. I just wanna make money, I wanna run businesses.” I don’t know, this stuff I was learning just felt like it didn’t apply to what I wanted to do.

In the high schools in a small town like Saskatchewan there was no entrepreneurship or business classes; it was just the typical math, science, all this and that, so I started up a couple T-shirt businesses in high school, little side hustles, meanwhile I just let my grades slip, didn’t at all pay attention, barely graduated high school.

So I went from being the role model student, skipping a grade in elementary, and then in high school I was the story of “Wow, this kid threw everything away.” But in my mind, I knew I was gonna hit success, because I’m at home reading “Think and Grow Rich”, reading “Rich dad, poor dad”, studying all this entrepreneurship and business stuff, but I wasn’t focusing on school. It was a tough time around people understanding what I was doing, but shortly after high school I didn’t get into university, I didn’t wanna go either, or college, and I went into selling cars, because I just wanted to have a job selling stuff, because I love selling stuff. I’m a people person.

I got hired at Mercedes Benz here in Regina, three months out of high school, and I was a lot boy, so I ran cars around, got them washed up for the sales guys, but I always knew I wanted to sell cars. I wanted to be the car salesman at the time.

So I studied the cars, and then they fired one sales guy two months in when I was working there, and I was like “Put me in, please.” Super-ambitious. I had this entrepreneurial burning desire in front of me, so I didn’t care about my age, or anything. I just said, “Guys, put me in.”

So they put me in, and two years went by and I was learning so much in car sales. So much about dealing with people, presenting myself right, and really getting past that age barrier. We had a lot of clients that came in spending a lot of money, and they would see me and be like “I don’t wanna deal with this little teenager.”

The reason why I’m telling this is because then I really got mature very quick when I worked there. Then when I was sitting in on one night and I was like — I always wanted to do business, right? So even though I was selling cars, doing good, I’m like “I’m an entrepreneur. I need to do business.” I was sick and tired of me starting up these little companies, like a T-shirt company here and there, little stuff like that; I’m like “I wanna do a big boy business.”

I was on Google and I was just googling ways to get rich, and sure enough, there’s a lot of funny things that popped up, but sure enough the biggest one was real estate. Because you know, you’d find these guys that create apps, and internet stuff, and they’re billionaires, and this and that, but then real estate – you see that all over. All the big, wealthy, big guys, and all the rich people I know own real estate. So I was like “You know what, I’m gonna do real estate.” So that’s actually how I decided to get into real estate. It was just from a Google search and me wanting to get rich.

Now my morals have changed, obviously, but at the time that’s what that was. Then I was like “Hey, well, I’m broke. I don’t even have a credit card, I’ve never had a loan in my name, and I don’t know what I’m doing.” I was driving around, looking for a hood house, or like a ghetto house, like a really bad house in a bad area, because all I could try and afford, like a couple thousand dollar down payment.

Then what happened was I was like you know what, I’m wasting my time. I was getting nowhere, because I really didn’t know what I was doing. Six months went by, a year went by, still selling cars, and I’m like “I’m not getting any traction. When am I gonna buy my first property?”

I started going to networking events, putting myself out there, and then found out about real estate investing courses. I took a real estate investing course about purchasing multifamily buildings, and I just learned how to do it. Once I learned how to do it, I was like “This isn’t so difficult.”

So then I went out, found a deal, and I had a business partner as well, on M&H, too. So I had a business partner (Bailey) as well, and we went out, we found a deal, and then we ended up raising the money, closing it, and then we got our first building. Then I was just turning eighteen when that happened, still selling cars… So that’s the thing – we were looking at hood houses, then we got educated, and then went and bought a 1.5 million dollar brand new 12-unit apartment building within six months. From there, it was a big ripple effect. People saw what we were doing, and then there was three more buildings that came for sale, we closed on them, then two more, and it was just a ripple effect. That ripple effect is continuing to go to this day.

That was kind of an extended story, but [unintelligible [00:07:22].14] more insights of my start, too. Currently, actually — gotta end it off on currently… Currently we’re always growing our portfolio and raising capital here in Saskatchewan, Canada. I also partnered with another business partner, I have another company, AHDC International. Our focus there is on boutique hotel resorts down in Costa Rica, and we’re also looking at — at the end of this month I’ll be going down to Phoenix, as we’re gonna get into some short-term rentals down there, and move down South and just do some stuff down there… Tax deeds, tax liens, wholesaling, all sorts of things. I’m really branching out now.

Joe Fairless: Whose course did you take?

Tyler Hassman: There’s a local lady up here in Canada. It’s “90 days to 5k” is what it’s called. It’s a local one up here. It was a great experience to learn it… Because I’ve taken big course by big names, and the issue was with me — I was attracted to wholesaling at the start, because it’s always, like, quick money.

Joe Fairless: Was that the “90 days to 5k” course, the wholesaling?

Tyler Hassman: No, that’s apartment courses. And then I was looking at wholesaling courses, and they were all down in Texas. One was by Cody Sperber and Josh Altman, “Clever Investor”, but then what I realized is I spent the money on the course, I took the course, and then what happened was I then realized in Canada wholesaling is not a  big thing, because the banks don’t foreclose so quick. There’s no auctions where you can go pick up houses for dirt cheap.

So I was like, “No…! I wasted $2,000”, which was a lot of money for me at the time, and I just realized I couldn’t do that at the time… So it was really good learning from a local group, and I also learned a lot from being with local, you know what I mean, Joe? You can learn as much as you can from these courses, but the most you’ll learn is from people in your network, and people that are doing it in your area, because there’s certain things here in Saskatchewan that are going on that are way different than, say, down in California.

Joe Fairless: For example?

Tyler Hassman: For multifamily I would say it’s pretty generic. For multifamily and what I do when it comes down to joint venture partnerships, I would say it’s similar all around North America, at least; I haven’t looked into worldwide, let’s put it that way. But for North America, the system I use for joint venture partnership, that’s common everywhere.

But certain things when it comes down to — whether it’s the laws of the province up here, or down in the States… I do know that there has been times where down in the States the prices — you can’t even justify some of the prices on some of these places, depending on the area… So really when it comes down to it, my biggest thing is wholesaling here in Canada is much different than down in the States, for that reason – the banks don’t just foreclose real quick. But as for multifamily, I would say it’s very similar, but there’s certain little things about knowing the right people in a certain area, to get the best deals and make stuff happen… Because if you’re dealing with — the system I do for multifamily, like I was saying, to sum it up, it’s universal, but I really stress people to get really tight with their own network in their own area, because there’s certain things in the course that you’re not gonna learn, such as finding the right people and getting off-market deals. You need to be a part of your local community, and you can’t get that in any courses.

Joe Fairless: Let’s talk about the second deal that you did, and we’ll get into details there just to bring this to life a little bit. So the first deal, you said, it was a 1.5 million dollar apartment building, and you raised the money for it… What was the second deal?

Tyler Hassman: The second deal was the exact same building, but there was two of them, two 12-units. That deal there – it was interesting, because a lot of people saw what me and my business partner did, and we put a lot of work into putting that deal together, because it was a brand new building and it didn’t have any tenants in it. So we had to really get tenants in there, and it was a struggle at the start… But a lot of people saw what we did, and it turned really great profits and returns for our investors… So immediately when there was another two buildings from the same builder that came up in that area, there was actually people in our network locally that actually hopped on those ones first, the next two.

Joe Fairless: And when you bought the first one, for 1.5, how long until you bought the second one, which was two 12-units?

Tyler Hassman: Four months.

Joe Fairless: Okay, got it.

Tyler Hassman: We closed on the mortgage, we were getting people into that building, and it was really busy; that’s why we weren’t really looking at those other 12-units that were for sale… Because we were super time-consumed. But in the meantime, another person in our group went and got those ones under contract, and then they started raising money on it, and then they realized, “Holy cow, we need Tyler and Bailey to come and do the work, so that they can bring it up to where it should be and bring it up to the standards, because they’ve done it before…”

Joe Fairless: What work were you doing exactly?

Tyler Hassman: It was the management. The whole deal management and property management as well.

Joe Fairless: Okay.

Tyler Hassman: Because here in Saskatchewan these buildings are in small communities, but in the area there’s one of the world’s largest underground potash mine.

Joe Fairless: World’s largest underground what?

Tyler Hassman: Mine.

Joe Fairless: Mine, got it.

Tyler Hassman: Yeah, they mine potash, so there’s thousands of workers in that area… But you need to be in that area, you need to get some furnished units, you need to really be on top of it, and the thing is there’s no property management companies in these areas. You can hire a local maintenance guy, and that’s what we do – we have a local maintenance guy that goes in and out, but he’s not the type of guy that’s gonna be doing good viewings, or taking calls, assigning leases… So that was why they needed us to come on, because they needed somebody out there, feet on the ground.

Joe Fairless: So you took a general partnership ownership in the deal, in exchange for property management, or were you a third-party property management company.

Tyler Hassman: No, we got direct shares. We got direct shares, because we were also the deal management. We dealt with setting up the bank accounts, the corporation, getting the mortgage… We ended up doing all that, and then the other partners were the money partners. They went and found investors.

So that’s the thing, because that was part of our deal – we were like “You know what, we don’t want to just property-manage it, we want ownership, so what else do you want us to do?” and they were like “Well, since you want ownership, you guys will have to manage the whole deal, and of course, the property.”

Joe Fairless: Okay. And then the first deal, did you do all of it, or did you two break it up and have other partners on that one?

Tyler Hassman: We did all of it. We had, of course, our capital partners where we raised the money; other than that, it was just us, and then we actually — if there’s any other young viewers out there thinking that it’s because you don’t have any credit, it’s your first deal, you can’t get a mortgage, this and that… That’s total lies, because on that deal – it was very interesting, Joe… We got the investors’ money, and we go to get the mortgage; and the mortgage company comes back and they’re like “Yeah, the net worth is there from your investors, everything is good, but we’re not gonna lend you any money because there’s no experience. You’re asking for a mortgage on a 1.5 million dollar property, but you guys have never done real estate before, and your investors haven’t, either. We don’t care that they have money; the big thing is that there’s no experience.”

So we actually then dug into our network and called somebody up that owned a bunch of real estate, and we were like “Hey, we’ll give you 10%. Sign on for the mortgage and sign onto the deal.” So we ended up doing that, cutting some shares, and then ended up getting the mortgage. Sometimes you’ve gotta be very creative to make deals happen.

Joe Fairless: How many units is the 1.5 million dollar property?

Tyler Hassman: 12 units.

Joe Fairless: 12 units, okay. Usually, when it’s a brand new building – did I hear that correctly, that it’s brand new?

Tyler Hassman: Yeah.

Joe Fairless: Okay. Usually, those aren’t value-add opportunities, unless a developer is in trouble and needs to get out… So what was the story for how this was a value-add deal?

Tyler Hassman: Yes… So the builders built these to sell as condos, and in this market, Joe, everybody was like “You can’t sell condos in this market”, in this certain region, because it’s a rental region. You’ve got all the mine workers – they’re not buying, they’re renting, because they only work there for two weeks, and they go home for a week, and they come back for two weeks…

They tried to build them and sell them as condos, had no luck at that, and then they were on the verge of bankruptcy, so they really needed to get rid of these buildings. Then our value-add was simply getting the tenants in there and turning these condos – what they were branded as – into rentals.

Joe Fairless: How did you hear about it?

Tyler Hassman: We heard about it from a networking event. At these networking events we would tell everybody we’re looking for a building, because we were hungry for a building… And then there was somebody at the event that said “You know what, I actually found out about a guy that has access to these buildings, but his company is about to go bankrupt.” I’m like, “What?” So we got in contact with that guy, who actually was helping out this company – he was gonna list the building actually, and then we called him ahead of time and said “We’re looking, you don’t have to list them”, and yeah, we ended up getting connected that way. So it was through networking.

Joe Fairless: How much equity did you need to bring to the deal?

Tyler Hassman: We needed to bring $400,000. Or are you asking for the cash we needed to invest in there?

Joe Fairless: Yes, exactly.

Tyler Hassman: Yeah, it was about $240,000 or something like that, and then of course we had extra money for closing costs, reserve funds, and all that… But the investment capital we brought was $400,000.

Joe Fairless: Okay, perfect. And how many investors does that make up?

Tyler Hassman: That one was just one investor.

Joe Fairless: One investor. And how did you know that investor?

Tyler Hassman: That investor – it was a connection from my business partner Bailey. It was a connection from him, and it was really tough on that particular deal, because at the time when we  first met, the guy that had access to these buildings – the first building – we somewhat knew what we were doing, but then all of a sudden we’re like “Yeah, we wanna go take a look, we’re super-interested, we wanna get it under contract”, and he said “Okay, well how much money have you guys got for deposit?” [unintelligible [00:16:56].22] and then we looked at each other, and then in the back of my mind I’m like — I had no money at this time. I spent my money stupidly with the money I made from car sales, so I was like “You know, we’ve got like 10k…”, and to me, I’m like “Ten thousand dollars…!”

Joe Fairless: That’s a lot, right…

Tyler Hassman: And all of a sudden, he’s like, “Yeah, I need at least $100,000 to start the process from you guys”, and we’re like “Oh, no…” So then we’re like, “Oh, my god…”, so we kept on doing networking, getting it going, and then Bailey, my business partner, he actually had a close connection that actually was interested in real estate, and they ended up just putting the $100,000 in.

Then we had some breathing room, we had another three months to come up with the rest, even though we’re telling the seller “Yeah, we’ve got it, we’ve got it… We’re good, we’re good”, but we had some conditions to be met, so we were doing our inspections in the three months… And then that investor actually ended up just putting in the full amount.

Joe Fairless: And what’s the structure of that arrangement? Just to educate the listeners…

Tyler Hassman: Absolutely. What we do on that particular project – it’s a joint venture partnership, so they’re actually providing a shareholder loan. Those investors got 40% of the deal, and then we got 60%, and then of course we gave 10% up for George, one of our partners, to sign on the mortgage… So essentially they’ve got 40%, and how we structure it is that we pay them back 100% of cashflow. All the cashflow goes directly to them until they get all their money back, and then once they get their $400,000 back, then we’ll split it, where we’ll get 50% and they’ll get 50% of cashflow.

Our whole analogy on these is that we get a closing fee of 1%-3% at the beginning of the deal – acquisition fee, closing fee, whatever you wanna call it, so that our company can stay afloat, and then usually between I would say year five and six they’ll have their full capital back by cashflow, or if we take out [unintelligible [00:18:44].09] equity that we have in the building at that time, depending on how the market is, and then they’ll have continued ownership for the years to come until we either sell, or somebody sells shares. So we’re a long-term investment for them.

Joe Fairless: Yup. And on the long-term investment front, what type of financing do you have on the deal?

Tyler Hassman: We get mortgage financing on there.

Joe Fairless: When does the loan expire?

Tyler Hassman: The loan expires in 30 years.

Joe Fairless: 30 years.

