JF2337: 4 Decades Of Real Estate Experience With Paul Montelongo

Paul is a full-time investor and entrepreneur with 40 years of real estate experience and a portfolio of 555 units. Paul started when he was 17 years old and through the course of his career he did the whole gambit; wholesale, single-family, fix and flip, etc… and now he focuses on multi-unit-properties.

Paul Montelongo  Real Estate Background:

  • Full-time Investor and entrepreneur 
  • 40 years of real estate experience
  • Portfolio consists of 555 Units
  • Based in San Antonio, TX
  • Say hi to him at www.PaulMontelongo.com 

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Best Ever Tweet:

“Get a mentor, I’ve been fortunate to have 3 mentors in my career” – Paul Montelongo

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JF2321: Altus Investment Group With Kevin Dugan

Kevin started his journey down the real estate road by reading “Rich Dad, Poor Dad”. He left his full-time W2 in tech sales in September 2019 and is now a full-time real estate investor with 7 years of investing experience. He now has a portfolio that consists of 25 rentals and is a general partner in a 208 unit deal. He is currently the managing partner of Altus Investment Group, a fast-growing private equity firm with 35AUM that specializes in acquiring,  repositioning, operating, and selling residential and commercial properties that are underperforming.

Kevin Dugan Real Estate Background:

  • Left his full-time W2 tech sales job in September 2019 and is now a full-time real estate investor
  • 7+ years of real estate investing experience
  • Portfolio consist of 25 single-family rentals, 208 unit General Partnership side, and Limited partnership
  • Based in Los Angeles, CA
  • Say hi to him at: www.altusig.com 

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Best Ever Tweet:

“People should buy based on how much cashflow a property will produce” – Kevin Dugan


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. 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, Kevin Dugan. How are you doing, Kevin?

Kevin Dugan: I’m doing great, man. It’s an absolute pleasure to be on here with you today.

Joe Fairless: Well, it’s a pleasure to be speaking with you too, and I appreciate that. A little bit about Kevin, he left his full-time W2 tech sales job in September of 2019, and now he’s doing real estate full-time. He’s got seven-plus years of experience in real estate. He’s got a personal portfolio of 25 single-family rentals, and he’s a general partner and a limited partner on a 208-unit. He’s based in Los Angeles. With that being said, Kevin, you want to get the Best Ever listeners a little bit more about your background and your current focus?

Kevin Dugan: So you kind of hit all those bullet points on the head. I’ve been in real estate for a little bit of time now. But the traditional story, read Rich Dad Poor Dad back in the day, got inspired to run a business. Real estate was kind of the foundation, and then I bootstrapped on weekends and nighttime while working that high paying tech sales job. And then now I run a vertically integrated real estate firm based out of Chicago, but 100% remote from Los Angeles. So we have property management, general construction, investments, and it’s all based on cash-flowing rental properties.

Joe Fairless: Please talk more about your vertically integrated company.

Kevin Dugan: Number one, it’s a lot of work to create something from scratch out of state. So for a lot of people out there, property management’s definitely a challenging aspect of the business, but essential. It doesn’t get as much notoriety as some of the other elements, like raising capital or finding the deal. But that’s a strong component of what we do. We self-manage all the properties, and the properties for our clients. Also to add additional value, the general contracting component is really critical because that’s how you buy a discount, and then rehab, and create value into the property. So that’s something that also is another component. And then the last is more the fun part of finding a deal, presenting to investors, and actually nurturing client relationships to help them meet their financial goals. So we have all those components in-house.

Joe Fairless: You live in Los Angeles, and the company is in Chicago, correct?

Kevin Dugan: Yeah, that’s correct.

Joe Fairless: And the company manages your own single-family rentals, plus I think I just heard you also manage your clients’ properties, correct?

Kevin Dugan: Yup. That’s correct.

Joe Fairless: And how many properties is your company managing?

Kevin Dugan: It’s about 50 right now.

Joe Fairless: All in Chicago?

Kevin Dugan: All in Chicago.

Joe Fairless: What’s your connection to Chicago?

Kevin Dugan: I don’t have a real connection initially… But my friend who started me in real estate eight years ago now, he was from Gary, Indiana. He approached me and asked me if I want to flip houses out there in Chicago. I said, “The numbers make sense. Let’s go for it.” So we started that in 2012. Did that for about two years; it’s very difficult to run a flipping business from across the country, right off the bat. In 2015 I switched to rental properties. So that’s kind of the shift towards what I’m doing now.

Joe Fairless: You said you were working weekends and nighttime while having a sales job. Sales hours, at least from my experience, tend to be all over the place, depending on when your clients are able to meet with you. Do you have a significant other?

Kevin Dugan: I do, I have a girlfriend.

Joe Fairless: Did you have a girlfriend at the time?

Kevin Dugan: I did. Balancing that can be challenging. [unintelligible [06:28] kind of wheel of life distribution.

Joe Fairless: It wasn’t quite round, was it?

Kevin Dugan: No, no. It was like you distribute more towards the work end. But I’d also seen a lot of lessons where by it’s not all about the work. The work will always be there, the money will come if you put in the effort and energy into the right space. Relationships are really important. So I was always cognizant of it, but maybe I couldn’t give it my full attention. So it’s a juggling act, for sure. Challenging.

Joe Fairless: Any tips for someone on a wheel that’s a little lopsided right now, for how to just get through that time knowing that eventually, that wheel will smooth out a little bit?

Kevin Dugan: Yeah, for sure. So one big thing in life, in general, is communication. So if you are able to communicate effectively your current state – and maybe this state is a temporary transition – to your significant other, your friends, your family, they’re understanding that everybody has different types of hustles that are going on. So communication is really big. But also just effective scheduling, trying to block out specific times where you can hammer out specific projects or jobs. And I still struggle with this right now. But having specific blocks where you can accomplish goals allows you to frame your 24 hours every day a little bit more structured.

Joe Fairless: Let’s talk about the deals. 25 single-family rentals over a period of six or so years?

Kevin Dugan: Yeah, so the rentals started in March 2013. So about five and a half years.

Joe Fairless: Five years. Okay.

Kevin Dugan: Yeah.

Joe Fairless: You have them in Chicago. Tell us about how you qualified Chicago. I heard how you got introduced to the Midwest, but how’d you qualify of Chicago? Why did you double, and triple, and quadruple down on the Chicago market?

Kevin Dugan: So Chicago is a massive metro. My general advice, generally speaking, is to follow the numbers and follow the people. And that’s a moving target right now, especially with everybody’s relationship to COVID, and the work at home relationships. So people should have more focus on demographics, like where’s the best population growth, job growth, where the wage is going up, where it’s going down, the traditional stuff. Chicago doesn’t necessarily fit that mold.

Joe Fairless: Yeah, I was going to ask you about that. People are leaving Chicago.

Kevin Dugan: They are, but I invest in the suburbs of Chicago. And I specifically invest in Section 8 housing. So it’s been one of those elements where Chicago is the third-largest metro in the US, there’s the massive railway that goes through a lot of Illinois, there’s a lot of major corporate headquarters there… So technically, yes, there’s an exodus, but it was slower; it may be increasing now. But a lot of what we do is kind of the outside of the traditional Chicago mentality; it’s like suburbs of Chicago.

We’ve found that we buy rental properties out there that cash flow very, very well and perform above the 1% rule and it’s just a really solid target market that we’re in, within the larger Metro of Chicago.

Joe Fairless: Let’s talk about the first deal, and then I want to ask you about the last deal that you’ve purchased, single-family home-wise. So the first deal, what were the numbers?

Kevin Dugan: So the first deal, way back in the day with my first business partner, we were buying at 50k, putting about 50k all-in, and selling at 170. So fix and flips.

Joe Fairless: Okay, so the 25 single-family rentals – that wasn’t your first hold, though. That was a flip, right?

Kevin Dugan: Yeah.

Joe Fairless: Sorry. I didn’t communicate correctly. Tell us about the first of the 25 that you currently have in your portfolio. That purchase.

Kevin Dugan: Got it. So I still have it today, it’s appreciating in value, it cash-flows really well, so I’m just holding on to it. That particular property purchased at $75,000, and it was a traditional loan. So I didn’t feel adventurous enough to start rehabs and go through the whole construction process again, because it is technical, and not being on-site requires a lot of trust. But that property I bought [unintelligible [00:10:25].05] turnkey, ended up being more of like lipstick on a pig type situation, and hence the motivation for bringing in my own construction crew. So $75,000, and it rented for $1,650 at that time.

Joe Fairless: That’s pretty good.

Kevin Dugan: That’s really good.

Joe Fairless: And that’s Section 8, you said?

Kevin Dugan: Section 8.

Joe Fairless: Okay, what are the challenges associated with Section 8, if any at all?

Kevin Dugan: It’s definitely a more technical manage, for sure. And the world is about people, everything in this world and life is about people. So you have to understand that there’s a gradient to everybody on that program; there are those who are taking advantage of it, which you want to avoid. There are those who are kind of stuck and lost, but there are a lot of people who need that program – seniors with disabilities, single-family mothers with some sort of illness, or many children. There’s a lot of reasons why people would need assistance from the government where you need that help to be able to get back on your feet, to gain more momentum, to live the life that you want to live. And so it’s very detailed in like really knowing who the person is, reading between the lines of what their credit shows, and determining whether they’re going to be a good household and family that will take care of the place for a long time.

Joe Fairless: When you say reading in between lines, that’s got to be an art plus a science. So take a page of Tony Robbins’ book, right? It’s got to be an art and science. So can you educate us on the art and science of that?

Kevin Dugan: So there are simple items such as presentation. How does the person carry themselves? When they drive up to the house, is their car in shambles? Are they looking like they’re in shambles? Are their kids wild? Or are they well put together, are they respectful? Do they seem like a person that would treat the home like a great place? And then, of course, you ask a lot of questions about their background and why they’re moving, you get referrals to confirm what’s going on. You want to make sure that their story fits, and then you want to make sure that any red flags are covered. So if there are any types of potential evictions – that’s a huge one; you don’t want to go through that process, especially in that non-friendly eviction state like Chicago. That’s a place — especially when you have the eviction moratoriums that’ll last six months or a year. So it’s really having a conversation with the individual and just seeing like, “Hey, what’s their circumstance? How eager are they to move? Why are they moving?” And then making sure that there aren’t any holes in their story.

Joe Fairless: You bought that in 2015? How many times have you turned it over for a new tenant?

Kevin Dugan: That particular property, I want to say we’ve turned it over either once or twice.

Joe Fairless: Once or twice, okay. So that’s great, I would think, because that’s got to be the main expense. And I did some quick math; the 1,650 divided by 75,000. That’s 2.2% on the cash flow rule. So you crushed it on that.

What, if any, the challenge has come up for this property in particular, since you’ve owned it the longest as a buy and hold?

Kevin Dugan: So as I’ve mentioned before, lipstick on a pig. That particular property on surface-level looks fantastic; new floors, newer cabinets, backsplash, painted rooms, semi dated bathroom, but fairly clean. But come to find out there are a lot of issues hiding behind the walls. So that particular property was built in ’56, and with a lot of older homes, people need to look out for galvanized pipes; those will probably break around the 50 to 60-year point. So you want to make sure you get all the galvanized out whenever you can. But this one had a bigger issue – the sewer line collapsed. So the water is backing up through the entire house, we had to like excavate, we had to tear up all the new tile in the kitchen. This is a couple of years into it… And basically, we replaced that mainline out to the street level. That was a big adventure, especially…

Joe Fairless: Especially what?

Kevin Dugan: During the wintertime.

Joe Fairless: Oh, man…

Kevin Dugan: Yup, yup, yup, yup, Chicago.

Joe Fairless: The Chicago winter.

Kevin Dugan: Chicago winter. So lesson learned… And then on top of it that house had termites. So we started seeing little holes up in the ceiling; come to find out there’s like a massive termite infection on that property. So that’s one of those places where definitely have a third-party inspector come in. I still remember when I bought the house, [unintelligible [00:14:41].03] the doors, the doors didn’t close. I’m very big picture at times, and those details missed me when I was looking through this “beautiful” house.

Joe Fairless: So you didn’t have a third party inspector?

Kevin Dugan: On that one? No.

Joe Fairless: No. Okay.

Kevin Dugan: That’s for anybody first buying stuff – definitely get it.

Joe Fairless: How much did the sewer line collapsing and resolving cost?

Kevin Dugan: Fortunately, at that time, we had an in-house crew, so it’s probably about 5,000. But it was more the massive headache of having a tenant in there; we had to get them into a hotel. It was like a three-day process. And that was just the changing out of the sewer line. That wasn’t the initial exploration of why is there mold constantly behind the sink, what’s going on behind the sink, and this other wall over here. So it took us some time to decipher what was going on there and actually find it.

Joe Fairless: Tell us about how you already had an in-house crew on your first deal. Now, I know that you did fix and flips, so that’s probably where it originated from. But will you just talk about that evolution?

Kevin Dugan: So let me kind of take a step back. The first two deals were purchased as turnkey. The third one I purchased, I’m like, “Okay, I prefer to start building equity into these deals if I buy them at a discounted price.” So we started sourcing out all kinds of different contractors. I’ve gone through probably at least 10 at this point. Don’t hire anybody from Home Depot — or not Home Depot, Craigslist; stay away from Craigslist… For the most part; I can’t say that completely, but Craigslist has been a bad experience.

So this crew that I was able to [unintelligible [16:06] they were actually inherited from a GC that was a referral to us. That GC ended up moving to Arizona, left his crews, and then I kind of inherited them. So I’ve been working with them ever since. So they were able to help us out on this one. But it’s a process. Definitely, if there’s any type of red flags with your contractor, give them one warning, never overpay them past the work that they’ve done, and make sure that you have that leverage of the money; it will keep them motivated.

Joe Fairless: What’s your worst Craigslist experience?

Kevin Dugan: There have been various; some were more to the quality work, and especially doing things [unintelligible [00:16:44].16] is pretty challenging. But we had one guy that he spoke a big game. And that’s one thing about Chicago, people talk fast, but maybe don’t perform the way that they say they can talk about. And a lot of people, like contractors in general, say that they can do everything. And that’s an initial red flag, like, “Okay, you can’t do everything.” That’s very difficult to do.

But we had one guy who basically was falsifying the work that he did, sending us bad pictures or pictures that made it look like he was doing it, but it wasn’t actually installed. He asked for prepayments beforehand… This was one of my business partners [unintelligible [00:17:15].21] and he ended up stealing like close to $5,000 in labor materials. So… Tough.

Joe Fairless: Let’s talk about the last single-family home that you purchased. What are the numbers on that?

Kevin Dugan: The one I just closed on is an interesting project. We have three we’re closing on right now, but it’s already 90% completed. It’s just the original owner didn’t finish the electrical decode. So we’re buying it at 150k or 165k. We’re planning to put about 50k into it and sell it 290k. So it should be a really quick turnaround, like literally, like three weeks in, out, listed back on the market. And so…

Joe Fairless: Okay, so that’s a flip.

Kevin Dugan: Yup. Oh, a rental property?

Joe Fairless: Yeah, a rental property.

Kevin Dugan: Got it. Got it. So on the rental, one that we have right now my client actually picked up an amazing deal. I was under contract for it at $72,000. It fell through because it was right at the beginning of COVID. Literally, all the banks froze up because they couldn’t trade the paper anymore. And because of that, another [unintelligible [00:18:19].08] to offer, that deal fell through. So my client came in, she offered $50,000 cash and bought it at $50,000. We put 40k into it, so all-in 100k, and we’re going to get about $1,950 in rent on that.

Joe Fairless: How about the last one that you bought? The 25th property in your portfolio.

Kevin Dugan: Let me think about that one.

Joe Fairless: You’ve got a lot of transactions. I get it.

Kevin Dugan: Yeah. I lose track of them at some point.

Joe Fairless: You’re a big-picture guy.

Kevin Dugan: I really am, yeah… Which is the difficult part of being a vertically integrated company across the country. So the last one we bought was just a small townhouse. It was like $52,000 on that, super-light rehab. We changed our investment philosophy; as opposed to doing deeper rehabs right now in the current state of the economy to just kind of like doing a two-tier, almost what you see in multi-family. So we bought it 52k. It’s currently rented at $1,466.

Joe Fairless: Okay. And what do you mean by two-tier?

Kevin Dugan: So you can go all out with the rehab… I really love to definitely solidify the infrastructure. So like all the electrical plumbing, I want to make sure that’s just done the first time; HVAC, roof, like all the major systems, you want to solidify that. But then there’s like how far you can go with the kitchens, how far you can go with the flooring… So as opposed to doing flooring throughout the entire place, we’re like okay, let’s just do flooring in the main areas, carpet in the bedrooms… Instead of doing like super-sick cabinets and backsplash in the kitchen, let’s hold off on that type of rehab for phase two on a five-year period if we want to sell it as a portfolio or something like that.

So we started with the sticky backsplash from Amazon, which gets the message across for the kitchens; kind of resurfacing kitchen cabinets… So just ways to cut costs where maybe it doesn’t add as much benefit. But we’ve already done the major rehab where the house is still above; it creates a good energy for the resident to want to live there for a long time.

Joe Fairless: Will you give some other specific examples of how you’re saving money on the rehabs, but still making them look good from an aesthetic standpoint?

Kevin Dugan: Yeah, for sure. Vinyl’s really big; I highly recommend it to anybody who has a rental. Vinyl nowadays is a slam dunk, it’s pretty much bulletproof. So you can go that route. Let’s see… Same thing – as you’re doing more and more rehabs, the easiest thing to do to save on time, which is equivalent to money, is to try and do repeated material costs; we paint every house the same color, floors are all the same, cabinets are all the same. So that just helps eliminate the decision-making process.

When it comes to vanities, you can actually pop off the top of the vanity if the actual structure is good. You can keep that. With mirrors, you can put trim around the mirrors, that we’re finding… So there’s a lot of ways you can kind of recycle the old infrastructure and allow for the house to have a nice resurfacing, but not spend brand new costs on it.

Joe Fairless: That’s really helpful. And looking at that deal compared to the first buy and hold… Let’s put aside the economy and a pandemic, just for a moment let’s put that aside. What, if anything, did you change in your process, from the very first buy and hold to the last buy and hold? I know one of the things is now you have a third-party inspector. But what else, if anything, has been changed?

Kevin Dugan: Just my level of education across the board has changed. So my understanding with general construction — like, I never wanted to be a general contractor, but I understand the fundamentals pretty well. YouTube is a fantastic resource. For anybody out there, you can pretty much find anything. But what’s changed is having people in place that can kind of take on those specific responsibilities, so that I can take a step back and try and work on more of the bigger picture stuff.

We’re still in a growing phase right now, but I definitely have key team members that I can rely on to help push projects forward and make sure that they’re getting done with the quality that we needed to get done.

Joe Fairless: Speaking of big picture, what’s next for you?

Kevin Dugan: Right now continuing to build out the residential turnkey business that we have; since the product is good, there’s a lot of demand for what we have. We have a firm belief that this product will perform well and be desirable through the current type of recession we’re in… But I’m also trying to think about where the world is changing long-term, especially as people’s relationships with real estate is changing drastically, office spaces are changing. Retail has been dying; it’s going to come for reform. Hotels are in a lot of distress. So there’s a lot of commercial asset classes that I’d like to diversify into. But I need to not get — excited is a bad word, but be cautiously optimistic knowing that the world constantly goes through change.

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

Kevin Dugan: I’m really big on cashflow. I truly believe that people should buy based on how much income that produces as the foundation. And you can make more money as a flip or development, but those really depend on market timing. You don’t want to miss timing, because you can lose your shirt, and more, if you missed out on a big asset class. But if you buy with cash flow in mind, you’ll be sitting pretty.

Joe Fairless: About how much cash flow does 25 properties earn on an annual basis? Buy and hold at this level?

Kevin Dugan: Net or gross?

Joe Fairless: Net.

Kevin Dugan: Net. There’s leverage on these, so it’s roughly in the $12,000 to $15,000 range. It’s complicated because I’ve been under multiple entities/structures… So I made things more complicated, like way too big picture. It should have been simple.

Joe Fairless: So about 12k a month or so?

Kevin Dugan: Yeah.

Joe Fairless: $180,000 a year is a great nest egg, that’s for sure. And some people might think well, “Okay, that’s great. But what’s your exit? Because are they appreciating? And if not, then do you just never plan to exit?” And clearly, 180k, then maybe there’s no reason to exit. But is there an exit plan?

Kevin Dugan: Yeah, there’s definitely an exit. The beauty about real estate — when you have enough cash and you free up your time, that’s where you get a lot of power. And I’ve gained my most momentum since doing real estate full-time. So that’s number one – free up your time, and you free up a lot. But yield is something that will continue to be searched for, especially in this unknown economic climate. So it’s very realistic to group a set of these together like a portfolio sale. I see a lot of it going on right now where people are just grouping together single-family homes. So I never plan to exit out of this cycle; this would be a great cycle to exit on. I like the cash flow for stability, but there are countries looking for high-interest rates, high-yielding, performing properties. They can also be resold to other people, and the tax benefits are also beneficial as well. So you get a lot of appreciation by just holding. And then there’s a lot of benefits to holding real estate [unintelligible [00:25:05].11] selling it immediately.

Joe Fairless: I love the tax benefits almost as much as I love dogs. It sounds like you’ve got a cute dog in your room too, so that’s… [laughs]

Kevin Dugan: She has a sensitive stomach, so I’m not sure what’s going on.

Joe Fairless: Oh, man… I raise you a sensitive stomach, and see you two sensitive stomachs; my dog just has a really sensitive stomach, so he’s got twice as sensitive as yours. I guarantee you. He’s on a hunger strike right now. It’s the only dog that I know of that does hunger strikes. We’re going to do a lightning round… Are you ready for the best ever lightning round?

Kevin Dugan: Yup.

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

Break: [00:25:40][00:26:20]

Joe Fairless: Alright, best ever deal you’ve done.

Kevin Dugan: A more recent one; pushed on it for a long, long time. I put it over the asking price. Basically fix and flip, offer 125k, put $100,000 into it, and got it under contract first day for 350k. So three and a half months, really solid product.

Joe Fairless: Best Ever way you like to give back to the community.

Kevin Dugan: Big on education. I really believe that it’s something that we all need and it’s something that I can actually contribute. And I like to help people just open their eyes to the power of real estate.

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

Kevin Dugan: I’m definitely more active on LinkedIn and Instagram. You can find me @KevinKDugan, or shoot me a text at 310-988-5081.

Joe Fairless: Kevin, thanks for being on the show, talking about how you’ve built your portfolio, getting into the specifics of your vertically integrated company, how that came about, the amount of money that is made on deals, and some lessons learned between the first buy and hold and the 25th buying hold. Appreciate you being on the show. I hope you have a Best Ever day, and talk to you again soon.

Kevin Dugan: Thanks a lot Joe. Have a good one.

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JF2320: Adapting Your Real Estate Business With Bruce Wuollet

Bruce is the founder, and owner of Bakerson, a multifamily syndication business. Growing up in the bakery business in the Twin Cities of Minnesota, Bruce wanted to pay homage to his now late father, hence the name “Bakerson”. He has a proven track record of success throughout Bakerson’s nearly 18 years in business with thousands of individual units bought, repositioned, and sold. His personal portfolio consists of 250 units and he focuses on finding good deals while his passion is serving the residents by providing them with one of their basic human needs – shelter.

Bruce Wuollet Real Estate Background:

  • Owner of Bakerson, full-time multifamily syndicator
  • Over 18 years of real estate investing experience
  • Bakerson has bought thousands of individual units, repositioned them, and sold
  • Personal portfolio consists of 250 units
  • Track record of 16 multifamily – 850 units and transacted over 2000 single-family homes
  • Based in Phoenix, AZ
  • Say hi to him at www.bakerson.com 
  • Best Ever Book: Relentless

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Always adapt” – Bruce Wuollet


TRANSCRIPTION

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

Bruce Wuollet: I’m doing fantastic. Thanks for having me on.

Theo Hicks: Absolutely. Thank you for joining us. A little bit about Bruce. He’s the owner of Bakerson, which is a full-time multifamily syndication company. He has over 18 years of real estate investing experience. Bakerson has bought thousands of individual units, repositioned them, and sold them. He has a personal portfolio of 250 units, and then his track record is 16 multi-family deals that are 850 units. And he has also transacted over 2,000 single-family homes. He is based in Phoenix, Arizona and his website is bakerson.com. So Bruce, do you mind telling us some more about your background and what you’re focused on today?

Bruce Wuollet: That’d be great. So, the first thing is the name Bakerson, I called it Mr. Bakerson, and people say where does that name come from? So I’d like to share that. I tell everybody that I’m an S-O-B, I’m a son of a baker. I grew up in the bakery business in Minneapolis; my grandfather started the Wuollet bakeries. I worked there as a kid, and it’s to pay homage to my father. He was alive when I named the company and he really, at that time was suffering from cancer. He loved the name, “That’s just awesome, Boo.” That’s what he called me. So it’s pretty fun to keep and have that name in his memory. So that’s where it came from.

And I got started in real estate, in tax lien foreclosures. And in the tax lien foreclosure world, it’s a long and arduous process, so we found ways that we could get into the transactions in a shorter period. I worked with a guy named Gary who has now passed away; he was my mentor. And one of the things is he left money on the table when we were negotiating with these people to buy their homes, and I said “Gary, you could spend 15, 20 grand for this house and turn it around and make money on it.” And he said “No, that just not my model. I buy the tax lien and if they redeem the taxes, that’s it. If they don’t, then I get the house.” So I said, “Well, what if I buy them?” He said, “Go ahead.” So I started buying houses that way, from basically the Kiyosaki mindset of other people’s money. I picked up a triplex, duplex, and three houses.

But then in 2002 I met Jack Martin, and he and I wanted to go full-time in real estate, and we started finding houses, and I could find more houses than we could possibly fix and sell or keep… So I was introduced to wholesaling. And that’s where I’ve done over 2000 transactions in the single-family world. We were one of the top wholesalers volume-wise in Phoenix. And when the market shifted in 2006 and 2007, we got into land. Then the market came back after it crashed, I got back into houses at the auction and what have you…

But the transition to multi-family was the one that was almost accidental, because we got squeezed out of the wholesaling world and we didn’t adapt to technology like other people have. So to always adapt is something that’s very important to us now is you need to pivot and turn as the market shifts. Because everybody is shifting to technology, and we’re still doing the driving the neighborhoods, and the little yellow notes and everything done through the courthouse. But people were buying online, bidding online, getting loans online, title insurance, the whole bit for $1,200 somebody would flip a property to them. And I thought, “Man, I can’t compete with that.” We were averaging aroun$5,800 a flip. So we ended up switching to multi-family. And we did a couple of dozen of those 20, 25 multi-family flips, and we said, “Hey, we can buy, fix and sell those.” So we ended up doing our first apartment deal in Phoenix, a 64-unit with another group, and bought a 120-unit, and after that, we ended up buying six properties in Phoenix.

Then when we thought the market peaked, we said “Hey, we’re going to look at Tucson, it’s a little softer market, a little better margins. Let’s go down there.” And the values in Phoenix have almost doubled since we thought it peaked six years ago, five years ago. So in Tucson we’ve done 11 projects. So it’s actually 17 multifamily projects, the smallest being six units, the largest 120. Our sweet spot seems to be the 60 to 100 unit, which is where we’re able to carve out our sweet spot.

So that brings us to where we are today in the buy, fix, and sell. However, we’re now in another transition where I want to buy and never sell. I do not enjoy the sale process, and I absolutely love the buy and stabilization process. I love the impact we have on the residents and the community, so that’s really where we’re going in the future, is to buy and cashflow.

Theo Hicks: That’s interesting. So I don’t think I’ve interviewed someone who flips apartments. So I know that you want to transition into the buy and hold strategy, but what would you say is the biggest difference on your end between fix and flipping just single-family homes, as opposed to fix and flipping the 60 to 100 unit apartment buildings? Is it the same thing, just the property is different or is there something different?

Bruce Wuollet: Well, on the first flips we did in the apartment, we didn’t fix and flip, we just flipped the contract. So that’s where he flipped the apartments, that’s what I was talking about there. But on the buy, fix, and sell, as a standard syndication you buy it and within 24 to 36 months, you reposition the undervalued asset and sell it. So that’s pretty typical in the market. So those are, I guess, not really flips, I probably use the wrong term there, but the buy, fix, and sell, the 17 projects we’ve done in Phoenix and Tucson in Arizona.

So the difference between when we did the houses, even the ones that weren’t retail, of over the 2000 houses we did, only 12 were full retail products; everything else was buying them, cleaning them up, make it city of Phoenix primarily (or city of Glendale) compliant, and then selling to an investor. We do the trash out, get rid of the graffiti, and all that. The difference between that and what we’re doing in apartments is when you’re selling a house, it’s a commodity. When we do apartments, we’re selling a business, because we’re putting residents in there, we’re selling them as occupied units. So it’s your traditional buy, fix, and sell apartment turn, that is pretty popular right now.

Theo Hicks: So you said 24 to 36 months from buy to sell, right?

Bruce Wuollet: Yes, that’s historically what we’ve done.

Theo Hicks: Sure. So is a portion of that the fixing up, and then you stabilize, and then you sell, correct?

Bruce Wuollet: Yes.

Theo Hicks: So of the 24 to 36 months, what’s the breakdown? How long does it usually take to fix them up? And then how long does it take to stabilize them?

Bruce Wuollet: Okay, on the larger project like the 74-unit in Tucson took us three years. We bought it with 35 units occupied, so a 50% vacancy, or 55% vacancy. We ran it down to 17 occupied units. So basically there was a valley of death there, where we had a huge debt coverage to cover with no income. So that was part of that process. That takes about eight to 12 months to get through that. That whole cycle of getting in and repositioning those and putting in new residents.

And then the next year was where we did the additional value-add where we updated some of the units that were already occupied, and pushed the rents up to market. And then the last year is just getting from the 70% stabilized to 90%. Because when you go all the way down to vacant back up, it takes a good 12 to 18 months to create a really stable balance sheet. People say, “Oh, you can do it in six to nine months.” You can get there in six to nine months, but to keep it stable — when you ramp up that fast, you get a lot of residents you wish you wouldn’t have signed up for, because you get anything you can to get in the door.

So that is the reality that we have seen, at least in our experience. I’m not saying that’s everybody’s experience, but that’s been our experience… It really takes 18 months to get from when you’re filling the units until it’s completely stabilized.

Theo Hicks: Sure. So just to kind of dive into that a little bit and make sure I’m understanding correctly… So you bought it at 55% vacancy for that deal. And you said it went down to 17 units occupied. Is that because you evicted people, so it had low-quality residents? Or, I guess I don’t understand, because you said after eight to 12 months it was occupied, and then you did the value -add. So are you turning over the units first and then once you’ve got them occupied then you do the renovations? Or do you do the renovations right away?

Bruce Wuollet: Okay, this particular one was a slumlord that owned the property, so it was in a really, really rough shape. So there were some units that just needed paint and carpet. So we just did paint and carpet and we were moving people in. But then after those turned, we would update the cabinets, we’d update the countertops, update the flooring on some of those.

So it was almost like a two-phase value-add. First was to get rid of all the problematic tenants. And yes, that’s when we went down to 17. It was like a drive-through pharmacy; it was high, high crime. And we had to get rid of the bad residents and get a stable resident base in there. And that took a wave of people to get through there, because we ended up getting some bad people in initially, and we had to do a second wave of moving those people out. And then when we moved those out, then we did some updates to some of the units to show that, “Hey, if you update these units to this level you can push the rents to market.” And that’s the value add, the meat we left on the bone for the new buyer, that they can finish that, and push through the rest of the units.

Theo Hicks: So is that a typical deal where it’s not stabilized when you buy it? Like it’s got high vacancy? Or are you buying a mixed bag of deals? Do you target these types of deals that are really distressed? Or is your net a little bit wider?

Bruce Wuollet: Well, the net is wider now, but initially, yeah, that’s what we targeted. We would look for the roughest property in a somewhat stable neighborhood, and really zero in on that through our own efforts and the broker efforts to buy that property. There was a 32-unit in Tucson that we brought down to four occupied units. There was a 75-unit that was about 75%, 80% occupied, and when we bought it, we brought it to under 50%. 52-unit, brought to under 50%, because they were really, really rough properties. And they may have been a good quality product as far as the asset goes, but that resident base was really, really rough, where the property managers lost control. So we’ve targeted those. However, it’s been more and more difficult to find those types of properties in our current market cycle.

So we have broadened the net now… Our last purchase was a 90-unit in Tucson, and it’s a stabilized asset. It was over 90% occupied with a lot of economic vacancy. We’ve fixed the economic vacancy, we were at 80% occupied, now we’re back up to over 90%.

Theo Hicks: Is there a value-add/renovation play in that deal? Or is this still just a resident quality issue?

Bruce Wuollet: No, there will be a play on that as well for updating the units. It’s an older building that does need some effort. It’s not bad, but we can certainly upgrade the units. The beauty behind this one is the units’ average square feet is thousands, so they’re quite large. So we have an opportunity to bring in a more stable family resident base than the more transient single.

Theo Hicks: And then you’re raising money for these deals… Are you syndicating them with limited partners?

Bruce Wuollet: Yes.

