JF2162: Knowing Enough To Be Dangerous With David Ounanian

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

David Ounanian Real Estate Background:

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

 

 

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Best Ever Tweet:

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

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JF2159: Creating Software For Landlords With Laurence Jankelow

Laurence is the Co-Founder of Avail, an all-in-one software solution designed for DIY landlords. He initially was handling his real estate investment process with excel spreadsheets and after a while, both he and his partner figured there must be an easier way to be a landlord. They searched for different software and found that the majority of the ones out there were made for bigger landlords, so they decided to create their own for the smaller landlords. 

Laurence Jankelow  Real Estate Background:

  • Co-founder of Avail, an all-in-one- software solution designed for DIY landlords
  • Long-term real estate investor with a passion for 3-unit multi-family properties
  • Portfolio consists of two 3-units and 1 Car wash
  • Based in Chicago, IL
  • Say hi to him at: https://www.avail.co/ 
  • Books: measure what matters

 

 

 

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Best Ever Tweet:

“You make all of your money essentially on buying the right properties” – Laurence Jankelow

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JF2153: Canadian Market With Natalie Cloutier

Natalie works with Transport Canada full-time and is a part-time real estate investor. She started investing in 2014 building her first home from the ground up with no money down. If you are curious about the Canadian market this episode will give you some insight to how she invests in Canada. 

 

Natalie Cloutier Real Estate Background:

 

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Best Ever Tweet:

“Real estate investing is not easy, you have to be willing to put in the work and hustle.” – Natalie Cloutier

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JF2149: Mistakenly Making It With Cameron Lam

Cameron is a full-time business analyst for McKesson and a part-time real estate investor. He started investing in 2017 by house hacking his first property and now has 12 properties under his name. He shares how when he first started looking to invest he didn’t have all the knowledge necessary, skipping important steps and taking the wrong advice. His story shows the importance of jumping in and being open to learning as you go. 

 

Cameron Lam Real Estate Background:

  • Part-time real estate investor
  • Started house hacking in 2017
  • Currently owns/co-owns 12 properties
  • Based in Gilbert, AZ
  • Say hi to him at: www.sixfigurepassiveincome.com 

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“My niche is getting good tenants into a home fairly quickly” – Cameron Lam


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Cameron Lam. How are you doing, Cameron?

Cameron Lam: Good. How are you, Joe?

Joe Fairless: I’m doing well, and looking forward to our conversation. A little bit about Cameron – he’s  a part-time real estate investor. He started house-hacking in 2017, currently owns/co-owns (and we’ll talk about that distinction) 12 properties. Based in Gilbert, Arizona. With that being said, Cameron, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Cameron Lam: Yeah, sure. I moved out here to Gilbert, Arizona about five years ago. I was looking for a place to live, found something on Facebook Marketplace, joined a roommate then, now a great friend, that was paying $325/month, so not really expensive; actually, a great price. I started working at Intel, and just for those two years saved a ton of money. I kind of got the idea from him, I said “Well, he’s renting out all his rooms and we’re paying his mortgage for him. It’s not very expensive, but why don’t I do the same thing?”

So I was driving around, there was a lot of open land, a lot of new construction down here… I saw a home that I liked, brand new build… I’m from California originally, and they told me “Hey, this home is $260,000, 4-bed/3-bath.”

Joe Fairless: Sticker shock.

Cameron Lam: I’m like, “Man, back in California that’s a million.”

Joe Fairless: Yup. You’d get a shed there maybe.

Cameron Lam: Yeah, right?! So I pulled the trigger on that one, and then essentially started doing what my friend was doing – house-hacking.

Joe Fairless: Okay, so that’s how you got going. That was 2017. You’ve been busy since then – 12 properties. I introduced you and your bio as a part-time real estate investor… What do you do full-time?

Cameron Lam: I’m a finance business analyst. Originally, I was working at Intel Corporation, then I moved to McKesson in Scottsdale. I work from home most of the time, which is nice…

Joe Fairless: They just moved their headquarters to Las Colinas.

Cameron Lam: They did.

Joe Fairless: But you don’t have to move there?

Cameron Lam: I don’t. Maybe I’ll go down there occasionally, but… No, I don’t.

Joe Fairless: So full-time business analyst… How does that help you with what you’re doing in real estate?

Cameron Lam: That’s a good question. I run numbers a lot for our business. It’s sort of like a business finance job, so running the budgets, what’s the variance to the month-end gonna be… That kind of parlays perfectly into real estate investing when you analyze a deal.

Now, to be honest, when I first started doing real estate investing, my rationale was really just so I could pay less money; just to have people pay my mortgage for me… So my thinking was (when I first started) “Hey, I’m paying $400/month to my friend. If I buy this house and it’s got four bedrooms and I’m living in one of them, my mortgage is $1,300. If I can get three people in there to pay me $500 each, I’ll make a little bit of profit.” So it’s actually less expensive for me to own a home than to rent. That’s what got me started.

I wasn’t really looking at numbers at the time. I also was single at the time, and I said “Well, then I can buy a really fancy car, I can buy a BMW and impress all the girls…”

Joe Fairless: That’s right. It’s all about the car.

Cameron Lam: Exactly. Yeah, that’s how it started, and real estate was just sort of like a side-gig for me. I learned how to be a landlord with different people living with me, and that was fun. I’ve had a ton of roommates throughout the years, being in college, and even coming out here… And then the light bulb didn’t really click for me until actually I was about to get married. This was about a year later, September 2018. I was trying to convince my now wife that “Hey, why don’t we just live in a master bedroom in that same house and rent out to my buddies?” And she wasn’t having it.

Joe Fairless: Ohhh…! If you had convinced her, I was gonna ask you what type of psychological tools you recommend for doing so.

Cameron Lam: [laughs] There are none. So pretty much she said “No, you’ve gotta kick them out.” I’m thinking to myself — I was always good with numbers, and I’m like “Oh, man… Am I preparing to pay $1,300 a month, and have no more renters income?” And the decision was no. So we found more of  a fixer-upper about ten minutes away. 4-bed/2-bath, 230k. I kind of had it in mind — I was really looking at bedrooms, like “Okay, I can just fill this with lots of bedrooms and rent out to young professionals and college students after we move out of it”, and that’s where everything started to click for me… And I’m like “Hm. There’s gotta be a better way to analyze all this real estate stuff. How do I analyze all of these deals?” and that’s where I started going on forums like Bigger Pockets, and listening to one of Brandon Turner’s books, I can’t remember which one it was…

Joe Fairless: So what did you find out? So you got that 4-bedroom/2-bath for — I think you said 220k purchase price, that was a fixer-upper?

Cameron Lam: Yeah, 230k purchase price.

Joe Fairless: 230k.

Cameron Lam: I guess my intuition was “Okay…” I started running cash-on-cash return, doing all the analysis, revenues, running vacancy… I didn’t do any of that before, so I’m sure a lot of real estate investors probably didn’t do that and they just jumped in… Or other people just have analysis paralysis and do that way too much before they jump in… I’m actually glad I just jumped in, but I had to start running numbers with the vacancy, repairs, maintenance, cap ex, landscaping, all the stuff that you know about… Then realized that for the first two properties I had purchased, the first one I had put probably too much money down. I put 20% down, because everyone and their dog was telling me “Yeah, put as much down, so your mortgage is less.” Okay – I don’t personally like that advice.

I followed that advice, and the first home I had we actually added — we turned a loft into a fifth bedroom, so the cash-on-cash on that one was 14,5%, which isn’t terrible… And then the second home we had – I knew I should put less down; we put 7% down, and probably could have gotten even less than that… And now that one is rented out for $1,900/month plus all the utilities are paid for by the tenants, so that one is 16.5%-17% cash-on-cash return.

So yeah, I think after those two properties the floodgates opened. I was just looking at Zillow all day, looking at the MLS and just trying to find other deals where I could fill the spots. I do it sort of a different way – I fill them by bedroom. You can make more per bedroom, and then people are really open to paying all the utilities that way, because it’s split.

Joe Fairless: That’s a double-whammy I personally hadn’t thought of – when you rent out by the bedroom, they’re open to paying the utilities, because if it’s four bedrooms, divided by four… Now, just so I’m clear, the first two houses that you purchased were more of  a house-hack, correct?

Cameron Lam: The first house was a  house-hack, and the second one was [unintelligible [00:09:53].09]

Joe Fairless: Okay, the first one was a house-hack, the second one was the 4-bedroom/2-bath fixer upper.

Cameron Lam: Yeah.

Joe Fairless: Got it. How long between the first and second purchase?

Cameron Lam: A year and a half.

Joe Fairless: Okay, a year and a half. So let’s just say you hadn’t been — I don’t know if “told” is the right way to put it, but you hadn’t been told you couldn’t do the house-hack. Let’s just say you and your wife agreed, or your fiancée at the time agreed “Yeah, let’s do that house-hack.” From a long-term standpoint, would that have been better, worse or neutral to your financial well-being?

Cameron Lam: That’s a good question. I think it actually ended up being better for us to move out into the new house, because I had to get creative. I said “Well, I can turn that loft into another bedroom for extra income, because I have enough people asking me…” Once I put a group of people in there, their friends wanted to move in and I didn’t have any rooms, so I said “Well, I can turn this loft into an extra bedroom.”

Joe Fairless: Which made it five beds?

Cameron Lam: Yeah, a five-bed. That one was bringing in $2,400 gross revenue, versus a mortgage that’s $1,300, plus all the other expenses. So that [unintelligible [00:11:03].21] maybe $500 to $600/month. I think I wouldn’t maybe have had the idea to start scaling if we hadn’t bought that second property…

Joe Fairless: Why?

Cameron Lam: I probably wouldn’t say that I really think super-big all the time. I am ambitious, but… If I just stayed with the one property, I probably would have just been comfortable… But with the second property, I’m thinking “Oh man, if we move out again in a year…” – you’ve gotta stay in it for a year – “…now we’re gonna have three properties.” At the time I was 28, so I’m feeling fairly young, compared to a lot of maybe other real estate investors, and saying “Wow, I could have three properties by age 28.” Now, obviously, stuff here is a lot cheaper than, say, California, where you’re priced out of the market… But I think that kind of kick-started everything. So that’s where I really started thinking “Hey, what can I do to get out of my 9-to-5 job?” Hopefully, my employers don’t listen to this, but — my manager knows I love real estate. He’s cool with it.

But the goal after we bought that second home as the primary home – I really wanted to see “Okay, how can I get to a six-figure passive real estate rental income (because you know, it’s not always passive) within the next five years, so that way I can replace my dayjob, I have more time for my wife, our future family, and just have more time in my life?”

Joe Fairless: So let’s talk about now where you’re at, because I introduced as “owns/co-owns 12 properties.” We’ve talked about two. The first one you purchased, and then the second one – it took a year and  a half… Based on quick math, you purchased at a more frequent pace than that for future properties, so talk to us about how you scaled and the details there.

Cameron Lam: Yeah, so the second property was September 2018, when we got married. In November I saw another house that was six-bed/three-bath, five minutes away, and just running the numbers I’m like “Okay, this one is gonna return 16% cash-on-cash.” I’d say I probably still made a mistake here on how much money we put down. I worked with a local credit union and they had programs — with the dollar craziness going on right now with the coronavirus who knows what programs people are gonna have left now anymore… But they had 10% programs, and 15% down programs for investments. I just bought a house, so I didn’t have the cash for that, and slung a deal with my parents and I said “Hey, I feel like I’ve done a good job on this first home. If you guys will loan me the money for the down payment, co-sign with me, I will pay you guys back over time.” And they said “Yeah, sure, we’ll do that.”

Joe Fairless: Any interest?

Cameron Lam: No, no interest. I tried to tell them I’ll pay them interest, but they’re just– I don’t think they even really expect me to pay them back, but I am.

Joe Fairless: Okay. Have you started?

Cameron Lam: Yeah, I’ve been paying them back ever since. It’s funny, my mom – she’ll send money for my birthday, and I’ll just give it back to her for down payment money.

Joe Fairless: So that deal – what was the purchase price?

Cameron Lam: The purchase price was 320k, 6-bed/3-bath. It rents out right now for $2,900 plus the utilities are paid for.

Joe Fairless: What’s the typical resident profile?

Cameron Lam: The resident profile is usually just college-age kids, or young professionals. I really find here that we have a lot of students who are going to community colleges, [unintelligible [00:14:24].13] ASU, dental schools out here… There’s just so many schools. And a lot of times you find that they don’t really wanna pay $800 to $1,200 just to live close to campus. They’re not really making a ton of money… So I kind of fill this niche where “Hey, each bedroom’s priced between $450 to $600”, and they totally love that. So that’s really where I kind of carved a niche here, and I find a lot of my tenants on different Facebook groups.

Joe Fairless: That’s property three. Now, taking a step back – you have 12 properties… How did you scale so quickly?

Cameron Lam: Man, my wife didn’t see me the last couple of years… So we scaled — the next two properties I went in with my brother. He kind of saw how I was doing; I’d say my niche is really getting good tenants into the homes fairly quickly… So with property number three, actually — I don’t even know if this is allowed, and I say something I shouldn’t say, but… As we were closing on the home, I brought in six potential people to come look at it, and they wanted to sign the lease agreement before we had officially closed. I said “Okay, I think we can do this”, so they signed the lease agreements, and then when we closed, they moved in literally the day after.

Joe Fairless: And how did you find them? Through those Facebook groups, or other…?

Cameron Lam: Facebook groups, yeah.

Joe Fairless: Okay. So you’re a member of the Facebook groups for those local schools… And anything else other than — like Arizona state, for example… What Facebook group are you a member of for Arizona state?

Cameron Lam: ASU Leasing/Housing — I can’t remember the exact name.

Joe Fairless: Okay, so something like that, where it’s — if I’m an ASU student and I find this Facebook group, it’s clearly dedicated for me finding an apartment or a place to live.

Cameron Lam: Exactly.

Joe Fairless: Okay. That’s helpful.

Cameron Lam: There’s so many people looking. They have 30,000+ students, so  there’s no shortage of tenants. So I utilized my brother on the next two deals and went 50/50. I manage, we both put in 50% of the equity… Because he would really be my first official business partner.

Joe Fairless: There was no zero-interest loan with your brother…

Cameron Lam: No, no… [laughter] By then I had some funding available for my job, so… That was 3-4 months after purchase number three, so four and five. One of those was a smoking deal. I think right now its cash-on-cash return is 46%.

Joe Fairless: How did you find it?

Cameron Lam: I’ve found it just on Zillow. I don’t think I’ve actually ever had any off-market deals. Actually, I take that back; I had one off-market deal. Everything else, I’ve usually just found on Zillow, or now my realtor sends me stuff on the MLS.

Joe Fairless: Okay.

Cameron Lam: So I did those two with my brother; I bought a tiny home, and that one probably wasn’t the best purchase, but now that’s being rented out… And that was a couple months after that. I purchased another property as a primary residence for me and my wife a year after property number two, so September 2019 we moved back by property number one actually, in the same community… And then rented out property number two. And then within the last six months — I actually posted a post on Bigger Pockets just to document my journey with the eight properties, and by then I was netting 40k-50k/year on these different properties… So I just said I’ll title it “How I was able to scale to 40k+ a year in two years”, and that really opened the floodgates. A lot of people started messaging me, interested in joining me, doing investments… So the last few months we’ve scaled up to 12, and now 18 total units.

Joe Fairless: And how do you structure that with people? I know with your brother it’s 50/50, but what about the other structures?

Cameron Lam: Yeah, the way that I’ve actually structured it – and I don’t know if this is the best way; I’m still learning. So since I’m kind of hands-on, boots on the ground — I know a lot of people take salaries; what I do, the way I structure it is I’m actually coming into these deals with no money down. My co-investors are putting all the money down, securing the down payment, securing the property, and what we’re doing is in exchange for sort of my equity into the home, any cashflow that we receive — let’s say we cashflow $1,000; if it was gonna be split 50/50, my 50% portion would actually go towards paying down my equity into the property.

So usually for all these properties we’re acquiring now, it takes about 3-4 years for me to  be 50/50 in. And I’m okay to do the sweat equity, because when we sell, I’ll get 50%  of the sale, and then after 3-4 years I’ll get 50% to 60% of the cashflow, depending on the deal.

Joe Fairless: What’s an example of a deal that you’ve lost money on?

Cameron Lam: A tiny home.

Joe Fairless: Tell us about it.

Cameron Lam: This lady was selling her tiny home for $35,000 on Facebook Marketplace, and I was like “Man, this would be awesome to put in my backyard and rent it out on Airbnb”, and there was another guy doing it in Gilbert, and he had always booked… So I just bought it, got it transported over here for a couple grand, put it in my backyard… And I was like “It won’t cost me that much to set it up.”

I started getting bids from different people… The plumber who had to plumb the sewer stuff out to the street, that was 100-foot – that was gonna cost 5k-10k. And then running new electrical… And just all this money, and I was like “Man…” And then there’s permit issues; you’re technically not allowed to do that in our city. And I’m like “Okay, well — I have this tiny home sitting here now, and I’m paying this lady…” I was actually paying her no interest, five years, for the $35,000; I was paying her like $550/month… Which was a good deal. But it was just sitting here, just sucking up cash… And I actually moved it to an RV park, and it had all the hookups there, and now it’s being rented out. I think net I’m losing $200/month.