Tyler Hassman: Yeah, exactly. But we’ve got a five-year term on it.

Joe Fairless: Okay, so it’s amortized over 30, but there’s a balloon payment in five years?

Tyler Hassman: No, so in five years we’re able to actually renegotiate the mortgage, but the amortization is the 30 years. We have the CMEC mortgages up here in Canada, so we don’t have no balloon payment or anything at the end of that five years. It’ll just continue on. [unintelligible [00:19:32].27]

The analogy with this and how our mortgage is – if we were to plan to own it all… Oh, sorry, the amortization — it’s not a 30-year amortization; basically, in 30 years we’ll have it paid off. That’s what I’m trying to get at. I know what you’re saying, because if it was bridge financing, amortization would be 30 years, then we’ll have a balloon payment at year five, and then we own it cash and they’re paid out… I get what you’re saying there, but no, this will be the standard mortgage on it, for 30 years. If we don’t remortgage or anything at the end of that 30 years, then we’ll have it paid off.

Joe Fairless: Okay, I’m with you. So there’s no balloon payment at all over those 30 years.

Tyler Hassman: Correct.

Joe Fairless: Different types of terms you all got up there, than us, in the U.S., that’s for sure. It’s possible to do something like that with our deals, but it’s not typical. Usually, there’s a 3, 5, 7, 10, 12, 15-year balloon payment on the loan for commercial loans.

Tyler Hassman: Yeah, that’s interesting, because I know up here if it’s private financing, then absolutely. Or if it’s seller financing, or vendor financing, or whatever you wanna call it… But up here it’s a standard mortgage; that’s how everybody gets their deals done here, unless they’re using, like I said, private money.

Joe Fairless: So you’ve basically made $15,000 at closing, because you got that 1%, and that’s split between you and your partner, and you got 50% ownership in the deal, which is zero until the money person receives all of their money back, which is $400,000, and then profits are split 50/50 thereafter, is that correct?

Tyler Hassman: Correct.

Joe Fairless: And are they making any interest on their 400k over the period of time that it’s needed to be paid back?

Tyler Hassman: No. The way it’s structured is that these are a certain type of clients that we work with. They’re the type of clients that are fine with having that money tied up… Even though we’re paying them back in quarterly payments, that’s still just going to the principal. But here’s where the huge returns are coming in – at year five, when they have all their capital back; then they own 50% of that asset, so they’re gonna get 50% of cashflow for the next 10, 20, 30 years, of that building. So then it’s gonna compound and make a lot more than if we were just doing a 10% interest over five years. Do you get what I’m saying?

Joe Fairless: I get what you’re saying.

Tyler Hassman: There’s other stuff we’re working on now – our boutique hotels, and also the short-term rentals we’re gonna be doing down South. Those we’re working on just doing interest-only. So we have investors, at least for the short-term, quick returns, a year or two-year agreements, and that’s what we’re gonna do. But these types of clients we’re working with on our multifamily properties, they’re the types that they’re looking to build that long-term wealth; 5, 10, 15 years from now is what they’re worried about, because right now they’re sitting very comfortable.

Joe Fairless: You mentioned some project(s) in Costa Rica that you’re working on with more boutique hotels; you’ve got some multifamily deals where you live, and then I think you mentioned something else, which if you didn’t, you probably have something else going on, right?

Tyler Hassman: Yeah, I’ve got lots going on. The vacation rentals down in Phoenix.

Joe Fairless: Alright, there we go, vacation rentals… So some people say there’s a lot of power in focusing on one thing and doing that well; what are your thoughts on that?

Tyler Hassman: I would say to a point, but then again, I work 14-hour days, seven days a week, so I’ve got lots of time. Because here’s the thing – I have so many people that are like “Dude, you need to stay focused on one thing. You’re focused on way too many things.” And then those same people that tell me that are working eight hours on their business, five days a week. So I’ve got a lot of time.

What I do is — especially with Gary Keller, The One Thing, his book… I love that book, it changed my life. What I do is I basically hyper-focus on each project at certain times during the day. Because when it comes down to my multifamily, it doesn’t require me to work 14 hours, seven days a week, non-stop, on that. Maybe it only requires four hours of intensive work each day, and then the short-term rentals maybe three, and then the Costa Rica maybe more…

So I manage my time really well, but I’m also at a point where I’m able to do that. At the start it was full-force only multifamily, but now I’ve got systems in place, and I also have people in place, so now I can diversify my time to grow my portfolio and also grow my company. So I’m not anymore dealing with the tenants or property management at any of these buildings; I’m just overseeing the deals, talking to my bookkeeper/accountant, sending out the quarterly reports, and payments to investors… So I’m able to now focus my time and shift my attention to different projects.

But for people that are just starting out, 100% you need to focus on one thing, for sure. One thing, and go until you master it. Now, here’s the thing – I don’t master anything; I believe I can always be growing. But I’m at a point where I am able to focus on other projects now, and I love what I do, and that’s why I’m working basically 14-hour days, seven days a week. I’m never that type of person that just work first; all the exercising, focus on my health, travel, friends and relationships as well, but I love what I do, so that’s why I’m putting in long shifts and doing all this crazy stuff.

Joe Fairless: Real quick, what’s your best real estate investing advice ever?

Tyler Hassman: My best real estate investing advice ever is to invest in yourself first before you ever invest in a property.

Joe Fairless: What’s the best way you’ve invested in yourself? What’s something tactical that others can do, that you’ve done?

Tyler Hassman: Hire a coach and mentor, or get into a course specifically on what you want to learn in real estate.

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

Tyler Hassman: Yes, sir.

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

Break: [00:25:09].23] to [00:26:25].29]

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

Tyler Hassman: The One Thing, Gary Keller.

Joe Fairless: Best ever deal you’ve done that we haven’t talked about in detail already?

Tyler Hassman: An eight-unit apartment building that we’re actually gonna be wholesaling. Just on the verge of closing.

Joe Fairless: What’s a mistake you’ve made on a transaction so far?

Tyler Hassman: Not being with the right partners.

Joe Fairless: Will you elaborate?

Tyler Hassman: Yeah, managing partners – making sure you truly do know your partners. And I would say — not ask for referrals, but ask other people that have done deals with them their opinion on them and what their experience was.

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

Tyler Hassman: Speaking, podcast interviews, and hosting live training events.

Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on?

Tyler Hassman: They can hit me up on Facebook at The Young Guns of Real Estate, or Instagram Tyler Hassman.

Joe Fairless: Tyler, thank you so much for being on the show, talking about how you got going and how you have acquired the properties that you’ve acquired, how you’ve structured it with your investors, especially on the deal that we talked about in detail – actually, we talked about two transactions in detail – and the challenges that you came across, and what you did to overcome them.

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

Tyler Hassman: I’ll talk to you soon, thank you.

JF1558: Championship Level Rehabs For Better Returns #SituationSaturday with Michael Jordan

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Today Joe is talking with Michael about his keys to successful renovations on single family homes. With over $100,000,000 in successful transactions, it is safe to say he has plenty of experience and knowledge to share. If you’re renovating anything, especially single family homes, you’ll want to hear these tips. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Michael Jordan Real Estate Background:

  • Entrepreneur since 1999, over $100,000,000 in total business transactions
  • Has successfully done multiple different real estate strategies including: renovations, building homes, buy and hold rentals, turkey provider, buying NPN’s, property management, wholesaling, and more
  • Based in Detroit, MI
  • Say hi to him at http://strategyproperties.com/

Sponsored by Stessa – The simple way to track rental property performance. Get dashboard reporting, smarter income and expense tracking and tax-ready financials. Get your free account at stessa.com/bestever


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.

First off, I hope you’re having a best ever weekend. Because today is Saturday we’ve got a special segment for you called Situation Saturday, and here’s the situation – you’ve got a single-family house or you’re looking at a single-family house, and you need to renovate that puppy. Today our Best Ever guest, Michael Jordan, is gonna talk about the keys to successful renovations. First off, how are you doing, Michael?

Michael Jordan: I’m very well, thank you, Joe… And thank you for having me on your wonderful podcast.

Joe Fairless: Well, it’s my pleasure, and looking forward to our conversation. Michael has been an entrepreneur since 1999, he’s got over 100 million dollars in total business transactions, he has successfully done multiple real estate strategies, including renovations, building homes, buying and holding rentals, he’s a turnkey provider, non-performing notes, property management, wholesaling and a bunch more… Based in Detroit, Michigan.

I’ve met Michael a couple years ago at our conference (BestEverConference.com) in Denver, stayed in touch, and he is certainly an active player in the real estate world. Today we’re gonna be talking about the keys to successful renovations. First though, Michael, do you wanna give the Best Ever listeners just a little bit of context about your background and your experience within the renovation world?

Michael Jordan: Yeah, absolutely. I started out in 1999 and I was a contractor; I basically was running a contracting company, doing sales to property management companies, and handling their renovations. From there, it evolved into me being a real estate investor. I became an accidental landlord, and from there it was something that I loved, the real estate world and the investing world, and I put in my construction knowledge into the real estate investing world, and it paired very well for me.

That’s a little bit of background on my construction… I have roughly 19 years in that industry, and it’s something that there has been a lot of ups and downs, that maybe at some point today or at some other time I can share with you guys, as far as dealing with contractors and projects… But that is my experience in the construction world.

Joe Fairless: We’ll talk about keys to a successful renovation on a single-family house. What is the type of single-family house that you typically renovate? Can you describe it?

Michael Jordan: The typical single-family home that I would renovate is one that I buy as a REO from a bank, or a vacant home, that really needs to be renovated from A to Z – roof, windows, kitchen, bathroom, update electrical, update the plumbing, HVAC… So you’re doing the whole nine years. And when you’re in a project like that, it’s very important as a real estate investor to assess the project properly, from the standpoint of knowing what you do and don’t have to do in that home, and understanding the pricing, the timeframe… Everything is a key component in being successful in that renovation, and it all starts out by doing what we call “a pre-scope of work.” We call it “pre-purchase scope of work” because we go in there and we assess what needs to be done, and we can’t spend too much time on that, because we don’t know if we’re gonna get the home as a real estate investor or not. So we’re gonna be in there for 15 minutes and we’re gonna have a rough budget. Our rough budget should eventually be very close – within 10% – of our actual scope of work, which is a detailed scope of work. Hopefully that answers your question, but that is something that is a very important part of any project – knowing what needs to be done and have an accurate cost.

Joe Fairless: Before you enter the property to do the 15-minute walkthrough, what work (if any) is completed prior to that walkthrough?

Michael Jordan: I would say prior to that walkthrough we just know about the location-location-location. That’s what we’re going off of. We know that our average interior renovation is gonna cost approximately $25-$30 a square foot. That’s our approximate price to renovate a home from A to Z, and that’s what we’re working off of. Now, if we go in there and we find that there is a lot less work than we expected – there’s hardwood floors that look great, and there is a new kitchen that was put in there, which is very doubtful, obviously that number comes down. But when we’re looking at a home, we’re always gonna write an estimate, and we’re looking at it from, “Okay, let’s start off with that $25-$30/square foot number, and let’s either come down or possibly go up from there.”

We’ve been into homes where the walls have been gutted and there was no drywall up or installation, and it’s like almost a complete new home when we’re done.

Joe Fairless: That $25-$30/square foot – does that include your labor costs?

Michael Jordan: Yeah, that does. What we do is we are constantly — one of the biggest challenges that I think most real estate investors have is finding the right crews to do their work. What we do is we’re constantly recruiting, and we have to recruit crews that not only do good quality work, but that can meet our pricing. That is a challenge. So we really have to always be on the hunt for new contractors, and contractors that can work with us. And just the nature of our business – we’re gonna lose 10% of our contractors every month or so, just because that’s the nature of the business. They’ve got another bigger job, or they dropped off because they don’t have enough workers now… That’s what happens.

But we find that a way to combat that is to constantly recruit, and also to have in-house direct labor, labor that works for us on an hourly basis, or a salary basis. That’s a way that we combat getting hurt by crews that leave us or that don’t perform.

Joe Fairless: So you’ll know the location very well prior to doing the 15-minute walkthrough… How does that influence what your actual scope of work cost is, knowing the location?

Michael Jordan: We’re gonna look at comparables in the area – what’s the market going for? How much is the rental rate? What are the taxes? What are the trends in the area? Is it an inclining area? Is it an area that is stabilized out, where there’s not growth nor decline? Is it an area where there’s a lot of development going on, where we expect there to be appreciation on the value of the home and on the rent? That’s the homework that we do prior to getting to the home, and understanding the rough costs of a renovation.

Dependent on the area… Some areas call for — for example Royal Oak, Michigan, which is a very popular area… That area calls for more of — there’s finishes that are more desirable in that area, that we feel that more homeowners and renters like, so that’ll affect material prices, and then that also might affect our scope writing and our cost of the project.

Joe Fairless: You’ve done your research on the location, and now you have just pulled up to the subject property, and you’re about to do your 15-minute walkthrough… Walk us through what you’re looking for in a house, and your thought process, and where you’re writing it down, in just as much detail as possible, please.

Michael Jordan: Well, I would say what we’re looking for in a house is 1) we’re going in there and we’re taking a look at the cosmetics. We’re looking at the floors, the walls; can we move any walls to make it more of an open concept, or give a better layout there? Two of the main items that we look at are the kitchen and the bathrooms. We’re seeing “Okay, what can we do to make this look nicer, increase the size, make a better layout?” And then we’re going into the mechanicals – electrical, the plumbing, the HVAC.

Once we get through cosmetics – the floor, the walls, the kitchen, the bathroom, the electrical, mechanical and plumbing, then we’re taking a look at the windows, the roof, the driveway, and then safety and structure. Because we wanna make sure that every home that we complete compliance with the city code and ordinance, so we can get a city certificate of occupancy.

Joe Fairless: How do you do that in 15 minutes, and what part of what you’ve just talked about takes up the most amount of time?

Michael Jordan: I would say how we do that in 15 minutes is training, training and training. To me, I love it when people actually do a walkthrough with me. When I say 15 minutes, it might be 20 minutes. I’m just giving you a roundabout timeline. Just being so used to have in your eye, look at the main items that you’re looking for.

We also have assessment sheets, which help us go through it line by line what needs to be checked off or inputted into that sheet, to make sure we cover everything from A to Z.

I would say the scariest factor that anyone around the country can come across in a house is a foundation issue. Everything could be fixed; a kitchen could be changed out, cabinets can be changed out… All that good stuff that’s not going to be tremendously costly versus what [unintelligible [00:11:53].28] but if you miss a foundation issue – you miss a bowing wall, you miss a crack in the foundation that is really having the foundation sink… Those are major, major items.

I don’t wanna be going away from your question too much, but to answer your question, it’s really having that experience. I’ve probably been through maybe 5,000-6,000 houses, if not more, myself; my team has been through thousands of houses. We’ve been through so many of these things, and we knew where we’ve gotten bit in the past. My biggest losses have been from foundation issues that we’ve had to cure.