Theo Hicks: What type of compensation structure is offered? Do you do a preferred return? Is it a profit split? Do I start getting a preferred return right away, or is it delayed until sale? How does that work for the people who are investing in your deals?

Bruce Wuollet: To date, there have been two times where there’s money exchanged. Once when they invest the money, and the second one when they get it back. And in between, there is no distribution, just because the assets have been negative cash flow. So that’s how it’s been, historically; there’s a pref or a split. So because there’s a heavy value add, there’s a little more favor to the sponsor for the return than some of the other syndications that you see. So the investors still get a mid-teens return, but it comes in a lump sum, it’s not distributed quarterly or monthly. However, the asset we’re looking at right now to buy would have immediate, probably second quarter, there would be a distribution. So we are moving more towards a stabilized asset where we can come into the market and finish the value-add that somebody else has started; kind of how we sold properties previously. But we’re looking at 150 to 200 units for the stabilized assets, under a hundred units for the heavy, heavy value-add.

Theo Hicks: Whenever you’re initially underwriting a deal, so not during the due diligence when you’ve got to go into more detail on the property… You mentioned that, for example, on these deals where you buy them and they were really distressed, maybe the property was fine, but it was more of a resident issue. So you know you’re going to go in there and reduce the vacancy to some unknown level, and then obviously, during that time, you’re going to have to cover that debt service, cover your expenses. So how are you calculating what that number is? So how do you know how much extra money you need to raise to cover the holding costs during that first phase of the value-add project?

Bruce Wuollet: We project pretty accurately how we’re going to vacate the units based on what we see when we do our inspection. You get a pretty good feel for “Okay, what number of residents are going to have to be let go?” And then you also look at their historicals… Now, when the resident base is not stable, you would see what their delinquency rates are, and you just have a feeling, “Okay, there’s going to be this many.” And it’s from experience, knowing that we’re going to vacate this many units. So with that plus the reserves that we save, there’s always been enough to cover the negative cash flow during that part of the renovation or the value-add.

So it’s put on a spreadsheet and we just build like a Gantt chart of when things are going to start, when they’re going to end, what is that… What we call the valley of death. What is our valley of death? Okay, it’s nine months. Okay, so we need to plan for more than nine months, because it may take longer, or we may have to plan for more vacant units, maybe a deeper valley than what we’ve projected. So we do the stress test, worst-case scenarios, and what does that timeline look like, and then we put that into reserves.

Theo Hicks: Do you know the death valley before the deal is under contract, or is it not until after you’ve done all these inspections that you know?

Bruce Wuollet: No, it’s during the due diligence that that is discovered.

Theo Hicks: So how do you come up with the initial offer price?

Bruce Wuollet: The initial offer price is based on four things: price per square foot, price per unit, and then based on the rent they’re getting per square foot and rent per unit. So if they’re not a performing asset, you can’t buy it on a cap rate. Right? So you say “Okay, I know that once this is stabilized, this property could be worth let’s say, 6 million.” So you’ll be able to back out the numbers. What is the estimated cost for renovations? Well, we have an estimate of the valley of death, but it won’t be finalized until we get through the underwriting after the inspection. But we usually have a pretty good idea of what the assets would trade for in that market, and then plug those numbers into the spreadsheet.

Theo Hicks: Alright, what is your best real estate investing advice ever?

Bruce Wuollet: I’d like to go with opinions, because advice comes with so much responsibility, right? Just looking at the words. But for me it’s two parts – it’s focusing on the resident, and then also when you’re doing the inspection, to really dive deep into the plumbing and HVAC. That’s the area where it seems to be the most hidden costs in our projects, has been plumbing and HVAC. So the inspection of the property is to hire contractors who are specialists in plumbing and HVAC for us to make sure that anything hidden can be estimated.

Theo Hicks: I wish I would have had this interview three years ago when I bought all these fourplexes and the plumbing amd the HVAC were absolute disasters. And the inspector had missed that. Alright, Bruce are you ready for the Best Ever lightning round?

Bruce Wuollet: Yes sir.

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

Break: [00:18:05][00:18:55]

Theo Hicks: Okay, what is the Best Ever book you’ve recently read?

Bruce Wuollet: That would be Relentless by Tim S. Grover.

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

Bruce Wuollet: I would do podcasts with you.

Theo Hicks: Every day. [laughs] What is the Best Ever deal you’ve done?

Bruce Wuollet: The Best Ever deal is my favorite one, it’s a 22-unit in Glendale that was in bankruptcy, foreclosure, a lawsuit, and the owner was arrested for drugs and prostitution, and it was vacant, boarded, distressed, and it was scheduled for demolition. And we were able to save the property, turn it around and sell it as a fully occupied asset. That is our favorite deal.

Theo Hicks: What about a deal that you’ve lost money on? How much did you lose and what lesson did you learn?

Bruce Wuollet: Well, the only deal that I lost money on is one that we didn’t buy. We had to walk away from the earnest money because we were uncertain of the market, so we ended up losing some earnest money. But as far as the projects go, they’ve been been profitable.

Theo Hicks: What is the Best Ever way you like to give back?

Bruce Wuollet: I like to give back by sharing anything that people ask me; that there is no secrets and I’d rather people would learn from people like me and you in the industry, and not from what they find on Google.

Theo Hicks: And then lastly, what’s the Best Ever place to reach you?

Bruce Wuollet: You can call or text me at 520-808-9111. That is my cell. And I invite people to reach out. Or bruce@bakerson.com.

Theo Hicks: Alright, Bruce. Well, thank you for joining us today and walking us through your multi-family strategy. So it’s kind of changing a little bit now, but what you were doing was focusing on very specific 60 to 100 units. These are properties that were very distressed, and it didn’t necessarily need to be the actual property was distressed. So it’s kind of like  property or operationally distressed.

As you mentioned, your best deal was the property and operations were a mess. But it could also be something where the asset is in good condition, but the resident base needs to be turned over. And so you’ll acquire the properties, and then during that valley of death, I think is what you called it, you’ll drop the vacancy so that you get all of the low-quality tenants out, you get better quality tenants in.

Once that phase is done, the second phase would be to upgrade the units and to kind of implement the value-add strategy. And then you will sell those properties as a business, right? Because the property is stabilized. And you’ll sell that as a business to someone else. You said that now because of the fact that those deals are kind of hard to find, you’re transitioning into properties that are going to be more of a buy, fix, and hold strategy.

We talked about the limited partner structure, so they invest and they get a lump sum on the back end whether it’s a preferred return or profit split. We talked about how you determine the upfront reserves, how to cover these holding costs during the death valley… And it’s basically you’ve got a spreadsheet where you’ll go in there during the inspection, looking at delinquency rates to be able to plug the numbers into your spreadsheet to determine exactly how long it will take to stabilize the property based off of the current occupancy, and then the number of people that you’re going to have to remove and then bring back in, how long that takes.

We also talked about how you come up with your offer price; so there’s a price per square foot, price per unit, rent per unit, rent per square foot, estimated cost renovations, estimated death valley time, and the after renovation value, to calculate the offer price.

In the beginning, you actually talked about a piece of advice about making sure you’re always at pivoting when the market shifts. You gave the example of wholesaling and how you didn’t transition into tech, which is why you accidentally got into multi-family.

And then your Best Ever advice, or as you said, your Best Ever opinion, was to number one focus on the resident, and number two, and I can concur with this wholeheartedly, is during the inspection make sure you take a deep dive into the plumbing and the HVAC, because those are where the most expensive hidden issues are. So thanks again, Bruce, for joining us today. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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JF2300: Flipping To Multifamily With Terrance Doyle

Terrance is a full-time real estate investor who founded “The Value Add Real Estate Company” called VareCo. He started his real estate journey in 2008 with two teammates from college, and in 2014 he branched off and started his own company VareCo.

Terrance Doyle Real Estate Background:

  • Full-time real estate investor and founder of “The Value Add Real Estate Company” VareCo
  • Started investing in 2008 with two college friends
  • Portfolio consists of $60M in single-family and Multifamily under management, approx. 500 apartments, and flipped 600 single-family homes from 2008-2014
  • Based in Denver, CO
  • Say hi to him at: www.thevareco.com 
  • Best Ever Book: Best Ever Syndication Book

Click here for more info on groundbreaker.co

Best Ever Tweet:

“With perseverance and discipline you can do anything” – Terrance Doyle


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks and today we’ll be speaking with Terrance Doyle.

Terrance, how are you doing today?

Terrance Doyle: I’m doing super-well, Theo. I’m excited to be on. This is one of the podcasts I listen to on a regular basis, so I’m really excited to be here.

Theo Hicks: We appreciate you listening and thank you for joining us and looking forward to our conversation. We’ll talk about raising money as we were just talking about before we started the show. But before we get into that, let’s go over Terrance’s background—he is a full-time real estate investor and founder of “The Value Add Real Estate Company” aka VareCo. He started investing in 2008 with two college friends. He did 600 single-family flips from 2008 to 2014, and then transitioned into multifamily, where he now has approximately 500 apartment units. He is based in Denver, Colorado, and his website is www.thevareco.com.

So Terrance, do you mind telling us some more about your background and what you’re focused on today?

Terrance Doyle: Absolutely. So I grew up in Des Moines, Lowa, so just really solid Midwest town, kind of good old America. My mom is an immigrant from Bogota, Colombia. She came to the United States as an exchange student. My dad was a hockey player from Canada, so I like to say they basically met in the middle of the continent from where they both were from. And my dad didn’t end up graduating college, and my mom, English was our second language; even though she did graduate, she was just a full-time mom.

So I just came from a really solid, where we were a middle-class family. But what I feel like I got from growing up was just really great core values of just work ethic, integrity, and just being really self-aware of what was going on around me, and just the amount of gratitude I had for having two really loving parents. I spent a lot of time growing up in Bogota, so I speak fluent Spanish, which has really helped me in real estate. I basically went to school half the year in Bogota from 1st Grade to 8th Grade. I had a really good childhood, was fortunate enough to play college basketball; I like to say that I got paid to sit on the bench and keep the team GPA up to par. So I played college basketball.

And then in college, I started my first company with a couple buddies. It was a franchise, we franchised it and we had some pretty good success. We grew pretty well in the first couple years, so I made a couple bucks. And then in 2008, during the Great Recession, basically, of our lifetime, we started buying foreclosures. I had another college teammate come to me – and this is just an early 2008 – and he was like, “Hey, there’s this opportunity to buy foreclosures.” At the time, I was renting with my two best friends and had no idea what a foreclosure was, I had no idea what real estate was. and I was basically their first investor. We bought a house for $60,000 that I invested, and we sold the house for $96,000, roughly 9 weeks later.

And we were making pretty good money at the time, but I was like, “Wow, that was amazing.” That was like my first taste of real estate. I couldn’t believe how quickly and pretty much easy it was to buy and sell a house and make $30,000+.

So from there, I helped to raise some money, but I was just a third partner. The two guys that brought me in were full-time, they were doing it inside and out, and knew everything. I just really understood the money, so I helped raise the money, helped connect some other operators.

I really had a passion for sports, so in 2009, I became an NBA sports agent and I ended up representing 5 or 6 guys in the NBA, and then 20 to 25 guys overseas, that played in Europe and Asia, and I did that till 2014. And basically, one of the stories I like to share is that my top client that played on several big championship teams and was a really good player, we had made a bunch of money together, and he had a rough season in 2013, and in the summer — I remember waking up in June of 2013 and he had sent me an email basically saying he was going a different direction with his representation, and it broke my heart. This is someone that I had spent so much time with, talked to every day for 5 or 6 years, traveled with… Just as close as you can be to someone.

So that was a really hard time for me, and it really opened my eyes. I was dating my now-wife, we were about to get engaged, and it just rocked my world. And I was basically committed to myself — I didn’t want my income to be dependent on any other person. And that was through a series of events, I ended up deciding to focus on real estate from there. So I branched off from my other two partners. And we had a really great relationship, we still do, but we just kind of wanted to do different things… And that’s kind of where my jump into multifamily started, and just started building it brick by brick.

Then I started investing in Des Moines with my brother and my dad in 2015, and that’s where we have our largest holdings. We have about 400 apartments in Des Moines that we just own ourselves, we don’t have any outside investors there. And then in Denver, we currently have about 200 apartments, and we have started to syndicate in Denver as of 2020. So up to 2020, before this year, I had just funded everything myself and with another partner kind of inside of our company. So we didn’t have LPs, we just had some lenders that lent us money, and a bank, and we funded all the equity. So that’s kind of been my story to real estate. It’s been, I think, the best decision I’ve ever made, and learned a bunch along the way.

Theo Hicks: Fascinating background, by the way. But before I ask you about what you’re doing now with the money-raising, I’m just curious – when you were doing that sports agent stuff, were you also still flipping homes at that time? Were you doing those two things at the same time? Or did you stop flipping and then go into being a sport agent?

Terrance Doyle: I helped to raise money for the flipping, and I was the third partner, I was the minority partner. That’s kind of what funded the sports agency. So anyone that understands sports knows it takes a lot of money to get started. We probably invested close to a million dollars over the course of 3-4 years, from having an office and recruiting… You just spent a lot of time traveling… Basically, recruiting is very similar to raising money, so I think that’s the skill that has kind of translated into what I do now, with meeting with potential investors… But just a lot of time and money on traveling, meeting with families, going to watch their college games, and all that.

So I was still flipping houses. We were doing about 100 a year, and that’s kind of what funded the sports agency. But I was just a minority partner and I didn’t understand it. I didn’t know how to comp a property. I didn’t know how to do construction. I understood basically zero. All I understood was that our returns were phenomenal and you can make a lot of money, but my passion was really in sports and that’s kind of what I focused on. So I spent very little time on the real estate side. But that is what basically made us the most money.

Theo Hicks: Got it. So once you stopped doing this sports agent and you got back into real estate, why did you pick multifamily instead of fix and flipping?

Terrance Doyle: So I did a couple flips on my own… I started from the ground zero, Theo. I even remember calling some of our hard money lenders that we had used during flips, and these are lenders that had lent to us on 300 or 400 properties in Denver, some close friends. I actually introduced them to my partners in 2010, maybe. So these are close friends, and we had done a bunch of deals… And I remember one of the most awkward phone calls was calling them and asking them what their criteria was to lend, and that I was going up on my own… I was basically asking them every entry-level question you can ask. And it was very humbling. And it was kind of ironic and awkward, all at the same time. So I started ground zero, I was meeting with brokers, I was meeting with wholesalers, I had some door knocking going on, and I did about eight to 10 flips on my own, kind of got my feet wet.

I started to learn construction and see that Spanish really helped me on the construction side, so I was able to assemble a team of Hispanic contractors to do the plumbing, the electrical, the framing, the drywall, countertops, the tile… Every single trade. And I was able to build a pretty good crew pretty quickly, and learn — just kind of built an assembly line of doing the same paint, same tile, same materials on every project.

Then it was a buddy of mine actually had a family that wanted to sell four duplexes and a fourplex, and I looked at it just as like 16 small little flips; I was doing 16 bathrooms, 16 kitchens. I was like, “Yeah, let’s do it.” And then I quickly learned that — when we bought it, I think the rents were $600, and when we re-leased it ourselves, we were getting $1,250. So I quickly learned the power of cash flow and the correlation between rents and cap rate, and basically had the equation that every $100 of raised rent in Denver equal $20,000 on the backend of value. So if I was able to raise rents $600, I actually increased the value of that one unit by $120,000. And if I was able to do that four times, I actually made $480,000. So really quickly, I just put it all together and was like, “Multifamily is the best place for me to spend my time and money.” So I still did a couple flips here and there, but by 2015 and 2016, my focus was virtually 100% on multifamily.

Theo Hicks: So you said you started from ground zero – what types of things did you do to kind of educate yourself on this process? You said you were using your own money to do these deals. I know a lot of things that we talked about on this show is brokers aren’t going to necessarily give someone deals unless they know they’re going to close. I know the first deal you got from a friend, but I’m just curious, what were you doing to educate yourself on the process, to kind of build that credibility in the eyes of these brokers and the lenders, and understanding the lending lingo, and things like that?

Terrance Doyle: It’s hard. It took a lot of time and patience. I think one of the things that helped is that I started getting very aggressive in multifamily in Des Moines, Iowa, in 2015. Once I stumbled upon multifamily in Denver, I bought those duplexes for an average of $250,000 and sold them for around $450,000 in the same year, and then we bought that fourplex for $400,000 and sold it for $800,000 eight months later. So I was like, “Man, that was amazing.” But it was kind of a fluke, because it was just a friend of a friend from church, and it was like a family trust estate, and they were selling, liquidating everything, and they just happened to trust us… So that was more of a fluke.

In Des Moines, I started building relationships with a couple of brokers that I knew, that I’d grown up with, and I just said, “Hey, send me every duplex and fourplex”, because that’s what I was used to. ”Send me every duplex and fourplex, I want to look at them.” And I bought my first fourplex in Des Moines for $40,000, and it was a complete dump. I think we had to hire a company that wore hazmat suits to demo it and clean out the sewer line. It was really, really bad. I actually just sold that deal for, I think, $300,000 this year. So we had stabilized it, collected cash flow, we had done the whole thing for 5 years.

So I just started out doing those smaller deals and just really trying to buy very distressed, very heavy value-add, just for the sake of very low risk. Just buying it, what the renovation cost was going to be, what the rents were going to look like…

So I started out like that, with just local real estate brokers just on the MLS. They were friends that knew I had the capital close on $40,000, $50,000 or $60,000 properties… And then actually, the first broker from CBRE that I spoke with was in 2016, and he saw me post a project I’d done on LinkedIn… And he was a new broker. I think at the time, he might have been 23 or 24. Now he’s one of the top guys in the Des Moines. And we just built a relationship from there, and he brought me my first 42-unit in Des Moines. We ended up buying that for $20,000 a door. It was pretty distressed, it was actually a hybrid. It was an extended stay, and it came with some vacant land and a restaurant… It kind of operated like an apartment, and they just paid weekly and bi-weekly, so I just knew that I could figure it out. And then from there, we worked on a couple other deals, we ended up closing a 50-unit a year later, because he saw me close on the 42 unit…

And then from a banking standpoint, what I’ve found is that local lenders are actually very willing to help educate you, and I think that’s one of the tips – if you’re ever in doubt, local lenders can really help you with underwriting, they can help you with connecting with other brokers… So I just basically found a couple of local banks in Des Moines and said, “Hey, this is what I’m trying to do. What would it look like? What kind of loan would you give me for this kind of property? How much cash would you need? What would you want to see?” And they were very helpful in educating me kind of along the way… And I just think it’s one of those things where you’re crawling, then you’re walking and stumbling, and then you’re stumbling less, and then you get to a nice little jog, and then you just run. You’re constantly growing and evolving.

Even now, when I’m speaking with agency lenders, I’m still learning; it’s just a different conversation, there’s different terms with non-recourse loans versus recourse when you’re dealing with local banks… And there’s constantly a learning process, but I think that local banks are really friendly. It’s just a very easy place, I think, to learn, is dealing with local banks. I found that to be a safe place, I guess, in the industry to get help and to learn and to really grow your acumen.

Theo Hicks:  So kind of transitioning into now… I think you said you met the CBRE broker in 2015,  you said?

Terrance Doyle: Yeah, 2015, he reached out to me. Yeah.

Theo Hicks:  Okay. So that’s when you started doing kind of your bigger deals for the past five years, that you were funding all of your own money. And then now you’re transitioning into raising money. So why did you make that decision, unless it was just to get more money? And then maybe walk us through how you’re raising money, where you’re finding people, what types of things you’re saying to them to get them to invest, maybe how much money you’ve raised so far, things like that.

Terrance Doyle: So one of the things I’ve learned this year, Theo, is that I think I was afraid to raise money on deals in the past, and on larger multifamily… Because I wasn’t really sure how it was going to turn out. I still thought things could go bad, and I don’t really want to lose anyone’s money. I’d rather risk my own. So from 2016, 2017, 2018 and 2019, I bought and sold hundreds of apartments in Denver and Des Moines just with my own capital and my partner, and we did well, and I think I got more confidence.

And then as I was posting, I’ve really enjoyed connecting with people on social media. I’ve been able to do some things with Bigger Pockets here in Denver, and I’ve been on numerous podcasts here locally in Denver. So I think just, you know, being able to post and to document the story and the process of, “Here’s what it looked like when I bought it, here’s what I put into it, here’s what the rents are…” I’m really passionate just about — coming from where I come from, with immigrants and a low-income family, and being been able to create really massive amounts of cash flow and equity and net worth, that I want to help other people do the same thing, because I think that’s one of the beautiful things about real estate, is that anybody can do it, if you have the amount of determination and discipline, anybody can do it. It’s one of the incredible things about our country and real estate in general, is that there’s unlimited opportunity for everybody. So I’m really passionate about that. So I’ve just been documenting basically my journey since 2016.

Throughout that journey, there’s a bunch of people that have contacted me and said, “Hey, if you ever have a deal, we’d love to invest.” I never had the structure, I never knew how to structure it, I didn’t have legal documents, I didn’t really want to deal with attorneys… And honestly, in my own world, I just was moving so fast. I didn’t really have the time to sit there and underwrite a deal as if I was having to sell it to other people, and bring on investors, and the subscription docs, and all the things that are needed when you’re going to do it the right way as a syndication.

So I had a mentor that saw me grow with doing these projects, and he had wanted to invest… I think the first time I met him was in 2017, he was an Ex-Morgan Stanley guy. And he, as a friend, just came alongside me and said, “If you ever want to grow and take this to the next level, outside of this mom-and-pop thing, and you want to build a real company that’s sustainable and that outlives you, and that has real income and you can hire a team, you’re going to want to be more of an asset manager, as opposed to just an operator.” And I didn’t really understand what that meant at the time, and slowly but surely over this past year my eyes have really been open to what that looks like as far as looking at myself as more as an asset manager now, as opposed to just purely a multifamily operator.

So he really helped me open my eyes to what that looks like…. And I would say that the first deal that I syndicated was an $845,000 deal in Denver. It was a six-unit. It was an off-market that ended up going to-market. We tied it up maybe like a week before it went to market. And it was $845,000, it had washers and dryers in the units… I had just sold a 22-unit down the street. I’d bought it for $2.4 million and sold it for $3.7 million within 16 months, with my own money.

So I knew the area, I knew the tenants and I knew what the rents were going to look like, I understood the construction of the building, it was the same builder, same kind of building, garden-style, two-level, brick… This one actually had larger units and had washers and dryers in the unit, so I even felt more confident about the rents. So we underwrote it really conservatively, basically the same rents as the building I had just sold, even though these were larger units and had washers and dryers… And we put together a deal memo, and I sent it out to about 20 people and didn’t get any responses. So I was like, “Whoa, what’s going on here? This is a killer deal.” So then I actually had to pick up the phone and I called six people and five out of those six invested.

So when I walked them through the deal, I told him what was going on… The average investment was $50,000, so I raised it and I invested as well. So I think the total raise was $250,000. And we’re actually under contract — so this will be the first indication I’ve purchased and sold… And I was just doing something that I knew I could sell quickly to get confidence of investors to perform, to get some audited financials out there that I could show… Because over the last 5 years, even though I have numbers of properties that I’ve purchased and sold, it hasn’t been audited. We haven’t had really strong bookkeeping, because it’s been our capital. So I wanted to have something I could perform in a short amount of time, get some financials that were verified, and to get confidence of people and to be able to document that process. So we’re under contract at 1.23, so it’ll be roughly a 35% IRR, and it’ll be a really good deal for people.

So that was the first deal that I did. And then since then, I’ve done a $10 million 95-unit in Denver, we’ve closed on a 25 unit, we are closing on a 17 unit, and then we’re working on a 400 unit deal right now that’ll be $25 million; that’ll be the largest raise.

So to date, we’ve raised roughly $12 million of LP capital and we’ll probably raise another 10 by the end of the year.

And it’s been hard. It’s not sexy. It’s very humbling. Actually, two or three weekends ago I had one of our largest investors call me and tell me he was going to pull out of a deal that we were set to close two weeks later, and he had committed $500,000. He called me and just basically said he was really nervous about the pandemic, he was unsure about the market moving forward… He really believed in me, and he’s invested several million dollars in other deals with me, so we have a really healthy relationship… But he basically just said, “Look, I’m really worried. At my age, I don’t want to take unnecessary risk. I don’t think this thing’s getting any better, and I’m going to pull out and I want to give you enough time to go and raise the money and fill my spot.”

So there’s been a lot of hard things that come up, especially during a pandemic, raising money when people feel like the world is crashing, and there’s all these negative headlines that only makes it even more difficult. But I think net-net, it’s been a great learning experience to really force me to sharpen my pencil, get better at underwriting, get better at managing people…

Now we have a staff, we have a full-time CFO, we have a full-time bookkeeper, I have a full-time project manager, construction manager that’s on-site all day, we have a girl that’s in the office every day, she’s kind of the office manager. And so it’s allowed me to hire quality A-players that are really talented and build a team so that we can execute better and do more deals.

I think it was a really great transition, but I don’t think I could’ve done it without the experience from the last 5 years of doing it with my own capital and having that confidence that I can get through virtually anything, with tenants or the city or seller. There’s just so many little wins along the way that give you that confidence to sit in front of someone and just say, “Hey, look, I can execute on this. You can trust me with your capital.”

Theo Hicks: Alright, Terrance, what is your best real estate investing advice ever?

Terrance Doyle: The best advice I think is perseverance. With perseverance and discipline, I think you can do anything. And that’s kind of have been my story.

Theo Hicks: Alrighty. Are you ready for the best ever lightning round?

Terrance Doyle: Let’s do it.

Theo Hicks: Alright.

Break:  [00:23:11] to [00:23:55]

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

Terrance Doyle: Disclaimer, you guys didn’t pay me to say this, but a year ago, I read The Best Ever Syndication Book, and I’ve probably given that to 6 or 7 people. And I think anyone that wants to get into multifamily, that’s the best syndication book out there. I think, from an entrepreneurial standpoint, my favorite book is Shoe Dog by Phil Knight. It’s his autobiography on Nike. So I’d say those are two of the books that have, in the last year or two, really made an impact on my life.

Theo Hicks: Well, we appreciate that, thank you very much. If your business were to collapse today, what would you do next?

Terrance Doyle: I think I would still do something in real estate, but I think parallel to real estate. I’m very passionate about education, and my brother and sister graduated college with six figures in debt and they’re still paying that off, and they actually work for me full-time now. So I’ve just seen the damage that having debt does to being able to have financial freedom and invest in real estate, so I’m really passionate about education. I think I would want to do or build some kind of trade school where we train people on real estate, or even plumbing, electrical, HVAC, and allow people to create a really strong income without having so much debt getting out of college.

Theo Hicks: What is the best deal you’ve done?

Terrance Doyle: I don’t know best deal… I’ve done some really good deals. I think my favorite deal is one that I spent three years sourcing in Des Moines. It was in an area that I grew up in, pretty close to downtown. It was a 52 unit deal. I actually had it under contract in 2016, and then I just didn’t understand a deal that complex at that time, so I terminated it. And then afterwards, I was like, “Dang it, that was a killer deal.”

So we ended up purchasing it in 2018, and I basically bought it for $1,2 million. It just appraised for 2.6. I will be able to pull all the capital out; it net cashflows after debt and management, everything, about $12,000 a month. So not only was it a great financial deal, but it was also just a great story of perseverance and staying with the seller and really trying to convince them that we are the right buyer. And it’s an area that I really believe in, in Des Moines. So that’s a deal that sticks out.

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

Terrance Doyle: My wife and I are very involved in our local church. We’re really passionate about our faith and we specifically work with an organization called The Denver Dream Center. We try and help kids that are at risk or come from unhealthy homes, and those are things we’re really passionate about.

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

Terrance Doyle: I’m pretty active on social media, and I have a show on YouTube with Bigger Pockets that basically highlights a lot of our deals. So you can find me on YouTube, you can find me on LinkedIn or Instagram, and it’s just @TerrenceDoyle, my name.

Theo Hicks: Awesome. Terrance, thank you so much for joining us today and walking us through your journey. I think the biggest takeaway people are going to get – because you went into so much detail on how you started, how you got to where you are today – that is really just a grind.

You said your best advice was perseverance and discipline, and you can do anything. And you kind of showed us there really is no shortcut; you have to take it one step at a time, from doing deals with your own money yourself, to educating yourself, to eventually getting to the point where you’re confident enough to raise money from people.

More specifically, you talked about a great way to get education is from local lenders. You can ask them questions about what they’re able to do for you funding-wise, types of financing they have, what they need from you. You said the brokers are a good source for learning how to do things like underwriting, or ask them to send you every deal, so you can learn how to underwrite, and at the same time building that credibility with them.

You talked about the importance of a thought leadership platform, documenting and posting what you’re doing. You met the first broker contact that way, from a LinkedIn post that you did. And you talked about how you generated a lot of interest from investors from your YouTube documentation of your journey.

And then lastly, when you talked about how you were fearful of raising money at first, but doing deals yourself with your own money and doing deals successfully gave you a lot more confidence to be a lot more comfortable raising money from people and using their cash… In addition to the conversation you had with your mentor about if you really want to grow and get big, you have to focus less on being the operator and more of the asset manager and working on the business, instead of in the business.

So I really appreciate our conversation. Thanks for joining us, and Best Ever listeners, as always, thank you for listening, have a best ever day and we’ll talk to you tomorrow.

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JF2296: Bad Start but Strong Finish With John Dessauer

John has a rich history as an entrepreneur and has owned many companies in various industries. John has transacted hundreds of deals in real estate in different sectors such as apartments, office buildings, retail, single-family homes, and condominiums all within his personal portfolio.

John Dessauer Real Estate Background:

  • Full-time entrepreneur 
  • Has over 22 years of real estate investing experience 
  • Portfolio consists of over 2 million sq ft. rentals/retail 
  • Based in Chicago, IL
  • Say hi to him at: www.johndessauer.com 
  • Best Ever Book: Spin selling

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“The best benefit for having multiple companies is having multiple sources of income for when unfortunate events happen” – John Dessauer


TRANSCRIPTION

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

John Dessauer: I’m good, Theo. How are you?

Theo Hicks: I am well, thanks for asking. And thank you for joining us, looking forward to our conversation. John’s background – he’s a full-time entrepreneur and has over 22 years of real estate investing experience. His current portfolio is over two million square feet in rentals and retail. He is based in Chicago and you can say hi to him at his website, which is johndessauer.com. So John, do you mind telling us some more about your background and what you’re focused on today?

John Dessauer: Yeah. So thanks for the interview and the introduction. I guess my background started growing up here in Chicago, just outside now, but up until the point I left for college I had always grew up in apartment buildings, so I had a unique perspective of that business from the inside looking out, rather than — a lot of people that get involved in real estate investing, they learn it from the outside looking in.

So after I graduated from college and I got out into the workforce and realized that the corporate world wasn’t for me, I kind of went back to my roots and said “I liked it when the rent guy would come once a month and pick up that rent check.” That was something that I’ll never forget, around 10 years old I’d have that happen all the time. I was like “Ma, why is this guy here again?” “He’s here to collect the rent.” But yet I’d see my mom go to her nine to five, or nine to nine really, to make that rent check happen. So I never forgot that. 27 years ago, when I started this, I said “I want to be the rent guy. I love my mom, but I want to be the rent guy” at that point. So I started out about 20-some years ago, at 22, and I haven’t looked back since.

Theo Hicks: Perfect. So maybe walk us through how you started. You mentioned that you wanted to be a real estate investor since you were a kid. You said you went to school, and then came back to this area. Maybe walk us through how did you get into your first deal.

John Dessauer: So what was interesting about the whole thing was when I first thought about being a real estate investor, you don’t think about all the dynamics that are involved in actually doing it, from financing, to property management, and all the things that you’ve got to do. What you think about is the luxuries and the ton of money that you’re going to make, right? That may not happen, by the way, but that’s what you think about.

So my first deal was a duplex; it was a street that I was interested in buying real estate on, and lo and behold I was driving by one day and I see the realtor pounding the “for sale” sign in the front yard, and I thought “Hey, that’s something I would be interested in buying.” So I pulled over, talked to the real estate agent… And what was interesting about that first deal, which I made a terrible mistake on, by the way, is I was way over-leveraged on the deal, because I bought the thing with 80% bank financing, and at that time I was able to use 20% seller financing. So it presented a situation where I came to closing with zero money out of my pocket. So I thought “Man, I’m the next real estate mogul. I’m unstoppable now, if this is how every deal goes.” But what I realized pretty quickly within 30 to 45 days is I was over-leveraged. I not only had a mortgage, but I had the operational expenses of the duplex, and I had an empty unit on one of the units, and the other unit – the gentleman was paying about $300 in a $700 market. So I had all this money going out, but not a lot of money coming in.

So that was my first deal. I learned pretty quickly that really kind to understand the financial dynamics of the deal and how important that is, and even more importantly, just because you can buy a deal with no money down, or even buying it creatively – because there’s a lot of that around today – doesn’t mean you should. So those are my lessons there.

Theo Hicks: That was a great lesson. So let’s flash forward to now… So what’s your business model today?