Joe Fairless: [laughs] It doesn’t rent for more than $550?

Cameron Lam: It does, but the RV park cost is like $400+, so…

Joe Fairless: A month?

Cameron Lam: It rents for $800. Yeah, $400+ a month.

Joe Fairless: [laughs] Conceptually, it sounds like a really good idea. You could have  a little tiny home village in your backyard. Put like 4-5 of them, and put a little garden for everyone… You could make a little community. But yeah, then you need to think about logistics, plumbing, electrical… And oh, by the way, permits.

Cameron Lam: Never again, man… I think it was a nice idea, and maybe once stuff gets more regulated here and more favorable towards the tiny home movement, then things will be better.

I guess the silver lining is that thing will be paid off, and — I’ve had it for a year and a half, so three and a half years, so… That’s fine. I’m kind of ready to be done with that thing.

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

Cameron Lam: I feel like I don’t know a lot about real estate. I’m still learning every day. A lot of people ask me “How do I get started?” and I think it is a big decision to buy another investment property… But if you already own a home, or even if you’re just leasing an apartment, why not house-hack just to get started, so you get experience being a landlord, you get experience having tenants, screening tenants…? That will give you just a really easy way to see if you’d like real estate investing, or give you a feel for if you maybe want to purchase that first investment. So I’d say try house-hacking if you’re unsure, and just do it.

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

Cameron Lam: Yup.

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

Break: [00:21:54].23] to [00:22:38].19]

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

Cameron Lam: The Millionaire Next Door. I’ve just re-read that. I love that book.

Joe Fairless: Best ever deal you’ve done?

Cameron Lam: Phoenix duplex, 46% cash-on-cash return.

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

Cameron Lam: Pricing things really affordably for all my renters, so that they can save money.

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

Cameron Lam: SixFigurePassiveIncome.com.

Joe Fairless: Thank you so much for being on the show, Cameron, and talking about your process for how you’ve built the portfolio, with partners, with your family members initially and with partners now… And talking about how you aren’t gonna be buying any tiny homes and putting it in your backyard anytime soon, and how when you purchased your first property you might have been sitting there idle longer if you hadn’t been forced to evolve the process based off of relationship stuff, and how that ended up being a more profitable way of doing business, and how it kick-started some things.

So it’s interesting, because Tony Robbins talks about “Change is inevitable, progress is something that we have to be intentional about.” I’m paraphrasing… It’s basically something that he says. So it’s interesting that — you probably would have changed your approach eventually, but this really forced your progress earlier on, and it’s helped you get to where you’re at.

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

Cameron Lam: Yeah, thanks a lot, Joe.

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JF2141: Short Term Rental App With Jon Crosby

Jon is the CEO and Founder of Click2Flip, a mobile app to instantly analyze rentals and short term rentals. Jon loves to create streamlined processes that help make his short term rentals pretty much self-automated. He shares all of the automation he has done for friends, clients, and himself to create a smooth process and experience for both him and his guests.

 Jon Crosby Real Estate Background:

  • Founder and CEO of Click2Flip
  • Started investing in 2015
  • Owned and managed 4 short term rentals
  • Limited partner in 2 multi-family LLCs and 1 air medical hanger commercial investment
  • Based in Rockland, California
  • Say hi to him at https://clik2flip.com/
  • Best Ever Book: 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I created the app to quickly instantly give me a high-level return to see if the deal was worth investing in further” – Jon Crosby


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, Jon Crosby. How are you doing, Jon?

Jon Crosby: Good. How you doing?

Joe Fairless: I’m doing well, and I’m glad to hear it. A little bit about Jon – he’s the founder and CEO of Clik2Flip, he started investing in 2015 after a company that he worked for ended up being purchased, he owns and manages four short term rentals, he’s a limited partner in two multifamily LLCs and one air medical hangar commercial investment, based in Rocklin, California. With that being said, Jon, do you want to give the Best Ever listeners a little more about your background and your current focus?

Jon Crosby: Yeah, thanks again for having me on the show. It’s an honor to be here. Currently, I, as you mentioned, own Clik2Flip mobile app. It’s a mobile app to instantly analyze flips, rentals and short term rentals. Also, in addition to the real estate investment that you mentioned, I’m also a partner in an assisted living facility project here in the Sacramento area, which has been a bit of on hold at the moment because of what’s going on with the COVID crisis. So my day job is a technology consultant for Fortune 100 companies where I focus on app development management, managing app dev teams, and I did that in my previous career in the company that sold. So I was laid off from that job. It gave me the opportunity to bridge my passions, and I brought technology and real estate passions together with the Clik2Flip app. I created it because I wanted something that was in between the 1% rule and 70% rule, but I didn’t want to have to do full underwriting on all the properties I was looking for. So I created the app to quickly, instantly give me a high-level return to see if a deal was worth investing in further.

Joe Fairless: You said between the 1% and the 70%. Is that 7-0 %? What is the 70% rule?

Jon Crosby: It’s the 1% rule for flippers. So that is yet to be a really good one for the short term rental markets. I’m hoping Clik2Flip can actually help bridge that gap as well.

Joe Fairless: What is a 70% for flippers? Will you educate me? I might have heard of it, but I can’t remember what it is.

Jon Crosby: Yeah, the 70% rule just says that the max allowable offer should be 70% of what you expect the ARV to be, the after repair value.

Joe Fairless: Okay, got it. And then, Best Ever listeners, 1% is taking the rent that you’re getting on a annual basis and dividing that by the all-in cost. Is that right?

Jon Crosby: It’s the monthly rent versus when you purchase, the purchase price of the property in a nutshell.

Joe Fairless: Okay, monthly rent.

Jon Crosby: Back in the day, we were left in– it used to be the 2% rule, but it’s whittled down to the 1% rule, and in California, you’re not going to find any 1% rule.

Joe Fairless: Right. I remember when I had my single-family homes, I only had, at most, at one time, but then I had 3 for five to seven years, however long it was. They were all around 1.3%, which is nice, until someone moved out. Then I don’t know where that percent would have plummeted, but that’s why I’m doing what I’m doing. Let’s talk about you and your short term rentals. Do you currently own four short term rentals?

Jon Crosby: Yes, I liquidated two of them. I have one, and the other one was one that I helped manage with somebody else. So I’m down to one right now. I was trying to liquidate, get some capital for this next round that I was hoping was coming… Because I wanted to expand. I was mostly focused in the Lake Tahoe area. So I wanted to be able to diversify a little bit, but I currently still have the one, that’s doing well… Not right now. It’s turned off up there at the moment, but I believe after this crisis is over, we’ll have quite a bit of pent up demand. So I’m taking the time to do what my other passion is, and that’s creating business automations. So I’ve built a lot of automations into my short term rental models so that literally for any booking, I don’t spend more than 30 seconds.

Joe Fairless: Really?

Jon Crosby: Yeah, I plug it into two spots, and then I have email communications, I have door locks to trigger, I have comms back and forth to my housekeeper setup, and I did bare-bones almost online. I’ve done some pretty complex ones for some friends that included even a signed addendum that once they signed it versus in a DocuSign, it automatically sent their instructions to check-in and can coordinate the door locks. So it can get really sophisticated and I just love doing that stuff. It’s really fun to optimize those processes when I can.

Joe Fairless: Now when you said you spend 30 seconds on each rental, is that literally?

Jon Crosby: I timed it once. It’s more like a minute, maybe a minute and a half and that’s just me plugging it into a calendar, and then the rest happens on the back end. Now don’t get me wrong, if toilets break and somebody doesn’t know how to work a door lock, you’re going to get a phone call. But I’ve easily gone five to six bookings in a stretch without ever even knowing anybody was up there.

Joe Fairless: What were the main timesucks that you automated?

Jon Crosby: One was communication. So notifying guests – going to Tahoe can have some treacherous travel, so I wanted to have consistency so that everyone had the same pre-travel communications. So that helped there as well as just–

Joe Fairless: What did you do? What did you do exactly with that?

Jon Crosby: For that one, I set up an email that goes out the day before their check-in, and it provides them with the information. It provides the links to Caltrans to click this button, make sure you check your travel, any road conditions before you head up the hill. Here’s another link for weather conditions… Just as much info as I could that I had found I was giving them personally before I built this, and I just laid it out in an email template.

Joe Fairless: Okay, and you send it the day before they check in. You don’t send any other automated emails prior to that?

Jon Crosby: No. I do have one company called Evolve that handles the initial booking and payment processing piece that they get an email for. So I take over managing as they approach the check-in time, and so that’s where I’ve focused all that email communication; but I can build it if we didn’t have that piece with its own. I’d do it for the whole process.

Joe Fairless: So is there anything check-in related the day before the check-in that sent that they might be wondering prior to the day before, that they’re asking you about? And I’m thinking of my wife in this example, by the way. We rented a place in Florida and she was reaching out to the host, because my wife had questions about the check-in process and other things, and she was wondering about that weeks before, not a day before check-in. So I’m wondering, to address curious cats like my wife who wanna make sure everything’s set up properly, do you communicate with them before that?

Jon Crosby: Yeah, so they get something 30 days before check-in, that’s a little bit high-level. It has my contact information as well as my wife’s that they would use if they have any questions, and I do [unintelligible [00:10:10].25] things like that that they want to know; should they pack coffee, or things like that. So that we can certainly answer for them; and then on the day of check-in, they also get a full welcome email. Go check the binder on the coffee table, this is where you can have all your information. Here are some of our favorite restaurants… All the stuff that they need to be successful and relax once they get there.

Joe Fairless: So that is one part of the process that you automated, the guest communication, that was taking up a lot of time. What else?

Jon Crosby: The other part was the housekeeping communication. So the housekeepers, as soon as they get a booking, an automated email goes out to them that says, “Hey, Joe Fairless booked May 5th to May 9th, please schedule and reply once you confirm it’s locked in.” So that way, I get confirmation that they got confirmation that they have it in their system, and we’re often running on that part, and then the other part is the automated door locks. So every guest that I have, it’s always their code to get in is the last four digits of the phone number they booked with. So creating that consistency makes the automation much easier to facilitate, as well as the email communication part.

Joe Fairless: Got it? How do you program the lock?

Jon Crosby: There’s two tools. Usually [00:11:29].07] is the actual hardware, and then we can connect it through Nexia, which is a home automation hub. But a newer one that I’m using, I can actually automate totally seamlessly now. Whereas, the Nexia one, I had to actually spend an extra 30 seconds to go plugin. But on this one, I can actually even skip that step, and that’s using the Samsung SmartThings Hub. So that one’s fully dialed in.

Joe Fairless: A rough segue into something that I mentioned at the beginning in your bio – you’re a limited partner in one air medical hangar commercial investment. Please talk to us about that.

Jon Crosby: Yeah, that’s an interesting investment. It’s a friend of mine who’s a commercial real estate broker named Greg Geary, great broker out here in the Sacramento area. He started a niche building out these air hangars that were needed for medical lifeflight helicopters and planes and such and crew quarters. So what he built was this system or, I guess, process, by which they can be built very quickly. He’s partnered with some construction company that allows these to be built very quickly. They’re even mobile to some extent, so that if they want to take it down and move it somewhere else, that’s possible, and then rest of it’s a lease commercial investment type scenario with payouts. There’s cash flow in the lease payments, and then there’s equity buyout after I think seven to ten years.

Joe Fairless: What gave you the confidence to invest in that and how long have you been an investor in it?

Jon Crosby: I’ve been in about six months now. They’ve already spun up their first hangar and lease payments have just started flowing through. So that’s been really positive. I think with most investments, it’s the operator. It’s the person running the investment. Greg, I’ve trusted him, I’ve seen his track record. He was actually part of the real estate team that was part of the company I worked for for 20 years as well. So there was trust, and he just has some great experience and insights in the industry.

Joe Fairless: Let’s talk about your company. Clik2Flip. You mentioned what it does. It initially helps with initial analysis of flips, short term rentals and rentals. I think that’s what you said when I was taking notes. What differentiates it from an online calculator that if I googled quick flip analysis spreadsheet?

Jon Crosby: The difference is, as far as I know, it was the first of its kind to not require any data entry. I built it so you can walk up to a house, geolocate, hit the address and it will go pull all my API data and feed it back in to give you the high-level return cashflow analysis.

Joe Fairless: Wow.

Jon Crosby: Yeah, so some of the magic is in the API. To get even more accurate of a return, you would at least go into your settings one time to just program your particular investment metrics. So things like, if you’re a flipper and you have an average price per square foot for rehab costs, you want to put that in there rather than use the default that it has. Or if you have a property manager that’s only charging you 5% and it defaults to 8%, those are the little things you’ll want to just fine-tune one time, and then every time you analyze a property thereafter, you’ll get that instant analysis.

Joe Fairless: Now, a lot of the times, someone’s not going to be in front of the house, they’re gonna be in front of their computer. So how is it working then?

Jon Crosby: It also has an address lookup.

Joe Fairless: Just punch in the address.

Jon Crosby: Yeah, you just punch in the address, and even it will do — you can even put in parking numbers as well and it’ll pull those down for you. Additionally, we added the ability to view up to 20 local comps for the property, as well as a place for an itemized rehab worksheet if you want to get in that level of detail.

Once again, as I mentioned, it’s not a full underwriting tool, but it’s a tool so that you don’t have to go do a full underwriting on every single property that you’re interested in. You have a smaller subset to go take it to that next level of underwriting.

Joe Fairless: I like that; that is a true differentiator, and you’re clearly positioned as “Hey, this initial analysis and it’s going to save a lot of your time, and then you can go do your more extensive analysis should it check out.”

Jon Crosby: Yeah, and I’m actually excited. I’m adding one more component later this month, and that’s the ability to send a postcard mailer.

Joe Fairless: Wonderful.

Jon Crosby: Yeah. So I think that’ll be a really nice one-two combination. You see a property, you get a really high level “Hey, this looks good. I’m going to go ahead and just send a mailer out right now while I go into due diligence”, and so you can just stay ahead of the competition as much as you can.

Joe Fairless: That’s great. I definitely see a need for it, and the way that helps investors save time and now connect the dots whenever you have the mailer component. What has been the biggest challenge with this app?

Jon Crosby: I think what I learned is double down on your strengths and pay people to do the other things. I tried to do too much. I tried to learn everything I could about marketing, I tried to learn everything I could about UX design, just things that I’m not either passionate about or didn’t even have the time to try and focus on. So I probably wasted more time than I needed to going in and getting help on those pieces.

Joe Fairless: Taking a step back, what is your best real estate investing advice ever?

Jon Crosby: Whatever the pro forma says is never going to come to; it’s never going to be like that. So trust in– do your due diligence on the operator, because that’s going to be where the successes and plan for probably either a six-month delay in whatever payouts you see, or definitely not as quite as the rosy returns that are showing in the pro forma; and if you still want to do that deal and you still think it has a good risk to reward ratio, then go for it.

Joe Fairless: What’s a deal where you’ve lost the most amount of money on?

Jon Crosby: I don’t want to say I’ve lost it, but — I haven’t lost it… I’m in a note deal right now that the principal is due back in January, and that still has come back.

Joe Fairless: Okay. So it’s delayed.

Jon Crosby: It’s delayed.

Joe Fairless: So for everyone listening, that’s about four months from the past.

Jon Crosby: So that kicks into a whole new cycle that– I had confidence that will come through. I actually like those note investments; but I’ll say that my biggest loss has been — and it wasn’t too bad, but it was the assisted living facility I was working within was broken up into a real estate component and the actual business component, and I ended up liquidating the real estate side, which I didn’t want to but I wanted to use those funds to continue my short term investments. So I did take probably from the equity side a 10k-15k hit on that.

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

Jon Crosby: I am.

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

 

Break [00:18:12]:06] to [00:18:55]:03]

 

Joe Fairless: What’s the best ever book you’ve recently read?

Jon Crosby: Raising Capital for Real Estate by Hunter Thompson; I had great insights.

Joe Fairless: Best ever deal you’ve done?

Jon Crosby: My first short term rental.

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

Jon Crosby: Not getting a plumbing inspection; always get a plumbing inspection.

Joe Fairless: What happened?

Jon Crosby: I can’t tell you how many things were going on there, but I had put in an entire hardwood floor only to find out there was a root in the middle of it, had to rip it all out, dig 16 inches through concrete to fix six inches of pipe, and then put the floor bathroom.

Joe Fairless: It sounds like it’s still painful for you to talk about.

Jon Crosby: It is. I’ll never make that mistake again.

Joe Fairless: Well, just to pour a little salt on your wounds, how much total did it cost you?

Jon Crosby: I think it was more ego than anything, but it still costed a good 6-7 grand.

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

Jon Crosby: You can check me out at clik2flip.com. I’m also on Facebook, Twitter. You can find me at LinkedIn. Just search for Jon Crosby.