Going back to your question about how could it be so quick – well, first of all, we have to make it quick, because if we’re gonna buy homes, then we’re gonna take a look at 15-20 homes a day that we’re offering on, and scoping on, and doing all that stuff. We have to be time efficient, and it just comes with experience.

It’s not that someone that hasn’t done that that many times can’t learn – they can; that’s where I always tell real estate investors that wanna get into flipping… Some wholesalers wanna get into flipping, they wanna maximize their money there, and I tell them “You really first have to start off by you being an expert on pricing.” And don’t just count on the contractor, because you can take  a contractor out there, that you can rely on, but that contractor can disappear after a week, a month, a year or whatever it may be.

You have to be the pricing expert. You have to have more than one contractor to be able to come out there and finish the job. That’s why I look at educating oneself on how to write a scope of work and the proper pricing as one of the most crucial elements in becoming a good flipper and a good single-family home real estate investor.

Joe Fairless: The categories of cosmetics is one, kitchen bathrooms, two; mechanicals, three; miscellaneous stuff like windows, roof, driveway, four, and safety and structure, five. With those five categories, which one of those you look at it and you’re like “Pf, whatever. Let’s move on. I got this. I can handle really anything that comes my way.”

You mentioned foundation is the big one, that you don’t wanna mess up on, but which one of those five is like “Pf, whatever… Let’s do this. Easy.”

Michael Jordan: Painting and flooring. So easy.

Joe Fairless: Cosmetics?

Michael Jordan: Yeah, cosmetics. I think that I can bid the cosmetics off of a picture. Someone might say, “Well, you might have missed a hole in the wall.” It’s drywall, it’s not a big deal. It can be patched. It’s an item that’s gonna take you an hour to fix. So that’s the easiest one right there.

Joe Fairless: Well, within cosmetics, you mentioned “Can we move walls to make it a more open concept?”, how do you determine that?

Michael Jordan: Well, first of all, you wanna make sure that the wall is not load-bearing. And to do that, you wanna have some experience to know where the beams are placed, and to make sure that you can move those walls. That’s number one.

Number two, you’ve gotta have a vision from the standpoint of understanding what the benefits are to opening up those walls, because to do demo on a wall does take much time. But if you demo a wall and it shouldn’t have been demo-ed, you could also mess up the layout. So it really has to be someone that has that good vision, that quick vision.

I walked into a home with a wholesaler, probably around six or eight months ago, and I walked in and I told him — the home was around $250,000 potential ARV, and he was looking to wholesale it for $70,000 or $80,000… But there was a lot more work than our typical home. And the first thing when I walked in there, I’m like “Yeah, I would knock this wall out”, and he said “Man, how did you know that so quick?” I said, “Because there’s no purpose of this wall here. It actually gives you the vision of a smaller home. It gives you a more compressed look. It doesn’t benefit the layout in any factor, whereas if you took this wall out, you’ve got a more open floor plan, you’ve got a visual that is just much more appealing to anyone. And why it was placed here in the first place? I don’t know.” Maybe in the ’50s, ’60s, ’70s there was more [unintelligible [00:16:04].16] I don’t know, but for me, I just look at it from the standpoint of “What are the majority of people going to like? What are the majority of owners that are gonna buy this home going to like? What are the majority of tenants going to like?” That’s where I learned what they liked, and I kind of go off with that.

Joe Fairless: Going back to “know where the beams are placed, to determine if it’s a load-bearing wall or not”, how do you know that?

Michael Jordan: There’s tools; you could bring tools along to see if it’s a load-bearing beam, and if you can remove that wall. If you’re that good, you could pretty much knock on that wall and see if it’s hallow or if there’s a beam in there. That’s just also experience too, but there’s ways that we teach people to take a look if it’s a load-bearing beam or not and determine that.

Joe Fairless: Anything else as it relates to keys to successful renovation that we haven’t talked about, that you think we should?

Michael Jordan: Sure, absolutely. I would say that the keys to successful renovations also comes with a couple other parts. Number one is knowing the materials you’re gonna use and the costs of the materials you’re gonna use. A lot of people get started with the renovation and they actually finish the renovation, but they end up realizing that they weren’t as profitable as they should have been, because they maybe went overboard on materials, maybe they didn’t buy the materials at the right stores, where they could have got better discounts, they didn’t scope out the proper materials, that would give the same results as the more expensive materials, and they didn’t know how to color-coordinate things properly, and the home sold for less because they used the wrong color coordinations.

So materials is a huge factor in flipping homes, and I tell any investors that are out there – I know that everyone has watched the HGTV shows and whatnot, with them going through materials and whatnot… There is big reality to that. I would say that color-matching, proper materials are very important, but know your area, know your comps, know what your home is gonna sell for, and know what you can afford from the get-go with your materials. That’s one of the two other items I was gonna speak about.

The second item, which I spoke about earlier, is having the right contractor on your site. The right contractor doing a renovation means someone that you’ve seen their work, you have referrals from them, you know that they’re someone that can abide by a contract that is very reasonable for them to complete a home, and someone that their pricing is very competitive. I don’t recommend using contractors that don’t do work with their own hands, because that will defeat the purpose of what we as real estate investors are trying to do, and that is to be as profitable as possible.

I feel that that contractor that is a company, and has an office, and [unintelligible [00:19:11].19] eats into the profit by 30%-40% higher prices on the construction. So I recommend having smaller crews – you have your electrician, your plumber, your HVAC guy, your painter, your flooring guy… And just cut up the job.

Sometimes people feel that they just have to hire a contractor that does everything. Sure, that’s possible, you can do that, but cutting up the job also works really well if you plan it the right way.

Joe Fairless: You’ve done renovations for a long time… What is one mistake that you’ve made recently that you can share with us, on a renovation?

Michael Jordan: One mistake that I’ve made recently on a renovation I would say would be not saving hardwood floors because we thought the stains were just that bad on them… Because sometimes over the years people have pets, and there’s urine stains and whatnot that the pets create on the floor, and us going through there and figuring out another flooring option… Whereas now we realize throughout time – and I don’t think this was even recent; this was maybe something like last year. We realize over time that imperfections on floors are sometimes beautiful, so you can use different color stains to hide some of those imperfections and make it look like it’s part of the age of the floor, or going with a solid color, not stained, but pain that sits on top of it and looks wonderful. So I think one of the bigger mistakes that I’ve seen in the last year or so was us sometimes reverting to alternate flooring when we already have great flooring there.

Joe Fairless: How can the Best Ever listeners get in touch with you and learn more about what you’ve got going on?

Michael Jordan: Well, my name is Michael Jordan, I’m with Strategy Properties. You can visit us on my website, at StrategyProperties.com. You could also reach us at 734-224-5454. We’d be more than happy to give advice. We’ve been doing some training on renovations and how to handle renovations from A to Z, and teaming up with some people to do simulation renovations for them to go through a project with us, for them to learn the ins and outs of it before they go out on their own and do it in whatever state they’re in… So I hope that we’ve provided some good information to people, they could use it in their renovation projects to be successful, and that’s our goal on this podcast today.

Joe Fairless: Yeah, that would be a fun and worthwhile experience to go through for anyone who’s in the value-add business, so… That sounds really good.

Thank you so much for being on the show, talking about your approach, your pre-purchase scope of work, what you do, then the 15-minute walkthrough, the different categories of items that you look for… The one that could bite you real hard – the foundation – and other stuff that is just easy to address, like cosmetics… As well as talking about how you wanna make sure — what materials you’re using, what the cost is of those materials, and then getting deeper there. We didn’t have time to get into too many details there, but you went through that, as well as having the right contractor on your site, and having a backup option… And ultimately being an expert on pricing, so that when – not if, but when – a contractor does leave in the middle of the night, with the project halfway done, you know how to take it from there.

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

Michael Jordan: Thank you, Joe. I appreciate you having me on the show, and have a great weekend. Thank you.

Episode 1530 Best Ever Show flyer

JF1530: Broker, Flipper, Landlord, & Syndicator Tells His Best Stories with Carlos Gutierrez

Listen to the Episode Below (26:08)
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Carlos is a broker and has been flipping houses since 2010. He also owns over 40 units and has syndicated 20 of them. He shares some great stories with us of how he’s gotten to where he is today. From his syndication deal to why he is no longer flipping much. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Carlos Gutierrez Real Estate Background:

  • Realtor since 2010, flipped about 20 properties from 2011-2017
  • Purchased 20 units raising $200k to close, rehabbed and paid investors back after 14 months
  • Owns another 41 units
  • Based in Charleston, South Carolina
  • Say hi to him at cg4properties@gmail.com or 843.934.4250
  • Best Ever Book: Best Ever Apartment Syndication Book by Joe Fairless

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Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help. See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Carlos Gutierrez. How are you doing, Carlos?

Carlos Gutierrez: Good, Joe. How are you guys doing?

Joe Fairless: I’m doing great, and welcome, and looking forward to our conversation. A little bit about Carlos – he has been a realtor since 2010; he flipped about 20 properties from 2011 to 2017, purchased 20 units, raising $200,000 to close; rehabbed and paid the investors back in 14 months. Owns another 41 units. Based in Charleston, South Carolina. With that being said, Carlos, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Carlos Gutierrez: Yeah, how’s everybody doing? As Joe and I were speaking earlier, we are safe here in Charleston, from the hurricane. It wasn’t that bad. We got a little bit of rain and some wind.

A little bit of my background – I’ve started flipping houses in about 2010-2011. I flipped about probably over 15 to 20. When I first started, I got my real estate license, became a realtor, and at the same time that I was flipping houses I was also doing the brokerage side of the deal, so I was buying and selling houses with buyers and sellers. I did that from 2011, and I still do it now. I don’t concentrate as much on it.

Joe Fairless: Why not?

Carlos Gutierrez: Just because it’s like multifamily – it’s gotten harder to find good, solid deals. I’ve always been of the model that I’d rather keep my money than lose money.

Joe Fairless: Ditto.

Carlos Gutierrez: So if I get a solid deal, then I’ll go after it, but they’re just hard to find, especially locally here in Charleston; we’ve gotten a lot of investors – not only local investors, but national investors – just buying stuff up left and right. They’re essentially buying for yield, so they’re kind of overpaying, in my opinion, for properties that I was buying for 20%-30% less two or three years ago.

Joe Fairless: And you purchased 20 units raising $200,000 to close. Can you talk about that?

Carlos Gutierrez: That’s a little bit of a cool story. My wife and I, we moved from the DC area from Virginia, down to Charleston. She’s from Virginia, I’m from Florida. I didn’t wanna be in Virginia, she didn’t wanna be in Florida, so I said “Pick somewhere in the middle.” So we ended up in Summerville, South Carolina, a submarket of Charleston. We’d come visit a couple of times, to look at houses and see where we wanted to be.

One day we were down here looking at new construction, and I have a five and a three year old, and my wife wanted to stop and get some food, and we looked at our phones and we’re like “Oh, let’s go to a Subway.” When we actually got to the Subway, there was actually no Subway there. The Subway had closed down and it became an office building. But while I was in the parking lot I had looked across the street; there was an 8-plex that was empty, and it was a pretty solid-looking building. It was all brick, a little bit of siding… But other than it being empty, it looked pretty decent. I’m like “I’m wondering why that thing’s empty.”

I wrote the address down in my phone, and about a year later we moved down to Summerville, Charleston, and I said “You know what, I’m gonna write this guy a letter.” I wrote the guy a letter and said “I’d like to buy your apartment if you’re interested.” He called me back and he said, “Not only do I own eight, I actually own 20 on that street. Are you interested in buying all 20?” I said, “Sure, if we can come to an understanding.”

Back and forth – he’s an older gentleman, so everything was done over the mail.

Joe Fairless: Mail, like…?

Carlos Gutierrez: Yeah, literally. I talked to him on the phone, and I said “This is how much I can give you.” Then he’s like “This is how much I want.” We were kind of back and forth. We finally agreed on a $750,000 price. He’s like “Alright, send me the contract.” I was like, “Yeah, what’s your e-mail?” He’s like, “I don’t have an e-mail. Mail it to me. I’ll have my lawyer look at it, and if it’s good, I’ll fill it out and send it back to you.” About two weeks pass… [laughter]

Joe Fairless: Did you at least overnight it?

Carlos Gutierrez: I did. [unintelligible [00:07:04].12] where he would have to sign for it. We’re used to technology; I send you a contract today, and it’s gotta be settled in half an hour. So it took about a month before we finally got all the paperwork.

Joe Fairless: How does it work when he has markups to a printed out contract? How are those updates communicated?

Carlos Gutierrez: What I did finally was — because he was an older gentleman and I don’t know if he’s never dealt in real estate or just happened to have this property, but I wanted to make sure that everything was okay, so I said “Why don’t I just have my lawyer contact your lawyer? And that way we can have no miscommunication.” Because I would call him and be like “Hey…” His name was Skippy, by the way. [laughter] I could write a  book on this whole deal, literally. And finally, back and forth, the lawyers kind of agreed and put an actual contract together. But it was still like a residential contract, it wasn’t like a LOI type of thing.

Joe Fairless: Okay, so a $750,000 purchase price, all 20 units… What was the reason why you did not contact him when you first saw the property? I know you weren’t living there, but…

Carlos Gutierrez: Yeah, I wasn’t living here at the time, and I knew that it was gonna be  a heavy construction type of a deal, so I didn’t wanna buy it and be in DC and have to fly back and forth.

Joe Fairless: Okay.

Carlos Gutierrez: And at that time I had a three-year-old and a one-year-old. You know about that, I think you said your wife was pregnant–

Joe Fairless: Yeah, she’s due in a couple– well, by the time this airs, hopefully we have a baby girl.

Carlos Gutierrez: You’ll have a child, so you’ll understand that. All that time that you had in the world, when you start having kids, you’re like “I had so much time before. I literally have no time right now.” So that’s the reason why I waited.

Joe Fairless: Okay. So you got the contract agreed upon… High-level, besides the purchase price, what were some of the terms?

Carlos Gutierrez: It was basic terms. I gave him a $10,000 earnest money deposit, I put 90 days to close… I did it on no contingencies, because I had already walked around the buildings, I looked through the windows… I knew I was gonna do heavy construction, so other than having an appraisal contingency or things like that, there was no other contingencies in the deal.

Joe Fairless: Okay. Was your earnest money non-refundable day one?

Carlos Gutierrez: No, the lawyers agreed that it would be non-refundable (I think it was) 30 or 45 days.

Joe Fairless: Okay.

Carlos Gutierrez: Kind of after we got the appraisal and all that stuff.

Joe Fairless: Okay.

Carlos Gutierrez: And I wanted to put that in the paperwork, because I knew it was gonna be one of those things where it’s too small for the big banks, and too big for the local banks. It kind of fell in between, so I had to get a local credit union that wanted to see that area move forward. I had 30%-40% occupancy.