John Dessauer: Yeah, good question. What’s interesting, I studied a lot of guys from the industrial revolution. I don’t know what it was, but Chicago was a town that had a lot of these guys in it; Pullman, and Marshall Field, and some of these other guys… But the guy that I drew a lot of interest in was not from Chicago, he’s from Pittsburgh, Andrew Carnegie. And what I realized about him was his original business was not steel, his original business was a telegraph business. And he started on the telegraph business and got to steel because they would put telegraph lines along railroads. So he got interested and started buying railroads so he could place his telegraph lines a little bit better and save money by doing that. And the biggest expense of a railroad is steel… And the rest was history.

So by no means am I saying I’m in Andrew Carnegie but it’s kind of the same thing in that all of my business today has been related to that initial business that I got into, which was real estate investing. So today we have a real estate investing company, we’ve got a full real estate brokerage, so we have real estate agents, both residential and commercial, we do asset management with that, we are managing assets for ourselves and other people as well, apartment buildings, retail, office buildings, things like that… And then we have a marketing company, too. And one of the things that I have learned in my career is marketing in sales are so important in the real estate investing world. That’s one of the things that I think people don’t really think about… But that’s kind of where our business model is; it falls into our investment company, our brokerage, our asset management company, or our marketing company, and all of those are kind of related, they have a symbiotic relationship with each other… And that’s kind of our model, we stay with that core real estate theme.

Theo Hicks: Could you walk us through the progression of when those were brought on and then kind of how it happened? Obviously, it started with investing in real estate. So you said you’ve got an investing company, the brokerage, the asset management company… The asset management — is that the property management company?

John Dessauer: Yeah. Yup. Property management.

Theo Hicks: Okay. So brokerage, asset management, marketing company. In what order did you bring those on, and when, and why?

John Dessauer: Obviously, the investment company started first, and that was basically at first buying and selling all types of real estate, everything from single-family houses up to 350-unit apartment complex kind of thing. So the very next thing that came was the brokerage. And the reason that that came is I would sit at closings as the owner-operator, I was buying a hundred-unit apartment complex, and I’d sit at the closing and I would see the work that the agent that represented me and the agent that represented the seller in the deal, and no offense what they were doing, but I saw the checks they were getting and I thought “Wow, that’s pretty amazing for them to be partaking in this deal where I’m bringing the capital, the equity, and the debt to the deal, and they’re taking a chunk.” Now, granted, they found me as the seller – or sometimes the buyer in that case – but I did like that process, so I thought it would be interesting to get a licensed and create a  firm.

Now we’re in four states – Illinois,  Indiana, North Carolina, and Florida – and we buy and sell a lot of real estate through that. As an investor myself it helps, because I do get an inside look on real estate as it comes through, but also I am able to participate my real estate commission in my deals. So I start saving 3% to 6% off the top before I even get rolling with that.

The next was the asset management firm. We were probably at one time one of the fastest-growing firms in the south part of Chicago, and the reason for that was we were acquiring a lot of assets… And as you know, Theo, that management is probably one of the most important aspects of that; for you to have a successful real estate investment it’s got to be successfully managed. So we started doing that for ourselves and other people as well, so that became an income string to us.

And then finally the marketing side, and I think I was mentioning this before… One of the biggest things that I think people underestimate when they want to become a real estate investor is they underestimate the skillset of sales and they underestimate the skillset of marketing. So we created the marketing to get leads for our deals, and we also do marketing in other areas, but that was the real premise initially for that.

Theo Hicks: Okay, so you kind of mentioned where you got this idea (from Andrew Carnegie) of starting your original business, and then from there seeing what your expenses are and rather than paying those, basically starting that company or buying a company that does that. Is it possible to do too much? Because there are 20 different ways you’re paying money; how do you know when you should stop? Should you bring everything in-house? Like contractors, mortgages, financing… How did you know when to stop, or how did you know which one is to bring in? Not necessarily in what order, but… I know you kind of  explained why you picked these particular ones, but just a larger level… If I’m this investor right now, should I base it off of what I like, what I’m good at, maybe when I’m spending the most money on, based off my market? What type of things should I be thinking about?

John Dessauer: I think initially — and by the way, I don’t want to sound cliché, that is a really good question for an entrepreneur, because one of the dangers is of bringing on too much, and taking in too much. But the idea of where I was going with that was I would look at where we were spending money, and I would look at where I didn’t have a lot of control.

So let’s take property management, for instance – we were spending money on a property management firm or third party firm, but yet I didn’t have necessarily direct control in that firm. And that was a real sensitive thing for a real state that we were buying, because a lot of times we were buying assets that were assets that needed a value-add to it. So we would come in, do a little renovation, increase the rents, lower the expenses, and that really takes an experienced manager. Initially, I didn’t have the time to educate some of those property managers, so I thought we would shorten that curve and create that ourselves. Now, that is a little more difficult, and we do need to bring on some people for that, but you’re either going to outsource the property management or asset management to a third-party firm, or you’re going to outsource it to a firm that you own, that you have employees too. And for us, that was a decision that we made, and 22 years later it was probably the best one.

Theo Hicks: So you’re getting to my next question, which is – so I’ve got my real estate investment company I’m in charge of, and I guess technically the COO, too. So you said the first company that you started was the brokerage. So here walk me through specifically for that, or just kind of in general… Am I then the CEO of that company, too? Or am I hiring someone to run that company, and then trusting the company to this individual? And if so, how does that work? How do I pick someone? Does that make sense?

John Dessauer: Yeah. So for us, it was interesting in that my wife – I know she’s better looking than me, but she’s probably smarter than me as well. So as a married couple, I’ve got a little bit of an advantage over somebody that’s starting off on their own. So we have two people, type-A personalities, instead of just one person. So when you have a couple of different entities, number one, there’s a synergy that goes on between all of them. And there are some tax advantages in different things that you can do as well through having multiple companies like that.

The best benefit of having multiple companies is you have the ability to have multiple streams of income. And a good example of why that’s important is March of 2020. When COVID hit, a lot of things shut down, and a lot of income stream shut down for a lot of different people. And while it was unfortunate, I think one of the things that I’ve realized over my twenty-some years of doing this is that always happens. It’s COVID today, or it’s 9/11 yesterday, or it’s the great recession, or whatever it is, it always happens, and it comes in cycles. So one of the things that we’ve realized with the way that we are set up is when an income stream shuts down, another one is there, or turns on. So for us, that’s been a real blessing.

Let me get back to your question on structure; the structure can happen really any way that you need to see fit with that. What I would suggest is don’t overburden yourself and take on too much where you’re ineffective at all things. Only taken on is much you as you can really kind of handle, and you’re going to know that for yourself, your listeners are going to know that for themselves. I knew for me that I was able to take on a role on the brokerage and on the asset management side, because we were already doing it. I was already taking that responsibility. So I had a little experience there. If I didn’t have any experience with that, I would probably looked or lean on some other people to bring in to kind of run that show, if you’re that big. A lot of times you are starting on small and you can’t do that.

And that’s probably the third thing I would mention, is instead of bringing on all these people and creating all these entities and all this workload, make sure there’s a reason for it, make sure there’s a journey for it. Ask yourself, number, one, why you’re doing it, how is this going to make you money or save you money, save you time rather than spending time… That’s number one.

And then number two, make sure that you are growing financially in a way that you can kind of bring on that. There’s no sense in creating all of these things if financially it’s not in the cards yet. So that might be out of your 18-month plan. That might be your three to five-year plan, but not your 18-month plan. Your 18-month plan is to get to a certain revenue or income scenario, and then make the decision once you’re there what we do next, whether it’s a brokerage, and asset management firm, marketing whatever that is.

Theo Hicks: Perfect, John. Alright, what is your best real estate investing advice ever?

John Dessauer: My best real estate investing advice is there’s a lot of places that you can go and spend a lot of money to get educated. For me, the best education was some of the mistakes that I made early on. And I’m not saying not to get an education because I do think there’s a definite spot for that, and bringing on a mentor or a coach and things like that is a definite help. I wouldn’t be where I am today without that. But what I would say too is don’t be afraid to take a little action. If you’ve got a duplex, call that agent. If you’ve got a six-unit building or a retail center or office building, call that agent, start talking to them, start getting information.

So this is the advice part, surround yourself with people that are doing it now in any way that you can. Either go to their meetings, take them to lunch, do a deal with them, whatever it takes, but surround yourself with the people doing the things that you want to do, and all of that would rub off on you.

Theo Hicks: Perfect. Alright, John, are you ready for the Best Ever lightning round?

John Dessauer: I’m ready.

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

Break: [00:18:34][00:19:24]

Theo Hicks: Okay John, what is the Best Ever book you’ve recently read?

John Dessauer: I read a lot. The Best Ever book that I have read recently is called Spin Selling by Neil Rackham. And it’s interesting, and I was mentioning this earlier – as a real estate investor I think we don’t focus on how important sales is to the real estate investor, where you’re selling that agent, you’re selling that tenant on paying you rent on time, or you’re selling a contractor to get the job done in the right amount of time, at the right cost. You’re always selling. So for me, that was a really impactful book on how to organize your sales process. So Spin Selling by Neil Rackham.

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

John Dessauer: That’s an interesting question. I would probably work — I would go right back and work on an advantage we have today that I didn’t have when I started, and that’s technology. And what I mean by that is, for instance, the way that we find our leads today is purely tech-based, and we do that by… Instead of searching for a property, instead of searching for a person, like a real estate agent, we search for problems. So problems in real estate – when there’s a piece of real estate for sale, there’s always a problem to solve. If I can get there before that owner says “I need to reach out to a professional”, I’ve got a leg up, whether it’s pricing, or deal structure, things like that. So that’s what I would do, I’d go right to my tech source for that, and we would start down the marketing way like that. I know without a doubt if it failed today I would be back up in no time.

Theo Hicks: What is the Best Ever deal that you’ve done?

John Dessauer: I would say — I’ve done a lot of good deals, I’ve done some deals that weren’t so good; I’m sure you may be asking that, too. But one of the best deals that I did was I bought a property in Lafayette, Indiana, and I bought it for 3.15 million bucks. So within 18 months, I turned that into 5.4 million. The way that I did that was by a technique that I worked a lot on, I call it “divide and conquer”. I buy at wholesale and then I piecemeal it off and sell it retail, and I can drastically change the value of the real estate in a very quick way by doing that. So I would say that was one of the better ones.

Theo Hicks: Well, you were leading me, you know exactly where I’m going next – what’s the deal that you’ve lost  money on? Give me the most money, or just the biggest headache type deal… And then what lesson did you learn?

John Dessauer: So everybody likes to talk about their wins right? They don’t want to talk about their losses. But I think in your losses is where you learn more.

I bought a 48 unit apartment building, it was made up of two twenty-four unit buildings. And the way I bought it was I had a contact that was a real estate broker at a national firm, a big firm, and he said “Hey, I’ve kind of got this pocket listing that if you want to buy, it’s yours. I think there’s some upside here. It’s been managed improperly.” So I looked at it, I had the equity to buy the two buildings at least, so I went for it. And the lesson that I learned was bad management sometimes leaves a scar. And what I mean by that is when you’ve got a single-family house that has bad management, you can change that pretty quickly. When you’ve got a 48-unit building – even though there are two buildings… When you’ve got a 48-unit that you’re buying, of bad management, it really does take a longer time to get that straightened out. And my fault was my ego got in the way and I said “Hey, I’m John Dessauer. I’m going to get back in there and I’m going to change this around in 6 months. I’m going to have a performing asset.” Well, that didn’t happen. I ended up selling the building after a year and a half and losing money on that. But that was a lesson learned, and I haven’t done that since.

Theo Hicks: What is the Best Ever way you like to give back?

John Dessauer: We do a lot of things. We’ve been involved a lot with the country of Haiti. Haiti is a couple of hours off of the US coastline of Florida, and it’s really a forgotten about country; they’re in a really really challenged economic scenario for most of the country. The government is a little bit in chaos. They don’t govern the best there, let’s just say that, for the people.

So that’s always been a focus of mine… I was on a board of directors for a foundation that we’ve built 23, actually 24 sustainable villages down there. So that’s always been something that’s been on our radar and something that we’ve participated in over the last, say, 10 to 15 years.

Theo Hicks: And then lastly, what is the Best Ever place to reach you?

John Dessauer: You can reach me at johndessauer.com, that’s probably the best way. I’ve written some books on real estate investing; one in particular I think your listeners and watchers would be interested in is the one called Apartment Confidential, where I start to talk about some of the strategies that I’ve used, like the one property with my biggest upside [unintelligible [00:24:22].22] so I used that strategy in that book. But that would be the best place to find me, johndessauer.com.

Theo Hicks: Awesome, John. Thanks for joining us and giving us your Best Ever advice. Some of my big takeaways – your first deal, you talked about that over leveraging and these creative financing strategies… Even if you can do that legally or the seller is willing to do it, it doesn’t necessarily mean that you should always do it. You gave the example of your first deal being zero money down, but that also increases your monthly outgoing payments, and the property couldn’t support those payments… But obviously, lesson learned.

You talked about your business model, which I really liked. I had an interview with someone a few weeks ago who does something kind of similar… So you have your initial business, and then you look at things that you’re spending money on and then things that you don’t have a lot of control in, and then rather than continuing to use that third-party, you bring it in-house, and you either create your own company, which is what you did, or [unintelligible [25:22] just bought an existing company that did that, so bought asset management companies, things like that, and just took them over. And so the benefits are synergy between all those businesses, there’s tax advantages, and then obviously, you are able to reduce your risks if something bad were to happen, because you have these multiple income streams that are hitting the deal from all different angles. And you kind of walk through during your journey when you brought each of those on.

So it started off with obviously an investment company, next was the brokerage because you saw the money that they are making for not really doing that much, or at least that much as you were doing… And then next was the property management company, because that’s was more of a control issue. And you did the marketing, because marketing is something that people underestimate, the skillset of sales and marketing; that’s how you were able to get your leads.

And you talked about the mindset of when to bring them on, making sure not bringing on too much, not overburdening yourself, making sure you can handle it from a time perspective; if that’s something you’re good at and experienced at you can bring it on, if not consider, finding someone else and bringing them on… And then making sure you know exactly why you’re bringing this type of thing in-house, and making sure you’re at the point financially that you can bring it in.

And then lastly, your Best Ever advice was that obviously education is important, book education, but you’re going to learn a lot more by the mistakes that you make. So just kind of surround yourself with people that are at where you want to be, so that if you do make those mistakes, you’ve got someone to help you quickly resolve those… But even also leverage that experience to maybe increase your confidence to get out there and take some action. John, I really appreciate it, thanks again for joining us.

John Dessauer: You got it.

Theo Hicks: Best Ever listeners as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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JF2295: Sterling Rhino Capital With Chris Roberts

Chris has been investing in real estate for 7 years and runs a property management business that controls his own rentals. He is also the minority partner in a Point of Sale software company (High Trek POS). Chris has a proven track record of building successful businesses and each of his rental and or flips have realized returns well above the market average. He has renovated, flipped, built, or held 12 single-family residences and raw land with funds from private individuals and or with his own personal capital. Chris is a General Partner or investor in over 752 units across the country. 

Chris Roberts  Real Estate Background:

  • Full time entrepreneur and investor since 2007
  • Has been investing in real estate for 7 years and now owns a property management business 
  • He is also a GP or investor in over 2000 units across the country
  • Based in Washington
  • Say hi to him at: www.sterlingrhinocapital.com 
  • Best Ever Book: TEDTalks

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“People have to get out of their own way” – Chris Roberts


TRANSCRIPTION

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

Chris Roberts: Great, Theo. Thank you so much for having me. I appreciate the opportunity to chat with you.

Theo Hicks: Absolutely. Thank you for joining us. Looking forward to our conversation. A little bit about Chris, he is a full-time entrepreneur and investor since 2007, and has been investing in real estate for seven years, and now owns a property management business. He is also a GP and an LP in over 2000 units across the country. He is based in the state of Washington, and his website is sterlingrhinocapital.com. So Chris, do you mind telling us some more about your background and what you’re focused on today?

Chris Roberts: Yeah, absolutely. Thanks, Theo. So I started out my life at a pretty young age, being on my own and kind of just had to figure things out, so that sort of entrepreneurial bug was planted long ago. Worked lots of odd jobs and kind of worked my way into a professional sales career that gave me the opportunity to start investing and diversifying, whether be in stocks or real estate or even partnering in other businesses. And that just kind of caught fire in me and I really enjoyed that creative process, the challenge of taking businesses and building them or investing in something and watching it grow. And then as I grew in my professional career I had a lot of conversations about real estate kept coming up, coming up, and at that point, I decided I really need to learn a little bit more about this real estate thing. Bought a few single-family homes, duplexes, some land, a little construction stuff, and then started taking that leap into the larger multi-family space. And now that’s one of my primary focus is, the larger multi-family space. I still run a few businesses, but multi-family space is really what my focus is today.

Theo Hicks: You said that you own a property management business – so is that business the one that manages the properties that you own? Or is that something where you manage other people’s properties?

Chris Roberts: Currently, I don’t have a real estate license, and in the state of Washington – I’m not sure how it is nationwide with regard to running a management company, but you have to have a real estate license to do that here. And one of my partners had a real estate license, but we really didn’t want to manage other people’s properties, so we really developed it to run our own properties, a handful of duplexes, single-family, things of that sort. It also gave us great insight into how to manage the managers of the larger multi-family assets later. So the property management company we run is really just for our own personal assets, which we’re allowed to do, and we use Buildium software to run that, and it works pretty flawlessly, all digital and everything. So we really enjoy that.

Theo Hicks: So out of those 2,000 units, how many of those are you as a GP?

Chris Roberts:  250.

Theo Hicks: Okay. How many properties is that?

Chris Roberts: Two.

Theo Hicks:  Two properties? And what’s your role on those deals? What are your specific responsibilities as GP?

Chris Roberts: Sure. On the first deal, 104 units, and then I’m the investor relations manager. So when I was brought into the deal, my partner at that time really didn’t have a process for investor relations, so I took that by the horns and developed the software implementation, the communication, the email systems, the back and forth obviously, the funds collections, and things of that sort. So I basically developed that system, and I’m second in line in GP on that deal, and then on our latest deal I’m first in line, majority owner of the whole GP team, and I’m the CEO and founder of Sterling Rhino Capital.

I wear many hats, but primarily my role would be to find the opportunities and then do the 30,000-foot view thing, which is basically putting all the pieces together. I still deal with investors and I manage some of the software, but I have team members that pretty much handle everything else. We have an asset manager and someone who is now kind of dealing with a little more of the investor relations, communications things of that sort.

Theo Hicks: So for your deal, you’re more of a CEO, but for this other deal you’re just strictly the investor relations guy?

Chris Roberts:  Yup.

Theo Hicks: So you said that he didn’t have really any process for investor relations, more specifically for communications… So can you maybe walk us through what he was doing, or if he was doing anything at all…

Chris Roberts:  Yeah. Absolutely.

Theo Hicks: …to communicate with investors and then what you implemented for your communications process?

Chris Roberts: Sure. I guess it’s technically my first deal; I had a deal before that, but it took so long to negotiate that deal that I actually got another one and closed it in the meantime. And he brought me in because most of his opportunities where JV deals; even though they were larger – 2, 3, 4 million, 5 million dollar deals – they were larger in this base of JV deals, they didn’t require any real major syndication or investor relations process.

So when he found this – it was a 10 million dollar deal – he just really didn’t have a system in place for that. And I brought it up and I said, “Well how are we going to manage all these investors?” And he said, “Well I’m not sure, I figured we would just figure it out as we go.” And I listened to a lot of your podcast and Joe’s conversations and seminars and things like that and thought “Man, this is a major undertaking with these investors in the syndication process and we need to start implementing systems that can help us automate all of this stuff and organize it.” So we brought on obviously AppFolio — well, they’re one of the property management systems, and there are many others, but we brought in AppFolio to manage the investors and then we brought in ActiveCampaign to manage communication and then we used Google Docs and a lot of automation to funnel in soft commit forms and things of that sort. So really, it was just a matter of breaking everything down and saying “Okay, first things first. What’s the most important thing?” And it’s knowing “Okay, who wants to put money in our deal? Okay, that’s really important.”  And then, okay at that point, who’s committed? Who’s not committed? And then how do we communicate with them when they filled something out?

Same thing as it relates to documents, the PPM agreements. We found that that was a very cumbersome process and I’m passively invested in 1,700 doors so I can tell you I filled out lots of them. We decided “Well, we’re going to shop every one of these signature companies and figure out which one is the most fluid, which one has the easiest automation, which one is the most simplistic to work with for our investors, where we’re not going back and forth with phone calls.”

And I’d say on the second deal we eliminated 60% of the conversations back and forth with just the right signature company for our documents. So things like that, those are processes I’m really good with; I love problem-solving and diving into things and just making them better, whereas sometimes there’s little detail work that maybe my partner might be good at, or let’s say negotiating a deal – the other partner is good at that. And that’s why it’s really important to identify your strengths and weaknesses and just really focus on those things. So I hope that answers the question.

Theo Hicks: Yeah. Just a quick follow up question. Basically, you said that you went in there and you said “Okay, what are the most important steps? And then what are the most cumbersome steps from the perspective of the passive investors?” and then you searched out software technologies that could address that to reduce that cumbersomeness, if that’s even a word, to streamline these important things. So maybe just to focus on one thing, let’s focus on the ActiveCampaign, I’m assuming it’s the ongoing communication… So how does that work?

Chris Roberts: Sure. Well, it’s a great question. So ActiveCampaign is a pretty dynamic program. There are a lot of really good syndicators that use it. I’m not sure currently if Dan Hanford and some of these other folks use it but I know many of them did. What’s great about ActiveCampaign is it’s like a MailChimp on steroids, if you will. It allows you to track literally everything. You can put all these automation in and these triggers that will identify and notify you of different actions that are taken within the system.

For example, someone goes to your website, like if they go to our website and they sign up for our investor calculator where they can figure out how they want to retire, what number they need to retire, they download that, we’re notified on what they downloaded, where they went, and there’s automation that is in place to send them things through that process. So if we ask them to fill out a form, we’re notified of when that form was filled out. And then it puts them in a funnel, so they’re accredited, they’re not non-accredited, are they interested in a deal, not interested in a deal…

So it’s very, very important to have systems like that because who has the manpower, especially if you’re running another business, to manage and micromanage all that stuff? So really the sky is the limit with their automation and systems you can put in play.

And what’s really great about — let’s use ActiveCampaign for example… I started setting all that up, and then I realized, “Boy, even just setting it up is fairly time-consuming.” So I hired an assistant through Upwork, and I have virtual assistants I’ve worked with as well. But I had an assistant who’s actually in San Diego, and speaks English, and is fluid… Because sometimes you’ll get a language barrier if you hire someone in the Philippines or whatever… Although the price is really good. I wanted someone that was here, because dealing with financials and things, I wanted to make sure everything was dialed and organized. So I hired her to help me implement all the automations. And then we also recently brought in a company, if I may I just like to mention their name, is that okay?

Theo Hicks: Yeah, totally.

Chris Roberts: Okay. GoodEgg is a company we brought on recently, and they’re really really good at working with ActiveCampaign and helping with all those automations. So we hired them to bring in all the automation, and they allow us to just download those and put them right into our ActiveCampaign system, which saved us a tremendous amount of time.

So a combination of hiring the right people to help facilitate maybe some of the weaknesses or the time constraint issues, and then to bring on a virtual assistant who could do some of the data entry work. And then as far as running the financials, as far as like let’s say running bank accounts and confirming things with investors, that’s stuff that I take very seriously, and there’s obviously security and you don’t want their data getting out there. So I personally run all of that information. But by outsourcing and building off the strengths and weaknesses of you and your team you can 10x it, for sure.

Theo Hicks: So for the ongoing communications to your investors each month, each quarter, whatever – do you have a VA that does that?

Chris Roberts:  Yeah, we use some of the content from GoodEgg, and then we set up automation for most of that, but she’ll set up all the automations. So I’ll tell her I want to send out four newsletters and I want to post some stuff on Facebook. Then I’ll share some personal stuff with her that I’ve written around what I want to put out there, and then she’ll post a lot of that stuff for me or set it up on automation. So yeah, absolutely, using those tools is a lifesaver… Because when we can focus on finding deals and working the banking and all that stuff, it’s more important, in my opinion.

Theo Hicks:  So something that you mentioned before that I wanted to also talk about briefly – you said you’re working on a heavy value-add deal that the owners, I think you said they haven’t tracked financials or anything for 35 years, or whatever. I wanna hone in on a very specific aspect of that, because I get this question a lot, so I’d love that pick your brain on it, so it speak. So I want to raise money for an apartment deal and I find a mom and pop owner — how many units is the property you’re looking at?

Chris Roberts:  This one is 112.

Theo Hicks:  112. A hundred twelve unit property, and I reach out to them I say “Hey are you interested in selling?” And they say “Of course.” I say “Okay, can you please send me the T12 and the rent roll, so that I can run the numbers?” and they’re like “I don’t know what that means. Here’s a napkin that I have from 30 years ago.” How do I know what offers to submit on that deal?

Chris Roberts: Yeah, that’s a great question. And that’s basically, exactly what I was dealing with. And it’s across the country. So it’s one of those things where you have to first identify, does this thing make any sense, let’s say from the asking price? And you break it down like anything else, right? You put it into a spreadsheet; I happen to use an SDA which is from Michael Blank’s program – that’s fabulous.  I can plug in some quick numbers and identify if the deal makes sense.

So you look at the offering price, or whatever, because oftentimes they’re not going to have an offering either; they’re not going to have a fancy PowerPoint. Maybe they’re listing it themselves or a broker, but this deal didn’t even have a sales deck. All we had was a price. And I came in on this deal with someone else that had offered a little bit lower price than what they were asking for, and they got it under contract. And then I quickly realized there’s no way to steal a pencil at this. So how do you get the answer out of them, that’s the question. The answer is, first of all, you have to dummy it down for people, because as we’re talking about this, you can only imagine what it’s like to actually build a T12 from scratch, a rent roll from scratch, financials for a lender.

We’re going through Freddie Mac on this deal. We’re actually closing on this deal tomorrow, after nine months’ worth of negotiations, back and forth, numbers, four flights out… It’s been an absolute grind, 350 hours of my own personal time in this deal. And that’s all because I had to understand the seller.

The bottom line is I had to actually deal with the seller directly at one point, because we couldn’t make it happen. So finally, the seller, after going back and forth and going out of contract and in-contract, started dealing with me directly, and that’s how we started solving problems… Because I basically said to him, “Do you know what a T12 is? No. Do you know what a P&L is? No.” I’m like, “Okay, well here’s what I need you to do – I need you to go down and get a CPA to come down there. I want to buy your building; all I need you to do is get them to come down there for four or five hours and just go through some of your paperwork, and here’s the paperwork I want you to provide for them.” “Okay, great.”

So he did that, and he got me a generic P&L. Okay, great. “What’s a T12?” I sent him a sample of a T12 and I said “Here’s a spreadsheet, this is a sample of a T12. All I want you to do is take this information out of the P&L and I want you to update it regularly, and this is your T12. And then I want you to certify it just by signing it and acknowledging it that it’s your information and not my information.” Because lenders don’t want you to provide them a T12 or a rent roll, or P&L; they want it to come from the seller. So as long as they input the data, you can assist them and bring them along, and then they just sign it and acknowledge that that’s actually their data that’s gone in. So that’s what the first few steps, does that answer the question?

Theo Hicks: Yeah. So you said — going back to it, looking at the offering price to see if it makes sense… Are you kind of doing some rule of the thumb type of stuff with that?

Chris Roberts:  Yeah, there is probably — I know I’m exaggerating, but there are a hundred thousand processes in a multi-family deal, especially one that’s all manual, right? So you have to problem-solve. One of the things I absolutely love is problem-solving. I love the challenge. I don’t get afraid or fearful; I dive in. And this was an amazing deal and I looked at is a great opportunity to learn.

So I started thinking, if I was the seller, would I be overwhelmed? Yeah. If these people ask for all the stuff and there’s no way I’m going to sell my building without it, would I be overwhelmed? So I have to be a friend to him, and I had to say “Look I’m going to go through this with you.” And at one point I would say — and Theo, this is really funny… When I flew in and I sat down with him, you would not believe these pictures; I’ve got to share them with you maybe after the episode… It was unbelievable how much paperwork he had stacked [unintelligible [00:16:33].12] files. And I said to him “Here’s what I need from you.” And he goes “Well, I’m not going to do your job.” And I said “My job? You’re trying to sell the building. I’m trying to help you. We need to do this thing together. If you don’t pull this data out for me and let me help you, there’s no way we’re going to get to the finish line.”

So I told him, “The first thing we need to do right away is understand that we’re working together and we’re helping each other to get to the finish line. This isn’t about you, this isn’t about me, this is about closing the deal.” And then he finally put his guard down and then we started going to work, right?

So it’s funny, as much as brokers keep you away from sellers, I think sometimes if you can just get to the personality of somebody and understand their way of thinking, see it from their perspective, you can start to problem-solve. And you’d be amazed, Theo… The original guy who runs this deal said “There is no way we can get a dollar under 4,899, or 4,866, or something like that.” I ended up getting this deal at 3,875 million, so I negotiated another million dollars off the sale price. It took me eight months, but we got it done. And it was all because I ended up working with the seller, we had a lot of communication, sometimes daily, back and forth.

The broker at one point even said “I literally feel like I’m not earning my money, is there anything I could do?” I said, “No, just stay out of the way, because the seller is really comfortable with me, and we’ve just got this vibe going, and it was one document after another and now we’re thousands of documents later, and we’re about to close.”

Theo Hicks: Perfect Chris. Alright, what is your best real estate investing advice ever?

Chris Roberts: I would say, for the most part, people have to they have to get out of their own way. We have a lot of roadblocks, and what I hear from people most of all is all the things that are in their way, what’s going on, the challenges… And I think for all of us, we have to focus on where we want to be, what we want to do, and how are we going to get there, and not focus on all the naysayers and the stuff that creates roadblocks in our lives and fear. We just have to push through and understand our value proposition and how we can add value to the world and go after it.

Theo Hicks: Alright, Chris, are you ready for the Best Ever lightning round?

Chris Roberts: Yes, sir.

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

Break: [00: [18:27][00:19:16]

Theo Hicks: Okay Chris, what is the Best Ever book you’ve recently read?

Chris Roberts: May I give two?

Theo Hicks:  Sure.

Chris Roberts: Okay. Chris Anderson, TED talks, and Ray Dalio, Principles. And I read lots of books, but I’m going to tell you why I like these two books. The reason I like those is because those books talk about speech, they talk about stories from some of the most profound individuals in the world, and how they told their stories, and how you can articulate your stories. And then Ray Dalio’s book talks about principles in business, and success, and strategy, and implementation, and it’s a really long audiobook. But the reason those are important, and I’ve read hundreds of real estate books, is real estate is people, it’s not just property. And if you can understand people and psychology and communicate well, you can bring investors in, you can bring partners in, and you can close deals, and [unintelligible [00:20:05].08] deal is a perfect example of that. So I really focus on the people and that’s why I really really like those two books. Recently I’ve listened to them.

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

Chris Roberts: Well, currently I’m fortunate enough to own and be partners in several businesses and diversify across all kinds of real estate platforms, but I would probably just take a look at where my strengths were and try to focus on something that compliments my personal strengths, and that for me is communication, and sales, and dealing with people. So I would probably just dive into some other element of real estate if it collapsed… But again, I’m so diversified, so I’m really not concerned about that.

Theo Hicks: Well, since you’re so diversified, tell us about one of the best deals that you’ve done.

Chris Roberts: I have single-family duplexes and multi-family… Honestly, I think the deal I’m working on right now that I’m closing is going to be the best deal we’ve ever done. But I did buy a property once for $50,000 that I had to buy through the Japanese Consulate; that was worth about 130k and today it’s worth 280k. And all I had to do basically was pay the back taxes on the property. So that at the time was probably the best deal, bu currently, I think we’re about to close on the future best deal.

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

Chris Roberts: Giving back is very important to me. I stood in food lines when I was a kid, I struggled, I was homeless for a period of time at a very young age, so giving back and feeding people is really important to me. So I partnered with Feeding America. I wrote a book, and all of my profits, 100%, have gone to Feeding America, and they will indefinitely. And to date, we fed almost 118,000 people, with the goal of feeding a million. And every dollar that we donate, Tony Robbins matches through my partnership with Feeding America; it’s an enterprise partnership, and I’m actually on their national website, and stuff. So feeding people is really close to my heart, among other things; that I’ve done charities with the City of Hope and Wonder Warriors… But yeah, that’s very, very important to me, and we’ve got a pretty audacious goal.

Theo Hicks: I know that not everyone is watching us on YouTube, but I have to ask – what is the purpose of the little frog guy you’ve got back there?

Chris Roberts: You know, it’s really funny… I don’t know why, but I like little frogs. When I was a little kid, there were little frogs in Southern California in our little creek in the back, or whatever — it wasn’t a creek, it was like a storm drain or something… But I always played with little frogs, and I would talk about it when I was a kid, and my mom would joke about it as I got older.

So people will buy me these stuffed animals, and I probably have 30 of them around, just wherever… So I thought it’d be really funny to put one of my little frogs up in the office. I figured people would ask, but you’re the first person to ask, and it is really funny. I just like them, they’re cute and they’re a fun conversation.

Theo Hicks: That’s what I was gonna ask you, if anyone had asked, because I know usually when people will have their offices everything is intentionally put there for a specific reason. I saw that little guy right in the back corner, and I had to ask about that frog at the end. Alright, Chris what is the Best Ever place to reach you?