Joe Fairless: Well Jon, thank you for being on the show. Thanks for talking about your business, Clik2Flip. Thanks for talking about different ways you’ve automated your short term rental business model with guest communication, housekeeping communication and the door locks as well as the note deal and how to qualify the operator or really how to qualify a deal. It’s primarily the operator based on what your feedback is, and how to think about it from a limited partner standpoint was your best advice. So thanks for being on the show. Hope you have the best ever day and talk to you again soon.

Jon Crosby: Thanks, Joe. Appreciate it.

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JF2133: Anti-Financial Plan With Chris Miles #SkillsetSunday

Chris is the founder of Money Ripples, also the host of the Chris Miles Money Show, and has been featured on CNN Money and US News. He has had experience coaching people in the stock market, owning rental properties, and financial advising. At age 28 he was financially independent due to affiliations, and rental properties. He shares how he went from financial independence to losing everything and going back into the rat race and working his way back out.

Chris Miles Real Estate Background:

  • Founder of Money Ripples
  • Author and Host of the Chris Miles Money Show
  • Has been featured in US News and CNN Money
  • Has helped his clients increase their cash flow by over $200 Million in the last 10 years
  • Based in Salt Lake City, Utah
  • Say hi to him at http://moneyripples.com 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Cash flow creates options if you have more cash flow that creates freedom” – Chris Miles


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are 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, Chris Miles. How you doing, Chris?

Chris Miles: I’m doing awesome, Joe. How you doing?

Joe Fairless: I’m doing well, and I’m glad you’re doing awesome. Looking forward to our conversation. A little bit about Chris – he’s the founder of Money Ripples, he’s the author and host of the Chris Miles Money Show, and he helps his clients increase their cash flow, has done so by a tune of over $200 million in the last ten years; based near Salt Lake City, Utah.

First off, Best Ever listeners, I hope you’re having a best ever weekend; because today is Sunday, we have a special segment like we usually do on Sundays, and it is Skillset Sunda. And because of that, we’re focusing our conversation with Chris on how to think differently about your financial plan, and as he calls it – prior to us having this recorded conversation, he would mention to me, he calls it the anti-financial plan. So we’re going to talk about his thought process and how to go against the grain, and why he believes in that, and what practical next steps we can take to act on it, should we embrace it as well. So first, Chris, do you want to give the Best Ever listeners a little bit more about your background, and then we’ll dive right into it?

Chris Miles: You bet. I started out in the business world. I was going to college, I was intending to become a business consultant, but I figured if I was gonna do that, I should have real-life experience. So I actually dropped out of college with one class to go for my bachelor’s, and I went into business, and the first business that became available was becoming a financial advisor. Little did I know at the time, I didn’t know that they would hire just about anybody. As long as you can pass a test and get a license, they’ll take anybody on, experienced or not. So I actually started doing that and I actually enjoyed it. I started doing that back in the early 2000s. So right after 9/11 is when I became a financial advisor, and did that for four years, but as time went on– I’m one of those people, I like to see evidence, I like to see that things work, and I don’t like to be out of integrity with anything. So I want to make sure I’m teaching truth and I’m doing things that are legit.

And as time went on, especially as I inherited old clients from advisors that had quit or moved on or whatever, I started to realize that people weren’t that well off financially; not the way I had envisioned and had been sold from everybody. Because if you look at all the financial advice that’s being taught to you out there, it all stems from financial institutions – banks, mutual fund companies, everything else, everything. Even the Suze Ormans, the Dave Ramseys of the world, they’re just little pawns in that little game of teaching you what they want you to do, which is save everything, spend nothing, save it forever, save it in crappy mutual funds, and then the last 30 years, the real rate of return of the S&P has only been 7.5%, and when you factor in fees and everything else coming out, you’re likely to get 6% or 6.5%, not 10% or 12% like I was teaching.

So when I started running real numbers as a financial advisor, I started to run, what if it’s like 6% or 7% instead, and what if inflation actually isn’t 2% or 3% like the government’s trying to tell us it is? What if it’s actually more like 4% or 5% or more? And then it got really depressing, and I realized I couldn’t tell anybody and give them any hope, because I’m like, well, even saving 10% or 20%, your income isn’t enough. In fact, in most cases, you want to have a 20-year retirement plan, for example, and you want to be able to live on a $60,000 a year lifestyle today, but do that 20 years, you’ve got to actually save up about $8,000 a month to live on $60,000 a year, on $5000 a month in 20 years. It’s frickin ridiculous.

So in 2006, I started to meet guys who were real estate investors and business owners guys that have become multimillionaires and even retired by the time they’re in their 20’s and 30’s, and I was like, “I want that.” So March of ’06, I quit being a financial adviser, vowed never to go back again. I was like, “I’ll never teach about money again. I’m just gonna be a mortgage broker and I’ll teach ballroom dancing,” because, a little known fact, I was one the nation’s top amateur ballroom dancers back in the early 2000s. That was my goal. But I started learning these things about creating real cash flow – acceleration, not accumulation – and I was actually able to become financially independent the first time when I was 28, back in 2006.

Joe Fairless: How did you define financial independence at 28?

Chris Miles: Same way that Robert Kiyosaki would – your passive residual investments and income is able to cover your expenses.

Joe Fairless: What were your expenses at the time?

Chris Miles: Oh, at that time, I only had two kids. So I have eight now with blended family. So only with two kids, it was only $4,000 a month, so it wasn’t that much.

Joe Fairless: On that 4k expenses at the time when you were 28, so you had $4,001 at least coming in on a monthly basis. Where was that money coming from?

Chris Miles: I had real estate. So rental real estate, things like that.

Joe Fairless: What did you have specifically?

Chris Miles: Just single-family homes.

Joe Fairless: Okay, how many do you have?

Chris Miles: Two.

Joe Fairless: Okay, two homes. what else do you have?

Chris Miles: And then I had residual income through business with affiliate and referral type stuff; not like the affiliate you see today, but it was very organic. For example– and this is something that actually one of those millionaire guys turned me on to. He said, “You’re doing mortgages, right?” I was doing mortgages actively and he said, “Well, Chris, if money were no issue, would you keep doing mortgages?” I said, “Well, no. I like teaching about it and I like helping them figure out the strategy, but I hate the paperwork.” So he said, “Well, why don’t you refer it to somebody who does like doing that?”

Joe Fairless: Oh, cool.

Chris Miles: In my mind, I never thought that was possible, because I was in that scarcity mentality before of just you try to earn everything and don’t farm out anything, don’t hire anybody, you take all the money you can; a do-it-yourselfer, which is do-it-crap. So I actually found a guy that actually was willing to the paperwork and I said, “Hey, what if we split it 50-50?” and he’s like, “Great, let’s do it.” And I’d spent a half an hour to hour on somebody and next thing I know, there’s about $1,000 or $1,500 bucks coming in from that one person I referred.

Joe Fairless: That’s a win-win for you and the business partner.

Chris Miles: Yeah, and it really became a win-win-win, because even for the client I referred then, I would tell them what to do with their mortgage so they could put in other investments so that those investments could then pay for their mortgage payment. This, of course, with real estate hard money and things like that. And when we were doing that, people say, “Cool, where would I get the mortgage?” I’m like, “Go talk to this guy,” and that was it. It was served up on a silver platter for him, so he loved it, and they loved it because they got serviced really well by him, because he was a good guy, full of integrity, did always what was best, which I really appreciated too, and it was great. It was one of those things I’d never fathom could work. Again, I didn’t have an official business. Remember, I quit being a financial advisor, I’ve vowed never to talk about money. The problem was there were still people asking me some questions, because they noticed that my life was changing from a financial standpoint as well, and I was just different. So it wasn’t the same person.

Joe Fairless: So when you were 28, you had the residual income from referrals with your clients that you sent to the person you were working with to actually fulfill the mortgages. On the single-family home, you had two of those. I don’t imagine those are spitting off a whole lot of income. How much per house were they?

Chris Miles: It was only about $1,000, total.

Joe Fairless: That’s still pretty good for a single-family house. $500 a month. Okay, and were any other income sources at the age of 28?

Chris Miles: That was it. I’m trying to remember if I had a hard money loan or not. I might have had something there but no, I mean, it was mostly just real estate, and then just those random referrals that I would send along… But it was like one referral a month, you’re adding up to a couple thousand bucks a month just there too, and so I was making $4,000 or $5,000 a month total between the two.

Joe Fairless: Wow. So you were making $3000 plus per month on just the referrals. Wow. Okay, alright. So that was 28; I know that’s not yesterday. So then what happened?

Chris Miles: Then, of course, I started partnering up with some guys that were also out of the rat race themselves. They said, “Hey, we want to start a company, teach people how to get out of the rat race.” This is the end of 2006. I was at that point– I was spending the last six months trying to find purpose, because most people don’t realize, when you actually get to the point where you’re financially independent, you start to ask yourself, “Well, now what? I got there, what’s the next thing for me?” I almost opened up some dance studios and stuff, but something didn’t feel quite right. My gut was telling me, “Don’t do that,” and then I had some guys say, “Hey–”

Joe Fairless: Just so I’m making sure I’m tracking right, if your expenses were about $4000, you’re bringing in about $4,000 to $5,000, it didn’t seem like you had much money to invest for dance studios or anything else… Or was there another chunk of money coming from somewhere else?

Chris Miles: When I got there, I was like, “Well, now what?” because I didn’t know what to do. At the time, I was also doing stock coaching, ironically, which I’m anti-stock market now… But I was teaching people about how to trade in the stock market at a hard time. So I was making $6,000 a month doing that.

Joe Fairless: Oh, there we go there. There’s that.

Chris Miles: So that’s where it became gravy. So that helped boost up money I can invest and use during that period of time. Yeah, I appreciate you saying that. I always forget that detail.

Joe Fairless: Maybe, you conveniently blocked it out because you don’t like stock investing.

Chris Miles: [laughs] Exactly. I’m grateful for because it gave me a lot of perspective, but it’s definitely not something like, “Oh yeah, I’m gonna totally do that again.” I was doing that because I didn’t know what to do next. So I just kept doing what I was doing before, but I was looking for something else, and that’s when that opportunity came up and they said, “Hey, why don’t you work with us? Leave your house, work with us in an actual office again.” I was like, “Ugh. Ugh, I’ve gotta work in an office? This sucks. Alright.” I see the mission, I see the vision, it sounds awesome, I love teaching; that, I feel like, is my calling overall, is to teach. So yeah, I did that, and funny enough, we were actually focused on people that were real estate investors, helping them get out of the rat race.

Well, 2007, especially when we hit about July, August, when everything starts tightening up in ’07, that’s when crap was hitting the fan. At the same time those partners said, “Hey Chris, we don’t like you making all these other residual streams of income. Can you focus just on this?” which was number one biggest mistake I could have made at that time… Because I should have said, “To heck with you guys. I’m gonna keep making my passive and residual income regardless,” but I didn’t, and so I cut those off, so and now I was  down to mostly just an active stream of income and some real estate. And of course, my real estate, because I wasn’t buying for cash flow as much, I was just hoping there’s more appreciation… I was cashing out all the equity I could. Well now, I’m upside down on some properties… I’m lucky I was able to get out from under them, but still it was painful.

At the same time, all those real estate investors couldn’t pay us either. So the active streams of income weren’t working because their money was locked up, my money was locked up, and I wasn’t tracking my money either. That was a big thing. Because there’s so much money coming in, it’s like, “Why track it, why even pay attention? I have an abundance of money coming in.” Well, now when I finally decided to look at my money, I realized I’m in the hole $16,000 a month, between my business and my personal expenses. So I went from out of the rat race to now deeply back in it and in the hole, and eventually ended up being over a million dollars in debt by 2008. So I had to dig out of that. I didn’t file for bankruptcy, but I had to claw my way back out without any savings or any credit.

Joe Fairless: What was the largest chunk of that million?

Chris Miles: Real estate. Mortgages on real estate was a big one. So getting upside down from that, having to sell those off; short sel or even foreclose on some of those, which was tough.

Joe Fairless: So you had a million dollars worth of loans, or the loans that you’re referring to within that million were upside down?

Chris Miles: Loans. Total in loans– I would say, because all assets I was able to sell off was maybe half a million. So I was still upside down about half a million or so.

Joe Fairless: Okay, got it. Because you could have a billion dollars worth of loans, but if it’s worth $10 billion then all good. But okay, so you were upside down by about half a million dollars on that.

Chris Miles: Yeah, so I had to turn in cars; I turned in my Mercedes. I was like, “Hey, you’re gonna take it from me anyways,” and they auctioned it off for $30,000 less than what I owed, and I had to pay that back, and everything else. [unintelligible [00:14:25].23] roughly about half a million of debt after everything was sold off. I had no assets left. Then I had to figure out how to get out of that hole, which–

Joe Fairless: What was the conversation like with your significant other?

Chris Miles: Oh, man, it sucked. It was hard for her, and this is my ex-wife, my wife at that time. It was really tough, because she felt helpless. She wasn’t working; she was at home with the kids. We had, at that time, four young children. So she was trying to take care of them while at the same time I’m trying to figure this out. So she felt helpless. There was even times she said things like, “Man, should I just take the kids and move in with my sister and you can figure stuff out?” I’m like, “That’s the worst thing you could do.” I’m already struggling mentally feeling like I was– I was out of integrity. I could no longer teach people how to get out of the rat race because I was now in it. So I stopped that; I had to start teaching people how to get resourceful, like I was being, which is what people wanted anyways, because most people didn’t feel like they had any money during the recession.

Joe Fairless: What tips would you give someone when speaking to their significant other if they’re in a similar situation?

Chris Miles: Definitely have a lot more empathy than I had… Because my ego was so butthurt. I was being defensive, which any guy naturally would do that. That’s a knee jerk reaction. That’s a natural thing, is that our egos want to feel like we can protect and provide for our families. But if I would have more empathy and say, “Hey, I know you feel helpless here. You feel like there’s nothing you can do. Honestly, the best thing you can do is just be there for me. I know it’s hard to support me, without losing faith, but that’s the best thing you can do, and just trust in me,” and that’s all I wanted to hear too. I wanted to hear that. Just saying that you trust in me that we’ll figure this out. “It doesn’t matter if we lose everything, we still have each other,” that kind of thing.

I had to take over the collection calls. I couldn’t let her handle the finances anymore because it was too hard on her, plus she felt she couldn’t have given them a good answer of when they’d get paid back. Cool thing is, when I started talking to them, I started to change my perspective around it. This is when things started to turn around; I stopped looking at it as a bad thing that collectors are calling, and instead I started calling them “I love you calls.”

Joe Fairless: [laughs] Okay, please elaborate.

Chris Miles: Because [unintelligible [00:16:26].18] they scattered. When they knew I was going through hard times, they weren’t there. I mean, there’s a few that stuck it out, that were true friends, but for the most part, everybody scattered when they realized I was in dire straits, but those–

Joe Fairless: How did they know that you’re in dire straits, your friends?

Chris Miles: Especially – if they’re friends, I would tell them; or they just knew, because for example, our house was one of those that foreclosed. I was able to sell off the investment properties and just walk away with a little bit in the hole, but I had to foreclose on my own house, which sucked… Partly because it was through Lehman Brothers. So [unintelligible [00:16:57].03] short sale offers, they wouldn’t accept them. So they end up foreclosing for $170,000 less than the short sale offers. So we had to move out of a big mansion, so to speak, move into a house that was less than half the size and a quarter of the payment. So they saw these lifestyle changes happening. I mean, I’m driving old cars versus a nice Mercedes. It was pretty obvious from the outside to see that I was selling things off quickly.

So from the outside, those people knew, and of course, the friends or family, especially in-laws, for example, they were saying, “Ugh [unintelligible [00:17:28].23] You should go back to school and get that bachelor’s because that’s the answer.” I’m like, “I have a friend right now, he’s got a Master’s. He can’t pay people for a job right now.” He wanted to become an accountant; accountants wouldn’t hire him even for free, because they’re saying, “Well, we have enough business. We don’t need you.” So he was two years unemployed with an MBA. It was just ridiculous. So yeah, there’s a lot of that going on.

Joe Fairless: How was it an I love you call?

Chris Miles: It was I love you call because the collectors, they call up regardless; they’re calling daily. Friends weren’t calling me daily. I needed friends, but they were calling me on a regular basis. So when they’d call, I would treat them like they’re a buddy. I was like, “Hey, how’s it going?” “Ugh, good. Just so you know, this call may be recorded. We’re here to collect a debt.” “Yeah, I know.” “Oh, great. You know when you’re gonna pay that debt?” “No.” “Alright. Well, when will you pay us?” “No clue, but you’ll get paid.” “Okay, well, we’re gonna call you again.” “That’s fine. Looking forward to it. See ya.” That went off for a couple of years, until I paid those guys off, one by one eventually. But that’s what helped turn it around, because instead of me being like, “Oh, send them to voicemail again.”