So there was a lot of things that a Fannie Mae/Freddie Mac type of thing or a local Bank of America would be like “No, we’re not gonna have it.” So I’ve got a Heritage Trust Credit Union which is a local person, he got me a pretty decent loan; it would amortize over 20 years, 20% down, instead of 25% down; 4,9% or 5% interest rate, which was a little bit higher at that time, but still it was decent for the occupancy.

Joe Fairless: What was the loan term?

Carlos Gutierrez: Five years.

Joe Fairless: Five years, okay. And then what about your construction?

Carlos Gutierrez: So the construction was — I estimated about $100,000, because it was gonna be about $10,000/unit for the building that was empty, and then about another 20k-30k in the other units that needed to be either turned, or put another roof on another building… There was a total of four buildings, and two out of the four buildings got new roofs.

Joe Fairless: How did you estimate that?

Carlos Gutierrez: I had experience with single-family flips, and I literally just went into an apartment and said “Well, I need (from A to Z) plumbing, electrical, roof flooring”, all that stuff… And I just put a budget together from my experience in single-family, and I also had experience with apartments, because I had a old-time job as an apartment manager/maintenance guy.

Joe Fairless: Okay. Did you plan on doing that work yourself?

Carlos Gutierrez: No. Since I first started, I said “I’m never gonna be one of those guys that buys the house and does everything and it takes him six months to flip.” The name of the game, in my opinion, is being fast. So other than maybe like demoing a house or pressure-washing something outside just to keep me a little bit busy, other than that I never did heavy construction.

Joe Fairless: Okay. In the loan that you got, did that $100,000 — was that included in your loan?

Carlos Gutierrez: No. They treated it as a — I wouldn’t call that a performing asset, but they knew that I was gonna get to that level, so they just treated it as stabilized, 70%-80% stabilized…

Joe Fairless: Even though it was 40% and you were probably kicking those 40% out, I imagine.

Carlos Gutierrez: Correct, yeah. It was a huge obstacle, because like I said, “nobody really wanted to touch it” type of a thing; they couldn’t see past the numbers. It had to have been somebody that was local, that knew that area, and knew that that area was starting to turn around.

Joe Fairless: How long ago was this?

Carlos Gutierrez: 2016.

Joe Fairless: Okay, great. About two years ago. Perfect. What have been the major milestones that you’ve accomplished from then to now?

Carlos Gutierrez: In that particular deal?

Joe Fairless: Yeah, with that particular deal.

Carlos Gutierrez: When I did the ARV on that deal, I thought it was gonna be around a million, a million fifty. So I knew I didn’t have that much spread, but I knew it could be a nice performing asset once it gets stabilized… And we estimated the rents, once it was rehabbed, about $750 to $775. With so much demand in the area for rentals and so many people moving down to Charleston, we were able to rent all those at $850.

Joe Fairless: Uuh…

Carlos Gutierrez: And I’m talking about my phone was ringing off the hook. And I could probably push it higher, but I just thought that at that level I didn’t need to push it anymore. The biggest milestone when we actually finished the rehab, I was able to refinance it at a valuation of 1,2 million. I was able to get a new loan, longer amortization, close to the same interest rate (4.84%), amortized over 25 years, 10-year call… I was able to pay the first loan off, plus the investors, plus give me back my initial investment in the deal.

Joe Fairless: When you paid off your investors, did you buy them out, or are they still owners with you in the deal?

Carlos Gutierrez: No, I bought them out. We came into this deal — we gave them promissory notes. I had a partner at 40% equity, and he brought all the money from investors. We gave them 10% return on their money, and I gave him a 40% equity, and I was able to pay everybody back, including him, his equity. So I’m the sole owner now of the 20 units.

Joe Fairless: Wow… If you hadn’t got a favorable appraisal of 1,2… Let’s say you execute the business plan but the market just went South – what’s your plan for having those investors at that 10% promissory note?

Carlos Gutierrez: Even at a million dollar ARV, I knew I was able to pay at least the investors off. I was planning to keep the partner with his equity in, and my initial investment. I knew that it was gonna be a longer-term play. But this time, when I refinanced it, I knew I could pay at least the 2-3 investors back.

Joe Fairless: And how did you know that?

Carlos Gutierrez: Just by doing the math on the ARV, and working backwards.

Joe Fairless: Okay.

Carlos Gutierrez: I factored that into the business plan and into the underwriting that I did.

Joe Fairless: How much monthly income does it net you in your bank account?

Carlos Gutierrez: It’s about $125 to $150/door right now. That’s factoring in the management fee, escrowing the taxes and insurance… Because when you buy a multifamily, especially small ones, they don’t escrow all that, so at the end of the year you’ve gotta pay $15,00-$20,000 in taxes, and you’ve gotta make sure you escrow that monthly… Which I see a lot of investors not do that. When they net out cashflow, I’m like “Did you net out vacancy rate? Did you net out taxes, insurance, all that stuff?” They’re like “No.” Well, [unintelligible [00:16:03].13]

Joe Fairless: Why do you think the property was still for sale one year after you looked at it?

Carlos Gutierrez: It actually was never for sale?

Joe Fairless: Oh, I missed that.

Carlos Gutierrez: Did I not say that?

Joe Fairless: I don’t think you said it was for sale, I just thought it was.

Carlos Gutierrez: I’ve always been a guy that’s always kind of looking for a deal. And when I see empty places, I’m like “This is for the taking.” So I just sent the person a letter. I’ve gotten my best deals from dealing straight with owners, from sending them letters. Instead of doing a massive 2,000-3,000 fliers, I’m kind of bird-dogging, I guess you’d call it

Joe Fairless: Sure.

Carlos Gutierrez: Yeah, and I look for places that are empty, and then send them out letters.

Joe Fairless: What does that letter say that you sent to the gentleman who had the 8-unit that then grew to a 20-unit portfolio that you purchased?

Carlos Gutierrez: I did basic letters. I remember wholesalers back in the day in Maryland used to send out those yellow letters… Real basic. “My name is Carlos Gutierrez. I own Cg4Properties. I would like to purchase your property at 123 Smith Street. I can buy it in cash in 30 days or less. Call me at this number.” I don’t even put an e-mail, because most of these people don’t do e-mail.

Joe Fairless: So Skippy called you, and he says “Oh, great! Buy my place for cash, 30 days”, but then you ended up financing it, so how did that conversation go?

Carlos Gutierrez: I said “Listen, Skippy… Usually I buy properties in cash, but this property has significant amount of construction, so I need to keep that capital that I was gonna pay you cash for, and try to finance it. I’m gonna try to finance it, and then with the capital that I was gonna pay you, the straight cash, for the property – I’m gonna need it for the construction.” And he was actually really nice to deal with, and open, and he knew that to have 20 units and to have a 30% occupancy — and he had a mortgage on; it’s not like one of those guys that has owned a property for 30-40 years and it doesn’t matter if it’s 40% occupancy, they’re still making money.

Joe Fairless: What was the main challenge you had turning the property around after you closed on it?

Carlos Gutierrez: The hardest challenge was to actually get contractors to work. Again, Charleston has been an area where there’s been so much new construction and so many people moving in that they actually have a shortage in blue-collar type of contractors. For the roof, I had to call like four roofers to do a roof on this property, because all the roofers were doing new construction… They’re not gonna leave new construction where they can do 2-3 roofs a day, to come do my roof.

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

Carlos Gutierrez: In the short time that I’ve been doing this, I’d say a couple of things. I’d say – as cliché as it sounds, finding your big WHY. I always say, the fun times when you actually make money or when everything’s going fine, your big WHY is not that big of a deal; but when you have a fire at your property, or when the tenant is calling you in the middle of the night and there’s a toilet backed up, or something, you’ve gotta have that big WHY of looking past tomorrow, or next year. You’ve just gotta know why you’re doing it. If it’s just for the money, like people always say, you’re just gonna get tired; it’s just gonna mentally drain you. So your big WHY – you’ve gotta have that.

And the other advice I would say is build relationships with people and always go into the transaction or relationship with a win/win attitude. Again, as cliche as that sounds, and I’ve sure people have read it in books, it’s the truth. Most of the times that I’ve gotten the best deals through contractors or through people that send me deals, or relationships that I’ve built over time, they 1) trust me, and 2) it’s always gonna be a win/win when we do a deal or a transaction.

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

Carlos Gutierrez: Yes, I am.

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

Break: [00:20:24].04] to [00:21:17].08]

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

Carlos Gutierrez: Other than your book… [laughs]

Joe Fairless: Which one? The syndication one?

Carlos Gutierrez: The syndication book, yeah. I’ve been trying to get into syndication for the last two years, and I find your book to be actually very informative and very easy to read. There’s a lot of books out there that have a lot of information, but they’re difficult to read. When I say difficult, I mean boring. [laughter] They’re putting you to sleep.

Joe Fairless: I’m a very simple-minded person, so it’s easy for me to…

Carlos Gutierrez: [unintelligible [00:21:45].26] myself. I call myself the Forrest Gump of Charleston. [laughter]

Joe Fairless: What’s the best ever deal you’ve done that you haven’t talked about during this conversation?

Carlos Gutierrez: Okay, I’d have to go to single-family flips. Probably the most money I’ve ever made on the deal, and the reason why it’s my best deal is because 1) I’ve made the most money, and 2) it was the happiest buyer that I’ve ever seen in my life. She had struggled for a long time, husband left her with two kids, he was the breadwinner, she was down and out… This was in [unintelligible [00:22:25].15] Virginia. I bought the property through a HUD, and got a real good deal because it was back in 2013, so they were pretty much giving you houses back then; 2012-2013. I made the most money, but I also felt really good, because I sold her the property and left her with some good equity, meaning that I didn’t sell it to her at top retail. And she was able to move into a home and have a good future for her and her kids… And I was able to get her a good loan, and she really didn’t have to come out of pocket too much. So not only did I make a lot of money, but it felt good to help somebody else.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Carlos Gutierrez: A mistake I’ve made on a transaction? I guess I’m an old-school guy, and I used to go a lot on people’s word; unfortunately, in real estate you cannot do that. I went on somebody’s word, and it came back to bite me in the butt. Monetarily, as well.

Joe Fairless: Oh, literally?

Carlos Gutierrez: No, no… [laughs] Something didn’t literally bite me, but losing money felt like [unintelligible [00:23:36].24]

Joe Fairless: Sure, of course. Best ever way you like to give back?

Carlos Gutierrez: What we’ve done lately – and when I say lately, I mean probably back in 2013-2014 – when a big hurricane or a storm would ravage either a country or a state, we would partner up with local non-profits, and even collect food and supplies and stuff. We collected a lot of supplies for when the storm hit New Jersey, and when the storm hit West Virginia… Through Keller Williams we were able to raise a lot of funds and collect a lot of items.

And also in Puerto Rico – I’m originally from Puerto Rico, so this one kind of hit close to home – we collected over 2,500 pounds worth of food and water and all that stuff. We sent probably 3-4 pallets to Puerto Rico from Charleston.

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

Carlos Gutierrez: The best way is probably e-mail, or a phone number. Cg4properties@gmail.com, or you can call our offices at 843-934-4250. Myself or my wife Christina will answer.

Joe Fairless: Carlos, thank you for being on the show. Thank you for talking about your deal with Skippy and how that’s netted you now $30,000/year in income. Now that the dust has settled, you don’t have any money in the deal; you own it 100%, and you make $30,000 as a result of it… And it sounds like you didn’t put any money in the deal initially, because you partnered with a private equity partner who then got bought out… So here’s a case study right here – how do you replace your $30,000 job income (if you’ve got $30,000), well, do one deal, and here’s exactly the step-by-step process for how to do it.

Thank you so much for sharing that story. I hope you have best ever day, and we’ll talk to you soon.

Carlos Gutierrez: Alright, Joe. Thank you for the opportunity.

Andy Dane Carter on Best Show Ever flyer

JF1477: From Large Scale Flipping To Large Scale Multifamily with Andy Dane Carter

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Andy used to be in the house flipping business, (150-250 homes per year!) but changed course into buying and holding multifamily deals. Not only does he buy smaller multifamily properties, he’s also syndicates larger properties. Taking it even a step further, his company wholesales around 30-40 deals per year. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Andy Dane Carter Real Estate Background:

  • Real estate investor and entrepreneur
  • Has had over $500 million go through his company from real estate deals in a short period
  • Based in Long Beach, CA
  • Say hi to him at https://andydanecarter.com/
  • Best Ever Book: Healing Mushrooms

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Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help. See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Andy Dane Carter. How are you doing, Andy?

Andy Dane Carter: I’m doing well, brother. How are you?

Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Andy – he is based in Long Beach, California, he is a real estate investor and entrepreneur, and has had over 500 million dollars go through his company from real estate deals, and we’re gonna talk about that.

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

Andy Dane Carter: Sure, yeah. My main focus is real estate and real estate investing. And exactly like you said, we’re gonna cut out all the fluff, and that’s basically exactly what we do. We’re like a one-stop shop. We do multifamily, we do syndications… We don’t flip as many houses as we were doing in ’09, ’10 and ’11. We were doing about 150-250 a year, which was a lot… So we moved those into more buy and hold positions, and we’ve been very successful in doing that and then repositioning them to new states, because I’m sure some of your listeners know that we have horrible cap rates here in Southern California right now – somewhere between 2.3% and 4.3%… So we’ve actually positioned ourselves in a few other states across the country which yield  much better returns and much better cashflow for us and our investors.

Joe Fairless: Multifamily… You were doing fix and flips, and now you’re more buying and holding those properties… What does the bulk of your transactions right now comprise of?

Andy Dane Carter: Those are multifamily keepers. We like to find stuff that’s either B- to D- neighborhoods, low rents, not really performing, long-time owners that are maybe just looking to kind of get out of their positions… We come in and we do what we do best, and we love to add value as quickly as possible. That’s the bulk of our stuff that we do on a monthly basis across the country.

Joe Fairless: Can you give us an example of a case study?

Andy Dane Carter: Sure. We actually have one going on right now in San Antonio. That one we purchased for 240k (a fourplex) and then we got the one that was right next door for another 180k. We’ve fully remodeled those, we relocated the bad tenants into a different property, and we’ve put in some really good tenants. It’s been completely remodeled, we just had the thing reappraised, and it’s right around 620k-640k… So within four months we were able to get the thing to really start performing, and we got all of our cash back for ourselves and for the two investors that we’ve actually partnered with. Now it’s just gonna go under the fold and everybody’s cash-on-cash return has been made whole, and off we go. We usually do that very similar model everywhere we go.

Joe Fairless: Congrats on that deal. The 240k purchase price – how much did you put into the remodel?

Andy Dane Carter: We did 42k-43k on one, and then we only did 20k on the other. So we were all-in just over 60k for both units. It’s actually two fourplexes that sit side by side and they actually share a driveway, so now it looks like one huge property.

Joe Fairless: Okay. And you’re holding on to that one?