Chris Roberts: You can reach me at sterlingrhinocapital.com, or you can email me directly at chris@sterlingrhinocapital.com. We’re on Instagram, @sterlingrhinocapitalone, and many other places, like Facebook and LinkedIn and so on and so forth. But you can reach right out through me directly or check us out on the website.

Theo Hicks: Perfect, Chris. Well thank you for joining us; I’m sure if we could talk a lot longer. You dropped the buying a property from the Japanese Consulate at the end I was like “I wish I could ask more”, but unfortunately we are running out of time… But thanks for joining us.

Just to kind of quickly go over some of the main takeaways, for me it was three. The first was you talked about how you were able to solve the investor relations communication challenge for one of the deals you were a GP on, and really this strategy can be applied to any part of your business. That’s basically to identify what the most important tasks or concepts are, and in addition to those, what are the most cumbersome for your customer, your client, the investor, whatever, and then investigate various technologies or automations that can address those. So basically, make the most important steps, the most important tasks, the most cumbersome task as smooth as possible. For you, you gave the example of AppFolio, Active Campaign and then Google Docs to automate the communications for your investor relations process – that’s number one – and then also having the right people and hiring VA’s as well to help execute on those technologies.

The other one was underwriting deals where there aren’t any financials, which 99.9% of the time they’re going to be off-market deals, because there were on-market [unintelligible [00:24:15].00] So you said to first look at the offering price and use some rule of thumbs to make sure if the deal makes any sense whatsoever, and then try your best to bypass the broker and work directly with the seller, that way you can get to know their personality and let them know that this is a process where you’re working together and helping each other out. And you gave an example of them saying “Why would I do all this work, why am I doing your work for you?” and you said “Well, no. If you want to sell your deal, I’m going to need this information. And if you want to sell your deals, let’s help each other out.”

Basically, you had to walk them through what all of these things were and group them up with the right person, the CPA, to put together the P&L and then sending them the templates, so can update it regularly to have [unintelligible [00:24:57].03] T12. You built a rent roll and T12 from scratch, and ultimately had a pile of thousands of documents, back and forth negotiation for nine months, and then finally got to do that deal. So there’s no shortcut when underwriting deals and financials, I guess is the point.

The third thing would be your Best Ever advice, which is to get out of your own way, don’t focus on the negatives, the obstacles, your fears, and just focus more so on how to push through, how to break through those things.

So, Chris, again I really enjoyed our conversation, I learned a lot. I’m sure Best Ever listeners learned a lot as well. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Chris Roberts: Thanks, Theo. You guys have a great day.

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JF2294: How to Buy PreREOs With Jorge Newbery #SkillsetSunday

Jorge is a returned guest who was previously on episode JF1342. Jorge owned about 4000 apartments across the country and a natural disaster happened and caused him to lose everything he had and put him millions of dollars in debt. Then in 2008 when he saw that many Americans were losing their homes he decided to create a company that could help them by buying mortgages from banks in pools. Today he will share what a PreREO is and why he focuses on this.

Jorge Newbery Real Estate Background:

  • CEO of preREO LLC, AHP servicing LLC, and a partner in Activist Legal LLP
  • 30 years of real estate experience
  • A previous guest on episode JF1342
  • Portfolio consist of 10,000 purchased defaulted mortgages, owned 4,000+ multifamily units, and brokered thousands of properties
  • Based in Chicago, IL
  • Say hi to him at: www.preREO.com 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Local investors have advantages because they can see the work that is needed and typically have a local team they know and trust” – Jorge Newbery


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today I’ll be speaking with Jorge Newbery. Jorge, how are you doing today?

Theo Hicks: Good, thank you. Thanks, Theo, for having me on the show.

Theo Hicks: Absolutely, thanks for joining us again. So Jorge a repeat guest; make sure you check out his other episode, which is Episode 1342. So today is Sunday; we’ll be doing a skillset Sunday where we’ll talk about a specific skill set that our guest has, and as you can tell by the title, we’re talking about how to buy pre-REO’s, not REOs but pre-REO’s on the internet. So Jorge, can you tell us, first of all, what pre-REO’s are and then how you can buy those from your house on the internet?

Before we get into that, Jorge’s background… So he is a CEO of pre-REO, as well as AHP Servicing, and is a partner in Activist Legal. He has 30 years of real estate experience, a portfolio of 10,000 purchased defaulted mortgages, he has also owned over 4,000 multi-family units, and brokered thousands of deals. He is based in Chicago, Illinois and the website is prereo.com. So Jorge, do you mind telling us just a little bit more about your background and what you’re focused on today?

Theo Hicks: Sure, I’ll give you a brief history. About 16 years ago I owned about 4,000 apartments across the country, a natural disaster devastated my largest holding which was 11,000 units in Columbus, Ohio, and it gutted me financially; I ended up losing everything, and over 26 million dollars in debt. That story created a huge amount of challenges for me at that time of my life; actually, enough that I wrote a book about it called Burn Zones.

But I rebuilt myself through a company called American Homeowner Preservation, and this was 2008 when the financial crisis was devastating America and millions of families were at risk of losing their homes… And I saw that many of these families were going through the same things that I was going through. So I started a company called American Homeowner Preservation. And what we started doing was purchasing the defaulted mortgages at big discounts from banks and other lenders, and when we could, we would share those discounts with the families in the form of affordable modifications so they could stay in their homes. So that’s what American Home and Preservation has done. We bought over 10,000 mortgages in the last decade.

But when we bought from banks, we’d often buy pools, and those pools will include some that are occupied and some of them were vacant. Sometimes we got lucky on the vacant ones; we could find the homeowner and we’d pay them cash for a deed in lieu and we’d sell the property. So that’s great. But other times we could not find the family; maybe the homeowner was deceased, or was divorced, and no one could agree on what to do, and we would end up having the fore-close on a vacant home. So we’re the mortgage holder, there’s a property owner, but they’re not living in the home, and it’s sitting there vacant.

Now, in many cases there are great challenges; the returns often on that component of the population and often times was not that good, and I’ll tell you why… As a mortgage holder, if the property owner is not taking care of the property, the mortgage holder needs to, and that  includes anything from cutting the grass to shoveling the snow, to boarding up the property… And sometimes code enforcement, the local city will go out there and say “Hey you need to bring everything up to code. The roof is leaking.” So we have to do it; we don’t own the property, but we’d have to pay for that work.

And then in extreme cases like where I am in Chicago, if the property became a nuisance because people kept breaking in there and whatnot, then the city would actually require that we posted a night watchman. So every night we’d have to pay for a security guard to guard the property. And obviously, that becomes extremely expensive. And we’re still just sitting on a vacant property that’s losing value, in many cases, because it is deteriorating.

So in my mind I was saying “How do we rectify this? We have homes that could be rented out and generating income, but we don’t own the property, so what can we do?” And I guess the opportunity and the challenge is that the situation I described for AHP is the same for all the other hedge funds and mortgage investors across the country that do this nationally; they all have similar situations with a portion of their vacant properties.

So the solution that we came up with is pre-REO. And people say “What is a pre-REO?”. A pre-REO is a first mortgage that’s in default, that is secured by a vacant property; and actually, it could also be secured by a tenant-occupied property, but by and large, is by a vacant property. So what we offer is for hedge funds and other holders of these mortgages to put them on pre-REO, the local investors can bid to buy an interest in that mortgage, and that interest will allow them to follow a strategy that we’ve come up with, which is to work with our law firm Activist Legal to continue the foreclosure, number 1, so they can eventually get title to the property, but also to appoint a receiver, which is typically a local real estate agent who can repair and rent the property while it’s in foreclosure.

So it’s not yet owned, but the court will allow it, because it has been abandoned in many cases, to appoint a receiver to repair and rent the property and start generating income while the foreclosure is continuing. So that is the strategy that we’ve come up with, and so far we are getting a good reception.

Right now we have hundreds of properties on the platform, I anticipate by the end of the year we’ll have thousands. So it’s just a huge demand from lenders, and now we’re trying to reach out. One of the reasons I’m on the show is to let buyers know about the opportunity. It’s in many cases a fantastic opportunity for local investors to buy these at significant discounts to what they would buy REO’s.

Theo Hicks: So from your perspective, the deals that are on there are notes that your company owns, as well as other companies that do the same thing, that have the same issue with a portion of the vacant deal. So someone already owns these notes already, right?

Theo Hicks: Correct.

Theo Hicks: Okay. So from my perspective as a client, as a person who wants to buy these, I go to your website — I went to your website and saw that info on there. What types of things do I need to do in order to figure out how much I should pay for these things, if it’s worth paying for this…? What’s the due diligence that I need to do on my end?

Theo Hicks: Sure. Because it’s vacant, it is truly destined to be an REO in almost all cases. It would be rare that a homeowner would pop back up and say “Hey, you know, I want to pay off my mortgage, or re-instate”, or something like that. So in time, there’s a high likelihood that these will become REO. So I think investors should look at it as “What do I really think this property is worth as an REO?” And as is, where is.

And our guidance to sellers is to price it at 75% of the REO value. So they think the property is worth 200k, offer it at 150k. So there’s a $50,000 equity that’s there to be captured by going through this process. And the sellers – the sale to them is “Hey, you get your money a year or more early, you’re going to save all the legal fees, all the taxes, insurance, boarding up cost, night watchman, all that stuff is gone.” And for the local investor, they’re going to put a tenant in there who could be paying them, call it a thousand a month or something like that during that year, so they pick up $12,000, plus they do the repairs while it’s still being foreclosed upon. And when it’s foreclosed upon, they can choose to either sell it as an REO or to keep renting it.

Theo Hicks: So that offer is to you and these hedge funds, right?

Theo Hicks: Correct. Right now the offers all go to us, and then we share them with the hedge funds. But ultimately, they’re making the decision on “Hey do we accept it? Do we counter it? And how do we respond to this?” So to be clear, all the asking prices on there are simply just that – they’re asking prices; you can offer more, you can offer less, and we do see both of those. We see people who are offering full price, people where there are maybe five or six bids, but they’re all 10% or 20% low, which means that maybe the hedge fund opinion of values may be higher than it should be, and vice versa. There are some times that somebody is selling for a little bit more than what the asking prices are. So pay what you think is fair, offer that. Right now, we’re highly attentive to trying to get these things sold to prove out the models. So we’re trying to broker… In some cases, in the end we’re almost on the phone between the buyer and seller to try and bridge the gap to a price that makes sense.

Theo Hicks: Okay. So if I submit my offer, you mentioned that your company, for the pre-REO, has a system that I can use. So that system is up to the actual foreclosure; then it’s in my hands, right? So you’re saying that you help the second I take over that note to the foreclosure, and then the main thing in between there is appointing the receiver.

Theo Hicks: Appointing the receiver. You, for instance, could choose “Hey I know a friend who is a real estate agent. They are really reliable, I want them to be the receiver.” That’s fine. But the court will have the attorney propose to the court that that agent is appointed as a receiver.

Theo Hicks: Why aren’t the hedge funds appointed the receiver?

Theo Hicks: Because this is very local; we’re in Chicago, so when we’re having to pay for these repairs on properties I know we’re not getting in best prices. The local person will maybe have their own crew or have their own relationships and contacts where they can get stuff done at a better price, done faster; they can also be there watching “Hey this is what the work is, and you’re getting the bid for this.” That makes sense. And besides, we’re a thousand miles away from the bid and we don’t really know; we get photos and sometimes people — they always think it’s a bank or a hedge fund,
“They’re not going know the difference whether it’s 2000 or 3000, so bill them 3000.” We got this clean-up bids sometimes for like $3,000 and $4,000. I’m thinking, if I had a small crew, I’d be out there with the dumpster and get it all done for 500 bucks. And then they say “We’re bonded, we’re insured, and that’s why we’re $4,000.” Sure, that’s important, but the local investor can always do these things better. Also, selecting tenants, making sure they pay…

So I think what pre-REO is trying to bridge is the local investors absolutely, in this case, have the advantage. They know the market, they can watch the work get done, so they are doing that portion of the work and they’re adding value because they have transactions as a result. The hedge funds can never compete with a local investor in that regard.

Theo Hicks: Yeah. Plus, they’re not real estate investors either.

Theo Hicks: They’re not. We got offers on our REO’s, there are always people sending us the photos of like the worst thing in the house, making it look as bad as possible… And again, we are thousands of miles away sometimes so we don’t really know the difference. So local guys can say “Hey this thing is worth $300,000.” Or it’s worth whatever the number is, and if somebody is crying about a little repair that needs need to be done, hey I’ll get that done and they should be paying full price.

Theo Hicks: I’m not very familiar with this. So appointing a receiver – is that something that always happens? There’s no risk of the court say “Well no, you can’t do this, from my perspective.” Who are the receivers?

Theo Hicks: Sure. So that typical receiver is appointed on an office building, a hotel, a property that’s generating revenue, and if they’re not paying the mortgage or the other debt then, the lender can request that court to appoint a receiver to collect the rent, pay the expenses on that type of property; even they put him at sometimes retail stores or whatnot. But those receivers are often times attorneys or other high-priced professionals, and it would not work to use that type of receiver for a single-family residence.

So we were like struggling with who do we use, and who’s going to make sense here… And the receivership is very much akin to property management, with a couple of extra reporting steps with the court; so a local real estate agent makes a ton of sense. And they are doing it — maybe collecting rent, maybe 10% of the rent collected, and that’s okay, but I think what the agents are really looking for is hopefully some of these ends up being listed once they are foreclosed, they’re going to want to sell it, and then I’ll get the listing; so they’re building a pipeline of future listings. In turn, the receivership is usually high cost; we’ve made it affordable for this segment of the market, single-family residences and other small properties.

And then the other part is if real estate investors just call the local attorneys and say “Hey, appoint a receiver on a single-family”, it’s going to be “I’ve never heard of that.” So we have one firm [unintelligible [00:14:35].17] which I’m a partner in, which facilitates default services nationwide; so all of these we recommend that you go through Activist Legal, and Activist Legal will co-counsel with the local attorney in their network to complete the foreclosure and to get the receivership appointed.

And you’ll think “Well, how much is the receivership?” To appoint a receiver, estimated hours maybe a thousand dollars in legal fees. When the receivership is completed, maybe a couple of hours and maybe $500. And your question, which is a good one, “Is this definitely going to work? Is the court definitely going to appoint a receiver?” And the answer is we expect that they will, but we don’t know. There may be some judge who just says “I don’t get this. It doesn’t make sense to me. I’ve never seen it before.” We haven’t run into that yet; we’ve been able to so far convince judges that this makes sense. And the reality is if a judge is going to look at it from a public policy point of view and say “Is it better to leave a home vacant for a year, or better to appoint a receiver and have a tenant in there? Which is better?” It’s clearly to have it occupied; if it’s vacant it either is or could be of blight on the community, so it’s just so much better to have it occupied. The neighbors would appreciate it. So it does make sense, but we do anticipate at one point or another we may have [unintelligible [00:15:41].18] We’ve had this concern enough as we keep going to different jurisdictions to prove out the concept; if a receiver  could not be appointed, our fund would buy the asset from the pre-REO buyer. We expect that to happen one in a hundred times; it hasn’t happen yet. And if it does, then we simply know that in a jurisdiction we can’t do it, and we’ll keep trying. It makes sense, so we expect at some point the judges will all be on board with this.

Theo Hicks: Another question I have from a very limited knowledge of the foreclosure process – I know it’s usually not always the exact same length from when it is initiated to when it’s actually completed, so how do I know when looking at a deal what spot in the process we are at?

Theo Hicks: That’s a good question, because if there’s a sale date next month and you already have a judgment, then you’re just going to say “Skip the receiver, I’m going to get the deed to this thing in a month or two.” So we are trying to provide information on our site; it’s not where we want. Sellers – it always seems like they have to go to the servicer, go to the attorney and get the current updates. So we are trying to improve that. If a property is of interest, and you think of bidding on it and that’s important to you, which it should be, then before you bid, say “Hey, what’s the status of the foreclosure?” And someone will get you that information.

Bear in mind though, the way we’ve structured pre-REO is accepting the ones that are towards the end of foreclosure. If it’s kind of mid or earlier, then it’s going to be months if not years in some cases, so it does make sense to appoint a receiver. And the passage of time, which usually negatively impacts the returns of a mortgage holder using pre-REO, where you’re generating rent during the term for the foreclosure, then the passage of time is no longer a negative drag on your returns.

Theo Hicks: So if I have a receiver, and I get fixed up, I can put someone in for rent before? That makes sense. I was kind of confused. I saw on there in your website, that you could do loans on this as well.

Theo Hicks: Yup.

Theo Hicks: So I put the down payment, obviously I’m paying that loan, because I’ve got an outgoing payment, but with a receiver, I fix it up, I put a tenant in it, the tenant could pay me before I actually own the property.

Theo Hicks: Correct. Now, a big asterisk to all that. The receiver needs to coordinate the work, so the court’s going to allow the receiver to do the work, and they can hire contractors. So you couldn’t actually do the work yourself; you could coordinate it through the receiver. You could tell the receiver “Hey, I recommend that you use this contractor.” Ultimately, you’re the one funding the work. And the rents that are collected would need to go to the receiver, they need to go to the servicer, and then they come back to you. That way it’s fully documented for the court and there’s always a record if they ever ask. In the end, we accomplish what you’re just describing.

Theo Hicks: So you said that rents go to receiver, and then who is this servicer? Is that you?

Theo Hicks: Yeah. But that’s the AHP servicing.

Theo Hicks: Okay.

Theo Hicks: So almost all the states in this country require that a licensed servicer is the one that usually collects the mortgages, interfaces with the bar, facilitates foreclosures… So AHP servicing is a national servicer; we can fill that role. In fact, in pre-REO you can say “Hey, it’s a great way to generate business for AHP servicing, [unintelligible [00:18:29].07] and you’re right. But also, without those two components, it would be very difficult to replicate. Because otherwise, you’d have to go to a servicer, go to a law firm and try to put these pieces together, and that I think would create a challenge. So here I’ve created the roadmap, and the companies and resources that you can utilize along the way, so you just follow the steps for the particular pre-REO that you’re working on.

Theo Hicks: So you say this is pretty passive compared to other strategies. Is that like entirely passive? But it sounds like it’s passive, because a lot of the steps – kind of communicating with the receiver, it sounds like once you’ve bought the deal and then sending the money out for the loan… So those are passive?

Theo Hicks: Yeah. I don’t know if I’d say very passive. You still have to be the quarterback, maximize your success. You want to be very involved [unintelligible [00:19:13].24] you’re right, you’re having to work through others to help execute the strategy.

Theo Hicks: Alright, Jorge. This is very fascinating stuff. It’s from the perspective of buying this, but also just from your perspective in identifying this need and starting a business. Of course, we couldn’t focus on it that much, but I think we did get a lot out. Is there anything else that you want to mention about buying pre-REO’s on the internet, or anything else before we wrap up?

Theo Hicks: No. I think we’ve covered most bases. You mentioned the financing – we provide 75% of the money, so the local investor just needs to come up with 25%. We’ve tried to make it as similar to doing a normal real estate transaction, except here you’re just buying earlier in the process, at a greater discount. So I think we covered all the bases. I appreciate the question, and thanks for having me on today.

Theo Hicks: Absolutely. Thanks for joining us and talking about how to buy pre-REO’s on the internet. So if you want to look at actual live deals, prereo.com. And there you can kind of click and see some details about those deals.

Overall, just to summarize what the process is, you are buying the first mortgage that’s in default, as secured by a vacant property, from a hedge fund or some other company that’s already bought that. And then you being the local investor will be able to add more value to that deal than the company that’s thousands of miles away.

Once you buy the note, which you said that the starting offer price would be 75% of whatever that value is, then you request that the court appoints a receiver, and then this receiver, which your company helps find, will be the person who can coordinate the renovations on that vacant property, putting a tenant in that vacant property, so you are able to make money before you actually foreclose on the property. That sounds like the overall strategy. Obviously, there’s a lot more that goes into it than that, but that’s the overall strategy.

Jorge, thanks again for joining me. It was great talking to you. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2285: Working Two Full-time Jobs With Jimmy Johner

Jimmy has been investing for 5 years and currently owns and operates a marine infrastructure company. He is also working full-time with a commercial general contractor and developer with the purpose of continued growth. 

Jimmy Johner Real Estate Background:  

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Networking is the most important thing you can focus on to help grow your business” – Jimmy Johner


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks and today we’ll be speaking with Jimmy Johner.  Jimmy, how are you doing today?

Jimmy Johner: Doing great, Theo. Thanks for having me on board.

Theo Hicks: Absolutely. Thanks for joining us. So a little bit about Jimmy— he is the owner and operator of a marine infrastructure company, and he also works full-time with a commercial general contractor and developer. He has five years of real estate investing experience and his portfolio consists of 66 units, as well as a 9-unit salon suite development. He is based in Beaufort, North Carolina, and you can say hi to him at his LinkedIn profile, so his name is Jimmy Johner. And if you’re watching the video, when you look him up, you’ll see his face and know that it is his profile.

So Jimmy, do you mind telling us some more about your background and what you’re focused on today?

Jimmy Johner: Yeah, absolutely. And thanks for the description of my last name there, spelling it out, people tend to botch that up quite a bit. So as you said, I own a marine infrastructure company. I’m kind of all things business and kind of have been an entrepreneur bone for the majority of my life. The marine infrastructure company consumes quite a bit of my time right now, and then I obviously do as much real estate investing as I can. We try to pull as much money into the real estate as we can from the other businesses.

I guess looking into my background, I went to a Maritime Academy after high school, and just dove into the shipping industry, traveled all over the world and got the travel bug out. I still do quite a bit of it now… And just always wanted more and real estate was kind of the path I decided to take to continue to grow.

So right now our main focus is multifamily. We try to find some value-add deals in the Eastern part of North Carolina around the Raleigh market in the East, and we’ve got a couple deals under contract right now, another 46 unit property right outside of Raleigh that we’re hoping to close on late October, and steady hunting some more down south. So I’m actually in Louisiana right now, outside of New Orleans on a self-storage project that we’re under development on. So all over the place, wide open.

Theo Hicks: Awesome. So you said that you spend a lot of your time with the marine infrastructure company. So right now while we’re interviewing, you’re doing something for your real estate business, right? Or are you doing something for your marine’s infrastructure?

Jimmy Johner: For the general contractor that I work for. So I work full-time for a pretty good-sized commercial developer/contractor. We work all over the country, doing new development deals. I mainly do storage, so we do Class A Self Storage developments. So from the ground up, three to five-story, 120,000 square foot buildings. Yeah, so right now I’m actually out of town for the company that I work for full-time.

Theo Hicks: Got it. So when do you work on your real estate business? Is it on the weekends, at night, in the morning?

Jimmy Johner: Well, all the time. My partner in crime [unintelligible [00:05:46].05] His name’s Alan. We kind of tag-team a lot of stuff, a lot of late nights and mainly weekend work, and with the power of the cell phone, we’re able to do quite a bit remotely. And given today’s climate with remote working, it’s kind of a no-brainer that we’re able to hunt deals and delegate different things to different people on our team, and continue to find deals and place capital.

Theo Hicks: So you have 66 units right now… What’s the breakdown of that? Is it just one building? Is it 66 single families, or somewhere in-between?

Jimmy Johner: No, 66 apartment units. So we own two different properties. One’s an 18-unit and the other ones is 48, consisting of seven different buildings, but it’s two different properties.

Theo Hicks: Perfect. And then how did you fund those deals?

Jimmy Johner: We raised, you know, OPM (Other People’s Money); raised money for the first one just through connections and networking with people that I know that that had some liquidity and were interested in the real estate realm. A lot of them were kind of neck-deep in single-family homes and we’ve tried to transition some of their focus, because they do have the capital available to get on board with us with multifamily, and kind of leverage our knowledge with that sector of the real estate industry and their capital and make it a win-win partnership or a no-lose, no-lose, as I like to say it.

Theo Hicks: So that was for the 18 unit, it was people that you already knew that invested?

Jimmy Johner: Well, and as well for the 48. So we actually have the same equity partner on both of those deals and it’s kind of been a dream come true, for lack of a better word. It kind of came easy. Once we put the work in place and he felt comfortable with what we were doing, it was actually pretty simple to raise the money, to be honest with you. It wasn’t too much effort on our part. And just finding it and putting it all together and making it work was the real task.

Theo Hicks: So you have one guy that invested in the 18 unit and the same person invested in the 48 unit for all of it?

Jimmy Johner: All of it.

Theo Hicks: Alright. Do you mind telling us some background on that? Who is this person? Maybe not their name, but how did you meet them? How long did you know them? How did you bring up the concept of him investing in your deals, and things like that?

Jimmy Johner: Great question. Yeah, I’ll leave them somewhat private, because that’s how he tends to stay. But it’s all to the power of networking. So my partner and I know people all over the country through the construction industry that we work in, and we’ve known this guy for a long time, probably five or six years or so. I knew he was interested in real estate, he owns a ton of single-family homes, and we just bounced it off of him and asked him if he knew anybody that might be interested in it. He raised his hand.

So it’s kind of a typical approach, asking somebody that you know, that’s got the liquidity, if they happen to know anybody that might be interested, hoping that they’re the ones that say, “Yes, I’m interested.” And from there, we just continued to leverage that relationship is really all it comes down to. And he trusts us and we trust him and we were able to make the deal work. So my partner and I have come pretty little out of pocket; we put all the upfront effort and all operational stuff in play, which again, makes it a great partnership, because we can’t do without him and he can’t do it without us. So that makes a great partnership.

Theo Hicks: So this conversation happened, and then he invested in the 18 unit and he’s invested in the 48 unit. Are those the only two apartment deals you’ve done? Was the 18 unit the first deal you and him have done yourself personally, or had you done deals in the past before it?

Jimmy Johner: I’ve done a few duplex developments and stuff in the past, and we’ve done a salon suites development in the past, but the 18 units was the first apartment building that we bought. So that was the first time that the partnership was born with the three guys that are in it now. The other stuff was just me personally.

Theo Hicks: So [unintelligible [00:09:00].03] talking about this to someone else; if someone asked you, how beneficial has your full-time job with this commercial general contractor and developer, being full-time in real estate, how beneficial has that been towards your investing business? Not at all or completely invaluable? Without it you wouldn’t be able to do what you were doing, or somewhere in between?

Jimmy Johner: I don’t know that I’d call it I wouldn’t be able to do it without it, but it has definitely been transformational from a networking standpoint and a knowledge basis and a literacy concept of how everything works with real estate, from land acquisition to building it, to renovating it, to everything. It’s just made a tremendous difference. And again, the network. I mean, I can’t emphasize that enough. The network that I’ve developed over the last five years has just been incredible. I know people all over the country that are neck-deep in real estate every single day that I could call and bounce questions off of, and so on and so forth. So it’s been invaluable for sure.

Theo Hicks: And is that how you met your business partner?

Jimmy Johner: No, we actually grew up together. He’s one of my best friends, so I’ve known him since I was 10.

Theo Hicks: Huh, interesting. So a lot of people, they’ll give advice and say that you shouldn’t partner up with a family member or a friend that you already know, that you already have a pre-existing relationship with; maybe walk us through your advice for anyone—it is probably the easiest to partner up with someone that you already know, but they say that eventually things might get difficult. So—

Jimmy Johner: Yeah, no, I—

Theo Hicks: Would you let us know or give us some of your advice on what people need to do in order to set themselves up for success when partnering with someone they have a pre-existing relationship with?

Jimmy Johner: I’m a big fan of partnerships. You can spread the risk and also spread the amount of work that it takes upfront and on the backend, take massive action on getting stuff done, which is a huge part of getting stuff done… It’s just taking action, quit thinking about it and just do it.

But I would say that in any good partnerships, you both have to have one another. If it’s one-sided where you don’t really have to have the other person to do one thing or another, and it’s not a no-lose/no-lose situation… I think that’s key. And you do have to be careful with friends and family, especially when it comes to money, with any type of partnership. But upfront, we put together an operating agreement with an LLC, just like you would with anybody, and I trust him with my bank account and he trusts me with his, and I can’t do without him and he can’t do it without me. So again, that’s the value of an awesome partnership, is not being able to do without the other person… And knowing your boundaries with them and knowing what they’re comfortable with and knowing that they’re not comfortable with and having an open dialogue with that is really the key, I think, to moving forward with it.

Theo Hicks: What was the size of the deal you said you’re working on right now, you said a 42 unit?

Jimmy Johner: It’s a 46–

Theo Hicks: 46 unit?

Jimmy Johner: Yeah. I think it’s a one-three purchase price. So we’re getting a pretty deep discount, along with about almost a million dollar renovation on the backend. So about a two-year turnaround for our investors on money, and so forth. I can get into the weeds and that stuff if you want.

Theo Hicks: Yeah, so I wanted to ask how you found the deal. And then I’m assuming that the same individual who invested in the previous two deals is investing again… So maybe tell us about what that structure is going to be. It sounds like this is going to be a pretty heavy value-add deal.

Jimmy Johner: Yeah, pretty heavy value-add deal. The way we found it – it was an off-market deal, we found it through a pocket listing through a broker that I know; he brought it to us just because again, that network; he knew we could close. So he brought it to us, negotiated directly with the seller and the broker via Zoom, just like this, and it went under contract about a month ago on it. We’re just heading into the due diligence right now, and like I said, planning to close late this month, early October. And we’ll get some bridge debt in place for the acquisition, refi it after 24 months or so, getting some agency debt on it and pay our investors back, and roll all the refi proceeds into another deal that we hopefully will find between now and then.

Theo Hicks: So your investors will invest upfront… And then when you give them money back, are they still in the deal or are they just kind of putting that money upfront so you can stabilize it, and then they get their money back plus some sort of profit, and then they’re out?

Jimmy Johner: Great question. There’s a million different ways to skin a cat. That’s one of the first things people always ask me. So from an equity standpoint, the way we structure a partnership, we don’t like to label ourselves as syndicators, just because we really like the word partnership when it comes to SEC regulations and so on and so forth. So being an active partner makes a big difference. There’s less paperwork, there’s less soft costs upfront with security attorneys and so on and so forth.

But the way that it’s working on this one, we’ve got three partners – it’s myself, my partner, Alan, and then our other equity partner that’s going in on the deal. He’ll own 33% of the deal, just like he does on the other two, and we’re all raising the money together from within the three partners. We’re not raising it from anybody else outside of the partnerships. So all the money that’s coming in is ours, so at refi we’ll all get our money back, and then like I said, roll it over into another deal.

So we don’t take anything out of any of the properties right now. And that’s also the power of me trying to maintain a full-time job, along with my partners; they do the same thing. So we don’t rely on any of the money that our real estate makes right now, we’re just continuing to build the business, and we’ll continue to roll that money for as long as we can, until we can say peace out on everything else.

Theo Hicks: So you’ll buy the deal and then you’ll all invest. The money is coming from mostly the equity partner, but then you and your business partner also invest, and then you get bridge debt, stabilize it, refinance, all the investment money that went in there is paid back equally, you don’t get anything extra on top of that… And I’m assuming that extra equity that you get back from the refi plus all of the cash flow – does that just go into an account that’s then used to buy more deals? How does that work?

Jimmy Johner: That’s a great question as well. There’s a lot of tax stuff that you’ve got to watch out for… And again, that’s the power of having a team of people that know this stuff; they’re a heck of a lot smarter than I am when it comes to all the tax code. But we’ll refinance the deal, roll it over into the same entity, and then it’ll get distributed to the partners, quote on quote, but all it does is get rolled over into another bank account with a new entity that buys another deal. So it’s all kind of tax-deferred because we’re active partners and because we all do take a liability in the refi.

So again, there’s a lot of steps in the middle, but that’s kind of the basis of it, just what you said; we’ll shift the money around, move it from one account to another and then buy another deal with it as a down payment.

Theo Hicks: Alright, Jimmy, what is your best real estate investing advice ever?

Jimmy Johner: Networking. I’d say that’s the most important thing. In my short lifetime of doing this, it’s the power of networking. The more people you know and the more people you can bounce questions off of, the more things that tend to come to you… And just taking massive action towards that networking.

Theo Hicks: Alright, Jimmy, are you ready for the best ever lightning round?

Jimmy Johner: Sure.

Theo Hicks: Alright. First, a quick word from our Best Ever partner.

Break: [00:15:15] to [00:15:57]

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

Jimmy Johner: So I do a lot of reading, I’ll have to say — I don’t know if it’s the most recent one, but Seven Habits of Highly Effective People. I know I said like 10 times in these 20 minutes about taking massive action, but that’s probably my number one book I’ve ever read; just an overall mindset, and so on and so forth. And a close second would be, you know, Carnegie’s How to Win Friends and Influence People, of course.

Theo Hicks: If your businesses were to collapse today – your marine business, you lost your commercial real estate job and then your multifamily business were to somehow collapse, what would you do next?

Jimmy Johner: I would do it all over again.

Theo Hicks: Start from scratch. Okay.

Jimmy Johner: Start from scratch. I know how to do it now, so it’ll be a heck of a lot easier to do it again.

Theo Hicks: Out of all the deals you’ve done, what has been the best ever deal?

Jimmy Johner: I’ll say that first 18 unit… And not necessarily so financially speaking, but just from a learning curve perspective. That’s probably the best deal. I mean, it’s what kick-started my multifamily mindset on getting rocking and rolling with apartments and finding the value in them. We’re actually getting ready to refi that deal right now and it’s helping buy the 46 unit. So it works. I’d say that deal is probably my best one.