The worst was when I auctioned off the Mercedes – well, I didn’t, but the dealer did – and they were calling me to collect on that, the $30,000 bucks, and they would say things like, “Well, can you make payments of $1,200 bucks a month?” I said, “If I can make the $1,200 dollar a month payment, I would have made the $1,000 month payment on that Mercedes.” I remember one guy, he just said, “You know what? You’re the reason that we’re in such bad economic times right now. You’re the reason why we’re in this situation.” I said, “Are you kidding me? I’ve spent hundreds of thousands  of dollars hiring people like you to have a job, but now I can’t hire any more.” Well, I’m like, “I’m not the cause here, you jerk. I wanna smack you.”

So I mean, that was the stuff I was struggling with while trying to teach people about money and trying to financially prosper, and essentially try to prove that what I did the first time would work a second time. I struggled more with the mindset piece than I ever did with the strategy. Once I got over my ego and I just released all that expectation and just said, “You know what, however long it takes, it’s gonna work; I know it,” and I got to this place of not just hoping would work, to a place of knowingness. Once that happened, that’s when things started to turn around.

Joe Fairless: So what’s your approach now?

Chris Miles: My approach now – man, passive income, multiple streams of income is essential. Cash flow creates options and when you have more cash flow, that creates freedom. The worst thing you could do is be stuck with one stream of income, working a job or working your business or whatever it might look like; that’s the worst thing you could do. It’s good, I’m grateful you have it, and you should have it, but I will tell you from that experience, especially because I know everything ebb and flows. Eventually, we’ll have a recession at some point, there’ll be changing times, they’ll be hardships. Even if everybody’s prospering, you might have your own personal recession because you might lose a job or lose some income. What can you do to ensure that you have multiple streams of income coming in? I’ll tell you, financial advisors never talk about that. They’re always like, throw your money away from you, walk it up in someplace — you have to have essentially get your hand slapped with a 10% penalty for touching it before you’re 60. That’s horrible advice. Everything should be focused towards how do I develop multiple streams of income, whether it be residual, passive or both?

Joe Fairless: What are some of the main streams of income that you have now?

Chris Miles: Now, I actually go to more turnkey investments rather than trying to manage it myself like before. That was one thing I learned. I like to do turnkey, I like notes, syndications, things of that nature. For the most part, though, I’d say the bulk of my own personal assets, although I tell my clients do what resonates with them most and what feels right for them… I personally love owning real estate, whether it’s multifamily, single-family, whatever. I love owning and controlling it, because if there’s anything in the last recession I learned is that ownership and control is awesome. Syndications are cool too, and I like that. I like that there’s some downside risk protection, and those things can work out too when you have funds and syndications, but I personally love owning and controlling real estate, but have somebody else manage it for me.

Joe Fairless: So you do turnkey, notes, syndications… What is the most profitable within those streams, maybe a specific deal or a note that you invested in or syndication that you’re in?

Chris Miles: The most profitable have actually been my own turnkey properties, just because I’m taking all the depreciation — for one, I’m taking the appreciation. I can do that with syndications too, of course, with certain ones. But definitely with cash flow and growth potential, I’ve definitely seen the best with doing turnkey properties. Secondly, it would definitely be syndications.

I’ll give you an example, because you asked for an example. I had a Memphis property I bought a couple of years ago. I just had it reassessed to say, “Alright, let’s see how the return on equity is right now.” I bought it for $135,000 and now is worth $152,000. I don’t try to bank on appreciation; I learned that the hard way during the last recession, but it’s nice when you get it. Compared to the down payment I put on it, the cash flow that’s come in – the net cash flow, not gross, but the net after all costs are paid, plus the fact that the mortgage has been paid down… Already the property’s gained — out of the $32,000 I came out of pocket with closing costs, I’ve have already gained in the last two years about $26,000 bucks.

Joe Fairless: Any refinance ideas out there, or do you wanna keep it with the current loan?

Chris Miles: That was with the current loan. I looked at refinancing just recently, but the rates weren’t quite low enough to make it worthwhile.

Joe Fairless: Okay.

Chris Miles: Buying them now is awesome, just because the rates are even lower than they were when I got mine, which was around 5.25%. Now they’re in the 4%, which is awesome.

Joe Fairless: Anything about the mindset of how you approach your finances now that you’ve learned some hard lessons and now you’ve got these multiple streams of income, anything else that we haven’t talked about that you think we should before we wrap up?

Chris Miles: Yeah, a few things. One is the one thing I wasn’t doing was tracking my money. When you track money, don’t track like a saver, because savers are in scarcity and scarcity drives away money. Scarcity can never create financial freedom. You can’t live in fear and be financially free, regardless what the numbers say. So you can’t just focus on expenses, like all the savers out there will teach you, like the Dave Ramseys. It’s important to look at that, but look at the income too. Look at both sides of the equation. Look at “How can I increase income, but also be most efficient with my expenses?” and create that big gap between the two, which is what I refer to as cash flow or profit. While doing that, the biggest thing is that I see most people when I talk to them is– because a lot of people say, “Chris, I need an actual game plan or strategy to retire early. Not to do the same old crap that everybody else is telling you to do with mutual funds and 401ks and what not.” Which, by the way, I even did an episode on my show recently, a couple of months ago, that even [unintelligible [00:24:03].29] have the crap kicked out of it with notes, syndications and turnkeys, easily. Even with a [unintelligible [00:24:10].10] which is supposed to be free money, a no-brainer, you can still beat a 401k, especially when it comes to cash flow. So I look at things like saying, “Hey, let’s look at the whole situation. Look at your own numbers and see where do you have equity.” You have equity in your own home, which a lot of people do. Should we cash out, refinance and use that to invest, especially if it’s in something that’s a good legitimate place? I actually have a client who has actually invested with you, Joe, and they’re like, “Yeah, that’s one of my favorite investments, what Joe Fairless has.” I’m like, “I gotta look that guy up.”

Joe Fairless: Yeah, there we go.

Chris Miles: But that stuff, like can we liquidate assets? Can we sell off stuff that’s not doing well? You might have some properties yourself that aren’t– return on equity is low. Maybe we could sell that and make more money. I have a client in California right now, down in San Diego, he had a property in California, which already everyone’s like, “Okay, you have a property California. That’s not worth keeping.” Low cash flow and probably high equity. Between his personal home, which had about $400,000 equity, and this rental property which had about $400,000 in equity after we sell it – even though he’ll lose about $1,500 a month of cash flow, that’s 800k he can use. Now, even if you did the 1% rule, that’s $8,000 a month. So he still nets $6,500 bucks a month or just about 80 grand a year with the same assets he already had in place, and that’s what you want to look at. It’s like, what do I have in savings or in equity and different places that could be used to be more productive than where it is right now?

Joe Fairless: Yeah, I have a friend, he’s local in Cincinnati, and he moved from California and he had a single-family house. He sold it and he bought in Cincinnati, I want to say, a 30 to 50-unit in Cincinnati, and I think he paid all cash. It was just incredible… And it’s not in as nice of an area of Cincinnati, and it was distressed, but the point is, he bought an apartment community. That was a couple years ago, maybe three years ago, and he’s now since, I believe, refinanced and got all that money out and is doing great with it.

Chris Miles: That’s why I always tell people, don’t buy into the whole accumulation mindset of saving and letting your money grow and compound slowly over the next billion years, which it won’t do very well… If you focus more on cash flow and acceleration and utilizing assets to create the biggest bang for your buck… So you’re not asset rich and cash poor.. .Because I’ll tell you, I get so many people that are like Dave Ramsey poster children. People say, “Alright, I just paid off all my debt, and now I have nothing to show for it. I’m now asset rich and cash flow poor.” I was like, “That’s why we’ve got to shift that around. You’ve got to essentially reject some of the stuff that Dave Ramsey taught you. Not everything; a bunch of stuff is great, but everything else that he taught you about wealth and creating retirement and cash flow, don’t buy into it. It’s stupid. You’ve got to shift to a higher level, you’ve got to shift to a higher gear, and that’s when the possibilities in the world opens up.” If I can leave any message with you guys as a last-minute message, I’ll just say that there’s probably a bigger hope than you realize. You probably have a better chance of creating financial independence or financial freedom than you realize is actually possible. You’ve just got to be able to see it with the right set of eyes.

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

Chris Miles: Check out my podcast, The Chris Miles Money Show. You can find it on iTunes or whatever podcast app you use, and also you can check out my website, moneyripples.com.

Joe Fairless: Focusing on multiple streams of income, diversification of those streams of income, and then talking about and learning from your lessons that you learned during the hard times financially, and some tips for should we come across that, or perhaps when we come across it, if we haven’t already, how to navigate that based on your experiences and what you learned. So thank you so much for being on the show. Grateful that you were on the show. Hope you have a best ever weekend. Talk to you again soon.

Chris Miles: Thanks.

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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JF2131: Going From Singles To A 20 Unit With Nate Shields

Nate is the Co-founder of School Dispatch and has been investing for 4 years with a portfolio consisting of 28 units in 3 states. Nate’s goal is to have 100 doors in 10 years before taking money from his properties. So far during his progress, he has faced the challenge of de-converting a duplex into a single-family home and also the fortune of finding a miss-marketed deal which helped them snag a winner. 

 

Nate Shields Real Estate Background:

  • He is the co-founder of School Dispatch
  • Has been Investing for 4 years
  • Portfolio consists of 28 units in 3 states
  • He has also flipped 6 properties
  • Based in Madison, Wisconsin
  • Say hi to him at his Youtube channel: Dude Real Estate
  • Best Ever Book: Zero to One by Peter 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Investing in a single-family home to a 20 unit isn’t as difficult as it may seem. At the end of the day, it’s just bigger numbers” – Nate Shields


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are 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 the fluff stuff. With us today, Nate Shields. How you doing, Nate?

Nathan Shields: I’m good, Joe. Thanks for having me.

Joe Fairless: Well, my pleasure, and I’m glad that you’re good, and a little bit about Nate – he’s the co-founder of School Dispatch; he has been investing for about four years, his portfolio consists of 28 units in three states, he’s also flipped six properties, based in Madison, Wisconsin, and he’s got a YouTube channel called Dude Real Estate. So with that being said, Nate, do you want to get the Best Ever listeners a little bit more about your background and your current focus?

Nathan Shields: Sure. I come from a marketing background, but as the previous recession hit, I was looking to do something a little bit different, something a little more entrepreneurial, and I wanted to get into real estate. So I started off as an agent in 2013, and after a couple of years, I got the investing bug and started educating myself and joined up with my buddy. We’re still 50-50 partners on all of our rental properties. So we just slowly climbed that ladder and still are climbing that ladder. So as you said, we’ve got 28 units in three states now.

Joe Fairless: So the last recession, depending on where you lived was ’08, ’09 timeframe. You said you were an agent in 2013. So what were you doing between ’09 and 2013?

Nathan Shields: I was doing marketing for a law enforcement training company, and we were affected by the recession just like everyone else. So my hours got cut, my pay got cut, benefits got cut, and I was just looking for something else that I could support our family with, and something that I was a little more passionate about, too. So I really always thought real estate was a great avenue and I wanted to start in the sales side, both to get me out of my job, but potentially to help me understand the process of buying rental properties. I just always had this dream of owning 10 or 20 properties. It just made sense that you put a renter in, they pay your expenses on it, and then you get cash flow on top of that. So it just made sense in my head and that’s why I think a lot of people gravitate toward that because it’s very easy to understand.

Joe Fairless: Your new partner, what’s your partner’s first name?

Nathan Shields: Troy.

Joe Fairless: Okay. You and Troy have 28 units in three states. What are the three states?

Nathan Shields: Illinois, South Carolina and Alabama.

Joe Fairless: Well, I would have guessed Wisconsin was one of those three. Okay, good. Throwing me a curveball this early in the conversation. I like it. [laughter] Alright, Illinois, South Carolina and Alabama; those are the three states. Where was your first property?

Nathan Shields: We were both in the Chicago area when we started. So that’s why we have Illinois on the list. So we bought our first few properties there. Then my partner Troy moved to South Carolina, and he sourced a duplex there, and then we were just looking for something a little larger, so we found a 20-unit building in Alabama, and then our property managers just brought us another four-unit building down there as well.

Joe Fairless: Okay. Well, South Carolina, Alabama, closer than Wisconsin, Alabama. So now It’s making more sense. How did you learn about the 20-unit in Alabama, and where in Alabama is it?

Nathan Shields: Yeah, it’s about an hour outside of Huntsville, and Troy, he found it on LoopNet, which is where a lot of people say deals go to die, but you can still find some stuff on there. The thing that caught his attention was actually the numbers just looked awful, almost too bad. So he dug a little bit deeper, and once we looked at the rent rolls and the tax returns and all that stuff, we’re like, “Oh, no, the numbers are wrong on the LoopNet side. We like this deal,” and it ended up being a really good deal for us.

Joe Fairless: Can you think of a specific example of a number that was way off?

Nathan Shields: The revenue, based on what we knew the rents were– I think the rents were roughly– and this is very low, but it was $350, $375 for the units in the 20-unit building. You do the math and figure out what the–

Joe Fairless: It’d be $500.

Nathan Shields: –what the revenue should be, but it looked almost half that. So we just knew right away that there was something else going on. Either they’re not telling us something or it’s mismarketed.

Joe Fairless: It was just mismarketed?

Nathan Shields: Yep.

Joe Fairless: Great. I’m glad we’re talking about this. So it was mismarketed. Was it listed by a broker or was it direct from the seller?

Nathan Shields: It was listed by a broker, and she had some experience. She owned some properties herself, but she wasn’t a commercial broker, so I don’t know if she knew exactly how to market, technically, a commercial property correctly. She was a little bit older, the sellers were also a little bit older, they were pretty motivated because they needed to 1031 into a property in California for personal reasons, and so they were pretty motivated to sell it. It was listed at $575, we got it for $475 and it immediately appraised at $573.

Joe Fairless: Okay, got it. So despite them listing it incorrectly, they had about the right valuation.

Nathan Shields: Yeah, I think they were close, and they were able to get a quick sale out of it.

Joe Fairless: Okay, and how did you buy it – all cash, or with financing?

Nathan Shields: Financing. In a sense, it was almost 100% financing without having the seller financing part of it, because we had a line of credit from our lender already. So essentially, we used the lender to underwrite it, but then we were also able to use our line of credit as the down payment.

Joe Fairless: Will you elaborate on what type of lender that is?

Nathan Shields: It was a commercial lender that we pretty much worked with from the beginning. So when we first started with them, we brought some capital to the table, but we needed a little more to get started. So what they did for us was they essentially held our funds as collateral and gave us a multiplier on our money for a line of credit. So that’s how we started, and we used the BRRRR method on the first couple of properties, and then got an extension on that line, and we were able to use that for essentially 100% financing on that apartment building.

Joe Fairless: Wow, that’s great. Was that lender the one that you two came in contact with, in Chicago?

Nathan Shields: Yes.

Joe Fairless: So they’re local to Chicago?

Nathan Shields: Yeah, Troy had already had some dealings with them on some other stuff. So when we talked with him initially, it just made sense for us to continue working with them, because they gave us some good terms.

Joe Fairless: So it’s just a local community bank or credit union to Chicago?

Nathan Shields: Correct, yep.

Joe Fairless: They were comfortable lending the line of credit, which I guess it’s line of credit, and you can do whatever you want with it, that’s my guess, but–

Nathan Shields: Yep, pretty much. You can do whatever you want.

Joe Fairless: Okay, fair enough. So just so I’m clear, you bought it with a line of credit, and then did you put a loan on it after that?

Nathan Shields: Yes.

Joe Fairless: What are the terms on the loan?

Nathan Shields: I believe–

Joe Fairless: High-level.

Nathan Shields: Yeah, probably looking at– it was a 20-year amortization and probably around 5%, something like that. High level there.

Joe Fairless: Alright, fair enough, fair enough.

Nathan Shields: I don’t remember exactly.

Joe Fairless: Yes, you’ve slept since then. So you and Troy were going along, picking off singles, and then all of a sudden, bam, a 20-unit. That’s a gigantic step, maybe a 20 times multiplier of what you were doing. What did you do to prepare for the purchase of a 20-unit when you’ve been doing single family?

Nathan Shields: So he had a little bit of experience in the commercial space. So that combined with our experience and my experience as a realtor – we did have to educate ourselves a little bit, but at the end of the day, it’s just some bigger numbers, and we’re pretty good at running those numbers.

So we were looking for a deal just in any decent metro market, pretty much anywhere in the country. So we were looking all over for about six months, and then we landed on this one. So our biggest concern was not the deal itself. It was more finding out more about the management, the demographics of the area. So once we got it under contract, we popped down there, took a look at the building, which was not a surprise at all to us; we knew it was a C class property, and really just wanted to meet the property manager. So the property manager had been managing that building for ten years, and we felt very comfortable with him. So we kept him on and he’s been great ever since, and he brought us this four-unit that we just closed on last month.

Joe Fairless: Does the property manager manage other properties?

Nathan Shields: He does.

Joe Fairless: Okay. So it’s a third-party management company. It’s not a resident who lives there.

Nathan Shields: Correct.

Joe Fairless: What does the property manager charge to manage this 20-unit?

Nathan Shields: 8%.

Joe Fairless: Anything else?

Nathan Shields: Nope, just flat 8%.

Joe Fairless: Okay. What was the business model for this 20-unit purchase?