Andy Dane Carter: Yes.

Joe Fairless: How did you find it?

Andy Dane Carter: I found it from Instagram. I have a pretty large social media presence, and I spend a lot of time on that. I get deals now sent to my DM in my Instagram daily. There’s people that either follow my podcast, or they follow me on Facebook or Instagram, and they know exactly what I do; I have a very clear message, and I buy stuff across the country… If they have a deal, they send it to me, I take a look at it, and if the deal makes sense, I usually fly to the location, I stand on the property, I look at it, and I meet them, and then we write it up and I fly home.

Joe Fairless: What was the story with these two deals that were next to each other, the two fourplexes?

Andy Dane Carter: They were in a trust, and the trust was getting ready to be liquidated, and a particular real estate agent had to find somebody that can close in three days. So it was just one of those deals where they happened to reach out, it was absolutely perfect timing. I was on an airplane, and then we wired the money and we closed, and away we go.

Joe Fairless: With the structure with those deals, in terms of you and your investors, how do you structure that?

Andy Dane Carter: It depends on how the property is actually acquired, but usually we’ll do like a 50/50 scenario where we split the capital going in, we split the capital for all of the rehab costs, and then we split the profits, and then we split the cashflow as well. So it’s super-simple for us, just for simple math, and we try to keep it really easy for ourselves and very easy for our investors… So it just makes it really clean. It’s usually 50/50 splits that we do. Sometimes we’ll do 70/30, but we usually like to share the risk.

Joe Fairless: So in that scenario, where you got the lead from Instagram and then you ended up closing on it, you did 50/50 where you put in half and you receive half of the profits?

Andy Dane Carter: Yes, exactly.

Joe Fairless: And I’m just curious, with you finding the deal, how do you think about that in terms of the value that you added to the transaction? Because you’re getting half, but you are putting in half, so on the surface it doesn’t look like you’re giving yourself credit for finding the transaction.

Andy Dane Carter: 100%, and that’s a complete separate part of our business. We do a lot of wholesaling, tons and tons. We do about 30-40 properties a month that we just actually wholesale. These deals that we do these splits with – these are long-time investor partners of us, of about nine to ten years… So it’s not for everybody. These are literally just investors that we’ve made millions with, so we just like to share the value with them, because we’ve actually built this slowly together with them.

So that’s not for the normal investor that finds me through my website. It takes years to even have those deals even be brought to you.

Joe Fairless: What’s a tip that you have for a real estate investor who’s looking to get traction on Instagram, so they can too receive deals on Instagram and be able to get some off-market leads?

Andy Dane Carter: It’s consistency with everything in business, it’s consistency and tons of discipline, and if you can sit there and DM 30-40 real estate investors like myself because you have some deals, it would behoove you to start those relationships. Especially when the market turns, you’re gonna wanna have as many cash investors as you can. So what my team does is they reach out to people like me the very same way that there are people that reach out to me as well through Instagram.

The beauty about that particular platform is you can follow hashtags. For example, you can type in “#realestateinvestor” and there’ll be two million posts that’ll come up, and you can go into those particular areas, those particular cities that you work in, and you can track down who the actual active investors are in that city. Because I’m sure you know this, but there’s a lot of people that call themselves investors and they’ve done three deals. So it’s very easy to get straight to the source when you use a direct message… And you can get people just like me, that you would have never been able to talk to me before; but now we have all these social media platforms.

Joe Fairless: And what is your team posting about?

Andy Dane Carter: It’s about me as a whole… So it’s not just about the commas and zeroes for me in the bank. That part is great, but I’m trying to build a huge legacy, and for me it’s really about how I show up for my family, how I show up for my kids every morning, how I show up for my wife… So for me, business is actually the last thing I think about. The first thing I think about as soon as my brain wakes up is I go into a 10-minute meditation, and then I sit in gratitude for five minutes. Then I work out, and then I eat something really healthy. Then my kids wake up, and that’s about 7 AM. Then the nanny shows up, and I start making breakfast for the whole family, and I get my family ready for the day, and then I’ll even go to the office. Then I’m home at 3 o’clock every day.

So I’m wildly scheduled from 9 AM until 3 PM, and then it’s family time. So for me, I’ve got two small kids, and I’m trying to show them that you don’t have to work from 7 to 7 every single day to create an empire.

Joe Fairless: So if we were to go to your Instagram profile, what are you posting?

Andy Dane Carter: I’m posting links to my website, videos of just kind of what I’m doing, and I’m giving talks, pictures of me and my children… I just kind of tell a story through my Instagram, and there’s about 15k-20k people that follow my Instagram stories; that’s more of like a daily vlog for me, so you can kind of see straight into my day through my Instagram stories. I do the same thing with Facebook. I also have a YouTube channel that was picked up by AppleTV and Amazon, and it’s  called Unlock Now, With Andy Dane Carter. It’s just kind of my life that’s been videoed. Some people like it and watch in, some people don’t.

Joe Fairless: What’s the latest deal that you’re working on, that perhaps you haven’t closed but you can talk about?

Andy Dane Carter: We have 60 units in Cleveland that we’re trying to close. We’re hitting a little bit of a roadblock with the city, just because there’s a lot of work that needs to be done before we can close, and we’re just having some problems with the seller… But it’s probably gonna close. We just have to figure out a way to get a $300,000 price reduction, or if we’re gonna have to do the work first – which I do not like to do, because it just causes all kinds of contracts and legal stuff that we have to get signed up before we can start, so we can make the buildings ready for the city to inspect, and then we can close.

It’s a really good deal and I don’t wanna lose it, but at the same time I don’t wanna make a bad move at the top of a 10-year cycle either.

Joe Fairless: What property in your portfolio is valued the lowest, and can you tell us a story of that deal?

Andy Dane Carter: Sure. I have a deal that I actually talk about a lot… It’s a fourplex, and the fourplex was owned by somebody who lived out of state, they wanted to sell it, I happened to know the property manager at the time, they reached out to me if I wanted to buy it, and I was able to buy it and I was able to use the commission that they insisted on paying me to just about cover the entire down payment for the property. So with the commission, because I’m a licensed agent, I was able to do the deal, I was able to take the commission from the deal and put it down, and I only had to come out of pocket 6k, and it was actually cash-flowing just a little bit when I bought it, and now it’s cash-flowing right about $3,000/month.

When I bought it, the property was worth about 400k and now it’s just over a million dollars, so that was a fun one.

Joe Fairless: Wow. So the cheapest property in your entire portfolio is worth one million dollars?

Andy Dane Carter: As of right now, in this state, yes. But I’ve got stuff that’s in Cleveland–

Joe Fairless: Yeah, just across your entire portfolio, what’s the cheapest property and how much is it worth and what’s the story about that?

Andy Dane Carter: Sure. I closed on six duplexes in Cleveland that we closed for 240k for all six, and that’s almost three years ago. Those have appreciated a little bit, but we picked those up for 40k and change a unit, so… There’s stuff that we have that was $40,000, and it’s worth probably 65k-70k for a duplex right now.

And there’s actually a tape of houses that we bought in Ohio as well, and we took those down for 38k a door… So there’s stuff that’s all over the place. It just kind of depends on what we’re looking for.

Joe Fairless: So we’ve got the six duplexes in Cleveland for 240k (worth more now), and then on the other end of the spectrum, what property is valued the highest at this point?

Andy Dane Carter: We have a 48-unit building that we finally got out the three JV partners last year, and that one is right around 14 million.

Joe Fairless: Awesome. And where is that one located?

Andy Dane Carter: That one is in Southern California, just outside of Los Angeles.

Joe Fairless: Will you elaborate on “you got the JV partners out”?

Andy Dane Carter: Yeah, so there was a five-year either refi, or a five-year buyout agreement, and we weren’t sure how fast the building was gonna actually take off and do its thing, but I’m sure as you guys know, this entire market has gone really hot the past five years… And we were able to take out all of the cash that they had originally put in, and then we were able to push the actual profits that we made straight back to those two partners and completely buy them out. So now it’s just owned by myself and one other business partner of mine that we do a lot of deals with.

So  there was four of us, now there’s only two of us, but our cash-on-cash investment is zero.

Joe Fairless: That’s beautiful.

Andy Dane Carter: It’s the best, and I’m gonna hold that thing until [unintelligible [00:17:11].02] ground.

Joe Fairless: [laughs] You’ll still be clutched onto it deep down in the ground, won’t you?

Andy Dane Carter: Absolutely.

Joe Fairless: Okay, so we’ve got the six duplexes in Cleveland, 240k purchase (worth more), a 14 million dollar 48-unit in Southern California… In terms of the amount of time, does the 48-unit take a disproportionately greater amount of time, since it’s worth more, than the six duplexes in Cleveland?

Andy Dane Carter: No, and it’s funny how that works, and it’s crazy how my eyes have really changed to that entire scenario the past 6-7 years. It’s usually more of a headache the fewer the doors per property than it is more of the doors. You can almost put one particular manager, and it’s exactly what we do in the 48-unit – they live there, and they’re on-site, and they take care of all the headaches, all the problems, all the phone calls, all the everything. And then once a month, they bring all the rents, and everything has been collected to the office, they sit down with our entire property management team, they go over the books, and that’s it. So it’s our biggest, most profitable, with the least amount of headaches.

Joe Fairless: On the 48-unit, when you did the cash-out, what was the profit that the two that exited received?

Andy Dane Carter: They made 480k and change each.

Joe Fairless: 480k… About what type of return is that? I’m sure it’s astronomical.

Andy Dane Carter: Yeah, they were at 39%, almost 41% return.

Joe Fairless: Annualized?

Andy Dane Carter: Yeah.

Joe Fairless: So that’s clearly a phenomenal return. Were they wanting to still stay in and not receive that, and did you have to say “Sorry, I wanna do this…”, or were they like “Yeah, sure. Buy me out. I know it’s in the contract. I’ll be happy to get this return”?

Andy Dane Carter: They were thrilled because we just took that money and they were able to buy two more deals, and they did nothing but wire some money in. We did all the work, we did all the heavy lifting, we found the deal… They were thrilled. And we have a lot of attorneys, so they’re very grateful that they get to still practice law at a very high level, and they can still do very well in the real estate market by using us as partners.

So they were thrilled, we found them each two new properties that are 100% managed by our company… So we did all the work, we made a lot of money – yes, that was great – we gave them all the value, because that’s what we like to do for all of our investors, and then we found them two more deals that’s gonna make them even more money.

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

Andy Dane Carter: Get your real estate license… Even if you only use it once. There’s so many opportunities to invest in real estate once you change your mindset. So many people think that you have to have a certain amount of money to be a real estate investor, and when I started, I didn’t have any money, but I was able to get deals. Where people get confused is they think they have to have money; you need to have deals. The money will find the deals. So the best advice is don’t focus so much on what you don’t have, and focus on your strengths.

If you don’t have any money, you have time, and that’s what is your leverage and that’s your value. So you find the deal, and then you go find the money.

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

Andy Dane Carter: I’m ready.

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

Break: [00:20:51].28] to [00:21:38].14]

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

Andy Dane Carter: It is actually a book about mushrooms, and —

Joe Fairless: That should be the title of it, by the way – The Book About Mushrooms. [laughs]

Andy Dane Carter: Yeah, so here’s a quick little thing, and this is a lightning round… We have 82% the same DNA as mushrooms. We are a closer relative to the mushroom than any other species on the planet as a human. I found that fascinating… So now I eat more mushrooms.

Joe Fairless: Do you remember the name of the book?

Andy Dane Carter: It’ called Healing Mushrooms.

Joe Fairless: Best ever deal you’ve done that we haven’t talked about?

Andy Dane Carter: Probably the house I live in with my family. We were sixth in line, all cash, and there was 12 offers in 24 hours. We were able to get the property because my wife was pregnant at the time, and the trust wanted a new family there, so they took $68,000 less to go with our offer.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Andy Dane Carter: Not knocking on the door when we bought a huge house, that was a legal single-family, that when we got there it was chopped up into ten units. That was not disclosed by the bank, and we were subject to $18,000 relocation times ten, in a rent-control nightmare.

Joe Fairless: If approached a similar situation, how would you approach it differently?

Andy Dane Carter: We would have the bank sign more disclosures, for sure.

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

Andy Dane Carter: I literally give out all my stuff for free. It’s free on YouTube, it’s free on everything that I do. I give you all the stuff that I’ve paid hundreds of thousands for in masterminds – I give it away for free because I really want people to know this is possible for anybody.

I was raised with nothing. I was raised poor, I was raised by a single mom. We literally had nothing, and if I can do it, anybody can.

Joe Fairless: Best ever mastermind group that you pay to be a part of right now?

Andy Dane Carter: Wake Up Warrior was a really good kickstart for me to really get my head around what’s really important, and it’s not just about business.

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

Andy Dane Carter: They can find me at (@) my name everywhere – @andydanecarter on Facebook, Instagram, Twitter, YouTube… And you can go and get my new book that’s called 100 Doors; it’s free on my website. My website is andydanecarter.com. The book is only 100 pages, and I literally give you the blueprint of how to do this with no money, or hundreds of millions.

Joe Fairless: Andy thank you so much for being on the show. I personally took a lot of lessons from our conversation; I’m really grateful for it. One of the things that solidified my thought process but I thought was really interesting is how you said “the fewer the doors, the more of a headache”, and we talked about the six duplexes that you’ve got, compared to the 14 million dollar property, the 48 units.

Also what was interesting for me is learning about your structure with those investors, the joint venture partners and how you had a refi or a buyout agreement, and you ended up buying them out. Then you and your business partner own that property now, and then the investors were able to then go invest in some other projects that you’re working on… Really interesting, as well as, obviously, the Instagram and the building the brand that we talked about.

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

Andy Dane Carter: Alright, Joe. Thanks again.

Joe Fairless and Jeremy Porto podcast episode JF1470

JF1470: Tears His Achilles, Starts Flipping Meth & Chinese Drywall Homes with Jeremy Porto

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Jeremy was serving in the Air Force when he tore his Achilles in pilot training. He was laid up, reading real estate investing books. When he was able, he took action and started flipping homes with unique problems. Now he also owns 40 units. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Jeremy Porto Real Estate Background:

  • Became interested in real estate while recovering from injury in USAF pilot training
  • Flipped 15 properties in 3 different markets including meth and Chinese drywall homes
  • Owns 40 doors in 3 states including recent 13-unit apt acquisition, transitioning into larger apartment syndications
  • Based in Colorado Springs, CO
  • Say hi to him at www.facebook.com/jeremyportorealestate
  • Best Ever Book: Emerging Real Estate Markets by Dave Lindahl

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Best Ever Listeners:

Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help. See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Jeremy Porto. How are you doing, Jeremy?

Jeremy Porto: I’m good, Joe. How are you doing?

Joe Fairless: I’m doing good, nice to have you on the show. A little bit about Jeremy – he became interested in real estate while recovering from injury in the United States Air Force pilot training. He has flipped 15 properties in three different markets, including some challenging properties, meth homes, and as you put — Chinese drywall homes; he’ll give us some stories about that, I’m sure.