Theo Hicks: If you’ve lost money on a deal before, how much did you lose and what lesson did you learn?

Jimmy Johner: Knock on wood, I haven’t lost money on a deal in real estate. I’ve broken-even and come close, but haven’t lost money. Now, I have elsewhere on jobs, and so on and so forth. And it’s just — knowing your numbers is the most important thing, and not faking a proforma. Whether it’s real estate or any business, just not faking your proformas and making the numbers work, but actually writing a real proforma and making sure that you know every little detail.

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

Jimmy Johner: I like to employ people. That’s my number one thing. I know that kind of sounds like not really giving back, but… There’s no free lunch, I’d like to say that, and I thoroughly enjoy keeping people employed and providing them a place to come to work every day, and with a positive environment, and having ownership in what they’re doing every day, and enjoying where they work. So that’s my form of giving back.

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

Jimmy Johner: I’d say through LinkedIn, it’s probably the quickest and easiest way to get a hold of me. I’m also on Facebook and Instagram, all my handles are the same, it’s James Johner or Jimmy Johner.

Theo Hicks: Perfect, Jimmy. Well, thanks for joining us and walking us through your real estate journey, as well as your best ever advice. Some of the big takeaways that I got was number one — and you talk about this a lot, is that a really good way to get started in real estate if you don’t have the money to buy deals yourself is to just get a full-time job in real estate, because of the massive benefits you’ll get, as you mentioned, from networking and then from knowledge.

So for your business, you were able to find your equity partner through this networking, and then the knowledge and the literacy that comes from working in real estate gives you a leg up when you’re first getting started, and lets you skip a lot of the minor mistakes that people usually make because they don’t know/they’ve never done it before. So it allows you to do it without having your own skin in the game, in a sense.

And the other thing was your strategy. I also really liked that too, where you’ve got your equity partner, you don’t do syndication, you do the joint ventures, so everyone’s active… And then you’ll invest, you’ll do value-add deals, the three business partners will invest money in the deal, and then once the deal is stabilized, you refinance, rather than each of you cashing out and taking the cash and doing whatever you want to with it. You said there’s some processes you need to follow, but high-level, the money is rolled into another deal. So all the cash flow, all the refinance proceeds, all of that stuff goes to you and then goes into an account that’s used by other deals.

And then you are living off of your full-time income, and ultimately the goal is to do enough of these deals where you have enough cash flow coming in, so that that replaces your full-time income. So a more longer term perspective and I really like that strategy, so thank you for sharing that.

One thing I forgot to mention with that networking part – not only did it allow you to find your equity partner, the knowledge, but you also got the deal you’re working on now from a broker who knows that you’re able to close on deals, that you got through that network.

So Jimmy, thank you for joining us, I really appreciate it. Best Ever listeners, as always, thank you for listening, have a best ever day and we will talk to you tomorrow.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2268: Nice Guys Buying Houses With Terry Burger

Terry is a full-time real estate investor with 19 years of real estate experience and founder of “Nice guys buying houses”.  Terry will be sharing some great information around how to find leads, to strategies in how they separate themselves from other real estate companies such as focusing on the Better Business Bureau and focusing on a specific customer. He also was open to sharing how he comps markets by focusing on micro-markets, schools, and other ways. 

Terry H Burger Real Estate Background:

  • Full-Time real estate investor
  • 19 years of real estate experience and 5 years of investing
  • Portfolio consists of 6 rental properties and flips 30-40 per year
  • Based in Atlanta, GA
  • Say hi to him at: https://www.niceguysbuyinghouses.com/ 
  • Best Ever Book: Traction

Click here for more info on groundbreaker.co

Best Ever Tweet:

“If you have that warm fuzzy feeling when you find your first deal but not sure about the numbers, then you need to be careful” – Terry Burger


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today I’ll be speaking with Terry Burger. Terry, how are you doing today?

Terry Burger: I’m doing great, Theo. Thanks for having me on today.

Theo Hicks: Absolutely. Thanks for joining us, looking forward to our conversation. A little bit about Terry. He is a full-time real estate investor, with 19 years of real estate experience and 5 years of investing. His portfolio consists of 6 rental properties and he does 30 to 40 flips per year. He is based in Atlanta, Georgia and his website is niceguysbuyinghouses.com. So Terry, do you mind telling us some more about your background and what you’re focused on today?

Terry Burger: Yeah, no problem. So I am a trained classical musician, turned middle school band teacher, turned realtor, turned real estate investor. So I spent about 9 years teaching public education and then went into residential realty or real estate for about 16 years, and then made the transition around 2013 to investing full-time. And that’s a little bit of my background. Kind of my claim to fame is my superpowers comping property and knowing what the consumer wants.  I have probably walked through 10,000 properties, I probably had 5,000 moms in my car at any given time. So I kind of feel like I’m the house whisperer when it comes to knowing what the retail consumer wants. So that helps me in my flips for sure.

Theo Hicks: Well we’ll definitely talk about those two things. So the comping properties and the knowing what people want. But before that, so you do flips and you do rentals. So which one is your main focus?

Terry Burger: So we flip to buy and hold. We like to generate cash through our flips and then we can save the best ones with the most cash flow as a rental properties. So we’d pick up two, maybe three a year, if we can.

Theo Hicks: What’s your main way to generate leads?

Terry Burger: Let’s see, the main way to generate leads is direct mail at this time; we buy some online leads as well. Those are our two primary.

Theo Hicks: You buy online leads. Do you buy like lists?

Terry Burger: Yeah. So there are companies out there that have great organic traffic. So you could either do Google pay per click – we have done that before – and drive traffic to your own site. Or you have these companies out there that have really great SEO and they appear in top search results in just about every market and they get plenty of leads. So we basically just pay for leads from them.

Theo Hicks: Interesting. So you have like an ad on their website? Like if I go on a website, on the corner it will have an ad for you buying houses, or how does that work exactly?

Terry Burger: No. It’s not an ad at all. It’s kind of like they go in, and because these companies have national SEO presence they just go in, and let’s say somebody clicks Greenville, South Carolina, I have a house to sell in Greenville, South Carolina, then I buy that lead.

So if you think about how Service Master does it for storm-damaged and water-damaged houses, it’s just a national website and it’s a lead collection service, and then there are a multiple of people that buy leads. I can give you the company names if that would be helpful, Theo.

Theo Hicks: So you buy it and then they will send you a list of people who said “I want to sell my house in this market”?

Terry Burger: Yup. Let’s say Suzy Smith hits their website, and they know that I’m going to pay X amount of dollars for this lead, call it a hundred bucks, a hundred and fifty, two hundred dollars… Then they send that lead over to me and they just ping my credit card per lead.

Theo Hicks: Okay, and what are some of the websites that do this?

Terry Burger: There’s a needtosellmyhousefast.com, is the most common one, and then fasthomeoffer.com is the other. A lot of people, I think, have heard of fasthomeoffer.com.

Theo Hicks: And then for the direct mail, what’s your criteria for that? What type of people are you mailing to have you found to be the most receptive to direct mail? And then what type of messaging are you putting on these letters?

Terry Burger: I think the best messaging is just consistent messaging. What is it that your company has that might separate you from other people? So we have done a really concentrated effort to get Better Business Bureau reviews. So we leverage those Better Business Bureau reviews against our competition, and we hear this all the time, “We went with you because you were BBB rated,” or “We called you because you were A+ rated on the BBB.” That seems to help us a lot, so that kind of messaging – we get that out all the time. And then in terms of the type of person that we mail to, just like everybody else, they need to have equity, and we’re just trying to figure out who is motivated.

We have personally, I don’t think, ever bought a house from anybody under 40; so we go 40 and up. We just kind of look at our avatar customer, who is it. The problem with us sometimes is – I remember buying a house from an attorney couple one time. So typically he wouldn’t be our avatar customer, but they hated realtors. Really, honestly, Theo, that’s really what it boils down to. If they don’t like real estate agents, they call us. And I think from an investor’s perspective, a lot of times that’s what makes the investor a really good option for people, is because a lot of people have this bias against real estate agents sometimes. And that usually stems from a bad experience along the way.

And look, I was an agent for 17 years, I sold over a thousand houses, and I was a really good agent, but did I make everybody happy all the time? No, I didn’t. So that one person that I didn’t make happy, or they didn’t have the experience they thought they would have, they may reach out to an investor.

Theo Hicks: So, you’ll have on the direct mailing a stamp that says “A++ Better Business Bureau”? [unintelligible [00:08:33].23]

Terry Burger: “And if you hate realtors, call me.” No, I don’t put that on there.

Theo Hicks: Well it’s funny, because I talked to people before who would put that they’re an agent on there, and say that’s like a benefit to them that they’re an agent. But it’s interesting, they said sometimes people don’t even like agents. That could potentially hurt you as well. So thank you for sharing that.

So you send out your direct mail and leads start coming in. Now you said that you are the master comper. So how are you able to determine what the offer price is without having to go and inspect every single property?

Terry Burger: Yes, so during COVID-19 we have switched over to in-person and phone appointments, and I think a lot of people have shifted that way, right? So our biggest obstacle is how do we evaluate the property when we can’t see it. So, I’ll tell you what we do.

Let’s say we put a house under contract over the phone.. Then of course I teach comping to my team so they kind of get how to comp a property; we could talk more about comping if you want, but the process that we used to do it virtually like this, especially during their phone appointment era that we’re in, is we send our home inspector there and we also send our photographer at the same time.

So we give our photographer a big checklist of things to look for, in addition to just looking for problems in general. So our home inspector is there going all over the house, and it takes a couple of hours for him to do that. And then our professional photographer is in there with wide-angle lens and  micro-lens, and she’s shooting videos, she’s shooting photographs, and she sends them back to us in high resolution. So I can get on my Mac or whatever and I can zoom in really, really tight on things; as long as you get that stuff back in high resolution, you can zoom in on something really detailed without having to be at that house. And that’s how we do it right now.

Theo Hicks: Okay, can we take a step back… Because this is what you do after you got it under contract, but how do I know what that contract price is, how do I know what to offer?

Terry Burger: So, the way we comp properties is our philosophy is we comp in micro markets. So if you think of the city of Greenville, South Carolina, that’s kind of micro-market to the whole country right? But it’s more of a micro-market regionally… So we drill down a little deeper and say, “Okay, this neighborhood right here,” Judson Mill for example, “is its own micro-market. It has its own set of values, its own set of people that live there, they buy there, and all that”, right? So one of the easiest micro-markets that we use are main roads; we won’t cross over a main road, we’ll stay within the boundaries of main roads and we’ll try to stay inside of a little neighborhood pocket that we know is how are we going to grab our comps.

The second trick that I teach people – this is an old agent trick… You’re going to at your values based on the elementary school. So you could do a zip code search which gets you kind of big picture, you could do an elementary school to search, which kind of drills you down a little deeper… Or if you want you can go into the MLS, or PropStream or whatever program you’re using, and you draw out a little polygon based on the area that you want. So we employ the polygon method, and we employ that elementary school method, particularly when you’re in the suburbs.

Theo Hicks: And then is that… Is the number like dollar-per-square-foot? Is that what you are looking at?

Terry Burger: If we can find houses that are all very very similar, we look at the values and we can ballpark it. But yes, very wildly in square footage, which in some of our areas they do… Then we are looking at 2 values – the market value cost per square foot, which would mean a normal residential retail sale, and then hopefully sometimes we can find current condition comps of houses that needed to be fixed up and sold in the MLS.

Theo Hicks: So my second question, how do you know without seeing the property if it is going to need $5,000, $20,000, $30,000 in renovations?

Terry Burger: We use a home visit sheet that I came up with. It’s got a lot of the numbers on it; so if our acquisitions manager is looking at the comps and they see that the ARV includes new kitchens and it’s basically flips, if they see that, then we are going to estimate our rehab based on those comps. We only look at the comps when we estimate rehab.

Theo Hicks: So you just assume that if the comps have a new kitchen, then you’re going need to put in a new kitchen; if the comps have whatever else, you’re going to need to do that. Okay.

Terry Burger: Yep. It’s interesting, in some markets they just paint the cabinets white. They don’t put in new kitchens. In Atlanta a lot of new kitchens go in, but in Greenville, they just paint the cabinets. So we look at those comps and go, “Okay, two out of three of the comps have painted cabinets. Why don’t we just paint the cabinets?”

Theo Hicks: What about the major cap-ex things like a roof, or painting the outside a house, air conditioning, HVAC – how do you know if you’re going to need to replace any of that stuff?

Terry Burger: So in our home visit sheet, HVAC for example – is it older than 10 years? If it is, we automatically replace it; we budget for a replacement. The same thing with the roof – if it’s a 30-year architectural shingle and they’ve got 20 years on it, we’re going to budget to replace. If it’s a 15 and has 10 years on it, we’re going to budget to replace.

Theo Hicks: Who does the home visit? Is someone from your team doing this? Or are they sending this to the owner to fill out?

Terry Burger: So our lead intake people do it during that screening call that comes in, and then our acquisitions department goes a little bit deeper on the phone, asking them questions like that.

Theo Hicks: So the next thing that you’re an expert in is knowing what a buyer wants. So if you’re flipping most of these, and you’re keeping some yourself, what do you mean when you say that you know what they want? And what step in the process does that come into play?

Terry Burger: Well, I’ll tell you a funny story… Clients are always asking me, would you buy this house? And that’s one of the most popular things real estate agents get asked by their clients. Would you buy this house? And over the years, what I’ve seen, particularly in the residential suburbs, – so I’m in the North West suburbs of Atlanta, and then we’re in the suburbs of Greenville, we’re also in downtown Greenville as well… But I asked three words; so I said, “If I’m sitting on my deathbed in a hospital and somebody asks me what’s the secret to real estate, I have 3 words for you: backyards sell houses”, period.

So in Georgia, for example, we are in a very hilly area, in North West Atlanta, kind of the foothills of the North Georgia Mountains, so there’s a lot of topography changes. So you’ll have a big family-friendly, 2-story traditional house, but your kids can’t pick a soccer ball in the backyard, because it’s hilly, or it’s steep, or whatever. So I always told my clients, “Look for a nice backyard first. You can fix up the house, but that piece of dirt is always going to sell that property.” So that’s the biggest one for us, particularly around here, is a nice backyard.

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

Terry Burger: A lot of people say this, but gosh, it’s so true, Theo. You’ve got to buy it right, and you cannot get emotionally involved in the buy. You have to keep your wits about you, be numbers focused only, and buy that house right.

Theo Hicks: In your agent days when you were dealing with clients buying a home, this seems, at least from my perspective, to be more relevant when someone’s buying a single-family house. How do you communicate with a client who is emotionally invested and wants to buy this house that’s either overpriced, or it’s going to cost too much money to fix up? What’s some advice that you’d give to them, and then think that you’re talking to a Best Ever listener who might be emotionally involved in a deal and how to get them to relax a little bit and calm down.

Terry Burger: Yeah, those first few deals are pretty emotional. I remember my first deal, the butterflies were in my stomach; I ran the numbers on a napkin at a Chick-fil-A… But I knew it was a great deal. I think inside, at least for me that first deal or two, I was so giddy about the deal, I couldn’t wait to get the ink on the paper, because the deal was so good.

Now I’m numbers-oriented; that’s not everybody. So I was emotional about it because I knew I had a great deal, because I analyzed the numbers. So if you have that warm fuzzy feeling because you found your first deal but you’re not sure about the numbers, you’ve got to be careful there.

I would always tell my retail real estate clients, “The numbers don’t lie.” So for example, if you’re going to buy a home for you and your family Theo, you’re going to look at it and go, “Well, this one is priced $20,000 more than the one that sold down the street last month. Why? Why is that?” “Well, it has a pool.” “Okay, so how much was that pool?” “It was a hundred thousand dollars.” “So you’re telling me I can get that pool for 20 grand?” That’s a good deal if you want a pool.

So it’s just looking and comparing the facts with all of the houses, just like an appraiser would. And just looking at those things and analyzing them. And knowing your numbers, knowing what stuff costs.

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

Terry Burger: I’m ready.

Theo Hicks: Okay. First, a quick round from our sponsor.

Break: [16:57]-[17:33]

Theo Hicks: Okay Terry, what is the Best Ever book you have recently read?

Terry Burger: Right now I’m reading — we have a pretty big team so I’m trying to learn how to lead my team better… So I would say lately, in the past 6 months, two:  Traction by Gino Wickman, and then the Who Method For Hiring by Geoffrey Smart. Those two.

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

Terry Burger: Oh, wow… Thanks for planting that seed in my brain. I would figure out how to do it better. I love real estate; I’d figure out how to do it better so it didn’t collapse again.

Theo Hicks: What is the Best Ever deal you’ve done?

Terry Burger: My first deal was really sweet. The guy had an old Porsche 911 that he wanted to fix up. The house sat empty for 9 years after his ex-fiancé moved out… And he had just got a wild hair that he was going to fix up this 911 and it was going to cost him 40 grand, and he needed 40 grand. So I gave him 40 grand for a house that was worth a lot more and fixed it up. And even to this day — we have made $65,000 on that property. Probably one of our best flips ever.

Theo Hicks: I wanted to ask you one more question – who is your favorite classical musician, classical composer, and classical artist?

Terry Burger: Composer would be Gustav Mahler. And I was a trumpet player, so my all-time favorite trumpet player is Philip Smith in the New York Philharmonic. He teaches at the University of Georgia now.

Theo Hicks: When you said that in the beginning, I wanted to ask that question, because I always listen to classical music while I work.

Terry Burger: Mahler is like the Led Zeppelin or The Kiss of that era. It’s just lots of brass music.

Theo Hicks: How do you spell it?

Terry Burger: M-A-H-L-E-R.

Theo Hicks: Okay. What is the Best Ever way you like to give back?

Terry Burger: My wife and I like to give. She’s a giver, and I like to make the money so she can give. So we support our church, we support missions organizations… One time we were trying to give away 20% of our income. It might be that way now, I’m not sure, but we give away a significant portion. I am passionate about Operation Underground Railroad. Their sole purpose is to free children from sex slavery or any other type of slavery all over the world. And that’s one of the causes I really care about right now.

Theo Hicks: Do you know who Bill Allen is?

Terry Burger: Yeah. He’s a good friend of mine, in fact, I’m now the Chief Operations Officer of 7 Figure Flipping.

Theo Hicks: I just talked to him right before we got on.

Terry Burger: Oh, that’s awesome. I talked to him earlier today too, he didn’t know I was going to be in your podcast.

Theo Hicks: Wow. And then I talked to someone else on his team yesterday, Beka Shea. It’s a small world.

Terry Burger: Yeah, good friends of mine. And Mike Simmons… Those guys, we kind of grew up in this business together, Bill, Beka, and I.

Theo Hicks: Small, small world. Alright, last question. What’s the Best Ever place to reach you?

Terry Burger: The best place to reach me, probably Facebook. For somebody who’s just reaching out to me it’s Facebook; just private message me, Terry Burger, and you can reach out to me there.

Theo Hicks: Perfect, Terry. Well, thanks for joining us and walking us through your step by step process for flipping homes, starting from your direct mailing strategies, as well as buying leads from websites like needtosellhomefast.com and fasthomeoffer.com.

We talked about how you create your offer, which is by doing comps based off of the micro-market, so a neighborhood with the major roads as the boundaries, as well as looking it up by elementary schools. And then from there, you do phone conversations with people once these leads come in.

The biggest obstacle is evaluating without seeing the property, so you will send the inspector as well as a photographer who will have a checklist of the things you look for, and then make sure that they take high definition pictures, so when you get the pictures you can zoom in to see any issues that you want to investigate further.

And you mentioned something else too about knowing what the buyer wants, and that the secret to real estate is backyards sell houses. You can’t really renovate a house and add a backyard, unless you cut the house in half. I don’t know what you would do. So look for the backyard, and then you can make the inside of the house really wherever you want it to be.

And then the Best Ever advice was to buy it right and don’t get emotionally involved on your numbers. Act as if you were an appraiser. So thanks Terry, again, for joining us. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we will talk to you tomorrow.

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JF2257: Sports Reporter to Sales to Multi-Family Investor With Zach Haptonstall

Zach is the Founder & President of ZH Multifamily and an equity owner of over $48M worth of commercial real estate apartment buildings. Zach climbed up in healthcare sales and at the top of his career after accomplishing many of his monetary goals he found that he wasn’t fulfilled. He eventually discovered real estate and decided to leave his job and live off of 12 months of income while he pursued his new dream and now the rest is history.

Zach Haptonstall Real Estate Background:

  • Founder & President of ZH Multifamily
  • He is lead sponsor, general partner, and equity owner of  over $48,000,000 worth of commercial real estate apartment buildings
  • Portfolio consist of 420 units
  • Based in Scottsdale, AZ
  • Say hi to him at: www.ZHMultifamily.com 
  • Best Ever Book: Bible

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“You need to attack, constantly be trying to move the needle forward and know it will be difficult because you will not have tangible evidence that it will work” – Zach Haptonstall


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the Best Real Estate Investing Advice Ever show. I’m Theo Hicks and today we’ll be speaking with Zach Haptonstall.

Zach, how are you doing today?

Zach Haptonstall: Hey, I’m doing great, Theo. Thanks for having me on, man. I really appreciate the opportunity to be with your viewers and your listeners here.

Theo Hicks: Absolutely. Thank you for taking the time to speak with us. So a little bit about Zach. He’s the founder and president of ZH Multifamily. He is a lead sponsor, general partner and equity owner of over $48 million worth of commercial real estate. His portfolio consists of 420 units. He is based in Scottsdale, Arizona, and his website is https://www.zhmultifamily.com/.

So Zach, do you mind telling us a little bit more about your background and what you’re focused on today?

Zach Haptonstall: Absolutely, Theo. So I was born and raised here in Phoenix, Arizona. Never really had much of a real estate background, no family in real estate. I wanted to be a football player, so I had a small Division II football scholarship to a school in Colorado. I went there for a bit, realized I wasn’t going to make the NFL, came back and the next best thing is I wanted to be a sports reporter and a journalist. So I went to journalism school, I got a broadcast journalism degree, and I was actually a live news anchor on Arizona PBS here for a short time. And it was a sports reporter, and I hosted a show on Fox Sports Network. So that was really cool at first, being on live TV and everything. And then I just quickly realized that it wasn’t what I wanted to do. I wasn’t passionate about it. I was a sports fan, but I didn’t want to do that as my job.

So I graduated school, I was 21, I decided I don’t want to do this… I have all this school debt and I was like, “Man, I need to make money.” So I was delivering medical equipment nights and weekends, Theo, while I was going to school to pay for school, and my boss was like, “Hey, you can make pretty good money doing healthcare marketing.” So after journalism, I actually had a job of all things as a hospice marketer. For those listeners who don’t understand what hospice care is, it’s basically mobile nursing and care giving for people with end-of-life illnesses. And so my job was to drive all around Phoenix and just cold call, walk into hospitals, doctors offices, assisted livings, build relationships with physicians, social workers etc, to sign people up in hospice.

So long story short, Theo, I was very blessed to do well in the hospice arena. So by the time I was 23, I was making 150k a year. I bought a house. By the time I was 24, I had gotten my MBA, paid off all my school. So I did that for about four years. I was blessed to be making over 200K a year by then. I had no debt, with a little over 100k in my bank account, and coming from a lower middle-class family, I was blessed in doing well and grateful, but I just didn’t feel fulfilled. I just was burnt out and I had already achieved all those goals in that arena… And I wanted to create more freedom of my time and more passive income. So I didn’t know much about real estate like I said, but January of 2018, I said, “Screw it. I don’t want to do this anymore.” So I resigned, and I sold my equity in the company. And I had no plan except I knew I wanted to somehow create passive income through real estate.

So I set aside savings for over 12 months. I said, “I’m going to live off savings for the next 12 months.” I ended up living off savings for more than 12 months, and I just kind of dove in. I started listening to podcasts like this one, reading books, cold calling people, etc, etc.

Initially, I was looking at flipping homes, then mobile home parks, then I went to multifamily and syndication and the power of leveraging other people to come together and acquire these assets.

So long story short, 10 months went by, I burned through a lot of savings, went through a lot of adversity just trying to figure this out. And finally, after 10 months, we got the first deal under contract. We closed it four months later. So it was 14 months from when I first quit my job and decided to do real estate full time that we got the first deal. It was a 36-unit. And then we were just fortunate to catch momentum after that.

Since then, since closing on that first deal, right now we’re near the end of July 2020, as we record this deal, Theo, and we acquired that first property in February of 19. And since then we’ve acquired 420 units, 48 million over five assets, all here in the Phoenix area. So it just kind of goes to show once you get that first deal, you catch momentum – we were able to scale up from there.

Theo Hicks: Thanks for sharing that. So you said your first deal was 36 units, you said?

Zach Haptonstall: Yeah, it was 36 units, 3.4 million. Correct.

Theo Hicks: Perfect. So maybe walk us through how that deal came to be. So you mentioned that you had partners on that deal, you mentioned the cost and the size, but from—you made your decision to do multifamily. You got educated on the process, then what did you do? Did you first reach out to partners and then who did you reach out to for the money? Maybe walk us through that process from, “Okay, now I’m ready to start taking action”, to “This first deal is closed.”

Zach Haptonstall: Great question, because it’s a daunting task, right? To take down these multi-million dollar assets… And I didn’t have tremendous net worth or liquidity to even sign on these loans, so you have to find a partner. That was probably the hardest part, Theo, was going through the adversity of trying to find people who are like-minded, who are motivated, who actually can help you with these deals. And so I initially was just trying to meet with people, cold call people. Then I started going to conferences, meetups, things like that. I met a guy Robert [Inaudible [00:08:03] who also lives here in Phoenix, Scottsdale area, and we kind of hit it off; he’s high net worth, high liquidity guy. He had been trying to find apartments, and so we decided to team up.

So this first deal, to answer your question, it was on market. So it wasn’t like some secret off-market deal. It was through a broker. It was on market. I had personally underwritten at least 30 or 40 deals by that time, and nothing penciled, nothing really made sense. Everything’s overpriced, which is the case in multifamily. This deal finally penciled. So Robert and I, we put in an offer on it, and then it gets accepted and we’re like, “Oh, crap, what do we do now?” That was a scary thing. Like, “Well, we’d better just push forward.”

So we get the deal under contract, and our plan, Theo, was to syndicate the deal. Okay? So I had a network of physicians and healthcare business owners from being in the healthcare arena, and Robert had some high net worth friends. So in our minds, we were thinking, “Yeah, we’ll just get this deal, all of our network will invest in the deal and it’ll be great.”

So we get the deal under contract, 30 days go by, we’re done with due diligence… We’re each non-refundable for 25,000. So I have 25k hard, and nobody’s really interested in this deal. So it’s a scary thing. We’re like, “Crap, we need to bring 1.4 million of equity to this deal.”, and our plan was to syndicate it and we’re not really getting a lot of interest. So I was just calling different people I had met and established relationships with at conferences, and had several phone calls with them… And I get a call one day from somebody I had met at a conference and had several calls with and she’s like, “Hey, I heard you have this deal in Phoenix.” I don’t know how she found out about it, but she’s like, “I just sold a 12 unit deal in Seattle, and I’m going to 1031 exchange. Why don’t I 1031 exchange into your 36-unit deal you have and we’ll do what’s called a tenant in common, a TIC deal, and I’ll bring 650k of equity.” And I said, “That sounds great. Let’s do it. And what’s a TIC deal? How does that work?” So I didn’t really understand that process. We originally planned, Theo, to do a syndication, but we ended up doing a tenant in common, which is essentially it’s similar to a JV, a joint venture structure. Everybody’s active, there are no passive investors.

So I at that time had about 160k to 164k left, and I was all in and I put 160k into this deal. Almost all my cash. Robert put almost 300K, we brought in her for 650k, and then I found a couple guys that come in at about 150k, and we made the deal work. So we ended up doing a TIC structure, not a syndication. We closed on that deal and that just gave us a lot of confidence going forward.

And then there’s different things throughout that process… Right after that, I sold my house, which I was never planning on selling… Because I needed more liquidity, and I invested that money in the next deals… But you just kind of have to figure it out and you have to find complementary partners who have skills that you don’t necessarily have, and that’s the key really.

Theo Hicks: What do you think would have happened if that person didn’t reach out to you for a 1031 exchange?

Zach Haptonstall: Good question. I would like to think we would have figured it out and found somebody, but it’s likely we wouldn’t have been able to close and we could have lost our earnest money. That’s the risk you take with multifamily. And you don’t ever want to be too aggressive. You want to make sure you have stress tests in place in your underwriting and you have conservative assumptions. But of the five deals we’ve done, and we have one under contract, none of them have been super-smooth. It’s like there’s always these scary things that come up, so you have to get to the point where you trust in your underwriting, you trust the deal, the fundamentals, and you have to be a problem solver and overcome different obstacles along the way.

And so I would like to think we would have scrambled… Because one part of that story, Theo, was that literally four or five days before closing, our lender calls me and says, “Hey, man, I’m so sorry. We were too aggressive on this underwriting on line item. We’re cutting your proceeds by $227,000.” “Right before closing, what do you mean? That’s crazy.”

So we just scrambled, and I had a friend who invested 150K, and Robert found somebody who put in 77K and we made it happen. So scary things come up and you just have to adjust and adapt.

Theo Hicks: Another question I have about this first deal… So you mentioned that your business partner, the net worth liquidity guy, he put in 300 grand in your first deal?

Zach Haptonstall: Yeah, it was like 275k. Yep, nearly 300k.

Theo Hicks: And then I’m assuming he’s the one who was the loan guarantor as well, so he signed the loan.

Zach Haptonstall: Yeah, we both did. Yep. But I needed his liquidity and net worth. Correct.

Theo Hicks: And then before this, you had never done a deal before, right?

Zach Haptonstall: Never. I had only bought a single-family home, which was my primary residence. That’s it, no other real estate investment.

Theo Hicks: Okay. So why did he partner up with you and then put all that money into a deal with you, and sign a loan with you if you hadn’t done a deal before? What did you do to sell him on this?

Zach Haptonstall: We initially met in — I think it was July or August. So we had been meeting frequently, and having several conversations for three or four months prior to that. And I thl6ink he could tell how serious I was. And I was transparent. I was like, “Look, I have this much money. I’m going to go all-in for the deal if I believe in the deal.” And he saw that I was putting in 160K. So he knew I had skin in the game and then I had a lot to lose, and we were on the same page. But I will say, he’s a lot more risk-averse than I was. So I was probably the more aggressive one to push to get that first deal.

So it’s really just about building that relationship and that trust, but it’s never a perfect thing, right? It sounds nice in hindsight, but there was a lot of stress throughout that process… But we’ve been partners in all of our deals, and it’s gone well. So you really have to just build that relationship, and you really do need to like the people you partner with, because you’re going to have to communicate with them frequently, and you’re going to have to have tough conversations, and you’re going to need to be able to hold each other accountable and call each other out if one person isn’t holding their weight. So that’s kind of the relationship that we have, along with our other partner now, [unintelligible [00:13:22].07]. So that’s important.

Theo Hicks: So during these three to four months, was it just you guys kind of just hanging out building a personal relationship? Were you just like talking on the phone, texting each other, getting coffee?

Zach Haptonstall: Yeah.

Theo Hicks:  I think is very important for the listeners, because you had no experience and you were able to do your first deal. So I’m kind of focusing on this a lot.

Zach Haptonstall: Yeah.

Theo Hicks: So you met this guy in July/August, you had three or four months kind of conversation, and then eventually he ended up investing with you. What were these interactions like? How often did you meet this guy? Kind of get into some specific stuff.

Zach Haptonstall: Yeah, good question, Theo. We were meeting frequently either at coffee shops or at his house… So I’m engaged, getting married in a couple months. I have no kids. Robert is married and has three kids. So obviously, there’s different dynamics, but he’s full-time real estate and I was full-time real estate as well at that time. And so we were able to meet during the week frequently, and we were underwriting deals together. I was demonstrating to him that in the previous six months before I met him, I was already focused on multifamily. And I was showing him and demonstrating all the relationships I had built with brokers, property managers, lenders, insurance brokers and just people in the industry etc, etc. So that was really a key, was to show him, “Look, I’m fully committed and I’m serious.” And he didn’t have any experience with multifamily either, so he was hungry to get into it, too. So he was trying to find a partner just as I was, but he had been looking for over two years.

So I think when we kind of clicked and we realized that we’re good complementary partners, it made sense for both of us. And we had complimentary assets, you know… Where he didn’t really have the relationships and things like that and I did, so I could bring value to him and vice versa. It just comes down to mutual respect and both demonstrating that you’re willing to work hard.

Theo Hicks: Thanks for sharing that. It was really solid advice. Alright, Zach, what is your best real estate investing advice ever?

Zach Haptonstall: There’s so many components to it… I guess if we’re really focused on people doing their first deal, this kind of sounds like an oxymoron, but my best advice ever is you need to really attack. You need to constantly be trying to move the needle forward, and it’s going to be very difficult because you’re not going to have any tangible or visible evidence that you’re making progress. But by listening to podcasts, reading books, and most importantly, getting out there and meeting real estate professionals, like brokers, lenders, and starting to underwrite deals, is the most important.