Nathan Shields: What do you mean by that?

Joe Fairless: Are you doing a value-add play where you’re renovating the interiors or are you just you bought it, you’re sitting tight, you’re renting them out, you’re making them rent ready, but you’re not increasing the rent?

Nathan Shields: Right. So we set out immediately the rents were artificially low. The last owner didn’t really ever raised them. So we saw an immediate opportunity to get those up to market as we had turnover. So like I said, they were $350 to $375 per door, and we’ve been raising those up to $425 to $450. No problem.

Joe Fairless: Without any major improvements to it.

Nathan Shields: Correct. We did some exterior improvements, very minimal, some landscaping, power washing and stuff like that. The interior, we’re actually going to start experimenting as we turn over a couple more units to maybe spend $3,000 to $4,000 and freshen them up with some new flooring, new lighting, new vanities, stuff like that, and see if we can even push to say for $475 or $500.

Joe Fairless: Did you bring money and put it in the bank account for that cap x work or would that be out of pocket to try and test that business plan?

Nathan Shields: Yeah, we don’t take any income from our portfolio. It’s a long term portfolio for us. So everything that we make in cash flow from all of our properties goes back into either capital improvements or funding our next purchase.

Joe Fairless: At what point will you two decide, “We’d like to have some money from these properties now”?

Nathan Shields: That’s a good question. Initially, our first goal when we first sat down to brainstorm was 10 years, a 100 doors, and at that point, maybe we’ll reconsider where we’re at. But I think it’s just every year or two, we just look at what we got, look at where we want to go. Certainly, at some point, we will; we’re both about 40. So once we hit that 50 mark, I think for sure, we’ll want to start taking some cash off the table.

Joe Fairless: What’s a lesson that you’ve learned based on it not working out, and then you’ve course-corrected?

Nathan Shields: One of the properties, we failed with due diligence; both us and our attorney. It was a duplex, and we thought it was zoned for that, and we never actually checked, because we just assumed–

Joe Fairless: That it was a duplex, right.

Nathan Shields: –that it was a duplex. There were two units, and there were other multi-unit properties on that same block, and I never actually checked the zoning… And what we ended up having to do is deconverting to a single-family.

Joe Fairless: Dang. When did you find out about having to convert to a single-family?

Nathan Shields: We bought that one all cash, and we wanted to refinance out of it once we got it stabilized. So we did some work to the upper unit, since that one was vacant, and then when the appraiser came, he said, “I can’t appraise this because it’s technically not what it is.” So when we found that out, we had two choices – we could leave it as is, but all of our cash would have been stuck there, and we really wanted to refinance out of it.

So luckily, the downstairs tenants were about to move out and that place needed a little freshening up too. We took a brand new kitchen that we had just put in the top unit, and we actually were able to save the cabinets and the appliances and put them into the unit downstairs and freshen that kitchen, and then we just had to cut some stairs in, do some painting, a couple of other little things, but it probably cost us about $10,000 to do that; and time of course, too. So the lesson wasn’t as expensive as it could have been.

Joe Fairless: It used to be a kitchen upstairs. What is it now?

Nathan Shields: It’s really just a landing area. So the stairs were cut up right through the kitchen.

Joe Fairless: Okay.

Nathan Shields: It’s just a little landing area before you get into the living room up there.

Joe Fairless: How did the valuation and cash flow get impacted?

Nathan Shields: The cash flow definitely got hurt. We were expecting probably $1,600 a month in rents and that dropped us down to about $1,350. Valuation was probably roughly the same, and it became such a problem property for us. anyway… We ended up selling that a few months ago.

Joe Fairless: Oh, yeah. Alright. What did you buy it for?

Nathan Shields: We bought that for $72,000 and we put roughly $22,000 into it. We sold it for $125,000 or something like that. It wasn’t a great market; that was part of the reason we were getting out of it.

Joe Fairless: Well, you made $10,000 to $20,000 on it.

Nathan Shields: Right. After all that hassle, yeah.

Joe Fairless: It’s surrounded by duplexes. Was it just sandwiched in between duplexes?

Nathan Shields: Well, there were single families, but yeah, there were also some duplexes and fourplexes on the same street.

Joe Fairless: Oh, man. What did your attorney say whenever you asked him or her about it afterwards?

Nathan Shields: Yeah, he said he made a mistake. He should have checked that too and he didn’t, so. He’s a good guy; he’s honest.

Joe Fairless: Yeah, I respect that. I respect when people own up to that stuff. Well, that was something that is certainly valuable for a lot of Best Ever listeners. What deal have you made the most money on?

Nathan Shields: Boy, I mean, at the end of the day, I think it is the 20-unit building because on paper, we made $98,000 at closing, and it’s just been a really great cash flow property, and as we increase our NOI and cap rates at the moment, they’re still decent. So the value has gone up. So I think we’ll hold that one for a fair amount of time. We’ll either refinance in the next year or two here, potentially sell it. We’ve had a couple of unsolicited offers, but it’s just a really great property for us.

Joe Fairless: Yeah, I think I heard you say that that property manager has since referred another property to you two; a four-unit. So you got the 20-unit, you got a bite of the apple, but then you went down to a four uni. Do you have any baseline for the amount of units per transaction that you’re buying, or are you just accumulating and it doesn’t matter if it’s 1, 2, 4, 20, it doesn’t matter?

Nathan Shields: I think we’d like to move, still bigger. That four-unit was just really nice because it was one town over. Our property manager had already managed that property as well. He brought it to us, we got a good deal on it. We liked that area, and we have boots on the ground there, so it makes sense to continue buying. I don’t think we’d go smaller than a four-unit at this point, and we actually talked about getting into more commercial stuff, whether it’s self-storage or potentially more like a double or triple net lease, things of that nature.

Joe Fairless: How long did you own that duplex that turned into a one plex?

Nathan Shields: Let’s see; about three years.

Joe Fairless: Okay. So you made $20,000 plus on that, and ultimately it was a single-family house. So why not buy single-family homes, and then do a quicker turnaround and then use that to pump money into larger stuff?

Nathan Shields: I think we just don’t like single-family homes at this stage of the game.

Joe Fairless: What don’t you like about them?

Nathan Shields: I think the biggest thing for me is just that they’re comp based. We’d rather go in and be able to add value and have a true commercial asset instead of rely on comparable properties.

Joe Fairless: Right. You have more control over the operations and the business plan direction. Okay, I get that. What has been something that you’re most proud of since forming this partnership with Troy and buying these properties?

Nathan Shields: I think it’s our ability to maintain a partnership. A lot of people– you get two sides of the coin where people do a lot of partnerships or they’re really scared to do partnerships, and the people that are scared probably got burned at some point, and we both have our stories too of bad partnerships. So we understand what makes a good partnership, what makes a bad partnership, and we both had to essentially get out of bad partnerships along the way. One for him was a business partnership, one for me was another real estate partnership, and sometimes you’ve just got to understand that your goals aren’t aligned, your values aren’t aligned, and we’re lucky that our goals and our values and our time horizons are all aligned pretty perfectly.

Joe Fairless: Goals, values and time horizons. I think values is pretty self-evident in what you’re talking about there, but as far as goals and time horizons, will you elaborate more?

Nathan Shields: Sure. So when he had his partnership that went south, his partner was 20 years older than him. So Troy’s long term goals were really the other guy’s short term goals. So it just didn’t really line up, because he was trying to do things that made things more immediate, and Troy was thinking more long term. So eventually, they had to dissolve that partnership.

And then as far as goals go, it’s just we have a goal to buy a bunch of real estate, and there’s a lot of different asset classes to choose from, and it’s just like a side retirement vehicle for us. And honestly, it doesn’t take that much time. We spent a couple of hours a week on it, maybe. It gets a little more intense if there’s a buy or a sell, but it’s not that hard to do. I think a lot of people think it’s a lot of hard work, and I suppose it could be, especially if you’re doing all the painting and landscaping and managing everything, but we try to outsource as much of that as possible.

Joe Fairless: What’s been a challenging conversation that you’ve had with Troy over the years that you two resolved that, hey, if you didn’t have as strong of a partnership as you do, it might not have been resolved and you might have parted ways?

Nathan Shields: I think the biggest ones are probably buy or sell decisions. So I was putting a little bit of pressure on him to sell our Illinois properties, and we did sell that one. So there are times where we just have more intense conversations; they’re always friendly, because we want the best thing for the business and the best thing for us. So I really can’t think of any really intense conversations that we’ve had. One of the other things I forgot to mention was when it comes to partnerships, personalities matter too, because if you can’t get along with someone and understand how they operate–we’ve been friends for 20 years, so we know each other really well.

Joe Fairless: Right.

Nathan Shields: So that’s another thing too, we just get along, and when it does come down to it, we have the best interest of each other in mind and the business.

Joe Fairless: Four things in partnerships – goals, values, time horizons and personalities to make sure we get along. Thank you for that. I appreciate it, and I’m sure a lot of other listeners who are thinking about partnerships or are in one and just assessing each of those boxes appreciates that, too. Taking a step back, based on your experience as a real estate investor, what’s your best real estate investing advice ever?

Nathan Shields: I think the best advice I can give is, definitely get with a real estate investing networking group. If there’s not one in your area or there’s not one that you like, start your own. That’s what I did back in Illinois. It’s a great way to meet people with different skill sets, and you can end up partnering with people on deals. Our group here in Madison is very collaborative; people lending to each other or bringing deals or– it’s a great group of people to be associated with. So definitely hook up with a real estate investing group.

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

Nathan Shields: Let’s go.

Break [00:22:54]:04] to [00:23:47]:03]

Joe Fairless: What’s the best ever book you’ve recently read?

Nathan Shields: If I can mention two, there’s one called Zero to One by Peter Thiel. It’s more about the startup culture, but the way I process it as looking for from getting from owning nothing to getting that first property is a super important step, and that’s why I like to make sure that people know, especially when they’re starting out, that if you can get that first deal, it’s pretty much all downhill from there because that’s the biggest hurdle.

Joe Fairless: You said two?

Nathan Shields: Oh, yeah, I do have another book – Built to Sell, which is more of a business book, but it really helps you think about your business as “Is it an asset that someone else would come along and actually want to buy?” For a lot of real estate investors I don’t think that’s necessarily the case, because they might not have an attractive real estate business. So just be thinking about systems you can put in place, how to make your assets more desirable to someone who might want to buy them in the future.

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

Nathan Shields: As far as giving back, especially to the real estate community, I do have my Youtube channel. I just offer advice and tips and hopefully people can learn from my failures as I shared one of them. I have many more, but you can also see those on my channel. I also offer on my website, duderealestate.com, you can click a link there to just get a free phone call with me. So especially if you’re new, I think I add a lot of value just in helping people figure out what is the next thing that they have to do to get to that first property, whatever that hurdle might be.

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

Nathan Shields: There’s a couple ways – they can go to Dude Real Estate channel on YouTube, they can also find me on BiggerPockets. I’m a blogger for BiggerPockets, so you can find my articles there; that’s another way I give back. But just look me up Nate Shields on BiggerPockets.

Joe Fairless: Nate, thanks for being on the show. Thanks for talking about the 20-unit, thanks for talking about four things to look for in partnerships, which is goals, values, time horizons and making sure personalities align, and some lessons learned on the deals and partnerships that have helped you get to where you’re at, and also some lessons or things that you wouldn’t necessarily do again or you look out for.

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

Nathan Shields: Thanks, Joe. Appreciate it.

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JF2128: Investing As A Insurance Agent With Stacee Evans

Stacee is an insurance agent who bought her first rental in 1996 and slowly started to buy rentals and sell them. She has bought and sold 10 rentals and currently has 3 active properties that she rents out and 1 AirBnB. While living in California, she bought a house sight unseen in Houston, Texas, and shared the specifics of how she found it, the mistakes, and lessons she learned. 

Stacee Evans Real Estate Background:

 

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Best Ever Tweet:

“The reason I want to learn more is because of all of the mistakes I have made” – Stacee Evans


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, Stacee Evans. How are you doing, Stacee?

Stacee Evans: I’m doing great. How you doing today?

Joe Fairless: Well, I’m glad to hear it. I’m doing great as well. A little bit about Stacey – she works as an insurance agent, she invested in her first property in 1996, she’s bought and sold about 10 or so properties since then, and she currently has three rental properties and one Airbnb. She’s based in Los Angeles, California. So with that being said, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Stacee Evans: Sure. So I started accidentally like quite a few people. Bought my first house to live in at ’94, a couple of things about the house I didn’t like, I didn’t want to raise a family there. So I just ended up saving money so I could do the down payment on my next one, turned my first one into a rental, the market went up, took out a home equity line of credit, bought another one, and then another one. Somebody called me and said, “Hey, I’ve got a friend that wants to move to Vegas. I don’t even live there. You want to buy a house and rent it out?” Did that, went up… Just got lucky on all the timing, didn’t know what I was doing, didn’t really know anything about tenant screening. I learned the hard way, made a lot of those mistakes, and then in the last few years, I learned how to learn, I would say. So I did a lot of research, listened to a lot of podcasts, read a lot of books, I started taking it a little more seriously. It’s not my main job, but it’s been a nice side job, especially lately; a nice way to make a lot of money. It’s nice to have a cushion, and I really enjoy it. So far, it’s been great, and I’m now at the point where I’m helping other people. People see my success and I love helping out and giving back that way as well.

Joe Fairless: I’m glad that you do, and I’m glad that we’re having this conversation. It sounds like there’s some lessons that can be shared that you’ve learned. It sounded like you took a more concerted effort fairly recently towards educating and doubling down on focusing on this. If that is correct assumption or if I interpreted it correctly based on what you said, what took place that made you want to take it to another level?

Stacee Evans: Well, for one thing, I really enjoy it. I do like my job, it’s a day job. I’m 40 hours a week, just the normal, and I’ve been there for many years. So I’m getting to the point where it’d be nice to have the option to retire and to be able to live off my real estate. So I might get to that point and keep working, but I’d like to have that and have the freedom and then have more money to do things that I’m more passionate about and just give back and help other people.

Another reason that made me want to learn a little bit more is because of all the mistakes that I’ve made. So it’s given me the courage and the knowledge to have a little bit of information. I live in California; last year, I did a major flip in Texas. It was a house that was almost burnt down, and I did it from living in California. I had actually bought the house sight unseen because I missed out on so many, and I learned how to do that through books and podcasts and forums… Basically, when you’re out of state, it’s all about building your team, and with a lot of hiccups, it worked out great. So it was nice to have that under my belt, and moving on to more things, which is just great for me.

Joe Fairless: Well, let’s talk about that deal in particular. I would love to learn more about the details of it. Can you tell us how you found it, what did you buy it for, what did you have to do, hiccups that you came across, all that good stuff?

Stacee Evans: Sure. So I bought it from a wholesaler. These numbers are [unintelligible [00:06:25].00] they’re going to be within a couple thousand. I bought it for $67,000.

Joe Fairless: Where in Texas?

Stacee Evans: It was in Houston.

Joe Fairless: Okay.

Stacee Evans: Beautiful neighborhood. Of course, I drove by. Like I said, I found it through a wholesaler, but this was probably maybe a total of 30 people. So I was referred to someone, used them, referred to someone else, referred to someone else. I had a lender; this was actually brought to me by a contractor that was looking at other ones who hooked me up with the wholesaler. He told me the ARV, the after repair value would be about $210,000. The contractor said he could do it for $95,0000. It ended up where the contractor took longer. It did come in, as he said, with the $95,000. A little bit of the work wasn’t great at the end, but I ended up selling it as soon as I went to go put it on the market; I thought it was going to be $210,000. My real estate agent said, “Let’s start it at $229,000 because the market’s pretty hot,” and I trusted her. I had three full-price offers within a few days; I couldn’t believe it. I did have to take a little bit of money off at the end. I expected the financing to be the hardest part, and because of good credit and access, the money was simple to get. At the last minute I ended up not using hard money lending, ended up paying cash for everything by using some money that I saved and getting extremely low-interest rate loans. I did part of it on credit cards; it was 0% loans for 18 months with a 3% fee, and then once it was–

Joe Fairless: How’d you come across that credit card?

Stacee Evans: I had the credit cards. I do a lot of credit card churning where you buy stuff on credit cards, everything and then you pay it off at the end of the month and you get all the benefits. I called one credit card company and I said, “Can you increase my limit?” and it was $12,000. They’re like, “Yeah, we’ll give you $60,000.” Are you kidding me? So it was just all kinds of things like that. At the very end, as I was finishing up, there were so many issues with the house. There was a little bit of bumps in the road with the contractor; it took a longer time. He did finish it, it looked great, but there was just a few things that weren’t great, and the buyer was going to back out.

Part of the money that I got was a friend of mine who’s a mortgage broker, and I called him and I said, “Can you do a HELOC for me?” He goes, “Yeah, just sign this piece of paper.” It was a low-interest loan; wasn’t even official, just sign up for the house. So I wanted to pay him back, and then I took out another low-interest credit card loan. So by the time I was about to close, I’d had everything paid off. So I had no more loans, because I was going to turn it into a rental… And then I called my realtor and I said, “Where’s the cancellation?” and she goes, “You’re not going to believe it; the buyers are buying it.” So it ended up going through. I had all this money and now I’m doing more deals.