He owns now 40 doors in three states, including a recent 13-unit apartment acquisition (congrats on that) and he’s transitioning into larger apartment syndications. Based in Colorado Springs, Colorado. With that being said, Jeremy, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jeremy Porto: Sure. Like you said, I got really interested in 2008 when I tore my Achilles’ in pilot training; I had a long time to lay on my back and just read a bunch of books, and probably unlike a lot of people, I was more interested in real estate stuff because I thought it was cool, it was interesting.

Even now you see on TV all the flip shows, and that was going on back then as wel… So I learned a bunch, and I started out pretty slow. I bought a couple rentals, I got a fourplex relatively early on, I started doing some flipping, like you said meth house, Chinese drywall was kind of some of the more interesting ones that I did; also just some cosmetic stuff… I did all that —

Joe Fairless: What is Chinese drywall?

Jeremy Porto: Back in the early 2000’s there were several hurricanes that hit the South-East, and when they were rebuilding everything, there was a shortage of drywall, so they started importing a lot of it from China… And I don’t know if it was a manufacturing defect or what, but when they installed it, it was leeching like a sulfurous compound and making people sick, and the only remedy there was just to kind of rip it all out.

I think it’s kind of passed now, I don’t think there’s really too much issue with it now, because it’s kind of all been figured out and taken care of, but back then it was a real issue, especially in the South-East.

Joe Fairless: And what about the meth house? Were there multiple meth homes?

Jeremy Porto: Yeah, there were, in El Paso County… Don’t quote me on this, but I think El Paso County is the number one or the number two county in the United States for number of meth-affected properties.

Joe Fairless: Is El Paso County in Colorado?

Jeremy Porto: Yeah. It’s Colorado Springs, basically… Just South of Denver. But yeah, I did two of those… I kind of fell into it —  so my wife is still active duty, and we bounced around a lot, but I was having a hard time kind of getting into new markets all the time, and I had to relearn stuff… And I found this meth house that was on an online auction, and hey man, I figured nobody else was gonna go for it, so I just learned everything I could in like a couple of days before the auction was gonna start.

I talk to all the remediator guys, I talked to the department that handles the remediation and made sure I was legal in what I was doing… I’m licensed in Colorado for real estate, so I had to make sure I was following all the license law for disclosures, and stuff like that. Those were some pretty interesting properties.

Joe Fairless: What do you have to do to remediate that?

Jeremy Porto: I guess there’s two main steps; one is remediation of the methamphetamine itself, so that comes in two parts as well… There’s removal of anything that’s porous; not that I’d wanna keep it, but things like the carpets – it’s gotta go, because it’s just gonna absorb it. The other big one is popcorn ceilings; they’ll typically absorb the meth, so that’s gotta get all scraped.

After that, the second part of the meth remediation is to clean it. They’ll use industrial chemicals, and HEPA filter vacuums, and they just elbow grease and they scrub it to death… And then you have a third-party tester coming in to make sure that it’s all clean and below the state limits. That’s the remediation side of things. Then it becomes a normal flip like anything else – you put it back together, so whatever you’re left with, which often times isn’t a whole lot, [unintelligible [00:06:32].07].

Joe Fairless: Do you get charged based on per square foot of remediation?

Jeremy Porto: That’s a good question. I’ve worked with a couple different companies, and pretty much they wanna see the initial report that shows you how much meth is in a home. It could be lightly affected if they only smoked it a few times in the house, or light manufacture – then there might not be as many micrograms of meth on the walls and in floors and ceilings… And also just the size of what they have to clean. So when they kind of  look at those two things combined, and what do they have to tear out, what do they have to clean, they kind of put a bid together. So really, there’s not a real science to that, I would say; it’s mostly an art.

Joe Fairless: Alright. So I’ve checked the box on the drug topic. I always like to bring it up in every episode, I always like to talk drugs… So now that we’ve gotten that out of the way, 40 doors in three states, including a recent 13-unit apartment acquisition… Over what period of time did you acquire those 40 doors in three states?

Jeremy Porto: I bought the first one in 2008 – that was just a small townhome – with my mom, actually. We were just getting into it, didn’t know anything… Several years later I bought the next one in 2012, on my own, a single-family, and then I just started a kind of exponential increase. I was buying fourplexes, so adding them a little bit faster, and buying two or three properties a year; so that 40 doors is up until now… So in the last ten years I’d say I probably bought two thirds of them, or maybe half of them I’d say in the last 3-4 years or so.

Joe Fairless: Where are you getting the equity for the purchases of the ones that you’ve purchased in the last three or so years?

Jeremy Porto: I’ve been a benefactor of the market, for sure. The ones that I bought early on, obviously — I did some renovations to the rentals, but just the market appreciation was phenomenal… Using 1031’s to kind of save on taxes, finding deals that were below market in the first place… It was one of the first couple of fourplexes I bought – I was in the middle of renovating it, and a guy from across the street said “Hey, do you wanna buy two more?” and I’m like “Well, sure.” They were off market, obviously, so I bought those well below market… So instant equity in that sense. And then just the market has continued to appreciate, and then just using the tax strategies has been really helpful, too.

Joe Fairless: Well, let’s follow the process then… I’d love to hear each of the deals and how you got to today… Because the first one, in 2008, you started with one townhome, and then you waited four years, you got a single-family in 2012… I know it’s gonna be a little challenging just to think of the numbers off the top of your head, but maybe you have them memorized… But can you just go through each of the deals that gets us from 2008 to today, and just when you bought it, and purchase price? Then we’ll go from there.

Jeremy Porto: I could probably think of like a representative property for like a time period, if you will…

Joe Fairless: Sure.

Jeremy Porto: That very first one, the townhome in 2008 – we bought it at 115k, somewhere in that ballpark. That was right at the end (or the beginning), with the crash, so there was — oh my god, there was like five or six bank-owned properties on that street… So it was a smokin’ deal; I didn’t quite realize that then.

Then ironically, we’re selling it tomorrow, we close tomorrow, my mom and I, to sell that,  and that is at about two and a half times the price, roughly… And the renovations that we did upfront were fairly basic. Mostly cosmetic – paint, carpet… I think we actually put in new countertops, stuff like that… But pretty basic stuff, and then rented it for the last ten years. So really phenomenal gains there, and leveraging a residential 30-year am loan was great, as well. We were cash-flowing roughly $500 before maintenance/month.

Joe Fairless: So you’re selling it for about 287k?

Jeremy Porto: Yeah. Man, that’s pretty spot on. [laughs]

Joe Fairless: Well, all I did was the math, when you said 2,5 times.

Jeremy Porto: I didn’t actually do the math, so… If that’s exactly 2,5, then that’s pretty cool.

Joe Fairless: Yeah, good job; nice work to you then. I’ll turn the table and compliment you. Okay, so you haven’t tapped into that equity yet from that deal, so that’s even more interesting to me… Unless you did  a refinance, or something…

Jeremy Porto: Well, very early on we did.

Joe Fairless: Okay. Did you use some of that money to then buy your 2012 single-family house?

Jeremy Porto: That one was a little complicated, because it was with my mom. I don’t recommend investing alongside people that you’re very close to and you’re very different from. We actually didn’t do that. That refinance was more — we dumped the money back into the renovations, because she’d actually pulled a home equity line of credit out on her own home to fund the renovations and the down payment. I’m not sure now how we did that [unintelligible [00:10:56].05] I don’t know.

Joe Fairless: You bought it for 115k… How much did you all put into it?

Jeremy Porto: About 20% down, and then upfront about 20k or so.

Joe Fairless: Okay, got it. So it wasn’t a huge amount. Okay, so that’s an isolated property. 2012 rolls around, you got a single-family… Was that money that you just saved up?

Jeremy Porto: Yeah, I’m a huge saver, plus being in the Air Force and deploying, you don’t get much time to spend your money… So that’s just money from the Air Force, I saved it all. And because of the timing of that one as well, it was still kind of in the lower part of the market; I was able to snag that for a pretty good deal. That was 92k or so for the purchase price. I put maybe a couple thousand into it, for like paint and just some touch-up stuff, and then started renting that for $500-$600/month.

I’ve just sold that one a couple of months ago for over 200k… So I doubled that one again. Not much of it was renovation; much of it was forced appreciation, it was mostly the market. I did take that one and 1031-ed it. I’ll be honest, I did a couple 1031’s in a row, so I’m not exactly sure where that went… That one went into the 13-unit.

Joe Fairless: Okay, that one went into the 13-unit; we’ll get to that. This is why I wanted to go through it in a linear way, because I wanted to learn how you grew from one townhome with your mom, in 2008, to today, where you’ve got 40 doors in three states, and a 13-unit. Okay, so you saved up money, you bought a single-family house… We’ll still stick to the 2012 timeframe. You then bought some fourplexes, you said?

Jeremy Porto: Right. And let me actually just throw in a comment here, Joe. This is all kind of in the beginning of my real estate career, and I knew a little bit, but I didn’t know a ton… And I always had an exit strategy in mind, but I think the biggest part of this learning process has been flexibility. I may have intended to hold the property for X number of years or whatever, and do something with it, but as the market grew and changed, I just found better ways to implement that money and use it… So I don’t mean it was on the fly in the sense of “I didn’t have a plan, I just did whatever, whenever”, but it was on the fly in the sense that I had a plan, and then things changed and it made better sense to do something else with it.

Joe Fairless: For example…?

Jeremy Porto: That second property in 2012, with my kind of naive mindset, I was like “Oh, I’ll just keep this forever; [unintelligible [00:13:12].08] 30 years and then I’ll have the property paid off.” And as I learned that hey man, if I can leverage the money better, I can do more with it, and the market is going up along with me… Then it made sense to sell that property and get into the 13-unit, because my mindset to get to multifamily – oh man, it was slow and painful. I’m not tooting my own horn — actually, kind of the opposite. I did it on my own, I came to that realization without really talking to people… So if anything, it proves it in my mind that multifamily is great. But it was painful, because first I’m flipping, then I’m doing single-family rentals, then I’m like “Huh, maybe fourplex rentals. That’s the way to go.” So that will tie back into your actual question… And then from there, I’m taking them into something bigger…

I bought the fourplex about a year later, maybe a little less. It was on the MLS, the guy kind of ran it pretty terribly, and in my mind it cash-flowed great… But nobody was buying fourplexes at that time, or nobody was buying a whole lot at that time. I think it was still early 2013 or so… And that has turned out to be a phenomenal deal. That’s also appreciated, and that’s where I’m kind of like “Alright, do I start selling my fourplexes now? Because I really like them, they’re great cash-flowing properties.” On each of them I would say I’m in the ballpark of about $1,000/month cashflow, so I’m like, well, do I take that and roll that into bigger multifamily? If I can find something, I think I will, but right now I’m really liking where those are at.

Joe Fairless: How many did you buy in 2013?

Jeremy Porto: One fourplex, one duplex, and a single-family that I actually kind of sort of house-hacked – I moved in, did some renovations while my wife and I were living there.

Joe Fairless: All of this from saving your pennies from your job and your wife saving her pennies from her job?

Jeremy Porto: Yeah, exactly.

Joe Fairless: Okay. Because so far, following the timeline, you haven’t done a refinance or exited out of anything, so so far at this point you’re just acquiring them, in the timeline… Okay, after you did the fourplex, the duplex and the single-family, what did you do?

Jeremy Porto: Let’s see, that was 2013… So in 2014 I started doing the flipping for the first time; that was the Chinese drywall, that was a duplex. That’s maybe not the biggest mistake I made, but a mistake that I look back and say “Hey, that was a great duplex; I renovated it completely, it was gorgeous, it was renting for way more than I anticipated when I started the project…” I wound up selling that – I think I made 50k or 60k on that one, and that’s kind of the time where I started deploying real heavy with the Air Force, so it was kind of up and down as far as what I was doing at the time.

So I got 50k back in my pocket from a flip, I’d also been collecting cashflow this whole time, and putting away my Air Force savings, so I’m still pretty cash-heavy at this point. 2015 rolls around, and that’s where I kind of ramp up the flipping a little bit. I think I did four that year, in 2015. All single-families. Those were kind of smaller deals, probably about 25k-30k for the profit.

Joe Fairless: How many did you do that year, roughly?

Jeremy Porto: I think it was four that year.

Joe Fairless: Okay.

Jeremy Porto: [unintelligible [00:16:03].16] the cash back into my pocket. Then we start getting into kind of the moving around part of — like I said, my wife’s active duty, and we constantly bounce around at different places… So I wasn’t buying a whole lot of rentals right then, and then it just kind of exploded I would say probably ’16 into ’17 – that’s kind of really when I started buy-buy-buying. Like I said, I bought that other fourplex, where that guy came up to me and said “Hey, do you wanna buy these two?” So that was three fourplexes in the span of four months maybe.

Joe Fairless: And you got that with equity from the flips that you had earned, and the other methods’ income… Okay.

Jeremy Porto: And that does remind me – in there I sold that duplex from 2013, 1031-ed from the one duplex into the two new fourplexes that the guy was selling. That was the moment when I kind of realized, “Hey, it’s not necessarily the best thing to hold onto these forever.” That’s when I started becoming flexible.

I had planned to hold that duplex for a while, but when I saw this opportunity for two fourplexes, and I didn’t have enough money to do the whole thing – at that point I was thinking “How can I do this?”, trying to get creative, and realized “Hey, sell the duplex, take that money – that will cover everything for both fourplexes.” So kind of the appreciation in the down payment that I put into those… And that was when I started including sales in there to then start 1031-ing; that was actually the very first one I did.

Joe Fairless: And when you got the two fourplexes, now you’ve got a portfolio – does that lead us to basically today, where you’ve got the 40 units, where you’ve acquired those units plus the 13-unit?

Jeremy Porto: Yeah, I came to Colorado, started buying some fourplexes here; I do own two or three… I just sold one today, so I’ve lost track of where I’m actually at as of today… But I own at least two here in the Springs now, fourplex-wise. And I’ll be very honest, when I moved here – this goes back to the flexibility – my intent was buy-buy-buy fourplexes. Well, I kind of see that the numbers here work, but they’re not phenomenal, and can I make my money work harder elsewhere? The answer is yes. So I just sold a fourplex today, I just closed on it this morning. I’ve got another one that I’m probably going to list in the next week or so to get rid of, take that money elsewhere… So yeah, I think that kind of brings us to today.

There’s a few more flips, as well… I did a couple of flips here in the Springs… But yeah, it’s a flurry, it feels like, of buy and sell and just reposition to make the money work even harder. There’s a lot of transaction costs, which I don’t like, and that’s part of the reason I got my license, was to kind of help with that… So not only am I making a little money on the buy side with my license, I’m saving a little money on the sell side with my license as well.