So my best advice to you would be you need to relentlessly attack; don’t ever give up. You need to stay consistent. You don’t need to do a crazy amount of things every day, but you need to do something little or try to keep pushing forward. And at the same time, you do have to be patient, which is where the oxymoron comes in… Because I got to the point where it was eight, nine months, I was putting so much pressure on myself that I was discouraging myself, and I had to almost relax and just kind of let it come to me. So just keep attacking, be determined, stay faithful, but be patient, too.

Theo Hicks: Perfect. Alright, Zach, are you ready for the best ever lightning round?

Zach Haptonstall: Let’s do it. I’m ready.

Theo Hicks: Okay.

Break: [00:16:12] to [00:16:55]

Theo Hicks: Okay, Zach, what is the best ever book you’ve recently read it?

Zach Haptonstall: Good question. So just to be clear, I don’t ever actually read books. I do audiobooks because I just can’t read books. But right now, I’m reading the Bible, front to back, on audiobooks. I’m Christian, I believe Jesus Christ is my Lord and Savior… And I’m doing audiobook, New American Standard Bible front to back, which is actually pretty interesting when you’re [unintelligible [00:17:12].12] things like that. There’s a bunch of other good books, The Power of Ambition by Jim Rohn is a good one I listen to frequently, just talking about fundamentals and discipline. So those are two good ones.

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

Zach Haptonstall: I would restart it and rebuild it. I would identify what are the issues, why did it collapse, take a little bit of time and reflect and I would come right back and go into attack mode. I would just do it again.

Theo Hicks: What is the best deal you’ve done so far?

Zach Haptonstall: The best deal we’ve done so far—well, we’ve acquired five deals and we have not sold any of them yet and gone full cycle, so it’s hard to say. However, our first deal is under contract and it’s going to be closing in September. So it’s got to be our first deal, our 36-unit deal. We bought it for 95k a door and we’re about to sell it for 148k a door in 18 months. So it was a good value-add business plan that we executed.

Theo Hicks: What’s the best other way you like to give back?

Zach Haptonstall: We like to volunteer. We’ve been to Feed My Starving Children and done food boxes, things like that. We had signed up to go on a mission in Mexico through our church,  but COVID kind of ruined that. In the real estate industry, I really like to just help people and get on phone calls, who are trying to get into it…  Because I went through so much adversity and people told me I couldn’t do it… So I like to get on phone calls with people and just share advice and try to inspire them or support them any way I can and just lend any valuable advice.

Theo Hicks: Have you lost money on a deal yet?

Zach Haptonstall: No, I haven’t. Not on a multifamily deal. The only thing I’ve ever lost money on is the Super Bowl was here in Phoenix, Arizona, Theo, in 2014/2015. And I had a friend who at a previous Super Bowl had leased out a hotel and then subleased it. Because there’s so many people that come here for it. So there’s this really nice four or five-star hotel, Talking Stick Resort. It’s got a casino, and all the hotels were booked in Phoenix. And I had this genius plan to sublease this. So I rented out this suite at Talking Stick Resort the weekend of the Super Bowl for four consecutive nights, Thursday night through Sunday night, 1000 bucks a night. I rented it out, and I reserved it. There was no more suites left. And my plan was to sublease it. So I put it on Craigslist, all these third party websites, and nobody bought it. So I lost four grand, and I literally stayed there for four nights in a row just so I didn’t feel like I completely wasted it. And I didn’t even have any fun or anything. So I probably won’t sublease any hotels.

Theo Hicks: That’s a good story. Lastly, what’s the best ever place to reach you?

Zach Haptonstall: You can just go to our website. It’s https://www.zhmultifamily.com/. You can email me at zach@zhmultifamily.com. I’d love to get on a call. There’s a ‘Contact us’ sheet on the website. You can fill that out and we’ll set up a call and help you however I can.

Theo Hicks: Perfect, Zach. Well, thanks for taking the time to join us today and walk us through your journey. I think that the biggest takeaway that most people are going to get is the specifics you went into on how you were able to find that first partner.

So again, you’d bought a house before, but it was just your single-family house. So it was your first investment deal, first multifamily investment deal. You said you met your partner at a meetup or conference, you met in July or August, and 3-4 months later he was investing almost $300,000 into a deal with you. And you mentioned that the reason why he did this is number one, you were super-transparent with him, and you mentioned that you are going all in, you were putting all your eggs into this basket, which gave him confidence that you had to succeed or you were done for.

Zach Haptonstall: Yeah.

Theo Hicks: You mentioned you went to the coffee shop and met, you went to his house and met. You said you were underwriting deals together, and then the biggest thing that I think you said was that you showed him all the relationships that you would built. So you didn’t come up to him and say, “Hey, let’s do this deal together”, and then he asked, “Okay, what’s the next step?”, and then you have a million things needed to do. You already had the education, you said you had your team built, so again, that portrayed that you knew what you were doing, that you were credible and that you were going to be able to get the job done… Which you did, because now you’re in the process of actually selling that deal.

And then you walked us through the process of that first deal and how it was supposed to be syndication, you didn’t have the money raised beforehand, you had a hard time raising the money, but it ended up working out. You mentioned that really in every deal you’ve done so far, it was always something that comes up and happens.

Zach Haptonstall: Right.

Theo Hicks: So it’s never going to be perfect. So it’s making sure you have those problem-solving skills. I think this also comes in your best ever advice about being patient and relaxing and not losing your mind when things do happen.

And the other aspect of your best ever advice was making sure that you are constantly in attack mode, constantly moving forward, constantly taking action and realizing that just because you’re not seeing that tangible evidence, you’re not seeing that deal being done right away doesn’t mean that you’re not actually progressing. That’s where the patience and the relaxation comes in. So keep focusing on getting educated, keep focusing on building your team members, keep focusing on building deals, because all those actions added up daily will lead to you ultimately doing a deal, whether it’s a month from now or a year from now.

Zach, again, I appreciate you coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Zach Haptonstall: Thanks, Theo.

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JF2247: Investor Friendly Agent Dan Rivers

Dan is a full-time realtor and investor who has over 10 years of real estate experience with a portfolio consisting of 9 doors and has invested in 2 syndications. As an investor-friendly agent, Dan gives advice on how to approach an agent and how to properly start as a new investor.

 

Dan Rivers Background:

  • Full time realtor and investor
  • Has over 10 years of real estate experience
  • Portfolio consist of 9 doors, 6 with business partner and 3 others
  • Has invested in 2 syndications
  • Based in Charleston, SC
  • Say hi to him at: www.danrivers.com 
  • Best Ever Book: Mindset

 

Click here for more info on groundbreaker.co

 

Best Ever Tweet:

“Mindset is one of my favorite books because it really opens your idea around fixed and growth mindset” – Dan Rivers


TRANSCRIPTION

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

Dan Rivers: Excellent, Theo. Thanks for having me on.

Theo Hicks: Thanks for joining us. I’m looking forward to our conversation. Before we dive into that, a little bit about Dan – he’s a full-time realtor and investor, with over 10 years of real estate experience. His portfolio consists of nine doors, six of which he did with a business partner, and then three others. He’s also invested in two syndication deals. He is based in Charleston, South Carolina, and you can say hi to him at DanRivers.com.

Dan, do you mind telling us a little bit more about your background and what you’re focused on today?

Dan Rivers: Sure, Theo. I started back in around 2004, moved from Boston down to Tampa, and got into property management, the condo and HOA side. I hit the ground running, learned by fire; I started out with 16 properties to manage, which consisted of high-rises on Clearwater Beach, to some homeowner associations  downtown.

From there, I moved back to Boston in ’07, where I moved up the ranks there, finishing around 2015 as division president for a property management company… It was around then that I realized that property management was great, I had a lot of experience from it, between learning contracts, financials, insurance – really all the ins and outs of a property… But it wasn’t my passion. And in 2018, my wife and I decided to move down to Charleston – best decision ever – and I got my real estate license in May of 2018 and hit the ground running from there.

In 2019 was my first real full year as a realtor down here. I realized at the end of 2018 I wanted to focus on investing and working with investors. It was my niche, it was my passion… And in 2019 I was able to become a top 10% realtor down here, selling 26 homes. That was my first full year. This year I’ve actually surpassed my goal of 5 million, and gonna shoot for 10 million this year in sales… Primarily focusing on investors, but I also do regular residential sales as well. My business partner and I – areas that we’re focusing on right now are particularly BRRRRs in the North Charleston area down here in Charleston, South Carolina. We have six ourselves under our belt, we’re refinancing a couple and we’re looking to grow to at least ten this year, and really get that to about 40 units over the next five years.

Theo Hicks: Perfect. So you’ve got two focuses right now, which is the BRRRRs with your business partner, and then also you’re working with investors to help them buy deals, right?

Dan Rivers: Exactly. I have several out of town investors that are BRRRing, flipping, doing those types of things. So yes, exactly.

Theo Hicks: Okay. So you’re what’s considered an investor-friendly agent, which a lot of people in the investing world would love to have… So one question I have for you is whenever you are — and again, I’m doing this for people who want to work with investor-friendly agents… So whenever you are considering working with someone, will you work with literally anyone who reaches out to you and says “Hey, I wanna invest in real estate. Will you be my realtor?” or are there certain things that an individual needs to have done first before you start working with them, if that makes sense?

Dan Rivers: It’s actually a great question, because people always say “I wanna get into real estate investing” – okay, well then what? And I’m happy to help out anybody. If someone just wants to have a call just for guidance, they’re not looking to invest in the next six months, I’m happy to chat with them to kind of guide them on where they need to be… To the person who’s been real estate investing in several markets and now just wants to get into the Charleston area market and is a pro at it.

So all levels, always happy to help out. Everybody has to start somewhere. And it depends on where you’re at, and that’s the guidance I’ll give you. If you’re a brand new investor and really wanna get into it, then that’s where I really go over “Alright, we’ve gotta start from the beginning. You’ve gotta know your end goal.” What are your goals? Because one of the biggest things people do is they’ll want to invest in real estate, they wanna flip, they wanna BRRRR, they wanna wholesale; they kind of wanna do a handful of things. But if you don’t really specify a niche of what you wanna attack first, you end up having paralysis by analysis.

So I try to guide someone, “Alright, what are you goals?” Passive income/Active income. What are you looking to actually accomplish, and then help them hone in on those goals. That’s the first step of any investor – really know your niche. And then once you have that going – if you want me to get into and kind of go over a few things that I do, it’s build a strong team. That’s definitely step number two. Once you know what you wanna do, you need to build that strong team. Lenders, investor-friendly agents, contractors, insurers, property managers if you’ve gonna be buying a rental portfolio. I think people don’t understand how important that part is. And as an investor-focused agent, I’m happy to try to set those things up and help guide people to all of those contexts, to give them that extra value. And I think that’s really the beginning part of investing. Anybody who wants to invest in the area or invest with me – those are the areas I really try to focus on to really guide people and help them out.

Theo Hicks: Are these team members – these lenders, these insurance people, property managers – do you refer them to your go-to people that you have built relationships with?

Dan Rivers: Absolutely. I have a couple of go-to people in all of those areas, but I also welcome people to research on their own. We have plenty of investment groups down here in the Charleston area, and sometimes people just reach out to other investors as well, to see what’s worked for them. Because it’s not a one-size-fits-all. I wanna make sure the personalities and the end goals match up to what the client wants.

Theo Hicks: Do you help your clients find deals?

Dan Rivers: Absolutely. Whether they’re on or off-market deals, I’ve actually in the past couple weeks have helped lock up a few wholesale deals, some off-market deals for clients… One wants to flip it, the other one is going to BRRRR it… As well as on-market deals. So however I could find them something that’ll match their criteria, I’m happy to help them out.

Theo Hicks: What are some of your lead-generation tactics that you’re using to find these off market and on-market deals? Do you mean on-market that you list them on the market, or you found them on the MLS from some other agent?

Dan Rivers: Yeah, the on-market is mainly just through the MLS. If I have something coming soon, or something that I am aware of in my brokerage, I’ll obviously send that off to my clients right away first, before it hits the market. But besides that, the off-market stuff are a lot of local wholesalers. I make sure that I’m on as many email lists as possible. I built relationships with the local wholesalers… As well as I have a team here that will send out letters to communities or specific houses if someone’s interested in something, to try to market that way as well.

Theo Hicks: Say you’ve got an off market deal – and you mentioned that before you list it on the market, you’ll give it to your clients first… But how do you know which clients to send it to? Do you send it to all of them, and they all get a fair shot, whether they’ve never done a deal with you before or they have done a deal with you?  Whether you’ve just met them or you’ve known them for a while…? How do you decide who gets the deal?

Dan Rivers: That’s a great question. I will send it out to people that I know are ready to buy and can close on the deal, because that’s one of the most important factors here, especially on off-market deals. They either have to be cash or hard money, and it’s gotta be someone who’s willing and ready to close on the deal. Because if not, I don’t wanna waste that wholesaler’s time or that connection’s time, because they may not send that deal to me first next time, or they may not be as apt to do business.

So the  investor has to be ready to do the deal, and I’m happy to get them to that point, but they have to be ready to close on that deal.

Theo Hicks: Perfect. So what can listeners do to portray to the investor-friendly agents in their markets that they’re serious, they’re credible, and they’re able to close on the deal? To be more specific, let’s say they actually haven’t done their first deal before; is it possible for them to portray the ability to close without having that prior track record of actually closing? Or do you wanna see someone who’s actually closed on a deal before, and you know that based off of that they are capable of actually closing?

Dan Rivers: Obviously, the latter is nice, because if they’ve done deals before, you know that they’ve gone through the process, so they’re ready to do a deal and they can analyze it usually a little bit quicker… But no, I’m happy to help the person out with their first deal. Everybody’s gotta start somewhere.

So if it’s their first deal, I’m just gonna make sure that they have all their pieces in place, as I mentioned before. Most importantly, how are they getting the money? Can they close on the deal, can they buy the deal? I’ll also guide them if they’re analyzing a deal; I have my own spreadsheets I hand out to people, or if they have their own, I’m happy to take  a quick review over it, just to give a second set of eyes to make sure that the numbers look good and the deal seems to be right up their alley. But as long as they have the proof of funds and the ability to close on that deal, it’s okay if it’s their first deal or their 50th.

Theo Hicks: Perfect. Do you want them just to tell you “Hey, I’ve got the money”? Do you wanna see bank statements of the money actually in the account?

Dan Rivers: Yeah, either see a bank statement, or some sort of approval letter from a lender. Sometimes I’ll even check in with a lender, but yeah, I want some sort of physical copy of that… Unless we’ve done deals in the past and I know that they have that ability, then I don’t have to see this every time, once I know that  they’re able to close.

Theo Hicks: So besides actually transacting with an investor-friendly broker and doing deals, proof of funds, working with them on the education piece, what are some of the ways that investors can network on an ongoing basis with investor-friendly agents, besides what we’ve talked about already? What types of things do you like to see – texting you, catching up with you, maybe in-person types of things, adding value to your business? Again, the entire purpose of all of this is try to give the listeners the best advice on how to win over someone like you, so that every time you get a deal, they’re the first person that gets to see it? So what are some other networking things that they can do to put themselves in that position?

Dan Rivers: That’s a good question. As I mentioned, just  being serious about it, going for 100%, having that team in place. Once you know someone’s serious on that level and not just trying to pick your brain – which I don’t mind, if someone asks me just general questions; they may not be ready for all this, and it’s perfectly fine… But it’s just having the pieces in place and ready to go, and be willing to go for it. So to not just analyze deals, but actually act on them. As long as they’re ready to go, that’s the biggest thing. And being willing to do it. If they’re just kind of sitting on the sidelines, saying “I’ve been analyzing…” I had one guy actually tell me he’s been analyzing stuff for three years, he’s just been a little nervous to really go for it… But I don’t mind helping walk someone through and get them to that level… But you’ve gotta be able to take that plunge. There’s no way to make money in this business until you take the risk.

Theo Hicks: So transitioning for a little bit to your deals that you buy… So  your business partner – is he involved in the realtor business with you, or is this someone separate?

Dan Rivers: No, he’s actually the finance guy. He works for a pharmaceutical company in finance, and he takes care of all the backend stuff for us. When it comes to analyzing deals, find the deals, managing the deals – that’s all on my end. He helps keep the books and makes sure that he gets stuff ready for the tax accountant at the year end, and those types of things.

Theo Hicks: How did you meet him?

Dan Rivers: It’s pretty easy, he’s my brother in law. That made it a little bit easier. He’s my wife’s brother, so we just hit it off, had a lot of the same goals of where we wanna be in the future, how we wanna invest passively… A lot of our goals just aligned, so it just made sense to start off. We did our first deal together and it went about as smooth as possible. From there, we were able to grow — I think our six units we have together, we’ve got them in a matter of 15 months. So we’re trying to grow as quickly as possible, but our goals align, how we work together really benefits each other… So it worked out really well.

Theo Hicks: How are you guys funding your deals?

Dan Rivers: We have kind of a unique strategy. We try to buy one or two BRRRRs at a time. Usually, under 100k you can actually do that down here in some parts of North Charleston. We have some investments in the stock market, and we were able to find a bank that gave us a line of credit against the stock market investments, so that we’re able to use a line of credit at about 4%, 4,5% interest to purchase the deals, to rehab the deals, and then we refinanced out of them.

Theo Hicks: Is this a local community bank?

Dan Rivers: Yup, local community bank here in Charleston.

Theo Hicks: And you just go in there and ask them to do this? Did you know ahead of time you wanted to get a line of credit against the stock market, or is that something that they were offering, and why you selected them?

Dan Rivers: No, we actually just found creative ways. We initially put a certain amount of money into an account together, kind of matched it, and we were like “You know what – we wanna grow as fast as this is gonna allow us to.” So we were just trying to think creatively, and I went to the bank — I do a lot of banking with this specific bank here in Charleston… And I went to them and we kind of just were brainstorming some ways to be able to get a line of credit… And when we brought up the fact that we had money in the stock market and they were able to go on and credit against it, we just kind of fell into it.

Theo Hicks: Alright, Dan, what is your best real estate investing advice ever?

Dan Rivers: Go for it. Take the first step. You’ve really gotta take the plunge, you’ve gotta try it out. You may lose a little bit of money, you may win on your first deal, but if you don’t start, then you’re definitely not gonna be successful.

Theo Hicks: Alright, are you ready for the best ever lightning round?

Dan Rivers: I’m ready, let’s do it.

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

Break: [00:16:19].03] to [00:17:11].08]

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

Dan Rivers: Mindset. It’s one of my favorite books. It talks about the fixed vs. growth mindset, and it really opens up your mind to the idea of how you used to think of things, and how you could think of things in the future, whether it’s business-related, family-related, with kids… It’s a great read.

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

Dan Rivers: I would like to work in the school system here to help educate kids on personal financing. And definitely [unintelligible [00:17:36].18] inner cities.

Theo Hicks: Tell us about the best deal you’ve done.

Dan Rivers: The best deal I’ve done… I’ve done an off market deal for about 65k. I had to put about 20k into it, and one down the street just sold for 175k, so I was able to build a lot of equity.

Theo Hicks: If you’ve ever lost money on a deal, how much did you lose and what lessons did you learn?

Dan Rivers: I have. One of our very first deals when I moved down here – we lost about 35k, and the biggest lesson I learned from that is make sure you’re aligning yourself with people with the same values as you have.

Theo Hicks: Solid lesson. Alright, what is the best ever way you like to give back?

Dan Rivers: I like to volunteer for the parks and rec down here, the county parks and rec… Whether it’s cleaning up beaches, or… My favorite event – they have a special needs prom every fall, and it’s a great thing to volunteer for.

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

Dan Rivers: You’ve already mentioned my website, danrivers.com, but if not, you can follow me on Facebook or Instagram @ecofriendlyrealtor.

Theo Hicks: Perfect. Dan, thanks for joining us today and giving us the ultimate guide to working with an investor-friendly agent. You mentioned that you are willing to have a conversation to give guidance to anyone, whether they’re totally brand new, or they’ve been in the business for decades.

You mentioned that if someone is brand new, the first two things you do is 1) you make sure they have specific goals and they have a specific niche they wanna focus on. Then once they know what they want and what niche they’re gonna focus on, you tell them that they need to build a team; you can help them find lenders, an agent (if it’s not you), insurance people, property managers… Or they go out and do research on their own.

We talked about how you’re finding deals. Obviously, you’ve got the deals on the MLS, you’re also finding off market deals through direct mail, as well as networking with local wholesalers and making sure you’re on all of their lists. And then we kind of talked about what people need to do in order to position themselves to get those pocket listings, to get those off-market deals from investor-friendly agents… And really, it ultimately comes down to them proving that they are able to close on a deal.

You gave an example of – you wanna make sure they have proof of funds. You wanna see a bank statement, so that you know that they have money to close. It’s ideal if they’ve done deals in the past.

You also wanna take a look at the numbers and make sure the numbers look good, so you’re not wasting your time putting it under contract and getting them to do due diligence, and they back out because their numbers don’t make any sense.

We also talked about ways that you can network with brokers… Really more of the same – just showing that you’re serious and that you’re not just there to pick your brain… Which you said is fine, but ultimately you have to be willing to go for it, to take that risk to actually buy the deal. And then also, you wanna make sure that they have the team in place first.

We also talked about your business partner, who is the finance person, it’s your brother-in-law, and that the reason why your partnership works so well is because you have the same goals, the same values, and you kind of just hit it off, you work really well together.

We talked about your strategy, which is really interesting… So you get a line of credit from a local bank against your stock market investments. You said that you were in there, brainstorming different ways to get cash, get money, get lines of credit, and you’ve mentioned that you had a stock market investment, and because of your previous relationships with this lender, they were willing to give you that line of credit.

Then lastly, we’ve got your best ever advice, which was to go for it, take the plunge, because if you don’t ever do anything, if you never start, you’re not going to be a successful real estate investor.

Dan, I appreciate you coming on the show and sharing that invaluable advice with us. Best ever listeners, as always, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

Dan Rivers: Thank you, Theo.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

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JF2240: Burning The Boat With Salvador Aldrett

Salvador Aldrett is a full-time chemical engineer at Shell and has 17 years of real estate investing experience. Salvador grew up in Mexico and had a dream to come to the states to get his graduate degree with the goal to go back home. However, through his journey, he discovered real estate, met his wife, and the rest is history.

Salvador Aldrett  Real Estate Background:

  • Full time chemical engineer at Shell
  • Has 17 years of real estate investing experience
  • Portfolio consist of 17 units spread over 2 markets in Texas; single family, duplexes, fourplexes, and one townhome
  • Also has done a passive syndication investment of over 2000 doors
  • Based in Houston, TX
  • Say hi to him at: https://saldrett.typepad.com/
  • Best Ever Book: Think for Yourself

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Jump off the cliff and grow your wings on the way down” – Salvador Aldrett


TRANSCRIPTION

Theo Hicks: Hello, best ever listeners and welcome to the Best Real Estate Investing Advice Ever show. I’m Theo Hicks and today, we’ll be speaking with Salvador Aldrett.

Salvador, how are you doing today?

Salvador Aldrett: I’m doing great, Theo. Thanks for asking.

Theo Hicks: Absolutely. Thanks for joining us. Looking forward to our conversation a little bit about Salvador. He’s a full time chemical engineer at Shell. He has 17 years of real estate investing experience and his portfolio consists of 17 units spread over two different markets in Texas. The portfolio consists of single families, duplexes, fourplexes and one townhome. He’s also invested in apartments syndications, over 2000 doors. He is based in Houston, Texas, and his website is https://saldrett.typepad.com/.

Salvador, can you tell us a little bit more about your background and what you’re focused on today?

Salvador Aldrett: Yes, thanks for asking, Theo. Let me tell you a little bit about where I come from and how I got where I am today, and we can start basing our conversation around that. I was born in Mexico and I lived in Mexico until ‘94. Then I came to the United States to get a graduate degree. I graduated with a Master’s of Science in Environmental Engineering and PhD in Chemical Engineering from Texas A&M University.

To be honest, I never thought that I was going to stay in the United States. My intent was originally to go back to Mexico. I met my wife who is a US citizen, and the rest is history. I have worked for different chemical companies. I have lived in the Netherlands for seven years, and that was a great experience. We will get to talk a little bit more about that. As I was preparing for our conversation, I drew lessons that I have learned in life, from real estate and what they have taught me. And also give to your listeners a path that when one has dreams, when one has something that we really want, we can make it happen.

Theo Hicks: Perfect. Thanks for sharing that background. It sounds like you’re prepared. I’ll just let you take it away. You can go through your list and then I’ll ask some follow up questions once you’ve gone through all of those.

Salvador Aldrett: Absolutely. Let me start going through some of the lessons, and I numbered them. Real Estate has taught me a lot, and some of the experiences have been quite funny and I’m going to describe some of them. Some of them have been true learning lessons and I’m also going to talk about those, because I don’t want other people to make the same mistakes that I made. Hopefully, they will learn or they can learn from my experience.

The first one is having a dream. When you have a dream, when you set your mind on something, I think there’s two elements. There’s a why and then there’s the intensity on how bad you want it. For me, it started from just first wanting to come to the States to get a graduate degree, to get a graduate education, and I made that happen through loans. I came to the United States with very little money in my pockets. I can say that I’ve been very fortunate and blessed through my life. But that’s not to say that I came to the United States and I had hardships. I started at Texas A&M, I was admitted, but I came here with less than probably $1500, hoping that I would find a job here, hoping that somehow I would make it happen. I think that goes back to some stories that we have heard before that if you want to get somewhere and you want to get something accomplished, you get there and you burn the boat, and you are forced to move forward; you build your wings as you throw yourself off the cliff. That happened to me. That was the first one. I achieved that. I achieved coming to the US, getting admitted to a really good university, finishing my degree and then real estate.

So I started thinking about real estate. I didn’t know how to do it; it sounded just so overwhelming owning even one house as a rental unit. And keeping that dream, wanting that dream is really what keeps you motivated. I think success comes in the growth, in what you become in the process of achieving a goal. I don’t think that the success is really achieving that goal. And that has happened to me throughout my life. I have had dreams and I have kept working at it. Maybe I’ll stop and see if you have any questions. Otherwise, I can go to the next point.

Theo Hicks: I would just reiterate what you said about burning the boat and the wings. I know that’s something that comes from — I think it’s Napoleon Hill who talks about that, right?

Salvador Aldrett: Yes.

Theo Hicks: Yeah. I like that advice. I like your analogy of grow your wings once you jump off the cliff.

Salvador Aldrett: Yes, absolutely. If you want to do something, you’ve got to commit. There’s no turning back. The next one is finding mentors. I told you that when I started real estate, I got overwhelmed. I didn’t know where to start. I started reading many of the books that the listeners like me on your podcast have read, reached out for that; Think and Grow Rich,  The Millionaire Mindset, etc, etc. You can read as many books as you want. But at some point, it helps a lot if you find someone that has done that already, and you just talk to that person. You will at least be shown that path. But for me it happened to be a friend from work. I wanted to invest, but I didn’t even know where to start.

I was having lunch with my friend, and he told me, “Oh yeah, I own a fourplex.” To me that was overwhelming. Because one fourplex, at that point, I was like, “Wow, how did you do that?” He was kind enough to hook me up with his real estate agent, and from then I started talking to a real estate agent and he said, “Well, come over and I’ll start showing you properties.” From there, I bought one and then another one and then another one. But to me, breaking the stigma, breaking the paradigm that this is impossible comes when you see someone that you consider a peer or someone that is a friend already doing it. That, to me, was a major breakthrough.

And many times that person is closer than what you think it is. It’s also telling people what you want, right? If you want something, keep yelling it to the world. I don’t know if this is what the book The Secret, or the law of attraction or what, but if you keep telling people what you want, eventually it comes to you. Tell people that you’re looking for real estate and make it known.

In my case, maybe  another example is I wanted to live in Europe and I wanted to take my family and experience that there’s a world outside the US. I don’t know how that happened, but we lived there for seven years and it was just by making my intention known, and people will help you.

Theo Hicks:  For the mentor aspect, you’re not necessarily saying that I need to go out and find a $10,000 a month coach, I just need to find someone who is doing what I want to do. Just in a sense, just see them doing it and see that it’s possible. Someone that ideally you have some sort of relationship with, and that’s what helps you break through, right? Is that what you’re saying?

Salvador Aldrett: Absolutely. You can go either route; you can go and pay for a coach, pay for someone that is going to keep cheering you, that he’s going to keep calling some sense of accountability with you. But you don’t have to. I think just by getting to know your friends, by being curious when you have conversations with anyone that you meet at a social gathering, which I guess nowadays those are becoming fewer and fewer with social distancing. But nonetheless, when you have a zoom call, or a meeting, or something like that, just be curious about what does the other person do, what are his or her experiences, etc, etc. You’ll find that they have done something that you are interested in and they will not charge you and they will share a lot of information for free with you. So yes, Theo, it is basically that. You don’t have to pay for a mentor. You can but you don’t have to.

Theo Hicks: The third lesson you said was, if you want something, tell everyone, make your intentions known. What’s the next lesson?

Salvador Aldrett: Taking calculated risks and maybe even the beauty or the advantage of being naive. I started in real estate and I knew nothing. If you would have asked me when I started in real estate about the 1% rule, or discounted cash flow models to predict the return on my investment, etc. I knew very little. But I had a willingness to buy a house and to make it work. I could do the basic calculations; how much was I getting on rents, and how much was my mortgage going to be… I guesstimated, which meant underestimated many times, the expenses that I was going to have. Maybe being naive is also what helped me become a little bit bolder about acquiring unit after unit. Probably, if I would have known as much right now as back then, I probably would have done what they call analysis paralysis. I probably would have just come up with an excuse every time not to buy a unit. But it’s about taking calculated risks.

I was thinking about some of the rentals that I bought in the past, at least one of them I bought with the checks that I got back then from a credit card. I don’t recall, a Discover credit card, or something like that. My wife was terrified about even doing that. I said, “We can pay them back.” Today, would I do it? I don’t know. I don’t know if I would do that or not. But back then I had the will, I was naive and I did it, and everything turned out well. [unintelligible [00:12:52].17] You have to read about multiple topics.

One of my interest, in addition to real estate is financial planning. I’m in the process of becoming a certified financial planner. It’s about learning how to use the tax law, and how to use retirement accounts and estate planning and all that to your advantage. I have one or two units were I rolled over IRA, which is – if you have an IRA, you can withdraw money and you can put it back within a span of 60 days, and you don’t pay the penalties. I bought another unit with a rollover IRA.

Anytime that you do something, there’s going to be a risk. You just have to be aware of the risk and you have to be willing to take that risk. Anytime that you do something going out of the house, buying something, there’s gonna be a risk. I think when it comes to real estate, you just have to cover your bases, you have to know what you’re getting yourself into and you have to go for it.

Theo Hicks: I totally agree.

Salvador Aldrett: Let me talk about my next lesson. This one, I’m going to save a little bit because I know that there’s another question coming later, where I will get to talk more about that. But doing your homework before investing. I cannot stress how important this is. In real estate you will be put an offer to consider. You have to know what are the important things to ask, what are the things that can go wrong. You have to go by numbers. Real estate is a numbers game at the end of the day.

There are many units that I have bought and I never saw. I was living abroad. I was relying on video and advise that my real estate agent was giving me. I never fell in love per se with any single one of my units. I was looking at where the numbers were; is it going to make money? What is my risk? What if something goes wrong, and something will go wrong.

Well, let’s just rewind back to January. No one really knew the effect and the magnitude that COVID was gonna bring to the world—and forget the USA, the whole world. You always have to think about what are your risks, and is the risk something that you are willing to undertake? You’ve got to do your homework, and you’ve gotta also look at every detail, at hidden fees or things that are really not on the surface; sometimes is not to the best interest of the real estate agent to really show you completely and exhaustively all the expenses that you’re going to incur. They’re not going to show you maybe proformas… But you’ve got to do your due diligence. You cannot just rely blindly in what they’re telling you. You have to have a model, which as I said at the beginning, I started knowing very little, but there’s a number of books that I read; there was one on cash flow and financials of real estate, and I developed my own spreadsheets to start evaluating units.

Nowadays, you can find many, many already made the spreadsheets, and you can easily evaluate what is the risk and what are the things that you really need to know, and what are the things that move the needle, what are the value drivers in your opportunity. Is it occupancy? Is it taxes? Is it insurance? You’ve gotta see what are the major expenses,  the major items in your profit and loss statement that are going to be making a difference in your cash flow.

Theo Hicks: Do you think it’s better to buy a model and then keep using that model without changing it? Or do you think it is important that everyone has their own customized underwriting model?

Salvador Aldrett: Excellent question. You can buy a model. However, a model doesn’t make up for using your brain. I think what helps out building a model, even if it’s a very simple one, is that you go through the calculations and you see, for example, how taxes are affecting the cash flows. How many years does it take to depreciate a unit, which nowadays, depending where you invest in multifamily, where there’s an opportunity to depreciate everything in year one; or if you depreciate it just as a normal residential unit, to see where you’re on the 27, or 25, 35, etc, that range, how is that going to affect your before and after cash flows.