I bought a house last month [unintelligible [00:08:59].21] Kansas City. I have an amazing team there. I’ve got a local bank there, a lender; it’s all about the team. I’ve got a rehab company, I have property management, I got a real estate agent. I’ve never used property management before. I’ve always managed everything, but these are a little low rent houses, so it’s nice to branch out and do something different, and then to rely more on other people so that I can scale up, which is my next plan.

Joe Fairless: On what you said regarding the churning credit cards and getting the benefits paying them off at the end of the month – when you got your approved credit limit from $12,000 or $16,000, whatever the number you said, to $60,000, how do you access that money to then buy real estate?

Stacee Evans: I just called a couple of my credit cards. I have a lot of credit cards that have zero balance because I don’t really use them. I only use whatever is going to give me–

Joe Fairless: I know, but–

Stacee Evans: So I called the credit card; they send me offers all the time. “We’ll give you a 0% cash [unintelligible [00:09:56].02]

Joe Fairless: Sorry, I’m not asking the question correctly. I understand getting the credit increased. I’m wondering about how do you actually get those dollars and buy real estate? Is that a check that you receive? Because you can’t swipe the card to buy a property.

Stacee Evans: Right. So I call them on the phone and then within two days, they just transfered it into my bank account.

Joe Fairless: Okay, so it’s a cash advance.

Stacee Evans: Correct, with 0% interest.

Joe Fairless: With 0% interest. Okay, got it. So I want to make sure I’m wrapping up the $67,000 house before we move on. So you bought it for $67,000. How much in total did you put into it?

Stacee Evans: The rehab was $95,000. I don’t have the spreadsheet in front of me with the exact expenses, but I had insurance, I had utilities, I flew back and forth a few times… So I counted all of that in, obviously on my taxes when I looked at my profit. Off the top of my head, I want to say it was roughly another $20,000 with everything, which included going back and forth. And then after I sold it, there was, of course, realtor fees and all of the closing cost fees.

Joe Fairless: What did you sell it for?

Stacee Evans: It sold for $229,000, but we did have to take $8,000 off, because there was a couple of items that weren’t done properly. So I did that as a credit for the buyer.

Joe Fairless: Okay, so $229,000 minus $8000, minus $20,000, minus $95,000, minus $67,000, not including any of those other miscellaneous things, that’s around $39,000 profit. Does that sound about right?

Stacee Evans: I subtracted all of the interest from my loans, because I did take a couple of low-interest loans. The credit cards had a 3% fee, so I subtracted that. So it was probably about another $10,000 off of that. It ended up being pretty nice at the end of the day.

Joe Fairless: You live in Los Angeles?

Stacee Evans: Correct.

Joe Fairless: This property’s in Houston. It’s almost a six-figure rehab. How did you manage the process and what would you do differently, if anything, if you were to do this type of deal again?

Stacee Evans: I managed it by relying on the people that I had there. It ended up that the wholesaler who sold me the house was absolutely amazing. I was having some issues with the rehab, and when he sold me the house, he goes, “I’ll do whatever you need during the rehab,” and when he said that, he performed just incredibly. He would go to the house, send me videos. So he was almost–

Joe Fairless: What’s his name?

Stacee Evans: His name is Colby, Colby Samson.

Joe Fairless: Colby Samson. Props to you, Colby Samson.

Stacee Evans: Oh, amazing. And he would check on me every week or two. I told him– I said, “I’m new.” I want to say that I did jumped in — even though I had spent a lot of time studying and learning and realizing how to do this, it was scary, and I don’t know that I would say I 100% knew what I did, but the first thing that I would do is – I wrote the one check to the contractor for the initial $30,000, and in my mind, I kept doing worst-case scenario. Okay, if he runs off with the money, I’m down $30,000; I can get through it; here’s how. I never really believed that it was going to work until the very end, and my goal was to come out even. I go, “I just want to come out even; I want to do my first flip,” and when I profited so much, I was over the moon, because it was something completely different from what I’ve ever done.

Joe Fairless: Good for you. There’s a lot of resourcefulness and educated risk-taking involved here and also some leaps of faith.

Stacee Evans: Oh, big time leap of faith. Yes, I did have the money and the access to it that if it went south because I kept doing worst-case scenario, I’d be okay, I wasn’t going to lose everything. But it was scary.

Joe Fairless: When did you complete that flip? How long ago?

Stacee Evans: It was last August of 2019.

Joe Fairless: Okay, and you just completed that less than a year ago, you found an outstanding wholesaler, you found a good contractor, it sounds like, correct?

Stacee Evans: I’m not going to say that, because his communication’s–

Joe Fairless: Okay, average? Below average?

Stacee Evans: He got it done; his communication ended up not being that good, he kept dragging it out, he was running out of money, he wanted me to pay him before it was done…

Joe Fairless: Oh, man. Okay, alright, alright. Well, you found a contractor that you wouldn’t use again, but eventually got you to the finish line.

Stacee Evans: But the house did look beautiful when it was done.

Joe Fairless: Okay. But you have some team members that were discovered that hey, they’re really reliable.

Stacee Evans: Absolutely.

Joe Fairless: What made you leave that area, since you’ve already established some connections that were really helpful, and then go to a completely different state in Kansas City?

Stacee Evans: So my experience is rentals. I’ve had a lot of rentals and I have some right now, and it was pretty much just looking for an area that has a good price to rent ratio. I was a little nervous about just Houston, because it does flood, the insurance is very high, the taxes are very high. So it’s not as good of a return on investment. So I was looking at other areas for that. I’m looking a little more in the long term. I’ve been doing this for so long. I’m looking at the end game, so if I can get some rentals, have a little bit of steady income, pass them on to my kids… So Texas was just a little bit too scary for me for rentals, personally. So I just wanted to find an area that’s going to give me a nice bit of return.

Joe Fairless: How did you become introduced to Kansas City?

Stacee Evans: I actually did a lot of research. I had a mentor that I paid that just gave me a few one on one sessions over the Internet, that taught me how to analyze different areas, how to look at the employment, if the population is going up or down… You want to make sure that when you are looking at a certain area, that the companies that are in the area are diverse, so you don’t have a situation like Detroit had where one company goes out of business and then everything collapses, and you want to look at the income of the people, that their rough estimate is three times their income from the rent, and then just the price to rent ratio where the price of the house is not going to be so high compared to the rent that you won’t make a profit. Where I live in California, the price of the houses are so high that you’re just buying it for appreciation here, but not really for income.

So an easy way to do it is if any of your listeners are trying to figure out how to find an area, you can literally just google ’10 best cities to invest in for rental houses’, and then you just analyze data. There’s a lot of public websites to analyze the data, and look at their average income. I like the area because the schools were decent. So a lot of the areas that I looked in other cities, all the schools were bad, and you want people that have families. So, so far, so good. I’m dealing with a very small local bank there and they just give you the money for the house and the rehab, and then they start out with just interest only for six months, and then instead of having to roll it out or refinancing it, they’ll go principal and interest, and the prices are so low that I’m just putting the 20% down. I’d rather do that than try to do 100% financing. I’m a little more comfortable having more equity.

I know there’s a lot of schools of thought where you buy it and you rehab it and refinance it, you get all your money out and go to the next one, but because of my last deal, I have so much cash that  I’m able to do that and just keep a little money in each deal.

Joe Fairless: Now, earlier, you said that you’ve learned some hard lessons. What’s the story of a hard lesson that you’ve learned?

Stacee Evans: My hardest lessons were all about tenant screening. I had one story where I had a house in Vegas, and they weren’t able to pay the rent, and I got an extremely long, detailed email about how the girl couldn’t pay the rent. She put on her application; she was a dancer. So I’m thinking my little kid has dance teachers. Apparently, she worked at a brothel, she was getting diseases, she lived in a house with her ex-boyfriend and her husband and they were out of work and they were fighting, and I got a whole detailed thing; she couldn’t pay her rent. Actually, that ended up being okay, because I served her the notice to evict her. She called me; she goes, “We just can’t afford it,” and she moved out, and she left it a little messy, but it wasn’t too bad. The worst story is, on another tenant screening, I was in a situation where I wanted to rent my house out and I didn’t know what costs–

Joe Fairless: The first one?

Stacee Evans: This is another story. So I probably should have with this one. I’ll condense it, but I had somebody that wanted to run it; everything didn’t check out completely, I didn’t have criteria for running out for my effective tenants like I do now. I rented it to her and all she did was complain about everything and get the city to come out for one item after another. And after she moved out, she sued me and it was a year and a half lawsuit. She didn’t get anything out of it because my documentation was so good, but it was very stressful. So the biggest lesson that I learned is tenant screening.

Joe Fairless: Well, thank you for mentioning that, because let’s talk about your comment about your documentation was so good, because that will certainly be helpful for pretty much every Best Ever listener to learn what about your documentation helped you successfully defend yourself in that lawsuit.

Stacee Evans: So for every issue that she had, she would send me an email, I would reply to her email and I would tell her how I’m resolving it, and then she ended up trying to get a few people to testify for her in court, and she would go to the city Inspector and I would contact the city Inspector, and the inspector would say, “Oh no, we know she’s just trying to get money out of you.” She had about four, five people she was trying to get on her side, and they all came to my side. So she was saying that I wasn’t taking care of the air conditioning and I was sending the technician out over and over, and he said, “Well, her dog is so big and she won’t clean the filter, so he’s blocking it.” So it was pretty much just item after item; then and she said that her kid was getting sick from mold, and I had a doctor that has a mold company and I sent her his credentials. I said, “I’m gonna have him come out there. He can test for mold, he can look at your kid,” because she went and got her own mold testing company, and when I went on Yelp, this company had all bad reviews and they weren’t certified. So I said, “I’m going to send this guy out. He’s legit and he’ll even look your child,” and she goes, “I don’t want anyone that you refer,” and it was just documentation after documentation, and we ended up going to court. We didn’t have to, but by the time we were going to bring everything in, I presented documentation for everything she complained about, had my cell phone text messages, and I had all my emails. So the biggest expense of that was the attorney fees, and insurance covered a lot of that.

Joe Fairless: How much were the attorney fees?

Stacee Evans: I actually don’t know what they ended up being because the insurance covered that. I had to pay about $8,000 of it for an attorney to get my insurance company to cover it because my company didn’t want to cover it; my insurance company. I would guess over $100,000, because it was a year and a half of a lot of work.

Joe Fairless: Wow, and stress on your part; unnecessary stress, right?

Stacee Evans: Extreme stress. Oh, yeah. This is one thing that I learned in life is when something like that happens, [unintelligible [00:21:01].14] happen to you, you get it. So I take 100% responsibility for it. I didn’t know about tenant screening, or kind of did, but I didn’t have strict criteria; you either fit it or you don’t; if you fit it, then everything checks out, you get it; if you don’t fit it, I’m not taking a lot of excuses. I didn’t check out her employment, and I didn’t check everything out the way I was supposed to. So I look at that now that I’m not stressed out about it is a lesson learned.

Joe Fairless: The documentation, fortunately, that you had that back and forth documented, with not only just it documented, but also it sounds like you were providing solutions to her issues during the time, and it’s one thing to document stuff, but it’s another if you’re documenting it and that documentation shows that you’re looking to resolve the issues.

Stacee Evans: Yeah. Well, I mean, I knew that she was trying something. I didn’t know I was gonna get sued but I–

Joe Fairless: How much was she initially suing you for?

Stacee Evans: I don’t even remember the amount. I want to say $300,000 or something, and it was for just emotional distress. It wasn’t even for anything specific.

Joe Fairless: Gosh. Well, I’m glad you shared that story, because we’ve talked about the lessons already, and it’s a risk that we take as landlords, even if we’re not self-managing because in your case, you were self-managing. There’s always some way that something like that could– eventually, some resident could eventually sue a landlord, whether it’s self-managed or through a third party. Yeah, there’s certainly a high degree of confidence that that would get dismissed if it’s especially a third party that you have managing the property, but nonetheless, I imagine it was jarring when you first heard about that.

Stacee Evans: Oh, yeah. For sure.

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

Stacee Evans: Well, that’s a good question. I would say, at this point, and I should have been doing this all along, is to consistently learn, read books, talk to other people that are doing what you want to do, listen to podcasts, and do every single thing that you do with 100% integrity. It’s not a win-lose situation, ever. You always want to help everybody out, and just be nice to the people around you, and if you can add value and help them, you don’t even need to get something in return for it. It makes you feel better and it’s just a better way to do business.

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

Stacee Evans: I’m ready.

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

Break [00:23:31]:07] to [00:24:24]:03]

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

Stacee Evans: I am going to say that best recently was The Book on Tax Strategies; I believe that’s what it’s called. It’s by Amanda Han and Matthew MacFarland. I read that book; the main thing I got out of it was you can’t have your accountant just find all your deductions; you have to take responsibility for yourself and saving lot of money on taxes.

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

Stacee Evans: I work with a couple of groups that help feed the homeless, and I’ve been out there with them and I see it firsthand, and I also help out a lot of young people and some older people with financial advice in real estate, but I’m always happy to share any knowledge that I have.

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

Stacee Evans: I don’t have a website or anything, but I am on BiggerPockets, so you can find me there. That’s probably the best way I would  respond to messages, and I love to talk to people, keep learning from them and have them learn from me.

Joe Fairless: Stacee, thank you for being on the show. Thanks for talking about some lessons learned from tenant screening, as well as when you get sued what you better have ready to go in order to defend yourself, and that’s documentation that shows that you were attempting to resolve each of the issues. So it’s not a he-said-she-said thing. So thanks for being on the show. I hope you have a best ever day and talk to you again soon.

Stacee Evans: Thank you for having me.

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JF2127: Cross Collateral Deals With Matt Deboth

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

 

Matt Deboth  Real Estate Background:

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

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

Matt Deboth: Good, good. How are you?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matt Deboth: Yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matt Deboth: Let’s do it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matt Deboth: Correct.

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

Matt Deboth: Yep.

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

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.

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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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JF2125: Early Problems With Out Of State Properties With Elenis Camargo

Elenis bought 5 rental properties all acquired sight unseen and from out of state. She shares how she managed the rehab process with her properties being in an entirely different location. During one of her first deals, her tenant abandoned the property and she talks about how she was able to handle this difficult situation.

Elenis Camargo Real Estate Background:

  • Works full-time as a digital marketing professional in healthcare
  • Portfolio consists of 5 rental properties, all acquired sight unseen and from out of state
  • From Brooklyn, New York
  • Say hi to her at: www.thirdstoneproperties.com 

 

 

 

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Best Ever Tweet:

“I talk to alot of people, I learn from a lot of people, and I teach people as well. This is a people business, and it’s really important to learn from and help each other out ” – Elenis Camargo


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Elenis Camargo. How are you doing, Elenis?

Elenis Camargo: I’m doing great, how are you?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Elenis – she works full-time as a digital marketing professional in healthcare. Her portfolio consists of five rental properties, all acquired sight unseen, and from out of state, from Brooklyn, New York. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Elenis Camargo: Sure. Thanks again for having me. I’m originally from Miami, Florida. My husband and I moved to Brooklyn, New York four years ago, and after realizing how expensive it was to buy an apartment that we wouldn’t really love in Brooklyn, New York, we decided to invest in Florida, and narrowed down the market to Jacksonville, Florida.

So like you said, we’ve had five properties sight unseen. We focus on buy and hold investments, so most of our properties are rehabbed, and we add value by rehabbing the properties… And then we’ve also been helping other investors acquire properties in Jacksonville, since I’m licensed in Florida.

Joe Fairless: Okay… So a lot to unpack there. When I was reading your bio, it reminded me of what I was doing, when I was living in New York. I bought four single-family homes, all sight unseen, in Texas… So I can certainly relate to your story, even though you bought five and I only bought four that way.

So let’s talk about your approach, because one thing that I know I wasn’t doing is I was not rehabbing properties, except for one, and it was a disaster, one of the homes. So talk to us about a specific deal, and how you managed the rehab process, and just from start to finish.

Elenis Camargo: Sure. I’ll go into our first one. That one we acquired with an inherited tenant, and at the beginning — this was our first rental, this was February 2018. At the beginning we thought we had a great tenant, she was communicating great, and paying on time. A few months in she started having personal issues, started paying late, and eventually she pretty much just disappeared. I couldn’t reach out to her by phone, email, text; I tried everything and she wouldn’t answer… So we posted a [unintelligible [00:05:14].27] vacate notice.

Eventually, once we started the eviction process, she emailed me saying that she abandoned the property and that we can keep her security deposit. So as a new investor at that time, five months in, to  have our tenant abandon, it was a huge deal for us…

Joe Fairless: Right out of the gate…

Elenis Camargo: Exactly. Most people it takes time, but with us it was right off the bat. Luckily, I had met a contractor online. I had started talking to him, and he really was the one that helped me a lot throughout this process. We didn’t even have keys to the property that worked. He ended up climbing through a window, and getting in, taking pictures… My husband and I wanted to fly down there and get things fixed, but the reality was it would have cost us more money to fly down there, and get a hotel and all of that stuff, versus just having him fix it.