Then that led into unintentionally brokering for a lot of people, which I’ve since decided to kind of set aside, because I just think it’s not the best use of my time right now. I need to focus on one thing here… So yeah, flurry is probably the way I would describe the last few years.

Joe Fairless: Yeah, it sounds like it’s really interesting how you’ve maximized the equity that you have, and then rolling into something else. With your 13-unit now, were you able to only use the 1031 from your 2012 purchase to purchase it, or did you have to do some other stuff to acquire it?

Jeremy Porto: Yeah, I had to bring a little bit of extra money, not a ton. That’s a story in itself. I made a little bit of a mistake there with the lending side of things. I was not as aware as I should have been. You know, when you’re under a million dollar loan price, the banks don’t give you the best terms, so I actually had a private lender lined up for that deal. It was gonna be a 90% loan-to-value, a pretty good interest rate – 5,5%, maybe 5,75% – and it was gonna be amortized over 30 years, and I think it was two points… Which, at the time, I was balking at a little bit… But as I realize now, I’ll pay probably close to two points anyways when it’s all said and done.

That fell through at the last minute. I got it under contract, I was ready to move forward… He had actually done a deal for my buddy, very similar. It was 10 units in Panama City; I was near Pensacola with these 13 units, so it’s not like this was something I had made up and was just trying to believe something that wasn’t true; my buddy had done this. It fell through at the last minute, so then I was scrambling that week to find financing to get the deal done, because the property itself and the price itself I thought was phenomenal.

I wound up going through a local bank, and I wound up with a 15-year am, 5,75% interest rate, and I think it balloons at year five… And it just didn’t turn out to be very favorable, really. It was a 70% loan-to-value, so that’s where I wound up bringing the extra money, which you asked me where that came from – I don’t really know right now.

Joe Fairless: [laughs] Yeah, a whole hodgepodge of things… So what was the purchase price of the 13-unit?

Jeremy Porto: 615k. The owners were a kind of mom and pop group of guys that wanted to get into multifamily, so they had mediocre records; that was also a challenge, to kind of pick through that… I think the reason they decided to lend to me — because I had actually gone through (I think it was) four other local banks that said no, and they were saying no only because the records were not up to par.

The reason this lender went with me – I think because the deal itself was pretty good; it was cash-flowing nicely. The expenses were relatively low, I think; there wasn’t a whole lot there… And I think they also just liked it was pretty local to them. I guess they’re more of a regional bank, Centennial.

So put all that together and I had a great property with kind of terrible financing, so I think overall the deal kind of works out to be mediocre. I’m still happy I did it, because I’m in multifamily now; I own a 13-unit apartment complex, and that’s just the stepping stone to get even bigger.

Joe Fairless: How did you find it?

Jeremy Porto: That buddy that I told you about that did 10 units – he found it… On LoopNet, of all places. And he showed it to me, he was like “What do you think? I wanna do it…” and we talked about it for a while… I was all trying to help him get it, and then he on his own came to the realization that he just didn’t have the money for it. He wanted to keep some big cash reserves, and this would pretty much deplete him… So I said “Hey man, look, I’m not trying to steal your deal, but if you think that you’re not gonna do this, let me know, and maybe I’ll try to get in on it.” So that’s how that happened.

I wound up calling the seller, and made the connection, and then it was pretty quick after that.

Joe Fairless: What did they have it listed for?

Jeremy Porto: 650k.

Joe Fairless: 650k, and you got it for 615k… Why do you think it was on LoopNet? Because the perception is that if something is on LoopNet, then it’s not a good deal, or something’s off about it.

Jeremy Porto: So as I said, these guys were your sort of mom-and-pop(ish) type owners… I just don’t think they were super-versed in how to dispose of a property in the best way possible… So they were thinking “Hey, we’ll save a buck by not dealing with a broker. We’ll just put it on LoopNet”, which they don’t realize — it has a perception that it does… So that’s how they wound up there.

Now, I don’t know this for a fact, but he was telling me several other guys called him, and that could have just been him drumming up the interest, but… My thought is when I see the expenses, when I see the income, when I see the upside – because that was the other piece that was pretty big for me… I’ve got probably about $100 to $125 of upside in rent increases, and that’s without really doing anything. These units aren’t in phenomenal condition, but they’re good enough right now; they’re average, I would say.

Here was the other lucky part – it was right in the market that I had spent about 8 or 9 years in for the Air Force, so I personally knew that area very well, knew exactly what it was… So when I say there’s $100-$125, that’s from personal experience and knowledge, and having fourplexes there and rentals there already, and knowing that market. So that was the other piece of it, that I really knew the upside.

Joe Fairless: $125 without really doing anything is pretty darn incredible. Sign me up for that too, that’s for sure. Usually we have to put in like $5,000 into the unit in order to do that. Based on your experience, what’s your best real estate investing advice ever?

Jeremy Porto: I was saying this too, and I hear it a lot, that there’s no deals out there… I think my best advice to the Best Ever listeners is don’t be afraid to do the deals that no one else wants. When I moved in Colorado Springs and couldn’t find deals, that’s how I got into the meth house flipping. If you learn that niche well – or any niche; it could be marijuana grow houses, it could be the Chinese drywall, it could be foundation issues… If you learn that and become the expert, people are going to bring those deals to you.

When I was doing the latest meth house, I got on a local news station, they did a piece on me, and from that I got a lot of calls, and people saying “Hey, I’ve got this house, it’s meth-affected”, so I got to be known somewhat – some will use the term “expert” – in the meth house area, so people come to me for that.

The spreads are gonna be bigger, because people don’t understand the property, they’re gonna discount it more than they really should be, because it’s unknown and scary… So I can bid realistically on these places without lowballing fear, and then I get the deal; that’s the ultimate thing, to get the deal, because everybody’s complaining there are no deals.

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

Jeremy Porto: Sure thing.

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

Break:  [00:24:44].09] to [00:25:20].13]

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

Jeremy Porto: You threw me off on that one… [laughter] So let’s go with Emerging Real Estate Markets, David Lindahl. I’ve read a ton about how to buy real estate and all that stuff, but the market itself and knowing about the market I think is really pivotal, so I’ll go with that.

Joe Fairless: Best ever deal you’ve done?

Jeremy Porto: I bought a fourplex here in the Springs, I did a little arbitrage action… I bought it from a Springs seller, sold it to a Denver buyer about an hour away, right off of I-25, the North-South highway that runs between us, and netted 80k without doing anything to the property.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Jeremy Porto: Probably what I mentioned before — well, it was not quite on a transaction, but… Having my license and using it to broker deals – if I wanted to be a broker, that’s great… But that was not the best use of my time. I can do things that are value-add in a better way.

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

Jeremy Porto: Definitely sharing my knowledge. There was a guy that joined my squadron after I left, so I never met him… He reached out to me through a buddy, told him all I knew and everything, and that guy today owns like 20 or 30 doors; I’ve partnered with him several times… It’s just awesome to see. The fact that I was willing to share my time with him, and where he’s at now, it was pretty awesome to see.

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

Jeremy Porto: The Facebook page – I put a lot of my real estate activities on there. Facebook.com/jeremyportorealestate. Or they can e-mail me, jeremy.porto@gmail.com. If you’re thinking about getting into real estate, or you just wanna talk about the stuff that I talked about today, reach out to me; I’d love to talk to you.

Joe Fairless: I loved to hear how you went from 2008, buying a townhome with your mom, to today, 40 units, three states; you’ve just bought that 13-unit, you found the 13-unit on LoopNet, and how you got into that from a financing standpoint… And as you said, it’s been a flurry of transactions. You’ve constantly been assessing the equity that you have in deals, and then seeing how you can leverage up into those deals.

I was on a call with a potential investor — I get potential investors e-mailing me, and then I follow up when and we have a phone call before they invest anything, so we can know each other… And he said he was following the Dave Ramsey advice for two decades – or however long; I don’t know how long he was following it, but he’s been investing in real estate for three decades… So he was paying off his homes and things, and he had followed it up until (I think he said) 2012. Then he realized that he wasn’t on the right side of the tax code after that, and he wasn’t leveraging up. He was talking about it more from a tax liability standpoint, that’s why he was looking to invest in apartment syndications… But it’s also what we didn’t talk about in that conversation – he and I didn’t talk about – leveraging up and using debt as your friend, and to continue to optimize your portfolio along the way, versus just paying things down, and that’s exactly what you’re doing.

I really enjoyed hearing your approach, and how you got to where you’re at, and the period of time in which you’ve done it. Thank you, by the way, for everything that you were doing for our country, and your wife is doing for our country; I really appreciate it. I hope you have a best ever day, and we’ll talk to you soon.

Jeremy Porto: Definitely, Joe. Thank you. Have a good one.

 

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JF1448: From Single Family Flips To A 40 Unit Syndication with Justin Fraser

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Justin has been an investor for 4 years, but only recently went away from flipping homes. He decided he wanted to move into large apartment communities, and did it! If you want to do the same thing, hear what he did to complete his first syndication, so that you can do the same! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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

With us today, Justin Fraser. How are you doing, Justin?

Justin Fraser: Hey, Joe. I’m doing great; really happy to be here.

Joe Fairless: Well, I am glad to have you on the show, and nice that you are happy to be here. Justin has been a real estate investor since 2014. In May of 2018 he closed on  his first apartment syndication, raising over $600,000 for that deal.

He’s based in Milltown, New Jersey, and with that being said, Justin, will you give the Best Ever listeners a little bit more about your background and your current focus?

Justin Fraser: Sure. I started with a single-family rental, and got the bug of real estate investing from there. I formed a company, flipped  a house, bought on a few more rental properties, and decided that it was too slow, honestly… So I decided that I wanted to elevate my game and my portfolio, and get into syndication. So we closed on this 40-unit this past May, and that’s my sole focus now – looking for the next property.

Joe Fairless: So you’ve got a 40-unit that you closed on… How much did you make on that 40-unit so far?

Justin Fraser: What do you mean?

Joe Fairless: How much have you made? What was your acquisition fee?

Justin Fraser: Oh, the acquisition fee was around 40k or so, 2% of purchase price, and I did have some other team members that I split that with.

Joe Fairless: Got it. And how did you find the other team members and what were their roles?

Justin Fraser: I had a mentor – you know Matt Faircloth; he is my mentor on this project, and really in all things… He guided me through this project, and in exchange gets a piece of the equity and the acquisition fee… But incredible, because he lends us credibility and experience to the project, so… Happy to have him aboard.

Also, another team member who helped to qualify for the loan. He and I negotiated he was gonna help personally guarantee the loan in addition to me, so he took part of the acquisition fee for that as well.

Joe Fairless: Cool. Well, you do what you need to do to get the first couple deals done, right? And then you figure out how to position things in the future… The 40-unit – you raised $600,000 for it… Where did that money come from?

Justin Fraser: That money came from my network. I run a REIA meeting in Princeton, New Jersey. I’m connected with a lot of investors, but not just real estate investors. It came from neighbors, family members, friends… Anyone and everyone that I could speak to about this deal, they heard about it… Probably to the point of annoying them, but that’s okay. I’m happy to annoy you with stories of the property I’m gonna purchase… And I even have my boss involved on this deal.

Joe Fairless: Wow. You are all-in, my friend.

Justin Fraser: Absolutely.

Joe Fairless: Where do you work — or no, we don’t need to know the company, but…

Justin Fraser: I work for a software company; I manage software projects.

Joe Fairless: Alright, you do software.

Justin Fraser: Yeah.

Joe Fairless: What’s your boss say about you doing this thing on the side?

Justin Fraser: He’s so encouraging… It’s really cool. He owns a few properties as well, so he gets it. We have a very great policy where they’re flexible with me at work, and… I take care of my job first; I have to, because that’s the income and that’s how I help qualify for this loan… And then the real estate is a night, weekend, and every minute in between type job.

Joe Fairless: Do you work from home?

Justin Fraser: I work from home about one or two days a week.

Joe Fairless: Okay. So that $600,000 came from any and everyone you came across – from the REIA, the neighbors, the family, the friends… Now, looking at it a bit more closely, the 600k – how much of it was from the REIA?

Justin Fraser: I would say more than half. Over 350k or so.

Joe Fairless: About 350k or so, okay. And how is the remaining 250k or so broken out?

Justin Fraser: I don’t wanna get into specifics with the individual people, but…

Joe Fairless: I’m not asking for people’s names; I’m wondering like family, or friends, or neighbors… Just categories.

Justin Fraser: No, just a little bit — one extended family members, a good chunk from a neighbor, and the rest just personal network, other people that I’ve known in life.

Joe Fairless: Okay, cool. How did you present it at the REIA?

Justin Fraser: Personal connections to people, people that I have already had a relationship with, and just started telling everyone, and re-telling — because a lot of people knew me already, so I had to essentially reintroduce myself to them and say, “Hey, (without standing up in front and advertising, or anything) I’ve got this cool property project going on, this cool property… Let’s talk.” A lot of people showed a lot of interest. But a lot of the investors have their own projects going on, and their funds are tied up in their own flips… So where I thought I might be able to just raise the whole thing through my network there, I didn’t quite get as much, because people have — of course, if you’re an investor, you’ve got money tied up in other projects.

Joe Fairless: And then following up on the last thing that you mentioned, the neighbor – what is their social security number?

Justin Fraser: [laughs]

Joe Fairless: Just kidding. Alright, so the REIA that you started – when did you start the REIA?

Justin Fraser: It’s something that had been in existence for a while, and I took over… So I took over managing this meeting over a year ago.

Joe Fairless: How did you come to take it over?

Justin Fraser: I started volunteering. About three years ago I started volunteering at this REIA. I was getting a lot of value out of it, and so I sat at the front desk and checked people in, and did sort of the grunt work of the organization, and just started making connections with people like Matt. Actually, Matt was running this meeting before I was, so… Making connections with the people that I knew were going to help my business in the future… By taking some grunt work off their plate and doing the things that they didn’t wanna do, like the paperwork and the check-in process.

Then an opportunity came up to help out in a larger role, doing some planning, and then eventually the opportunity came up to take over.

Joe Fairless: How did the opportunity come up to take over?

Justin Fraser: Well, I think that the person that was running it beforehand got really busy and had other priorities… So because I was project manager, as I told you, running an event is not a problem, and so I was there; I was the next person that people thought of, because I was always there helping out.

It’s a bit of work as well, but I volunteered because I see the long-term benefit in being the person at the front of the room, being the person that people see as the person that knows what they’re talking about.

Joe Fairless: Big less there for a lot of investors who are looking to do larger deals or raise private capital for their fix and flips, or whatever type of venture, that’s for sure.

Okay, so that’s how you got to 600k. It’s a 40-unit… What’s the business plan?

Justin Fraser: We are putting about $300,000 into renovating. Right now some of the units are as low as $150 below market, but the property is built in 1986, and most of the units have not been touched since… They are 32 years or older, so they all need kitchens, bathrooms, floors. The previous owner did a little bit of renovation on 10 of the units, so I would say 30 or so need the full renovation. Also, exterior work; we’ve gotta clean up the outside of the property.