So it is good to learn for the first time, but for example, if you go to places like BiggerPockets, they let you use their calculator for free. That’s a very good one. You can put yours together and just calibrate against what they predict. It doesn’t require a lot of time and you should be able to get to the same place. But I think it’s important just from the learning perspective, just from seeing what the mechanics are, which is basically—

Another piece of advice that I have for people, for those that start investing in single family residences or duplexes or fourplexes, which is not massive properties… Even if you’re going to employ a property manager, I would recommend that at least for one or two years, do it yourself. It teaches you so much on what the expenses need to be, what they do, contractors, etc, etc.

Theo Hicks: Alright, Salvador, what is your best real estate investing advice ever?

Salvador Aldrett: I think if I were to choose the best investment advice, it’s just to always keep trying something new, to never stop learning, never stop growing and certainly never get overwhelmed by the size of a deal, for example. Don’t get put down by the fact that you haven’t bought a house or you haven’t bought a duplex or a fourplex. Take it one step at a time. I think the real estate business is quite simple. It requires work, but it’s quite simple. Going one step at a time is the way to go.

I would say take it one step at a time, never lose your will… And also, you have to be very intent and very intentional from the beginning. What is your ‘why’? Because if your ‘why’ is not there, anything is going to detract you from investing in real estate.

Theo Hicks: Alright, Salvador, are you ready for the best ever lightning round?

Salvador Aldrett:  Absolutely. I’m ready.

Theo Hicks: Perfect.

Break: [00:19:06] to [00:20:00]

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

Salvador Aldrett: I just recently finished reading a book that is called Think for Yourself, and the subtitle is Restoring Common Sense in an Age of Experts in Artificial Intelligence. I think this is particularly relevant for real estate investors because you learn to think for yourself. You’re going to be thrown many assumptions and a lot of information. Many times we take that for face value. We really need to question, is that really the occupancy? How are they going to keep tenants coming in? How are they going to keep increasing rents, etc, etc? Excellent book.

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

Salvador Aldrett: Very good question, too. Maybe back in March or April, given that I’m still under W-2 paycheck, it almost came down, you saw oil prices going negative, and maybe I started thinking that, too. I would say that it would be a combination of real estate – I would go full time real estate syndications, become an active syndicator, as opposed to being a passive as I am right now. Finishing my Certified Financial Planner program, and also go on a parallel path being a financial planner and a real estate syndicator.

Theo Hicks: Tell us about a deal that you’ve lost money on. How much did you lose? What lesson did you learn?

Salvador Aldrett: Thanks for asking. This goes back to, I believe the fourth point that I made. Years and years ago, I was invited to a syndication by a friend. You have heard that when you’re gonna invest with someone, there’s that know, like and trust element, right? You have to know the person, you have to like the person, and you have to trust the person. Maybe they like is not a must, but the know and the trust need to be there.

I thought I knew him, but I didn’t. I blindly handed over to him the amount of money for a syndication, which it was typical, again back then, as it is now, $50,000. I never saw a penny out of that. It was a development complex in Corpus Christi, Texas. I was taken for a fool. Some of the lessons actually that I have indicated, they have come from different sources, but this one certainly was a very expensive school of hard knocks.

Theo Hicks:  On the flip side, tell us about the best ever deal you’ve done.

Salvador Aldrett: Maybe I go back also to the advice that I gave at the beginning, which is you just need to get started. There’s never a good time or about time to invest in real estate. I started investing in real estate in the early 2000s. If I rewind myself to that time, there were people who would tell me, “Wait, because real estate is going to be cheaper in a year or in six months or in two years. You need to wait.” Or there were others that said, “Oh, no, just do it right now.”

The best deal that I’ve ever made is probably getting started in the first apartment. It was a duplex that is almost paid right now, just with the rents and equity. It probably has more than doubled in price.

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

Salvador Aldrett: Good question. Right now, different ways, right? But I like paying back or paying forward what I have been given. I like mentoring people. I like sharing my knowledge. My philosophy is that I like making people smarter than I am. When I’m approached by someone that wants to learn from me, that want help, I always want to improve them. I want to make them smarter than I am, and more successful than I am.

The other one is recently now through a pandemic with my daughters and my wife, we have been going out to our neighborhood around the house, and we have been putting flyers for a food bank. So we have been collecting food and just donating it to a local food bank. That actually takes your mind away from all the media bombarding of news and also everything that you see going around, to just giving, to focusing on others rather than yourself.

Theo Hicks: Lastly, what is the best ever place to reach you?

Salvador Aldrett: You can reach me through email, s.aldrett@gmail.com, and through type path. I have a blog [unintelligible [00:24:09].26] address which will be included in the episode’s notes.

Theo Hicks: Perfect, Salvador. I really appreciate you coming on the show and being really prepared to share with us your list of lessons that you learned, and giving us examples for each of those lessons.

Your first one was having a dream. It has two components, which is the ‘why’, and then having a very strong intensity for how badly you want it. You gave us the example of you coming to the US with really no money. And you gave us the Napoleon Hill anecdote of arriving and then burning your boat, so you either survive or die. And then you have your own analogy of jumping off the cliff. Once you jump, again, you grow wings or you die. And then you mentioned essentially you need to commit to your why and that will give you that intensity.

The second lesson was finding mentors. But you mentioned that it can be the traditional paid mentorship route, but you can also do a free route, which is to find someone that you know – your example was your friend who did a fourplex. And they’re doing something that you want to do, maybe that next step, that you are having some sort of obstacle or mental block, and then by seeing them do it, it gives you that confidence to kind of break through to take the next step towards accomplishing that next goal.

The third lesson was that if you want something, make sure you tell everyone about it, make your intentions known, and your example was you and your family living overseas. Lesson number four was taking calculated risks. You talked about in the beginning of real estate — this is actually helpful, and I could totally relate with this… Being naive helped you overcome the analysis by paralysis. You’re getting started in real estate, you don’t know anything, you’re super jacked up, you do some deals, and then once you learn more, you realize the risks and then maybe don’t take as much action you should be like. That’s essentially what analysis by paralysis is.

You mentioned that you want to take risks, but they need to be calculated. So you need to be aware that there is a risk, but you need to be willing to actually take that risk. In order to mitigate the negative outcomes, you have lesson five, which is doing your homework before investing. So knowing what questions to ask, analyzing what can go wrong, realizing that real estate is a numbers game and making sure you know how the cash flow calculator works that you’re using, make sure you keep looking out for the hidden fees and the details, and making sure you know what the value drivers are when you’re analyzing a deal, looking at profit and loss statements.

Your sixth piece of advice was self manage for a few years. Rather than going straight into getting a third party management company, manage the properties yourself so you understand what it takes to successfully manage properties, but also you know what actually results in your property not doing so well. When you eventually do get third party, you know what works and what doesn’t work.

Your best ever advice was to always keep trying something new, to never stop learning and never stop growing. You also said, don’t get overwhelmed by the process. And then again, you mentioned in the first lesson, which is to be very intentional with your ‘why’ from the very beginning.

I really appreciate you coming on the show, Salvador, and sharing with us your distilled advice. Best ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Salvador Aldrett: Thank you, Theo, and thanks to everybody that listened to the podcast.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2233: 4th Generation Real Estate Investor Corina Eufingere

Corina is the owner of Brio Properties rental management and Chairman of Wisconsin Apartment Association. She is a 4th generation real estate investor who started at a young age helping her parents and grandparents on their properties, cleaning, fixing, working on the lawns and with tenants. One of the problems she saw her family deal with was with property management companies. With this in mind she decided to focus on her own property management with the goal of making it easier for people to work with.

Corina Eufingere (u-finger)  Real Estate Background:

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“We need to bring the human being factor back into real estate” – Corina Eufingere


Theo Hicks: Hello best ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’re speaking with Corina Eufingere.

Corina, how you doing today?

Corina Eufingere: I’m good. How are you?

Theo Hicks: I’m doing good. Thanks for asking and thanks for joining us. A little bit about Corina, she’s the owner of Brio Properties Rental Management and chairman of the Wisconsin Apartment Association. She’s a fourth-generation real estate investor. Her personal portfolio consists of 12 units and then she manages 135 other units. She’s based out of Wisconsin, and you can say hi to her at http://briopropertieswi.com/.

Corina, do you mind telling us a little bit more about your background and what you’re focused on today?

Corina Eufingere: Sure. I’ve been around real estate my entire life. My grandparents, parents were all real estate investors. Interestingly enough, I traded [unintelligible [00:04:02] chores for working on all of their properties growing up; so I didn’t have to do the dishes, I didn’t have to mow the lawn, I didn’t have to do my own laundry, because I was spending my nights, my weekends and my summers working on my parent’s properties. But I learned a lot of practical experience doing that. Of course, when you’re that age, you’re doing the gruntwork, you’re doing the landscaping, you’re doing the turnovers and cleaning out the trash. But that’s really where I got my passion for real estate and I kind of saw what it did for my parents as they aged. It gave them some great passive income that they utilized until the day they died.

It was something that I think I knew deep down I was always going to be involved in. It took me a little bit, because I did a little bit of a detour, but I did end up purchasing my own property. So right now I do have 12, and I made those purchases about six years ago. I also do have my property management company that I started because I’ve heard the horror stories that exist out there in the forums, places like that, about how bad some property management companies are.

I’ve really sort of honed in on balancing between knowing what investors want, knowing some of the horror stories that come along that I’ve heard, and creating a management company that really does feel like they are on your side versus just on their own side and filling their own pockets.

Right now, honestly, I have been so focused on keeping not only my investments but my management company on the forefront of COVID and everything we’ve had in response in this industry in regards to that. That’s taken up all of my mental space for the past four months. And it’s going to continue to, because we’re not quite done with this yet.

Theo Hicks: Sure. You said that you bought your units six years ago, so you haven’t bought a property in six years; your focus is the management company.

Corina Eufingere: The first deal I did was six years ago, and then the second one that I did to finish off the 12 that I had was about two years after that, so about four years ago. So, yes.

Theo Hicks: Okay. Did you start the management company before you started buying these properties or was this something that you realized after you’ve had a bad experience with a management company?

Corina Eufingere: No, I started the management company about a year before I made the first deal. I always knew first that I knew I was going to get into property management, because I had had relatives that had horror stories with property managers, and I actually kind of lived through some of that. Once I got that under my belt, I got through to my team, it just made more sense then at that point to start building my portfolio.

Theo Hicks: Okay. How many units did you have under management before you bought your first deal? I guess during that first year, how many clients did you get?

Corina Eufingere: Clients, I had three, but that was about 73 units.

Theo Hicks: Okay, 73 units. So about half of the units you manage now or before. Walk us through how you’re able to get 73 units under management in one year.

Corina Eufingere: Well, the way I was able to do that was there was some connections that I’ve had. Growing up in real estate, I have connections. There was a couple that owned a property management company, they were retiring, moving on to a better life in Florida. I had worked with them way back when I was a teenager. They called me up and they said, “Hey, we want to step away from this. We’ve got this company right now, we’ve got employees. We don’t want to just close it up and say, ‘Hey, guys, good luck, go find other jobs.’ We want to be able to continue to have them have jobs and have them be provided for. So would you be interested in moving things over from our company to yours?”

That’s what I did. I basically went through negotiations with them, and I met the owners that they currently had, I made sure we were going to gel, we were going to match… Because property management is definitely one of those things where you’ve got to have a good rapport between yourself and your client, or between you and the property manager. Because if you don’t get along, everything’s going to be so much worse. So I did all of that. And when all that was said and done, I ended up with a company where I had one part-time leasing agent, I had two maintenance personnel and out of that 73 units with three clients.

Theo Hicks: So one leasing agent, and then the two maintenance people – they came from the other company. Did you just assume them on and actually qualify them again, or did you make sure that you wanted to keep them before keeping them on? Do they still work for you today?

Corina Eufingere: Oh, I definitely made sure I want to keep them on. Because one thing I’ve learned from just business in general is you don’t want to have people on your ship per se—let’s think of a business as a ship; you don’t have people on your ship that don’t want to be on your ship or they can’t function in the role that you need them to.

When I was interviewing owners, I, of course  was interviewing the maintenance staff, and then the leasing agent that came with it. Unfortunately, I don’t have any of them left with me anymore. Most of them stuck around for about six and a half years. I was really fortunate that they did stick with me a long time. Some of the circumstances were sort of out of control and it’s just sort of the way things turn out, because sometimes you got to make hard decisions in business. Some of these were hard decisions, to not necessarily move forward beyond that point with some of them.

Theo Hicks: Who’s on your team right now? Not like people-wise, but I guess position wise. How many leasing agents, maintenance people, anything else that you have on your team from the starting point of one part-time leasing agent and then two maintenance people? Where are you at today?

Corina Eufingere: Right now today, I’m at having three maintenance personnel. I also have a resident manager that manages a certain region of Wisconsin for us; then I have a property manager, I have a director of operations and then I do have one leasing agent, but we do sort of hybrid out; the property manager does a little bit of leasing and then that regional manager also does some leasing as well. That’s where my team’s at right now with seven, eight people.

Theo Hicks: Perfect. In what order did you hire them?

Corina Eufingere: The property manager was the first addition I made once I had kept the leasing agent and the maintenance staff. I brought on that property manager to take care of the admin to get it off of me, because it’s hard to grow your company when you’re in the throes of the day to day operation. In order for me to really step away and continue to make this grow and get it to grow, I had to bring that person on to handle the day to day property management. Of course, I’d make sure they were qualified, because me being an investor, I wanted to be sure they knew what they were doing. Because this means a lot to me, what I do, because I see the other side of it. I’m not just somebody who does the property management side of it.

I went to my clients, I made sure my property manager was very qualified. Once I got the property manager, then I actually went on to having that third maintenance guy, because at some point, that’s going to happen. We got the maintenance guy, and then we went on to getting the regional manager and then lastly, the director of operations.

Theo Hicks: It sounds like the property manager was the one that was the most important. You mentioned that you made sure that this person was qualified, and they knew what they were doing.

Corina Eufingere: Yes.

Theo Hicks: Can you give me specifics on the types of things you wanted to see out of this person background-wise? Any type of specific interview question? Maybe you kind of walk us through what this process looked like, where do you find them, things like that.

Corina Eufingere: Oddly enough, when I hired this person, the original intent of the ad was actually more of a social media manager. And then she came to me she had all this property management experience. She’d worked with a lady out of Kenosha who was really well-known in the community as being a great real estate agent for investors. So she already came with this knowledge of understanding things like in regards to return on investment and understanding capital investments, capital expenditures. She also understood how so much of our jobs as property manager is negating the risk involved. She really hones in on risk liability, and that’s one of the things that I love about her is, she will just be at times very blunt with the owners and say, “Hey, this is a risk liability for you. This is what can happen if we don’t fix this, if this isn’t addressed, or if we don’t do it this way.” She came to me as this sort of pre-programmed package with so much real estate experience, because she was honestly trained by one of the best people that existed in that area.

Theo Hicks: And then the ad, you said you created an ad for your social media person. Where did you post this ad?

Corina Eufingere: That was Craigslist, I believe. That was still back when you didn’t have to charge on Craigslist for a job post.

Theo Hicks: Nice. I know what maintenance people do… I’m kind of confused about the regional managers. So is the regional manager in charge of your one property manager, or do you have multiple regional managers?

Corina Eufingere: The regional manager, because the majority my team is based in an area of the state which is about 80 miles away from this other location that we’ve branched out into, we needed some of the boots on the ground. This regional manager – we call him our regional manager… Yeah, it’s not quite the greatest title, because sometimes you hear regional manager, you think they supervise other people, property managers… This regional manager is in charge of being boots on the ground in that area of the state that is a further distance away from where the majority of my maintenance is based or my property managers based. She’s our boots on the ground there.

Theo Hicks: Got it. What about the director of operations? Why did you decide to bring that person on? I saw that that was your most recent hire. What is that person’s responsibilities?

Corina Eufingere: That person’s responsibility is keeping all of our documents and our policies up to date. Because in real estate, especially as being a licensed real estate entity here in Wisconsin, there is a fair amount of pressure on us to not only be ethical, but also to make sure all of our I’s are dotted and our T’s are crossed, all of our ducks are in a row.

Whenever we have any sort of law change or anything that goes on, she is responsible for making sure all of our paperwork is still up to snuff, getting our staff retrained on whatever may have changed, and making sure our policies are still good for how we need to remain ethical.

She does a lot of continuing training. One thing we do is we do quarterly training with our staff. Sometimes it’s just maintenance, sometimes it’s just office staff. And their refresher is on things like fair housing or maybe their refresher is on how evictions are run, or how we need to handle confidentiality. She’s really in charge of making sure that our employees are trained to not only be ethical, but also be able to uphold any laws that we are subject to ourselves.

Theo Hicks: And then what are your responsibilities? Maybe to be more specific, if it helps, what does your typical week look like, or your responsibilities? Either one.

Corina Eufingere: My typical week, there’s still a little bit of the company stuff that I’m involved in. I still do some of the end of month processing for our owners. I still do that. I still do oversee payroll in regards to our portfolio, because one of the easiest ways that people embezzle money is actually through payroll. I decided to hold on to that, keep that process within myself.

Outside of those stuff, I’m really focused on the bigger picture and growing this company, because now I’m responsible for these seven or eight people that rely on me for having a job, for having income. I took that very seriously in the past couple months, because we had to adapt a lot of how we operated, because we weren’t doing things in person. I had to come up with, okay, we can’t do things in person. How are we going to communicate with our tenants, if we have somebody that wants to move in, how’s the showing going to look like?

Really, I’m focused on keeping us on the forefront of not only what’s been going on, but also making sure we are taking advantage of the technology and some of the trends that are existing out there and making sure we are being the most efficient that we possibly can for our clients. That’s honestly the great thing about my role right now – I’ve stepped more out into the brainstormer role, the creative role of being able to look at the company, figure out how we can make things better, how we can make things different, but efficient. That’s what I really enjoy about where I’ve been in my company recently.

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

Corina Eufingere: My best real estate investing advice ever is once you buy your property, always remember there is a tenant relations aspect to this. There is this need to have human interaction, to remember that we are renting out homes to people and this is a place that they live. This is a huge chunk of their lives. This isn’t just a business for us. There’s little aspects of it that are human interactions, customer service. It’s such a big part of how we operate and it’s one of the biggest complaints that so many people have about their landlord, is that the landlord doesn’t treat them like they’re an actual human being, and we need to bring that human being factor back into real estate and make sure we are treating our tenants like human beings.

Theo Hicks: Alright, Corina. Are you ready for the best ever lightning round?

Corina Eufingere: Yes.

Theo Hicks: All right.

Break: [00:17:35] to [00:18:23]

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

Corina Eufingere: Right now, I’m just finishing up, I’m 97% of the way through it. It’s What Every Real Estate Investor Needs to Know About Cash Flow by Frank Gallinelli. This is a book that there’s a lot of math in here, a lot of equations in here, a lot of useful terminologies. What I love about it is he breaks it down into “These are terms that you’ll hear people say, but they’re really not that important anymore, these are old terms, and then these are the metrics that you really should be looking at when you’re purchasing your properties.” That’s what I love about his book.

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

Corina Eufingere: You know, I’d probably do the same thing I think Robert Kiyosaki says in his Rich Dad, Poor Dad. Even if this business collapsed today and mine does, I still have all the knowledge that I’ve accumulated over the years, I still have all my experience, so I’d just start over again.

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

Corina Eufingere: I am an 11-year cancer survivor. So one of the ways that I love to give back is I love to communicate with people who have been recently diagnosed with cancer or are going through it. I had it at a point in my life where I thought I was invincible. I was in my mid-20s and everyone thinks they’re invincible then.

One of the things I really enjoy doing nowadays is giving hope and direction to those young people who have been faced with that same awful diagnosis that honestly, no 20 somethings should have to deal with, but when you do, if you go into it with the right mentality, you can come out on the other side with such a positive, awesome view of life that you’re going to look back at the old person and then be like, “Wow, this might be the best thing that ever happened to me.”

Theo Hicks: Lastly, what is the best ever place to reach you?

Corina Eufingere: I do have an Instagram account, it’s Landlord Chick, and you can reach me over there. You can, of course, reach me at http://briopropertieswi.com/. I’m usually lurking around on Instagram a couple times a day. Also on BiggerPockets as well.

Theo Hicks: Perfect. Corina, thanks for joining us today and essentially walking us through how you were able to create your property management company. First, you talked about why you created your own property management company is due to all of the various horror stories you’ve heard about third party management. I’m sure a lot of people listening can relate.

You mentioned you started your management company before you bought your properties, and we focused on the management company in this conversation. You actually started off with a pretty quick start. You mentioned that you ended up inheriting employees, as well as clients from a previous private management company, someone who had worked with you growing up, who were retiring and didn’t want to close everything down and tell their clients ‘good luck’. So you took over those 73 units.

You mentioned that after you had your leasing agent and your two maintenance people, your next hired your property manager, who took away a lot of the admin work away from you. And you mentioned that you made sure that she knew what she was doing, she was qualified. You posted an ad in Craigslist for a social media manager, and actually this person replied, and you realized how experienced they were, that they were an investor-friendly agent in the past. They were trained by one of the best. And they focus a lot on risk liability, which you really liked.

After that, you hired a third maintenance person and then a regional manager who was someone who’s the boots on the ground in an area that was a little further away from where you managed most of your properties, and where the rest of your team is. And then you mentioned your last hire was the Director of Operations, who’s responsible for keeping the documents and policies up to date.

And then you mentioned what you did, which was still focusing on some of the admin work end of month processing for owners overseeing payroll, but then also focusing on the bigger picture and how to grow your company.

And then your best ever advice, which I think is really good, is that make sure that you always remember that you have a tenant who’s a human being. The biggest complaint you’re going to get from tenants is that they’re not treated like a human being, so making sure you’re focusing on the tenant relations aspects of the business and not just looking at them as just a number on a spreadsheet.

Thanks again for joining us, lots of solid property management advice. Best ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

 

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JF2223: Invest When Approaching Retirement With Bill Manassero

Bill Manassero is the Host of The Old Dawg’s REI Network and has 6 years of real estate experience with a portfolio of 756 doors. Bill started into real estate a little later in life than most people and decided to start into real estate by buying a couple of turnkey properties. When he started seeing checks being deposited in his account he decided to focus on buying more properties.

Bill Manassero (Man-a-cer-o)  Real Estate Background:

  • Host of The Old Dawg’s REI Network
  • 6 years of real estate investing experience
  • Portfolio consist of 756 doors
  • Based in Irvine, CA
  • Say hi to him at: olddawgsreinetwork.com 
  • Best Ever Book: Clockwork

Best Ever Tweet:

“Know what your why is, because when all else fades away, it’s going to be your why that keeps you motivated” – Bill Manassero


TRANSCRIPTION

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

Bill Manassero: Hey, I’m doing great, Theo. How are you, my friend?

Theo Hicks: I’m doing great as well. Thanks for asking. Thanks for joining us and I’m looking forward to our conversation. Before we get into that, let’s go over Bill’s background. He’s the host of The Old Dawg’s REI Network. He has six years of real estate investing experience and has a portfolio consisting of 756 doors. He is based in Irvine, California, and you can say hi to him at his website, which is http://olddawgsreinetwork.com/.

Bill, do you mind telling us a little bit more about your background and what you’re focused on today?

Bill Manassero: Sure. I’m an old dawg, I guess that came across real clear in all the URLs so far… I started in real estate actually kind of later in life. I had about 25 plus years in business; both in the corporate side, the entrepreneurial side, everything from technology to automotive to financial services; a pretty broad background. I also spent a number of years as a professional musician. And then my last stint was with a new internet company that seemed to be the last company I was going to work with, because I had the stock options, I was going to retire with the stock options and go into full-time ministry. The bubble burst and I was kind of left, “Oh, my gosh, what am I going to do?” Actually, that’s when I was called in the mission field first as a professional musician, and then later living in Haiti, Port-au-Prince, Haiti, where I have a non-profit organization called Child Hope International, and I spent the last 12 years with my family there, working with the kids that are abandoned, orphaned, and at-risk on the streets of Port-au-Prince, Haiti.

As I was getting kind of old now, I had been doing a lot of different things over a long period of time there, I was kind of looking at retirement, and I’m still in Haiti and trying to decide what I’m going to do, because I just didn’t feel like retiring. I didn’t know what it would mean to just, you know, sort of walk the beaches, collect seashells or something. I like to stay active.  I like to do things. I was looking into different options and came across actually an inheritance check unexpectedly. And because I had been in tech in a lot of different areas, I was very active in the stock market.

I got this check and I was pretty heavily vested in stocks. I thought, “Well, you know, I’d like to diversify with this,” and so I was looking at different options, and gold and annuities, a lot of other things. And really, I had some friends, [unintelligible [00:06:39].25] board of directors from a non-profit that are really successful real estate investors. And I thought, “Well, maybe I’ll do that.” But just as a way to diversify my investments. I started researching, reading the books, you know, I came across Rich Dad, Poor Dad, a bunch of other books, and finally said, “You know, I’m just going to do this. I’m going to pick up a couple of rental properties, turnkeys, so I don’t have to worry about them.” And that’s kind of what I did. I hopped on a plane at Port-au-Prince, flew to Atlanta, flew to Memphis, came back with three turnkey properties, and that was it. I was going to focus on other things in life.

But it turned out well. The next month that I’ve got money appearing in my account, and I’m going, “This is pretty sweet.” And I started thinking, “Maybe this is something I could do in my retirement.” That’s what I started doing. I started researching more and looking at what types of real estate investments there are; and I’m still very active in my non-profit, but realizing I’m getting older, and Haiti is a tough place to hang out. So I’m getting ready to move back to the States in sort of a sabbatical, and decide if we’re going to stay in Haiti or move back to the States where a lot of our kids and grandkids are. That’s kind of what happened.

As I got started, I shared with a lot of my friends, who are other people that are looking for investments, and they wanted to hear all about it, “How did you do that? Where did you buy the rentals?” and just all the details, and it got kind of nebulous at a certain point, where I was emailing people and trying to communicate with them. I said, “Look, I’m going to put a blog together, and then in that blog, I’ll share everything; the good stuff, the bad stuff, everything.”

The blog started, then my mentor at the time really recommended that I start a podcast and I was kind of like, “I don’t know about that.” The blog is enough for responsibility. He said, “No, you really need to do it. It really will help you.” I just said, “Well, at least I’ve got a face for podcasting, so that’ll be good, as long as I don’t go to YouTube.” That’s how the podcast started.

My focus on the podcast is for people that are 50 years of age and older, the people that are approaching retirement or are already in retirement, that are interested in real estate investing as a means to supplement their retirement or to create a legacy to hand down to their children, to grow their current retirement nest egg, and that’s kind of where I am today. Of course, you know, I’m still actively investing myself as well.

Theo Hicks: Are you still in Haiti or have you moved back to the States already?

Bill Manassero: No, we moved back for sort of a one-year sabbatical. On that trip, we really found out we just needed to stay here. We’ve got people that are running things in Haiti, we’re still active, and that’s part of my ‘why’, so to speak, of why I’m in real estate investing; I also want to help support our efforts there in Haiti, too. So yeah, that’s still very active.

Theo Hicks: You’ve got 756 doors. You mentioned you began by picking up three turnkeys, I’m assuming single-family homes. That’s three of those 756 doors. What is the breakdown of the other 753 doors?

Bill Manassero: Well, two of those are actually were single-family. One was a duplex, and in a really short period of time, and especially I’m just devouring information. I’m doing a lot of research. I’m looking at YouTube videos, reading a lot of books; I want to be a good real estate investor.

In that process, really early on, I paid about the same amount for each of these three turnkey properties, but one was a duplex, and the duplex – I paid about the same as I did for the single-family homes, but it was producing twice the amount of rent. Not only that, but I only had one property tax payment, I only had one insurance payment, and one roof to worry about.

So I’m kind of looking at this and going, “Okay,” I’m starting to see the economies of scale, you know, sort of emerging here. I said, “I’ve got to keep doing this.” I bought another duplex, and this time in Indianapolis, and sure enough, it turned out to be an amazing buy; I bought it near downtown, it was really growing, and it doubled in price in just like two years, and I’m saying, “This is really cool, but why limit myself to just duplexes? Let me look for other properties.” And then I found a 22 unit in Indianapolis as well. I kind of jumped into the small apartment world.

And then from there, I started looking at a hundred plus units, started looking at what was available, ended up partnering with people where I came in as a GP co-sponsor, and got involved with the 529 units in Irving, Texas. And then I moved into this space that I have always been really interested, and that is in the area of senior living. I have, obviously because my audience is in that realm, I’m in that realm. There’s just a strong, strong interest there, and seeing the 10,000 baby boomers a day are hitting age 65, the demand for housing is huge.

So partnering with some others also as a co-sponsor GP, and we are doing ground-up construction on luxury senior living facilities. And right now, we’re in Florida and West Virginia, we’re also looking at Texas and Arizona, and we have other states under consideration. But we’ve already built three and looking at it anywhere from three to six per year. That’s where the rest of the units come from.

Theo Hicks: When you are the GP, the co-sponsor, what’s your role? What are your responsibilities in those partnerships?

Bill Manassero: It’s different in each one. In some areas I’m focused primarily in Investor Relations… Because I know a number of investors, a lot of people have followed my story and what I’m doing, so I have a lot of people that are interested in investing with me. I also have marketing responsibilities, and also involved with administrative roles as they see fit for me to do as well.

Theo Hicks: Do you mind talking to us a little bit — obviously, you’ve got The Old Dawgs Real Estate Network, very popular podcast, and you kind of mentioned that one of your primary roles is Investor Relations… Maybe talk to us about—and you can answer this any way you want, but how that podcast has allowed you to raise more money to buy more deals, or at least be involved in more deals?

Bill Manassero: Well, my mentor at the time told me that that would be one of the advantages of the podcast. Now, I don’t monetize the podcast, I rarely—I’ll have advertisers approach me and it looks like it’s a good fit. But I don’t seek out advertising, or I’m not selling, consulting or any other thing. I’m not selling books or whatever.

I did that on purpose, because when I first started, as I was telling you, I got sucked into every boot camp that it brought me to the next level and then the next upsell, and before you know it, I’ve got bookshelves full of all these home study courses and all these things and I’m kind of going, “What happened?” I didn’t want to create a vehicle that would be that thing, another upsell place for folks. I wanted them to come there without any fear of being pitched on something. It was kind of an afterthought.

When I started looking at syndication, I thought, “Well, I’m going to set up an investor newsletter so that people can see what I’m doing,” and then through that, there was a lot of folks that have been listening to the show for years, and we developed as best a relationship as you can on a podcast, and they wanted to join me in these investments. It was kind of an organic thing. I wasn’t really pushing it.  I really don’t mention it on the air, rarely. We have a newsletter that goes out every month, where we announce our podcast shows and the articles on our blog. In there, there’s just a little note if you’re interested in investing with Bill, and you can sign up, and that’s about it. I’m really not pushing anything. If there’s people that are interested and want to be able to share the investments and if it looks like something that would work well with their investment style and their portfolio, then we work together.

Theo Hicks: What are some of your tips for how to grow a podcast, how to attract a large following? Or was it kind of just organic for you as well?

Bill Manassero: It really was. I’m not really intentional in it. One thing that I did do early on though and that was good advice from someone who had a very successful podcast shared with me, he said, “Just make sure the quality of what you’re producing is there; that you’re not just putting out a bunch of stuff. Make sure not only the quality of the guests and the topics and so forth, but the quality of the production, too.”

Early on, I got a producer from the start, so that he could ensure that the sound quality was good and that the edits were there, and just all the stuff to keep the quality of the sound up and so forth. That really made a big difference, because a lot of the reviews  that we’ve had – I don’t know, hundreds and hundreds of reviews – the primary focus is they like the quality of the speakers, the quality of the sound, and so forth. That has really paid off, but I haven’t really done any marketing per se to try to grow my base. I have a pretty loyal base of folks that listen all the time and they’re spreading the word to others, and that’s just kind of growing organically, like we said.

Theo Hicks: Thanks for sharing that. I want to transition really quickly back to what it sounds like is your main focus now, which is senior living, right?

Bill Manassero: Right, I’m still looking at apartment buildings, but in the process, when I started looking—it was getting to 2016/2017, it was getting harder and harder to find the kind of deals that I had. My criteria was to always buy something a little below market. As you know, because you guys are very active, finding below market properties is pretty rare.

As I was looking around, and the senior living thing came in front of me, I said, “Gee, I can get amazing returns on this”, because it’s very different and we’re dealing with construction, and in fact, all we do is really get a construction loan, and we buy the land, and then we raise money to develop the land, right?

In that process, we get a construction loan and a five or 10-year loan, but we usually sell the property within three years. So we never really have to go to agency loans or anything of that nature. These construction loans are easier to get, they’re still great rates, and then we can do interest-only on them for the first two to three years. There’s a lot of options there, but it’s a lot easier and quicker, especially in light of COVID and all the things that have happened that have impacted the economy. It’s relatively seamless, and we’re building these facilities in 12 to 14 months. We have offers on these things, especially from healthcare REITs, sometimes within six months into construction. It’s a pretty good little formula here.

Theo Hicks: Are those REITs proactively reaching out to you or there’s someone on your team who’s there doing that?

Bill Manassero: Well, one of the guys on my team, he’s built 23 of these things, but most of them in Michigan. He wanted to broaden out, and then my other partner and I were able, because we were in other states, and we were able to sort of help him broaden out. But I think his experience, not only just constructing and designing them and all the elements that go into the actual development of the facility, but he also came up with the operation manual for operations of these facilities. Even during COVID, and all of them that this guy has built and managed, there was not a single COVID case in all of these homes. A lot of it was because of how well this guy has designed the operational side.