So he sent us pictures, and we made a list of the things we wanted to get done. She left the place a huge disaster, as you can imagine…

Joe Fairless: Of course.

Elenis Camargo: A lot of personal belongings, everything needed to be taken out… So we made a list. Our contractor gave us pricing, started working on things, and a few problems came up along the way, like – he noticed that the bathtub had some sort of water in between when he stepped in it, and it ended up being that it had a bath fitter that wasn’t installed correctly over the bathtub, so he ended up ripping that out, refinishing the bathtub… We did new flooring, we tore down some walls, cleaned up the place, and reglazed the bathroom tiles just to make them look new. We painted the outside… Just made it a fresher look.

And then after that I had already started interviewing listing agents as well, so I was kind of working ahead of myself a little bit. We didn’t have a team in place ahead of time. We only had our realtor; that was pretty much it.

We quickly got the property listed after the contractor finished the rehab. We spent around $8,000 on the rehab, so it wasn’t too bad, considering all the work we did… And our listing agent got someone in there in about 3-4 weeks, and we raised the rental value by 43%. So it was originally being rented for $1,050, and we raised it to $1,200. That was almost two years ago, so now it’s being rented for $1,250 with another set of new tenants that we got in there.

Joe Fairless: Well, it’s surprising to me that you only invested $8,000 to get all that work done. It seems like that was a pretty good deal for you.

Elenis Camargo: It was. We did vinyl flooring, and he got it on special. The house is around 1,300 sqft. I think the flooring was most of it, around $4,500 if I remember correctly… And painted all of the insides. He did a lot of work for that amount of money, for sure.

Joe Fairless: And just so I heard you correctly – because I heard you raised it by 43%, but then I think I heard the numbers and for some reason it’s not jiving for me, but maybe I’m misthinking it. You said you raised the rent from $1,050 to $1,200 – is that correct?

Elenis Camargo: Yes.

Joe Fairless: Okay, so you raised it $150.

Elenis Camargo: Yes.

Joe Fairless: Okay. And I think I heard that you say that yo met the contractor online… Did I hear you correctly?

Elenis Camargo: Yes, I did.

Joe Fairless: Okay. Please elaborate.

Elenis Camargo: I met him through a real estate forum.

Joe Fairless: Bigger Pockets?

Elenis Camargo: Yes, through Bigger Pockets. He was the first contact that we made on Bigger Pockets, and just luckily he just happened to add me as a connection. I reached out to him, seeing that he was a contractor, and we started talking on the phone. He was an investor as well, and I just kind of wanted to start the conversation just in case this tenant ended up moving out; we knew that the property needed work… So the connection started from there. He’s helped us a lot on many of our properties.

Joe Fairless: One of the benefits of meeting people through Bigger Pockets is there is social accountability. So if you had met a person on Craigslist, or even through a referral – because I think the contractor might not be as concerned about burning a bridge with one person… But if they are concerned about you lighting fire to the reputation on an online forum like Bigger Pockets, that’s a whole other issue… That’s why Bigger Pockets is such a great tool for investors.

Elenis Camargo: Definitely. It was a huge trusting experience, because I had just met him two months before, and here he was, climbing through a window in my house and fixing things for me… [laughter] So it was a pretty big deal.

Joe Fairless: How did you meet the listing agent?

Elenis Camargo: The listing agent was one of my sister’s best friends at the time, and she was in real estate for a few years. Oh, sorry, that was the realtor. She gave us the contact for our listing agent that we used at the time.

Joe Fairless: Okay. What did you buy the property for?

Elenis Camargo: That one was 90.5k. It appraised instantly for 108k…

Joe Fairless: Wonderful.

Elenis Camargo: …when we bought it. Then a few months later we did a HELOC on it and it appraised for 118k at the time. That was November 2018. I’m assuming now it should be a little higher than that.

Joe Fairless: So you had 98.5k all-in to the property, which is 1.2% of rent to all-in ratio. A lot of people say you’ve gotta at least beat the 1% rule… You’re 1.2%.

Elenis Camargo: Yeah. We usually do with all of our properties, except one where we purchased it with the intent of rehabbing it in the future. This other deal – we bought it for 123k, it had tenants in there that had been in there for 12 years, so we were pretty certain they wouldn’t be leaving any time soon… And the ARV for that one is 190k or more… But it needs a complete renovation inside: new kitchens, new bathroom, everything…

So down the line when we’re ready we’ll give the tenant sufficient time to move out, rehab it, and then either sell it for a profit, or maybe cash-out refi it.

Joe Fairless: What would it cost approximately to get it to that level?

Elenis Camargo: That one should be 25k or 30k.

Joe Fairless: Okay. So all-in 150k-155k(ish) with ARV around 190k?

Elenis Camargo: Right.

Joe Fairless: Okay. And what does it rent for now?

Elenis Camargo: That one is renting for $1,100, so that’s the only one that doesn’t meet the 1% rule… And that’s because they’ve never had their rent raised in 12 years that they were living there.

Joe Fairless: And what are your thoughts on that? So you inherited tenants who had been there 12 years, they haven’t had their rent raised, and now new owner comes in – how do you approach it?

Elenis Camargo: Right. That was a little bit of a difficult situation. They didn’t leave a security deposit. We knew that they didn’t have enough money to leave a security deposit or have their rent raised significantly; they were on disability. So we raised it very little, $5… Originally it was $1,095, so we raised it to $1,100 right off the bat, just to kind of start the idea “We’re gonna be raising rents every year.” And then this past year I think we raised it another $5. It’s very little, but just to get a little bit more income coming in. Probably next year we’ll raise it a more significant amount if we’re not already rehabbing it.

But it was difficult to speak with them. They were very skeptical. The property has passed through different owners over time, and the previous owners, as with all of our other inherited tenants – we’ve had three – they don’t take care of their tenants… And when we come in, they immediately have a list of things that are broken or need fixing… So with this property, they actually didn’t have hot water for a month. And as soon as I introduced myself, they told me that, and we had it fixed within an hour. It was something really easy to fix.

So we take pride in making sure the tenants are good, living in a clean home, and with things that are functioning. And I think that built a lot of rapport with them, where they trust us now and they know that we’re not just gonna throw the property away, or just not keep it maintained.

Joe Fairless: Wouldn’t that come up in an inspection report?

Elenis Camargo: That’s really interesting… Yeah, it didn’t come up on that. I’ve never even thought of that. [laughter] But it did not come up on the inspection report.

Joe Fairless: So that was one house, 123k purchase price; the other was 90.5k. How are you financing these, and where are you getting the equity? Is it from your W-2 job, so you’re taking money that you’re earning from your W-2 job and you’re buying these single-family  home investment properties?

Elenis Camargo: With conventional financing. So we’ve usually put down 20%. On that 123k deal we’ve put down 15%, and we’re paying PMI. The numbers just made more sense when we did them… But yes, pretty much our jobs fund our investments at the moment. Eventually, we’ll want to get [unintelligible [00:13:55].19] and get into doing more cash-out refinance deals so that we can continue to invest more without taking time to save up the money.

Joe Fairless: How have you improved your process? And that’s pretty broad, I understand that, and I’m doing that intentionally… From your first purchase to the fifth purchase?

Elenis Camargo: Great question. So my husband built originally a model that we used to analyze deals, so that’s been improved over time… Our process now is we get MLS listings, we also get wholesale deals, and we look through those every day. The ones that look more promising – we put them on the list, and then we look at those together. Versus before, we didn’t write anything down, it was just “Oh look, this house looks good. Let’s send it to our agent and see if we can get more information on it.” It was just kind of like one shot here, one shot there. Now we have a list of properties that we’re looking at, and writing down notes; we keep track of them, if there’s any price drops or price changes, so we can see that the seller is more motivated if they’re dropping the price. So we have more of a system in place now…

We also use other tools, versus at the beginning we weren’t really using any tools to track anything.

Joe Fairless: Like what?

Elenis Camargo: We use Cozy for payments and for property management repairs, and then we use Stessa for our expenses and keeping track of value accounting.

Joe Fairless: Oh, cool. I’m very familiar with both of those companies. The challenge that you might have come across is the renovation part and overseeing renovation  – even though it sounds like you hit a home run with the contractor, but you’re still in Brooklyn, they’re in Jacksonville… How do you oversee the renovation process? And the reason why I ask that is – one, for obvious reasons, but two, I mentioned that I bought four single-family homes while living in New York City, sight unseen, and the fourth one was more of a renovation project, and it was a disaster, because the renovation team was not doing what they said they were gonna do. They didn’t have much work, so they were all on the job for  a very long period of time, just kind of hanging out, milking the clock… And my sister happened to drive by and see them, and she’s like “Joe, how do you keep track of them?” and I’m like “I don’t really have  a process.” So can you talk about your process?

Elenis Camargo: Sure. I have two contractors that I use at the moment, and we’ve done three renovations and now we’re about to do the biggest one for another investor that just purchased three multifamilies and he’s rehabbing 3 out of the 7 units next month… So it’s more than just that one that I got lucky with; we have another one now. And there was one that we got rid of throughout the process, but… It’s also about not paying them in advance. So with one of them I do pay materials in advance, because I guess he doesn’t have the bandwidth to do the renovation without the materials, and then we pay the job when it’s done… And the same with the original contractor. We actually didn’t pay him anything upfront, so they’re more motivated to get the job done… And if it is a bigger job, like the ones that they’re doing next month, we’ll do payments over time; probably maybe two payments. But the key is just making sure that they’ve finished it as quickly as possible, staying on top of them…

I’m in constant communication with them during a rehab, pretty much every day, and my job is flexible enough where I can take calls and get on video chats with them or see pictures and go back and forth.

And then I also try to save money by ordering some materials myself online, and having them pick up the materials… So it’s pretty much a joint effort to get the rehabs done, and get them done quickly, so that they can get paid quickly and we can get the property rented out.

Joe Fairless: What deal, if any, have you lost money on?

Elenis Camargo: If you consider the money we’ve put into all of them, we still haven’t broken even on any of the properties… But it’s a long-term play for us, so…

Joe Fairless: Right. So you haven’t sold anything.

Elenis Camargo: We haven’t sold anything.

Joe Fairless: Okay. That makes sense. What deal is the most profitable so far? I guess it’s a poorly-worded question, considering your previous answer… So what deal has generated the most cashflow as a result of the income minus expenses, to date?

Elenis Camargo: Sure. I would say most likely our fourth property that we purchased with a partner of ours. That one didn’t need a rehab or anything. We just put in probably around $1,000, getting it cleaned up and painted… And then we had tenants in there within two weeks, that have been paying on time every month… So I would say that one.

We’ve put the least amount of money in that; we’ve put 30%, our partner put in 70%, and then we split everything down the road 50/50. Now, we haven’t had to obviously do any renovations or get many things fixed, so I’d say that one’s the highest right now.

Joe Fairless: How does the loan approval process work with a partner?

Elenis Camargo: It’s a little trickier, because usually all loans are set for two people, usually a married couple… So having a third person involved, it required having additional forms and making sure that he was on all the paperwork… And we all have umbrella policies if we’re buying these under our personal names with conventional loans. So he had an issue with his umbrella policy where he needed to be the first person on the homeowner’s insurance… So everything is set for two people, and here we were, trying to do things with three people. So we had a situation where we had to cancel our existing homeowner’s insurance policy and rewrite it with him as the first person on the loan. I think I was the second person and my husband wasn’t even listed on the homeowner’s insurance… And he was able to get his umbrella policy. So it was a little tricky, things like that…

We are planning on purchasing more properties. We’ll most likely just put his name and either mine or my husband’s name on it, and not do it with three people again.

Joe Fairless: Okay, yeah. What lender do you use to get that type of transaction done?

Elenis Camargo: This last time we used Carrington, and I pretty much followed my loan officer… We used a company called Ditech and they ended up filing for chapter 11, so that’s why we’ve got such great deals at the beginning… [laughs] With our points, and with fees, and things like that. So he went to Carrington and we ended up following him there. He tried to match the same rates he was giving us before. But with Ditech we were able to get origination fees waived, very low points and things like that just because they knew they were filing for chapter 11 down the road.

Joe Fairless: Hm… The inner workings of corporate America.

Elenis Camargo: I know, it was interesting.

Joe Fairless: Alright, so the fourth property has brought the most cashflow, for multiple reasons, it seems like. One is there was no rehab, or little rehab, up to $1,000. Two is you have less money in, but you’re getting a disproportionate amount of profits based off of your expertise and the work that you’re doing, correct?

Elenis Camargo: Correct. Our investor is completely passive. He trusts us to do all the work. I manage the property, obviously without charging the partnership any additional money, and he put in more money at the beginning of the deal. So it works out really nicely for us, and I think down the road we’ll be able to acquire more properties with him than if we were just on our own, trying to save up all the money.

Joe Fairless: For someone looking to buy single-family homes as investment properties, who’s listening to this but has no purchased their first one yet, what’s an activity that you recommend they take on in order to eventually  purchase that property?

Elenis Camargo: I would say at least analyze one property a day. I think a lot of new investors get hung up on trying to learn everything, or build their entire team before investing in their first property, and in our experience it wasn’t necessary to do that. We built our team over time. But I think analyzing at least one property a day kind of gives them an idea of what the current market is like where they’re wanting to invest, what the properties are like, and it just kind of gets them used to it and more comfortable… And I would say start placing offers. I know it seems scary for a new investor, but it’s free to place an offer. They can back out at any time. And then it most likely wouldn’t get accepted on the first shot anyway. We’ve never had an offer accepted on the first shot, so… It just gets them more comfortable with the activity of going through with a deal, versus just sitting on the sidelines and trying to learn.

Joe Fairless: And now, based on your experience as a real estate investor – and this doesn’t have to be directed towards first-timers, just overall, based on your experience… What’s your best real estate investing advice ever?

Elenis Camargo: Wow, that’s a good question. I would say don’t be scared to put in lower offers. That’s something that other people have asked – how much lower can they put an offer in for? And since I’m working with multiple investors as well, they’re scared to lose a deal by putting in too low of an offer… But I feel like you need to put in the offer that makes sense for you, and not fall in love with the property and get it just because you want another property. It has to make sense for you, and don’t be afraid to put in a lower offer than what it’s listed for.

Joe Fairless: Can you give us a specific example of what a property was listed for and what you offered, and the result of that?

Elenis Camargo: Sure. Our latest purchase was listed for 222k, and we originally offered 170k, so it was much lower than the listing price… And we ended up settling at 195k. We went back and forth a few times; our best and final was 200k, and their best and final was 210k. So after we told them we can’t go up to 210k, they waited a few days and then they came back to us and said “Okay, we’ll take your 200k deal.”

And at the time we wanted to delay the closing a little bit because of our job situation… I was switching jobs and I wanted to make sure that that was secure beforehand… So I asked them for a 90-day close, and the 200k price, and they agreed to that. And then eventually, down the road, during the inspection we realized there was foundation issues, and also the appraisal came in lower at 195k, so they agreed to the 195k price. We closed 30 days sooner than they originally asked for, and they paid the 5k foundation repairs; they put that in escrow for us. So we ended up with a much lower price.

But all of our properties – we’ve acquired them at least 10k below what it was listed at.

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

Elenis Camargo: Yes.

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

Break: [00:24:22].26] to [00:25:13].17]

Joe Fairless: Best ever resource that you use in your business?

Elenis Camargo: I would say people. I talk to a lot of people, I learn from a lot of people, and I teach people as well. So I would say this is a people business, and it’s really important to learn from each other and help each other out.

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

Elenis Camargo: I would say the same way I talk to a lot of new investors, I write a lot of content, a lot of blogs, and I have a newsletter, so I like to give back to the real estate community by writing the knowledge that I’ve acquired over the past few years, and then a lot of new investors reach out to me and ask me questions, and I pretty much give them my time, just as I would have wanted someone to do for me when I was starting out.

Joe Fairless: And on that note, how can the Best Ever listeners learn more about what you’re doing and read that content?

Elenis Camargo: Sure. So they can sign up to our newsletter on our website, which is ThirdStoneProperties.com. They can also follow me on Instagram @investoremc. I post on there regularly and share our content on there as well.

Joe Fairless: Thanks for talking about how you’ve built your portfolio remotely, sight unseen, and how you have built your team on the ground to help you execute on those projects… And then how you got creative with a business partner to continue to grow the portfolio.

Thanks for being on the show. I hope you have a best ever day.

Elenis Camargo: Thank you so much.

Joe Fairless: Yeah, I enjoyed it. And talk to you again soon.

Elenis Camargo: It was great being on.

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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JF2124: Beginner Tyler Caglia Shares 5 Steps In Investing Out of State

Tyler has always been interested in investing in real estate but living in California he has always felt like it was tough to do so since the houses were so expensive. He recently discovered and consumed Joe’s show and Bigger Pockets content and afterward has quickly started investing in long-distance single-family homes in Ohio. He shares his 5 step process on how he goes about investing.