It’s a C property in a C area, but it’s in an area that has rent growth, job growth, and you can actually see the path of progress coming down the road, about a quarter mile away, with a bunch of new commercial development.

So we’re able to capitalize on hopefully that, but that’s not in the proforma. The proforma is about getting up to market right now, and if the whole market elevates after that, that’s just a bonus for us.

Joe Fairless: Where is it located?

Justin Fraser: Portsmouth, Virginia.

Joe Fairless: Portsmouth, Virginia… How did you come across the property?

Justin Fraser: I came across this property through a broker… It’s a broker that I had met looking at a property a year ago. I had looked at some things that he had available, I didn’t love them, but told them “This is the type of deal I’m looking for”, I followed up, drove back down anytime he had something that he thought met my criteria. I just stayed in touch with him, and I did this with a lot of brokers in a lot of towns.

Eventually, this guy called me back and said that the seller had just listed with them, they hadn’t done their full marketing package yet, but it was pretty much exactly the type of deal that I was looking for. So he called on Thursday, and I was there on Monday, and just jumped on it right away, because it was exactly what I’d been telling him for 6+ months that I wanted to do.

Joe Fairless: What were you telling him for 6+ months that you wanted to buy?

Justin Fraser: I was looking for a 50-unit or more, so he missed the mark there, but I’m okay with that… [laughs] In the 2-3 million dollar range, where we could add value. I wanted a property that needed work. I didn’t want something that was turnkey, and I also didn’t want something that was in total shambles; I wasn’t doing a new construction, or anything like that.

I wanted it in an area that I thought made sense, in the Portsmouth, Norfolk – that whole area I really like. And we talked about price per unit and everything else, so when this deal came up, it hit pretty much every box.

Joe Fairless: How much did you buy it for?

Justin Fraser: 2,25 million.

Joe Fairless: 2,25 million. Okay, got it. And you’re putting in 300k, you’re looking to get a $150 rent increase… So that’s $7,500 per unit, so that’s a 24% return on your renovations, and you’re looking to exit in what period of time?

Justin Fraser: We have a five-year note right now… So I’d like to refinance; I expect that we should be able to get between 80%-100% of our investors’ money back when we refinance in five years.

Joe Fairless: Is that what you projected to them?

Justin Fraser: That is, yeah.

Joe Fairless: Really? You projected that you’re gonna get 80%-100% of their money back?

Justin Fraser: Absolutely.

Joe Fairless: In how many years?

Justin Fraser: In five.

Joe Fairless: Oh, in five. Sorry, I was thinking in two, on a refinance.

Justin Fraser: It’s a five-year note right now, so we’ll hold for the five years, do our renovations, and then do a refinance in five years.

Joe Fairless: Okay, I’m with you. And the challenge that you’ve come across – that you weren’t expecting, since you’ve closed about three months ago – is what?

Justin Fraser: Every day there’s a challenge, of course. We’ve got a good property management team and contracting team doing their work… We’ve renovated a few units and we are showing  them, but people are not applying.

I don’t think we’re over-priced on the rent, but I think that the exterior of the property — I think I undervalued how quickly we needed to do that renovation. There’s trash, it’s a bit of a mess, there’s trees over-growing… We didn’t have big lighting at night, so it was just dark… I did not expect that, so we’re accelerating the exterior renovation work, so that we can make it a cleaner, better place to live, and then we expect we’ll be able to fill those units.

Joe Fairless: How did you pick your property management company?

Justin Fraser: I started with Bigger Pockets, asking for recommendations from other people… And then back in last July, when I started looking at properties, I brought each property management company out to a different property, and had them walk through the properties with me… It was basically a walking interview, and I would get their feedback and opinion on the property; I wanted their opinion on how they were going to manage it, where they thought we could trim expenses… They would look at the T-12’s and give me feedback on that… Essentially, it’s like an extended interview for each property manager at a different property.

Joe Fairless: How many did you do that with?

Justin Fraser: Three.

Joe Fairless: And what were some answers that you got to your questions with one you didn’t hire?

Justin Fraser: Well, no one really had bad answers. I didn’t find anything that was a total deal-breaker. But the team that I ended up picking, they had 350 units or so, so this 40-unit would be a significant portion, whereas some of the others that I had interviewed had thousands under management, and I wanted to feel like I am important, and I wanted to feel like I could get that personal level of attention, because I know that I’m gonna have a lot of questions and I know I’m gonna require lots of updates because of my first time through… So that’s ultimately why I picked this company.

Joe Fairless: What was the largest property that they managed within the 350 at the time?

Justin Fraser: 24, I believe.

Joe Fairless: What gave you the confidence that they could manage a property almost twice as large as anything they have ever managed before?

Justin Fraser: I spoke to a few of their current owners, and the people that they’re managing for, and a lot of it for me is personal connection and conversation and plans around this, and I feel like they are a company that is set up for growth, and I like their style, and I’ve really felt a strong connection with them. And honestly, like everything, we’ll try it out, and if something doesn’t work out, then we’ll do what’s best for the business and make a change, but… I feel very good about this decision.

Joe Fairless: On the challenge that you’re working through a solution on now – they’re showing, but the residents aren’t applying… How much of a factor of that do you attribute to the property management company?

Justin Fraser: That’s a great question. I think the renovations need to happen first. I think that the property itself is just not there. Maybe another management company could bring some tenants in at a lower rate, or maybe slack on the qualifications, but we’re not giving in on credit scores or income requirements… We’re staying firm to that.

We just have to bring our product up to something [unintelligible [00:14:18].18] will be interested in renting out.

Joe Fairless: Is that something that the management company says “Hey, Justin, we’re showing, but these potential residents aren’t applying, so we recommend XYZ”, or are you seeing the numbers and you’re like “Wait a second everyone, what’s going on? Should we do this or should we do this?”

Justin Fraser: It’s an open dialog. We meet every Friday and talk about everything that’s happening, and we have conversations more frequently if needed. Together we’ve been seeing it, and I’ve been at the property every 3-4 weeks, so we have a good working relationship… So it’s just a natural question, because units have been sitting there for a few weeks, so that’s just something that we’ve been focusing on and talking about together.

Joe Fairless: How do you structure those Friday conversations with your management company?

I actually have the manager and the contractor on at the same time, because there’s so much happening in both aspects… So we talk about the tenants that have not paid, or problem-tenants first. When we closed at the end of may, we had a few tenants that did not pay June’s rent. It’s natural, I guess, to expect. They’re testing us.

So we finally just have gotten through our eviction and got a few of those units back. Two months, not too bad on the timeline there. So we talk about status of tenants, any problems that they’re having, anything that I need to know about. We talk about the current plans for renovation, we talk about anything going on with the area, anything that I’m not seeing… I get news alerts, and weather alerts and anything like that, but they’re keeping me up to date as if I’m there, so I know a full picture about the property.

Joe Fairless: A lot of people want to scale. You started with single-family rentals, you flipped a house, as you mentioned, you got a few more rentals, and then boom, you went to a 40-unit. You raised more than half a million dollars. What do you think is it about your or your personality or your approach that got you to the next level, whereas others don’t get there, they just think about it?

Justin Fraser: I think it comes down to making a plan and taking action. I manage projects every day of my life, for my day job, and this is another massive project, but the difference here is that it is tied to my Why and my reason for wanting to do it; it ties back to my family and my wife and my son… So I just have this drive where I knew that I need to scale up because of the life that I wanna be able to provide for my son and my wife, and that just fuels me.

In those days where you’re stressed and just having a terrible day and you think the deal’s gonna fall apart – we’ve had many of those… That’s what keeps me going and that’s what gets me back on the phone, or following up, or doing that paperwork that I had been putting off… Because I tie it directly – if I do this, then I will get the life that I wanna have for my family, and I just keep that at the top of my mind.

Joe Fairless: It’s beautiful. Absolutely beautiful. You mentioned there were multiple days where the deal was falling apart and you had to remind yourself… What’s a specific instance of a day when that happened? You don’t have to tell me the day obviously, but what specifically happened on a particular day where the deal felt like it was falling apart?

Justin Fraser: I was almost done with my capital raise and almost done with the study period, where the deposit was about to become non-refundable… And I had an investor call me  – he was in for $100,000; he had not wired his money yet, but he had verbally committed, and he had a project that was going sideways and he just was not feeling comfortable putting money into this deal, because he thought he might need it for something else…

So I was 4-5 days away from my deposit becoming non-refundable, and I was like “Am I even gonna be able to raise this money anymore?” Everything was crashing down and I remember just sitting there, my head was in my hands, I’m like “What am I going to do?” It was really tough, because I was at the end of all my extensions. I’d gone through everything, and I knew the seller wasn’t happy about all the extensions I had used, but I went back to him and I said “I need another one that’s not in our contract…”

Joe Fairless: [laughs]

Justin Fraser: …which he did not take very well. I had to negotiate and I gave him an extra percent of the purchase price; we had originally been under contract for less, and I added a percent in exchange for a 30-day window.

Joe Fairless: How much was that?

Justin Fraser: 18k, or something like that.

Joe Fairless: 18k. And how much more time did you have?

Justin Fraser: I got an extra 30 days, and that’s all I needed. I just needed the deposits to not go non-refundable. It was a lot of money that I didn’t wanna put on the line if I wasn’t 100% sure I was going to be able to raise the rest of the raise… It was incredibly stressful, but all I needed was that 30 days. I had other people lined up, they just needed a little more time to get over that finish line.

Joe Fairless: Wow… It’s such a good story. I’m so grateful that you’re on the show… What is your best real estate investing advice ever?

Justin Fraser: Great question… I think my advice is to have the people around you that can answer the questions that you have… Because no one knows everything. If you can establish a network of people who can make connections with you or answer those questions when you’re stressing out late at night or whatever it is, you’ll be able to get through it.

Joe Fairless: I completely agree, especially in this business… With real estate investing even more so, and apartment syndications; there’s so many nuances and it’s so important to have some people in your corner.

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

Break: [00:20:00].10] to [00:21:04].11]

Joe Fairless: Okay Justin, what’s the best ever book you’ve recently read?

Justin Fraser: The Due Diligence Handbook is something I was reading right before I was doing due diligence, and that really helped me through the process.

Joe Fairless: It’s a great book.

Justin Fraser: It was very helpful as I was going through that process as a first-timer.

Joe Fairless: Best ever business decision you’ve made?

Justin Fraser: Bringing on a mentor that could give me the credibility and guidance through my syndication process.

Joe Fairless: Best ever deal you’ve done that we have not talked about already?

Justin Fraser: My very first deal. It was a single-family property, it was cheap, it was in Trenton… I’ve had a ton of problems with it, but it gave me that taste of cashflow and it gave me the excitement of real estate investing, and I’ve learned so much from it and that’s what set the foundation for everything else.

Joe Fairless: What’s a mistake you’ve made on a transaction that we have not talked about already?

Justin Fraser: I’ve let tenants go way too long without payment, thinking that I could just collect their late fees, and then all of a sudden the late fees don’t come in and you’ve got months without payment, and then you’ve got an eviction, so… You can’t be too lenient with those tenants. You’ve gotta stay on top of them.

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

Justin Fraser: Help out through that REIA. I spent a lot of time helping new investors; I have a few students that I coach and just help them get their first deal. I think that everyone should be a real estate investor, and I just try to help as many people as I can do that.

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

Justin Fraser: My website, 88realestatecapital.com.

Joe Fairless: Justin, thank you so much for being on the show. I loved talking to you about your first syndication, how you raised $600,000… You were volunteering at the REIA three years ago, and  at first you were working the desk, doing some administrative stuff, then you started planning the events, and then when there was an opportunity for you to lead the REIA, you stood up and volunteered your services, and as a result, when you were looking to go larger, you brought $350,000 from that leadership position, or as a result of that leadership position and all the time you had put into it years prior. It’s certainly a lesson for many investors.

I mention all the time, if you have time to attend a meetup, then you have time to create one. In your case, you attended but then you volunteered your time and maximized the amount of value that you’d get from attending… So either way, you either create one or you just volunteer – you maximize while you’re there.

Then some challenges you’ve had with the 40-unit, solutions that you have in place, and challenges you had getting the deal to the finish line with the equity raise, and going back to your reason why… And I can tell when you talk about your reason why, you say it with conviction, that’s for sure, and that’s the type of conviction that you had whenever you were going through the process to get this deal done… Really cool to hear this.

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

Justin Fraser: Thanks a lot, Joe.

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JF1436: Do You Need Fix & Flip Money? Ryan Wright Has You Covered

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As CEO of Do Hard Money, Ryan spends a lot of time with investors, especially beginners, securing financing for their deals. He loves working with the investor who are tackling their first deal, but works with others as well. Hear how he may be able to help your business by tuning in! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Ryan Wright Real Estate Background:

  • CEO of DoHardMoney.com, author of 3 books, investing in real estate since age of 21
  • Funds fix & flips, refinance, & buy and hold loans in 34 states
  • Say hi to him at https://www.dohardmoney.com/best-ever
  • Based in West Jordan, UT
  • Best Ever Book: Atlas Shrugged

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

Ryan Wright: Fantastic! How are you, Joe?

Joe Fairless: I am doing well, and I’m glad to hear you’re doing fantastic. A little bit about Ryan – he is the CEO of DoHardMoney.com. He is the author of three books, and has been investing in real estate since the age of 21. He funds fix and flips, refinance and buy and hold loans in 34 states, and you can say hi to him at his website, DoHardMoney.com. Based in West Jordan, UT. With that being said, Ryan, will you give the Best Ever listeners a little bit more about your background and your current focus?

Ryan Wright: Yeah, absolutely. I kind of grew up in the real estate business a little bit. I think my grandfather was flipping homes before it was even popular down in Southern California, and I kind of grew up in the rental business.

I got into a traditional agency, and then got into flipping, and got into lending, so now we kind of do all the aspects of real estate investing, with our primary focus being in lending, in doing fix and flips and those types of deals.

Joe Fairless: Why is that the focus, versus other types of ways you could be involved in real estate?

Ryan Wright: Great question, Joe. I think the big reason is I love helping people get their first deal under their belt. We have a niche for that. I mean, we can help experienced investors, but we really have a good niche for helping newer investors get started.

I just remember what it was like being a young investor, trying to get funding for my first deal, how difficult it was… And if it wasn’t for a guy named Dan that I ran into and met just through a referral, I don’t know if I would have gotten my first deal done… So I just really have a passion of seeing somebody — helping them get through that hurdle of that first deal, because I think it’s one of the hardest, and once you do that, it’s a lot easier.

Joe Fairless: From a business standpoint, in order for you to stay in business, you’ve got to mitigate the risk of this beginner defaulting, so what are you doing to do that when you qualify the individual?

Ryan Wright: Great question. First and foremost, for us, we’re really looking at the property having a lot of value. We scrutinize the value of the pr