What will happen is some of the REITs will buy them and they asked our third partner if he’ll manage these for them, and he does. Out of the 23, I think, he manages 14 or 15 of them.

Theo Hicks: How did you meet this person?

Bill Manassero: My contact was not him initially. But my friend that I’ve known for about six years, he actually it was a guest on my show early on, and then he introduced me to this guy that he made contact with that had built these, and that’s kind of how that connection came together.

Theo Hicks: Had you already been interested in senior living, or was it after you met this guy that you were like, “Huh, I think this is something I want to do”?

Bill Manassero: No, I’ve been looking at senior living, I don’t know, probably for the last four years or so, and I thought I might get into the residential aspect of it, where you take a home in a community and you convert it into a senior living house. And you can add maybe six or eight or 10, depends on the size and the state you’re in. That really appealed to me, because I knew guys that were buying single-family homes and making $10,000 a month after expenses, just as cash flow with these homes. That really sounded appealing to me, too.

My wife actually happens to be a caregiver, I have a daughter that’s a caregiver and a son that’s a caregiver, so we’re very into this area. One of the reasons we came back from Haiti too and kind of started this is that while we were on sabbatical, my wife’s parents took ill, and so we kind of stepped in to take care of them, because we’re the only ones that really weren’t nailed down to jobs and so forth, because we were on sabbatical. And in that process, it was a really moving thing for us emotionally and it was just a really great experience to be able to spend that time with my wife’s parents when they were moving into this need for assisted living.

Yeah, a lot of things kind of birthed out of that, but there has been a strong interest for a while for me; you know, Gene Guarino, Gene does this RAL Residential Assisted Living, and I had him as a guest on my show a couple of times too.

So I didn’t think I would ever do ground-up construction. In fact, I’ve avoided ground-up construction because of how long it takes, and trying to keep things under budget, but this third partner of ours really has mastered that and he always keeps it under budget; just amazing. That was one of the appeals for getting involved.

Theo Hicks: Alright, Bill, what is your best real estate investing advice ever?

Bill Manassero: Well, I think the best thing I can say to anybody that’s going to get into real estate investing is to really know what your ‘why’ is. Because when all else fades away, it’s going to be that ‘why’ that’s going to keep you motivated. I honestly believe you need to take the time in putting a plan together, getting a mentor, doing the research and education and all of that, but the core of that, your mission statement has got to be that ‘why’; why are you doing this in the first place? Why are you getting involved in real estate investing?

Theo Hicks: Alright, Bill, are you ready for the best ever lightning round?

Bill Manassero: You bet.

Theo Hicks: All right.

Break: [00:20:58] to [00:22:17].

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

Bill Manassero: Best Ever book recently, okay… I don’t know if you know who Michael Michalowicz  is, but he is the author of Profit First and The Pumpkin Plan and a few others. And he wrote a book called Clockwork, which is a great book for people in business. It’s sort of a simple approach to making business ultra-efficient, eliminate stress and just get your time priorities right.

Theo Hicks: If your business, I guess in this case, businesses, were to collapse today, what would you do next?

Bill Manassero: Well, I would rebuild. The great thing about it is if you lose something that you’ve had, that you’ve built up, you already know the process about building them up. A lot of people say real estate is all about location, location, location. I believe it’s about relationships, relationships, relationships. If you have relationships, then you can go to those people and help rebuild what you had before.

Theo Hicks: If you don’t mind, can you tell us about a time that you lost money at a deal, how much money you lost, and then what lessons you learned?

Bill Manassero: It’s kind of a general thing, but one of the struggles I’ve had – I’m an out of state investor, I’ve always been an out of state investor – is dealing with property management firms. And property managers can be your best friend and your most important partner, but if you choose not so wisely,  you can end up losing a lot of money. In that is things that happen – not only up charges on things that they do for you in that way, but they can help bring in some bad tenants for you. When you have to deal with bad tenants, the costs can be exponential.

That was for me, one of the key things that I had to get a hold of early on, is that you really, really need to screen your property managers and make sure that these are people that you can prove that they’re good if you’re going to hire him.

Theo Hicks: You’ve already answered the best ever way you like to give back with the non-profit. Do you want to talk about that a little bit more?

Bill Manassero: I think it’s something a lot of real estate investors should see. First off, it’s really easy to establish a 501(c)3, and it’s a great tool to be able to do the kinds of things you’ve always dreamt of doing to help others. I had my 501(c)3 for a long time and it has been a great tool and has helped just hundreds of people and families in Haiti. We were rebuilding homes for people during the earthquake, we’d set up a school and a hospital and all these other things there. It’s a great vehicle if you’re ever thinking about getting serious about helping others.

The other part is giving back. I love giving back… And granted, my audience is targeted 50 Plus, so I love to be able to help people get started later in life, but I also work with a lot of younger folks too. Through Bigger Pockets and places like that; I try to make myself available if somebody wants to meet, have coffee, and just ask questions. That’s another way to give back as well.

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

Bill Manassero: Best ever place is at The Old Dawg’s REI Network, and the website is http://olddawgsreinetwork.com/, and you can write to me if you’d like at bill@olddawgsreinetwork.com, or you can go the website and check out the content. There’s also a Contact page there as well.

Theo Hicks: Alright, Bill, thanks for joining us today and giving us all of your advice on all that you’ve done in your life, I really appreciate it. It’s always fun to talk to another podcast host as well.

We talked about your background, how you actually started in real estate later, which is why you created that Old Dawg’s Network, to help others start real estate later in their lives. You kind of talked about the breakdown of your portfolio, and how you’ve been transitioning into Senior Living lately, in part because of the fact that, as you mentioned, 10,000 baby boomers are hitting the age of 65 every single day.

You focus specifically on ground-up construction on luxury senior living facilities across the country. We talked about what your roles are in the GP. It seems like it’s mostly Investor Relations, because you know a lot of investors from your podcast. We talked about the podcast, why you started it, how you just organically, over time, without asking people to really invest, have had people come to you wanting to invest just based off of listening to your podcast for a long time, and you gave us a few tips on how to grow a podcast.

I really liked how you talked about focusing on quality and that a lot of your reviewers said they really liked the podcasts because of the quality. And it’s not just the quality of the guests and the content, but also the actual quality of the production. You hired a producer who would help with the sound quality and make edits on the backend and things like that, and then you also attribute your podcast success to a lot of word of mouth referrals from listeners.

And we got in a little bit more specifics on your senior living investing. My biggest takeaway there was – and you can really apply this to any new niche you want to go into, is finding someone who’s super experienced at what you want to do, and then work with them, partner with them, and have them be your mentor. You had met someone – maybe a friend of a friend – you had met through the podcast, and he had a bunch of experience with senior living facilities, had built over 20 of them. You mentioned that he has not had a single case of COVID at any of those, and so you continue to partner with him for these deals.

Lastly, we talked about your best ever advice which is, it’s important to have a plan, it’s important to get a mentor and educate yourself, but at the end of the day, the core of all that and the thing that’s going to keep you motivated when you’re kind of in a rut is to know what your ‘why’ is, have your mission statement and you kind of explained what yours was as well.

I really appreciate it, Bill. I know the best of listeners are going to enjoy this conversation. I sure did.  Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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JF2215: Rockstar Capital With Robert Martinez

Robert Martinez is a full-time real estate investor, syndicator, and manager at Rockstar Capital. He has 13 years of real estate investing experience and shares how he got started. He survived the recession and believes it is because at the beginning of his career he was in sales and learned to negotiate and make deals which helped him later in his real estate life especially in outperforming others during the recession.

Robert Martinez Real Estate Background:

  • Full-time real estate investor, syndicator, and manager at Rockstar Capital
  • Has 13 years of real estate investing experience
  • Rockstar’s Capital portfolio consists of 21 communities and 3,762 units
  • Based in Houston, TX
  • Say hi to him at: https://www.rockstar-capital.com/ 
  • Best Ever Book: Gary V podcast

 

Best Ever Tweet:

“Find out what will put you out of business and then develop a plan to defend against it” – Robert Martinez


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’ll be speaking with Robert Martinez.

Robert, how are you doing today?

Robert Martinez: Hey, how are you, Theo? Thanks for having me on the show.

Theo Hicks: Absolutely. Thanks for joining us. I’m doing well and looking forward to our conversation. Before we get to that conversation, let’s go over Robert’s background. He’s a full-time real estate investor, syndicator, and manager at Rockstar Capital. He has 13 years of real estate investing experience. Rockstar Capital’s portfolio currently consists of 21 communities across 3,762 units. He is based in Houston, Texas, and you can say hi to him at https://www.rockstar-capital.com/.

Robert, do you mind telling us a little bit more about your background and what you’re focused on today?

Robert Martinez: Yeah, so I got started in real estate in 2007, but prior to that, I had no real estate background whatsoever. I grew up in Deep South Texas, like a border town close to Mexico, United States. I went to school at Texas A&M University and I thought I was going to be an engineer when I got out of school. What happened was I got a sales role within a company that makes engineer products. So I started going out to the Ship Channel and to the engineering houses and setting my company’s products.

And what happened to me is a lot like what happens to a lot of people in corporate America; they monkey with your commission plan, they monkey with your territory, they bleed you when you’re working really hard; you’re trying to plant roots and seeds today so that you can harvest them tomorrow and for years to come. That’s not how corporate America works, right? You want to make here, instead corporate America wants you to make down here somewhere, plus or minus $10,000.

I got very disgruntled, I guess, by that, and I wasn’t motivated. When I should have been out there looking for  new business for my company, I was out there trying to educate myself. I stumbled upon a real estate radio show; I listened to it for the better part of two years before I actually went to that real estate club to learn.

Once I went to that club, it literally was like that matrix moment with Morpheus and Neo, where you see the red pill, blue pill. You take the red pill, and you’re going to go back to reality. You take the blue pill, and you’re like, “Wow.” It’s like you see this whole other world that you never knew existed, and you didn’t know it existed because mom and dad didn’t teach you, right? Donald Trump’s kids knew about this stuff, right? Our people that are in the real estate market; but the everyday Joe, he didn’t know that, because if his mom or dad didn’t teach it to him, they didn’t learn it.

Thankfully, I believed in mentorship, I believed in educating myself, I went through the process, I went through the program, and I got to understand the basics of what it was to run an apartment complex.

With a partner, I got started in 2007. Together, we ran 2,000 units. I was the COO of the company, and after 2011, we separated. I started Rockstar Capital in 2011. Since then, we’ve gone on to purchase 22 communities; we own 21 today, just under 1300 units, asset value of under $400 million. I’m a two-time city owner of the year, I’m a two-time national owner of the year, and our claim to fame is that we pulled a tremendous amount of equity out of our communities. We’ve been able to pull out 12 100% cash-out refinance events since 2011, and we’ve won 17 city, state, and national Apartment Association Awards in that time.

Theo Hicks: Well, thanks for sharing that. There’s all these things in your background I’d like to focus on… I definitely talk about the 12 100% cash refi events. Before we get to that, it’d be nice to kind of go back in time a little bit, because I know a lot of people love the origin story.

You kind of mentioned up to the point where you took the red pill, you were all in on real estate, you decided to pursue apartments with a business partner. Maybe kind of walk us through — you don’t have to get super detailed, but maybe walk us through why you selected that partner, why you selected apartments, and then maybe a little bit of information on the first syndication deal. Where that money came from, how the duties were split, things like that.

Robert Martinez: Sure. I chose a partner because I didn’t know any better. I was scared. I believed in fear, and in fear, it was False Evidence Appearing Real. I didn’t think I could do it alone. I wish then I know now what I know, is that I could have done it alone. Financing was available and I would have done a lot better for myself. You talked about fees – he was the syndicator in those first three years and I was the operating arm, so I didn’t get any additional fees. I got the return on my equity. That’s what I got. I worked for it. He was a syndicator. He put the deals together, so he got those deals. And then we ran 2,000 units. I ran deals through the recession. Because of my sales background, I was able to get us to survive the recession. I was able to teach my staff how to sell and ask the basic questions, and how to compete against every day other people.

When we got started, we were dealing with C-class deals, right? Because that’s why everybody gets started typically when you first get certain apartment deals, so it was me against them. It was my sales team versus their sales team, and we won. During that time, we did three 100% refinance events. I don’t take credit for them, but I was the operating arm. I was leading the Salesforce.

And we had a falling out… Because what happens in this world, if you don’t have it clearly defined, and I thought we had an agreement—if you don’t have it clearly defined on what everybody’s roles are going to be, then it start to go bad.

We had an agreement, an agreement that he broke, and when I realized that I couldn’t trust that guy, I don’t want to be in business with you. So we had a parting of ways. And when I started Rockstar, I didn’t have a business partner, I did it by myself. I took the lessons and the experiences that I was able to gain during that time to begin the company.

Theo Hicks: Okay. How many deals had you done up to that point with that business partner before that falling out?

Robert Martinez: He and I did 10 deals right around 2,000 units, all C-Class, B-class deals. At that point, you’re talking 2008-2011. I think we were looking at deals that were in the $30,000 to $40,000 range per unit.

Theo Hicks: Then once that happened, what happened to those 10 deals?

Robert Martinez: My understanding is some of them still exist. Many of them were sold already, and he is not as large as we are today. They’re still around. I don’t have ownership in any of those deals. The deals that I had ownership in have sold already.

Theo Hicks: Okay, so then let’s transition to Rockstar. You had, obviously, a lot of experience from the 10 deals you had done. Let’s just start with the money-raising aspect. How did you get the money for these deals, starting with Rockstar?

Robert Martinez: Well, within that real estate club, I really had developed a name. I was co-owner of that previous company, so people knew who I was through the different events that they would have. For me and my very first deal, I already had a track record. I’m at a little bit different advantage, because I wasn’t a syndicator in those first three deals, but I was the guy running the show. So when we’d have presentations, I am there answering questions. I am there shaking hands and kissing babies.

So when I finally did my first syndication deal, that money came in pretty quickly. It was only about $1.5 million equity raise. We bought it in 2010 and paid $24,000 a door for it. It’s crazy. A 1984 deal; raised $1.5 million. We refinanced it twice since then; we’ve returned 400% back to the investors. It’s probably worth another 300% to 400% in terms of unrealized equity, but we’re in a CMBS loan, so I need a few more years for it to end and then we can pull the cash out again.

Theo Hicks: Okay, let’s focus on that, because I’m sure most people want to hear about it. The best way to go about doing this is to give us an example deal that you were able to do the refinance on. Let’s just pick a deal you’ve done it on – the first deal, the last deal, whichever you choose, and walk us through the numbers, and how did the whole process work, like how you were able to do it?

Robert Martinez: Sure. As you know, if you do this long enough, your model changes, your fee structure changes. Early on, I had a 10% promote. So of that $1.5 million, I would take a 10% override is what I call it; an override on the profits of that. I didn’t charge any acquisition fees, there were no additional other fees. It was a 5% management fee; that was 3% on the property management, and 2% on the asset management. Then we would go in, we would raise the capital, and then we would do a renovation.

I’m very big on replacing all the air conditioners, day one. That’s a lesson that I learned from those first three years in the business. Because the key to successful real estate investing is heads and beds, and you want people to renew. You make your money when people renew, not when they move in. Because as you know, when you have people move in, you’re spending a lot of money; you have vacancy loss, you have to make-ready expenses, you have marketing expenses, you have a wide variety of expenses for that unit. But if they stay, typically they will absorb a rent bump, a nuisance bump as we like to call it, and they stick around, which means that you don’t have any expenses against it.

My whole goal is what can I do to keep them to renew again and again with us?

The number one thing was air conditioners. The number one maintenance headache that any apartment has is the air conditioning, and the number one reason why people move out is maintenance. If you replace the air conditioner — as you hear in Houston, Texas today it’s like 97 degrees; it’s hot, and it’s going to be like that all summer long, probably through November. So if you can replace that one issue and you create a basic service and focus on the basic services, then people are going to stick around longer. So air conditioning was a big deal.

Then we go do our other renovations; we improve the exterior, we add HardiePlank patios so that it has a fresh clean look. We’ll repaint, we’ll update the interiors, we’ll put forward planking down. It’s the same business model everybody has, but what we also like to do is focus on reviews. We didn’t do that then. This was an evolution thing. As times go on, people find you online, so it’s really important to make sure that you’re controlling the narrative and the right story is out there. We don’t want the story to be written by somebody who’s been evicted because they can’t pay rent or somebody who’s not following community policies. We want it to be written by people who are moving in because typically, they’re happy, right? We focus a lot on reviews and then we focus on making sure that all of our basic services are right there in line and they’re consistent.

Theo Hicks: I appreciate that. Let’s talk a bit more about the reviews. What specifically are you doing to get those people who are renewing to do reviews? I guess, is it just happening naturally or is there some sort of productive effort on the part of you and your team?

Robert Martinez: Well, for sure, because first, you need someone to lead. You’ve got to execute. Everybody had the idea for Uber, but nobody executed on it, right? It’s the same thing. If you have the best idea, but if you have no plan to make it happen, then you’re going to have issues.

Reviews were very scary for us in the beginning. Like a lot of people, I would go to https://www.apartmentratings.com/, I’d go to Google, and I always see negative reviews, and everybody was scared. I literally would feel like an ostrich with my head in the sand. I didn’t want to see it, I ignored it. I got a chance to visit with Gary Vaynerchuk a couple times and he kind of said a couple of things that made me focus on brand, focus on reputation, and helped me understand that, “Man, I’m letting somebody control my narrative.”

So what we do is we told the staff not to be afraid of reviews; to go out there and solicit reviews. Every time that somebody is there and they’re moving in, ask them for their review. If you just ask for it, people are probably going to want to give it to you. That’s what we did and we started to build our reputation.

Today, per https://www.apartmentratings.com/, 16 of our 21 sites are ranked in the top 250 in the country. There’s 130,000 communities. I’ve got 16 sites in the top 250. In the top 10, I’ve got six sites, because this has been part of our business model. It’s something that’s a part of our foundational success. We spend a lot of money on the websites, we spend a lot of money on video, but they’re still going to go back and read the reviews because that’s what people do. They don’t want to make a decision on their own. They want to feel safe. It’s a little bit of a herd mentality. When you go to Best Buy and you want to buy a TV or a camera or something, you probably don’t know which one to pick. So you ask the sales guy, he’ll tell you everybody’s buying this one or buying that model. You’ll go to Amazon, you’ll plug in the model, you’ll then see other reviews there and then that’s how you make your choice. It’s no different for apartments. We’ve just got to make sure that we control the narrative and the best story is out there.

Theo Hicks: I appreciate you sharing that. Of all of the 12 cash out refinances you’ve done, on average, how soon after you’ve acquired the property, are you doing these?

Robert Martinez: Well, it’s definitely changed, because in the early years and back in 2008 and 2011 and 2013, we could do those in a 24 to 36 months cycle. It was that good. But as everything gets more expensive, and the cap rates get a little tighter, and there’s more competition, it’s now pushing out to three years or four years. We’re able to get the cash-out, but it just takes a little bit longer now, starting out with COVID-19 that happened and everybody’s budget can be in a little bit off and the investor sentiment is off, the economic outlook is off, it may take a little bit longer. But if you just follow the model, it’s going to be fine. But today we’re looking at probably between 36 and 48 months.

Theo Hicks: Okay, Robert, what is your best real estate investing advice ever?

Robert Martinez: Man, you’ve got to go big or go home. I bought a deal that was 51 units. We were dipping our toe into the class-A market. I bought it in midtown, which is just outside of downtown Houston, a very hot area, a very trendy area. I thought, “It’s just 51 units, I can control that. I’ll be okay.” But what I didn’t understand is that any blip, my occupancy moves. So as they’re building a lot of new properties in the area, we were getting dwarfed out; these properties are coming up, they’re leasing up, they have every amenity in the world. I’ve got 51 units, I got a small pool, and I have an executive style fitness center.

When I did underwriting on that deal, it was $100 a barrel here in Houston for oil. When we closed the deal, it was $60 a barrel in oil. And Christmas that year after we bought the deal, it was $30 a barrel in oil. We really went into a gunfight with a knife. We had to get better. If I had had marketing dollars, if I had a bigger budget, I could have done better on that deal. But what I did learn – I learned websites, because you have to fight against it. We didn’t have any websites. I learned websites. I learned reviews are very important. That was one of the first properties that we got that was ranked really high. That probably was ranked in the top 1% in the country for resident satisfaction every year that we owned it, but it was one of those ‘necessity is the mother of invention’. We had to survive. But what if I would have had 300 units, 400 units? I would have had more marketing dollars. I would have been able to have more budget to pay for a better manager in the chair because that person sitting in the chair is running a multi, multi-million dollar deal. You’ve got to make sure you have the right person in that chair. And if I’m paying $40,000 a year or I’m paying $80,000 a year for the manager, you’re going to get a different performance, and I realized that. So as we move forward, we’re focusing on larger deals, because more units give you more ammo, it gives you more options.

Theo Hicks: Do you mind, before we go on to the lightning round, just elaborating a little bit on the website?

Robert Martinez: We had a website. It’s funny, right, because I had no websites. My marketing budget consisted of pretty flags, banners, and color on the outside of the property. We did a lot of resident referrals. We did a lot of advertising in different periodicals. But we had no social media presence whatsoever. We had no website presence whatsoever. We had to learn that and I learned it on the fly. That’s how I discovered Gary Vaynerchuk, was trying to learn from mentors like that, and going to visit Gary a couple of times, and understanding what I needed to do to separate from the pack. Our website had no teeth to them. They were just basically a shell. It was a pretty picture, a couple of links, and that was it. I didn’t understand SEO. I had to educate myself. I self-educating myself, but I also brought in people into my company that were where I wanted to be.

I brought in somebody that was working at another company and they [unintelligible [00:18:19].11] running 10,000 units, and I had to pay for that person. That came out of my pocket. But I had to learn that. I had to go through the process of understanding where we were weak. Together, we learned social media, we learned Facebook ads, we learned Instagram. Today, we have a guy that focuses on nothing but Google ads; like the SEO, the keyword placement. It’s just things that we didn’t even look at before. We’ve got a complete team, where three years ago I had nobody on the marketing team. Today, I’ve got seven people on the marketing team, because I realize how important leads are, I recognize how important follow-up is… We have a 24/7 call center now, so we never miss a call. It’s not just like an answering service that you pay 90 bucks for a month. It’s a live, breathing person that has access to your property management software that can schedule the appointments for you. It’s just been an evolution for us.

Theo Hicks: What would be the one thing you’d recommend someone do to improve their branding, when they obviously don’t have as big of a budget as you to hire a full team and 24/7 ads and one guy who’s doing Google ads and things like that? The one thing they should do today.

Robert Martinez: If you don’t understand that it’s all about the phone, then you’re dead in the water. You deserve to go out of business. You’ve got to immerse yourself. You can go to YouTube, you can go to Google, and you can educate yourself. Before I brought anybody in, before I started to take money out of my pocket and do that, I spent money on myself. I invested in myself first, before I invested in anybody. When they brought them in, they didn’t have social media experience. I had the social media experience. I learned how to do a Facebook ad. I learned that by watching Gary. I learned it by self-teaching yourself.

You’ve got to be a little innovative, right? Because every day, somebody’s trying to put you out of business.

One of the key takeaways from meeting Gary was he said, “Come up with a way to put yourself out of business,” and remember when he said that to me, and I’m like, “What do you mean?” He goes, “Find a way to put yourself out of business before somebody else does it to you first,” and that makes sense; because if you don’t try to find your weakness, someone’s going to exploit it. And you don’t have a chance to develop a defense against it. And that’s what I did; I realized that we had no brand, we had no reputation, our properties were unknown. During that pandemic, you survived during COVID-19 if you were still online 24/7.

Right now, during COVID-19, a lot of people saw occupancies go down. Our occupancies went up. Last year, 7% of our total leases were through our website only, meaning that they didn’t come into the office whatsoever. They did the employment screening online, they did the resident verification online, they took the tour online. We spent a lot of money for virtual reality tours where they can go room to room to room, click different buttons, it’ll send to different parts of the property, they can see the amenities.

Today, that’s over 30%. We actually have more completed applications today year to date than we did last year, yet our lead count is down. How did that happen? Because we were online. We were live 24/7. When the rest of the world was shutting down, our offices were still open virtually. That’s what I’m talking about; being able to plan ahead and think about when times are not going to be so good.

That’s being a wartime general. A lot of peacetime generals out there that thought that the world was going to continue to keep going and the harbor was going to stay full and all boats are going to float. But the wartime generals had been through the recession and they’re thinking about when times are tough, “What can I do to prepare for it?” That’s some of the things that we did.

Theo Hicks: I really appreciate those. That was really solid advice. One more time – find a way to put yourself out of business, and then—

Robert Martinez: Yeah, find a way to put yourself out of business, and then develop a defense against it. What is your weakness? And he is very big on doubling down on your strengths and hiring your weakness… As you’re getting started — I mean, I have 4000 units today, but I started with a 118 unit property, all by myself. It was me, the property manager, and two maintenance guys outside, and today I’ve got 4,000 units. That means I wore every single hat. I wore the underwriting hat, I wore the operator hat, I wore the owner hat, I wore the investor hat; I wore them all. And today, I now have people there.

What we’ve done is, I’ve focused on what I’m good at, doubled down on that… And systematically start to hire your weaknesses. Marketing was a weakness for us; when I realized that we weren’t able to stay alive and fight against better competition because they have a social media presence, because they’re buying your keywords up… You have to understand, “Hey, I don’t understand this. I need to bring somebody in here that does, so we don’t die.” Again, find a way to put yourself out of business, and then develop a defense against it.

Theo Hicks: Perfect. Okay, are you ready for the best ever lightning round?

Robert Martinez: Yes.

Theo Hicks: Perfect.

Break: [00:22:31] to [00:23:45]

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

Robert Martinez: I’m embarrassed to say, right? I think I told you, I just got the Jaws book. I’m not a big reader. I’m more of a guy that likes to sit in the car or sit at my computer with my air pods in. I listen to a ton of podcasts. I listen to everything Gary spits out, because he gives out some amazing information for free. And if you’re a good business guy, you understand how your business works, you can identify, you can take those lessons from him. I love the Gary Vaynerchuk podcast. I love Grant Cardone’s podcast. When I need a little jolt of energy, I need to feel like I can run through that wall, I’m going to go listen to Grant. But if I need some real stage business advice on how I can implement and make my company better, I go and I follow those guys. That’s all I need right now.

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

Robert Martinez: I’d do it over again, because I believe there are some things that will never go away; your need for food, your need for water and air, and you’ve got to have a roof over your head. I think if you focus on a business that services one of those items, you’re going to be okay. I would do multifamily all over again, and I just would probably do it differently.

Theo Hicks: Do you mind telling us about a deal that you’ve lost the most money on? How much did you lose? What lesson did you learn?

Robert Martinez: I’m very fortunate; I’ve never lost money on a real estate deal. For those of you that are struggling right now, I’ve been in deals that were struggling during the recession that looked like, “Man, we’re never going to get out of this.” But you never lose money till the day you sell. So just find out a way to keep it going, because when it’s bad, it’s bad, but when you’re running through hell, you don’t stop. You keep going. You want to get out on the other side. I’ve been very fortunate. I’ve gone through my ups and downs of deals, but I’ve never lost a deal. I’ve never lost money in a deal.

Now, did I make less money on a deal? Sure. That 51 unit deal. I had delusions of grandeur, I was going to pull another 100% equity out, and it didn’t happen. In the end, we wound up with 27%, which was around 8.5% annualized return; not the best return. By far, the lowest return. But the lessons I learned from that deal, were amazing.

I learned social media because of that deal. I had to go see Gary Vaynerchuk because of that deal. I learned resident reviews because of that deal. That deal created our whole marketing team later on, because I realized I’d bought a deal and I didn’t understand how to stand out above the noise. That deal forced me to learn how to do it, and I learned through the 51 units, “Man, you need to be looking at 351 units, 451 units, you need more size. More doors is better for you.”

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

Robert Martinez: I think there’s two ways I want to make sure that I give back and I’m remembered for; what I’ve done for my team and what I’ve done for the community.

Internally, I’m very big on trying to help my team out. I’m in a position where I can help and I know that. I’m in a position where they’ll take advice, they’ll listen to me, and its mentorship. I try to give everybody 51% of the relationship. I say, how can I help you? What is it you’re trying to do? Where are you struggling at right now? Let me see what I can do—because really all it is, is just a little bit of knowledge. Somebody wants to buy their first car, but they don’t know how to do it. They don’t know where to go, they need some help on their credit. You give them some advice. You tell them where to go. They want to buy their first house, you help them get out of debt, you help them save money, you give them advice, and they start to listen to you. I don’t do it for them, but I give them advice.

Here in the company, I told everybody that I want to see you get your real estate career started while you’re working with me. If you put $5,000 in any of my deals, I will match you $5,000. That is better than any 401k. That’s better than anything, because they will learn what real estate advantages are. They’ll learn cash flow, they’ll learn appreciation, they’ll learn the tax benefits, and I want to be that guy that teaches them. That’s a standing offer I have within my company.

For the community, I try to do as much as I can. There’s little stuff like the back to school events and working with the local Apartment Association. But my mom got hit by breast cancer back in 2016 and it was a very scary thing for me. I didn’t know what it meant. I had to educate myself on it. I realized how easy and preventable it is with just raising awareness. One in seven women will get breast cancer in their lifetime, but it’s like 90% are curable and preventable if you get it early, and you get the proper treatment.

We started a breast cancer walk back in 2016. We’ve done four years now of that, and I’m really proud of how much money we raised for Susan G. Komen, and have raised for Breast Cancer Awareness. And what we’ve done for families of our residents here where we help sponsor screenings, we’ve done financial assistance… But I just always go back, “What do I want to be remembered for?” I don’t want to live in regret. I want to make sure that I’ve done everything I needed  to do business-wise, everything I needed to do for my children to become the best mentor and the best father I can be for them. And for my team, to let them know that they had someone that cared about them and that I gave them a head start somewhere, where maybe if they hadn’t met me, they would be in a different position.

Theo Hicks: Wow. And then lastly, what’s the best ever place to reach you?

Robert Martinez: That’s a great question. I’m really focused on social media right now. You can find me on LinkedIn at Robert Martinez, I produce a lot of free content. On Instagram, I’m out there @apartmentrockstar, and I have a personal brand page, the https://www.theapartmentrockstar.com/ You can find out all of our live events, you can find out our coaching, you can see a lot of free videos. I even have a comic book on there. There’s a lot of free content to learn from me, but you can go to https://www.theapartmentrockstar.com/ and you can find me there.

Theo Hicks: Awesome. Robert, I really enjoyed this conversation. You have a lot of knowledge and you gave us a lot of knowledge in this episode. Definitely worth relistening for sure. There’s a couple of—again, a lot of takeaways here, but a couple of the biggest ones, at least for me personally, was, first of all, when you talked about making the money when you renew. I think that was really powerful, and it’s so obvious, right? But I don’t think a lot of people think about it that way.

You talked about obviously, if you’ve got people staying, resigning their lease, you’re automatically knocking down your vacancy loss, you’re make-ready expenses, your marketing costs, and you’re still getting that rent bump, right? When you look at a T12, you’ll see there’s a pretty big make-ready expense. There’s a pretty big vacancy expense. There’s a pretty big marketing expense. So being able to knock that down is huge. Every dollar saved increases the value of the property at even greater amounts. I really liked that you said that. You gave us examples of things that you do in order to promote that.

The biggest one you said was replacing all the A/C units from day one. I’m sure anyone who’s ever lived in a hot climate can understand how annoying it is when your A/C goes out for sure, so I bet that helps a ton.

You gave us a few other examples. Another huge takeaway was your focus on reviews. I hope I wrote this down right, but you said 16 of your 21 sites are in the top of 250 in the country for reviews and then six on the top 50, right?

Robert Martinez: That’s correct, on https://www.apartmentratings.com/.

Theo Hicks: On https://www.apartmentratings.com/. Obviously, getting people to renew is huge here, but you’ve said that really all you’ve done is just whenever staff are interacting with residents, so whenever someone is signing a lease or if someone is going to renew a lease, you simply ask them to sign a review. And you mentioned the reason why reviews are so powerful is because of that kind of herd mentality, and people are going to make their choices based off of what other people have already decided, right? So if they hate your apartment, then they’re not going to go there. If they love your apartment, then they’re more likely to go there. I appreciated that.

You also went over your best ever advice, which was to go big or go home.

Robert Martinez: Yeah.

Theo Hicks: I’ve talked about this before in Syndication School, but when you’re doing these apartment deals in that medium-range, and in your case is 51-unit deal which ended up working out, and you’ve got these bigger communities around you that have all the amenities on site, you are going to have a hard time attracting residents. Plus you’d have less money to spend on things, like you mentioned, marketing and a manager. When you’re dealing with apartments, the bigger the better, because you have more economies of scale.

Lastly, you talked about the Gary V. quote on find a way to put yourself out of business and then develop a defense against that. That was very, very powerful advice. I’m sure you could do a whole book on talking about different tips and steps for doing that.

But those are some of the biggest things I took away. A lot more really solid advice this episode. I really appreciate you coming on the show.  Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Robert Martinez: Thanks so much for having me on the show.

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