Tyler Caglia Real Estate Background:

  • Full-time project manager managing multi-million dollar projects for a civil construction company
  • Has been investing for 10 months
  • Currently owns 3 long-distance single-family rentals based in Ohio
  • Based in Clovis, California
  • Say hi to him at tcagliareiATgmail.com

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“If you over analyze everything and overthink it you will never finish your first deal.” – Tyler Caglia


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Tyler Caglia. How are you doing, Caglia?

Tyler Caglia: Good, Joe. Good to be here.

Joe Fairless: Well, I’m glad to hear that, and it is nice to have you here. A little bit about Tyler – he’s a full-time project manager, managing multi-million-dollar projects for a civil construction company. He’s based in Clovis, California. He’s been investing for ten months. He currently owns three long-distance single-family rentals. Based in Ohio. With that being said, Tyler, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Tyler Caglia: Yeah, Joe. So I’ve always been interested in real estate, but living in California, as we all know, it’s very expensive and the conditions can be unfavorable for landlords… So about a year ago I discovered the Best Ever Podcast…

Joe Fairless: I recognize that…

Tyler Caglia: Yeah. As well as Bigger Pockets… And I read, as everyone seems to do, Rich Dad, Poor Dad. I was hooked from there. So I kind of realized how accessible real estate can be, and I was determined to jump in, and right away started buying long-distance properties. Ten months later, I’ve got three in Columbus, Ohio.

Joe Fairless: So talk us through how you ended up there.

Tyler Caglia: I’ve kind of got a five-step strategy that I outlined a little bit.

Joe Fairless: Oh, nice!

Tyler Caglia: Not just for finding Columbus, but just for deciding on my strategy overall…

Joe Fairless: Okay, please. Yeah, good.

Tyler Caglia: So I kind of started with education, obviously, which there’s plenty of great books out there, podcasts, like I’ve already said, and I’ve done a lot of research… I identified a strategy; that was my second step. With California being so expensive, I wanted to go long-distance. I think most people are familiar with the BRRRR strategy, which I felt like was attractive… And I wanted to self-manage before I hired a property manager, so I can understand the whole process and what I’m looking for.

For funding, I took out a HELOC on my primary residence.

Joe Fairless: Okay. Are we still on number two, identify strategy, or are we on three, funding?

Tyler Caglia: Alright, so number three would be funding.

Joe Fairless: Okay.

Tyler Caglia: So I took out a HELOC on my primary residence…

Joe Fairless: Alright… And how much was the HELOC for?

Tyler Caglia: I’ve found a HELOC that was 100% loan-to-value. I ended up getting — due to some natural and forced appreciation of my personal residence, I was able to get one for 100k. So that was really cool. It took a while to find a lender that would do that, but once I did, it was a pretty easy process.

Joe Fairless: Let’s talk about that a little bit, and then we’ll go to four… Natural and forced appreciation on your primary residence – what did you buy it for? And I assume it appraised for 100k, since it was 100%…?

Tyler Caglia: Well, they allowed me to go up to 100%. So I was at about 80% with my primary mortgage.

Joe Fairless: Oh, got it.

Tyler Caglia: So the HELOC covered that other 20%.

Joe Fairless: Okay. So you got 20k.

Tyler Caglia: No, sorry – so basically my balance due on my mortgage was about 240k. My home appraised for 340k.

Joe Fairless: Understood. Every other person who’s listening was understanding it except for me, so it was my bad. Got it. So you have a 100k line of credit, and you had a mortgage on it, and the line of credit allowed  you to go up to 100% of the loan-to-value. In this case it was like 240k to 340k, right?

Tyler Caglia: Exactly, yeah.

Joe Fairless: Alright, cool. I’m with you. So you said that there’s forced appreciation… What did you do?

Tyler Caglia: So with my construction background, I’ve kind of utilized that to do a lot of — and I know it’s more difficult to do forced appreciation for a single-family home, but we’ve done a lot o upgrades around our house that really helped when we got it appraised. We basically got it appraised for the highest dollar per square foot in the neighborhood, essentially…

Joe Fairless: Oh, nice job.

Tyler Caglia: So that’s how we forced it.

Joe Fairless: But let’s talk specifics. What exactly did you do at that house to force the appreciation?

Tyler Caglia: A lot of basics – paint, updating light fixtures, new baseboard…  That kind of stuff goes a long way. We also completely redid the backyard, redid the bathrooms… I’d say overall we probably put 30k or 40k into it, and we got every bit of that back in the appraisal.

Joe Fairless: How much did you buy it for?

Tyler Caglia: 275k.

Joe Fairless: You bought it for 275k… And how much did you put into it, would you say? Approximately 30k?

Tyler Caglia: Let’s say 35k.

Joe Fairless: Okay. I apologize, you just said 30k — so 30k to 35k, got it. So you put in about 30k-35k, and you bought it for 270-what?

Tyler Caglia: 275k.

Joe Fairless: 275k. Quick math, 305k, and it appraised for 340k.

Tyler Caglia: Yeah.

Joe Fairless: And some of that was the neighborhood appreciating over the period of time that you owned it, and then another part of it was just being the best house in the neighborhood, and the proof in the pudding is it was valued at a higher price per square foot than any other home in the neighborhood.

Tyler Caglia: Essentially, yeah.

Joe Fairless: Cool. Congratulations on that. You said that finding a lender to give you a HELOC for 100% of the loan-to-value was challenging… And I’d like to know – and I’m sure a lot of listeners would – how did you find that lender?

Tyler Caglia: Most lenders wanna go up to 80% max; there’s some that would go up to 90%. Honestly, I used Google and just kept calling, and this credit union in San Diego happened to have a 100% LTV program. I’m sure there’s others out there, but this is the one I was able to find that would lend to a property in California.

Joe Fairless: How many phone calls did you make?

Tyler Caglia: Dozens… I spent probably a couple weeks, because I knew [unintelligible [00:09:07].03] heard of it, but it’s one thing to know that it’s out there, but it’s another thing to actually find it. So I’d say I spent a couple weeks just googling and calling, and then I found it and it was super-easy from there. I’ve referred them to quite a few people now.

Joe Fairless: In your case, it’s easy math – it was the difference between if it’s 90%, $10,000; if it was 80%, then it was $20,000. Right?

Tyler Caglia: Yeah.

Joe Fairless: So you got that line of credit, and then what did you do with the line of credit? And I understand that we’re still going through your five-step process, but I’d love to hear what you did exactly with that 100k once you had access to it.

Tyler Caglia: I essentially used that to buy my first rental… So using a HELOC when you’re buying a property – it’s essentially the same as cash. So I used that to purchase my first rental in Columbus outright.

Joe Fairless: Okay. And what are the numbers on that? Purchase price, renovation costs, what’s it rent for, what’s the value of it?

Tyler Caglia: The first one’s a three-bedroom/one-bath, with a garage, that we found  on the MLS. They were asking 65k, and this was actually on day one of looking for a property. So I just by chance got lucky. They were asking 65k, and my realtor said “Hey, this one’s gonna go fast. If you want it, you should probably offer more.” So we offered 71k, they accepted the next morning. Rehab was about 18k, and it appraised for about 107k once I refinanced it six months later.

Joe Fairless: Wonderful!

Tyler Caglia: Yeah.

Joe Fairless: You said six months later; okay, got it. Six months later, you’re done with the rehabs, and it appraises for about 10k-15k more than what you’re all-in at?

Tyler Caglia: Yeah.

Joe Fairless: Okay, cool. Congratulations on that, right out of the gate. It’s day one of looking on the MLS and you’re making not only your offer, but you’re making an offer higher than what’s being asked for the property. Any thoughts going on in your head at the time, like “Wait a second… What am I doing here? I’m making an offer day one of looking. One, am I jumping the gun? And two – listen, I see that you want 65k, seller, but I’m gonna hook you up with 71k.” Any alarm bells going off? And it ended up being a good deal, it sounds like, but any internal dialogue that you had about that?

Tyler Caglia: Yeah, absolutely. Of course, it can be nerve-wracking to buy something that really I’ve never seen. My realtor – he’s fantastic. He walks through it and sends me a very detailed video as he walks through the property and kind of points everything out, and then we come up with a rehab budget… But ultimately, you’ve gotta be prepared to just kind of make that decision on the spot. If you over-analyze everything and over-think it, you’re never gonna known out that first deal, and you’re never gonna get to that second deal.

So eventually I had to take that leap of faith and realize that I’m dealing with a realtor that I had known at that point for at least a month; he has fantastic reviews on Zillow, Realtor… Anywhere you can check, he’s got five stars, with hundreds of reviews and dozens and dozens of recent sales. So at some point  you’ve gotta realize that somebody with that kind of a reputation is mostly likely not going to risk that reputation to make a couple thousand bucks on a commission. Not to say it doesn’t happen, but that was kind of my thought process, that at some point I have to trust that his advice is solid, and my research is solid, and I’ve just gotta take that leap of faith. I knew the market was hot, and I wanted that first deal, and at 71k I knew it was still a good deal.

Joe Fairless: Earlier you said “we”. When you said “We were looking at the MLS”, was that you and your real estate agent, or was that you and your business partner, significant other…?

Tyler Caglia: My agent.

Joe Fairless: Your agent, okay. And are you single?

Tyler Caglia: No, I’m married.

Joe Fairless: So what was the conversation like with your significant other? “Hey, I’m gonna look at properties today. Oh, I’m gonna buy a property. Oh, I’m gonna make an offer more than what’s being asked for this property,  and as you know, we’re gonna use the equity we have built up in this house to purchase it.”

Tyler Caglia: So it’s a crazy process, especially buying it with HELOC, or essentially cash… You sign everything over DocuSign, essentially. It’s not like a typical mortgage where you have a notary… So it’s crazy. You’re buying a house and you’re just doing these electronic signatures… It’s a crazy process. And she trusts me… I had done a lot of research, and she knew that I kind of knew what I was looking at, and I had found the best realtor I could essentially find, who owns dozens of his own rental properties; so a rental property is nothing new to him. Eventually, she trusted me and I trusted the process and I trusted my agent, and we just kind of went for it.

Joe Fairless: Step one, learning. Two, identity strategy. Step three, identifying where or how you’re gonna fund the property. What’s step four?

Tyler Caglia: So step four was where I found the market. I’ve had a lot of new investors reach out to me on Bigger Pockets especially, saying “This is where I can tell they get stuck.” They get stuck in analysis paralysis. And in my opinion, a lot of times they over-analyze this part, identifying a market. I’ve heard people say they identified thousands of markets, and this and that… And to me, that’s more important the bigger you go, but for single-family homes I think you just need to stick to some of the basics… Because in reality, that home is surrounded by other property owners, and you can do all the research in the world, but nobody knows exactly what that neighborhood is gonna look like in 20 years. You don’t have the kind of control that you would with an apartment complex.

So I tried to stick to the basics. Priority number one was a price to rent ratio – I wanted that strong cashflow, so I started just basically networking and doing some basic research to identify where are people talking about the cashflow is. And then I would kind of follow up by just looking at some basic data of what are homes selling for and what are they renting for.

And then of course, overall you wanna look for good employment and population data. You obviously don’t want it to be dependent on one industry. Columbus seemed to be strong in that aspect. I wasn’t too concerned about long-term appreciation right now, and in the Midwest typically you’re not gonna find that as much. So from there I kind of narrowed it down to 5-10 markets pretty easily… And finally just kind of picked one and jumped in.

I was looking for neighborhoods with low crime, B- to C ratings, and then I wanted to be all-in for over 100k.

Joe Fairless: Now, one follow-up question I should have asked you about that property that you bought with the home equity line of credit – I asked you the numbers, we talked about how much you bought it for, how much you put into it… You bought it for 65k, you put in about  18k, what it appraised for afterwards… But what’s it rent for?

Tyler Caglia: It rents for $1,150, and it’s a good neighborhood. The renters that I’m getting – they work for banks, and solid jobs like that. So it’s a cash-on-cash return, plus or minus 28%. After expenses, I’m cash-flowing about $350.

Joe Fairless: Amazing. That is a good cashflow. So how do you think about that with your line of credit? Because you did buy it all cash… So if you look at “Hey, I’m making $350 on that amount of out of pocket”, your cash-on-cash return from that standpoint is not as strong as if you had leverage.

Tyler Caglia: Yeah, so that doesn’t take into account that the money came from a HELOC. Exactly. That’s a great point.

Joe Fairless: Any plans to refinance that out into a loan and get access to that HELOC money again?

Tyler Caglia: Well, I guess I never explained — so when I refinanced at six months, I then paid off the HELOC.

Joe Fairless: Oh, got it. Okay, cool. Good.

Tyler Caglia: Yes. So during that six months I was putting my own cash, paying off the HELOC to the point where when I refinanced, essentially my HELOC was whole again. So in reality I did have essentially my own cash in the deal. It ended up being about 12k or 13k overall. So at 25%-28% cash-on-cash – I’m pretty happy with that.

Joe Fairless: I think everyone would be pretty happy with that. Nice work. So what are the numbers on all three of the properties? We talked about the first one, so you don’t have to talk about the first one.

Tyler Caglia: Yeah, so what’s funny – you asked about whether it was nerve-wracking buying more than they were asking… That was actually my best deal. The second and third are pretty close… The second one – again, we found it on the MLS. They were asking 69.5k and we bought it for 69.5k. We put about 17k into it. I’m refinancing it now, and it should appraise for about 110k. And I’ve got a renter in there for $1,125. And again, cashflow after expenses is about $350/month.

Joe Fairless: And the third one?

Tyler Caglia: The third one – that one’s a little trickier. So all three of these are 3-bedroom/1-bath. This one we got from a wholesaler. He was asking 80k, we bought it for 77.5k. It’s occupied, and I’ve had to put about $1,000 or so into it. They needed a new fridge and some smaller repairs. I’m refinancing that as well, and it should appraise for about 100k.

My problem there – and I realize how difficult it is to take over an occupied property… He was only paying $580/month, and the market rent is about $1,000. They’re on a fixed income, so I’m trying to raise it slowly, hopefully to $800 or so shortly, and then I’ll try to raise it at 10% or so after that per year. So once I get it up to market rent, I’ll hopefully cashflow about $300/month… But right now I’m kind of breaking even.

Joe Fairless: 3-bedroom/1-bath for all three of them… Why that setup, instead of say 4-bedroom/2-bath?

Tyler Caglia: We’ve put in offers on some 4-bedroom/2-bath, and I think the cashflow would be even better… I just haven’t been successful yet, for some reason, in this area. In Columbus there’s a substantial amount of 3-bedroom/1-bath homes, which I’m not used to as much; at least it seems like in California you see a lot of 3-bedroom/2-bath… But yeah, that’s just kind of the hot spot right now, what we’ve been successful with.

Joe Fairless: What’s step five of  your strategy? Steps 1) learn, 2) identify strategy, 3) funding, 4) market… What is five?

Tyler Caglia: Five is finding the team. That’s what I found with my real estate agent. One of my favorite quotes from David Green, “Rockstars know rockstars.” That couldn’t be more true, at least from my experience. My agent introduced me to a great lender, and then I’ve also been introduced through other investors to a good property manager that I’ve recently hired… And it’s been good.

Joe Fairless: You’ve found the agent through what method?

Tyler Caglia: Essentially just on Zillow, actually. I said I’m gonna go ahead and just try to call the highest-rated guy I can find, and go from there. Zillow shows you who has the most recent sales and the highest ratings in the area, and he kept popping up, so I said “He probably won’t be able to take me on right now, but I’ll give him a call…” And we just kind of clicked. I had a good strategy in mind, and he saw that, and he kind of had a good idea of what I was looking for, and it worked out great.

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

Tyler Caglia: I would say don’t overthink it when starting out. Think of the first few properties as the learning experience and look for base hits. I wouldn’t say any of my deals have been home runs, but the amount I’ve learned is unbelievable, and my cashflow is stronger than expected. If I had been waiting for the perfect deal, I’d probably still have zero properties right now.

Joe Fairless: Based on what you’ve learned, how would you approach deal 1 differently, if presented the exact same thing now?

Tyler Caglia: I don’t know that I would change deal number one. Funny enough, but I think —

Joe Fairless: Deal number three, the tenant? [laughter]

Tyler Caglia: [unintelligible [00:21:40].26] Deal number one, I think the biggest thing was the six-month seasoning for the cash-out refi. I’ve since done a lot of research and figured out a way around that.

Joe Fairless: How?

Tyler Caglia: From what I’m told, it’s essentially put the rehab price on the settlement statement, you put it on the purchase side, on the seller’s side. Because when you do a cash-out refi, essentially you can refinance out what you purchased it for. So if you put the rehab on the purchase side, you can refinance out the purchase price and the rehab. That’s yet to be done, but on my next purchase that’s what I’m hoping to do, so that I can refinance it out as soon as I finish the rehab.

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

Tyler Caglia: Yeah.

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

Break: [00:22:31].23] to [00:23:22].19]

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

Tyler Caglia: Funny enough, when I got asked to do this podcast, I had just finished your book, The Best Ever Apartment Syndication Book. It was fantastic.

Joe Fairless: I’m glad to hear that. What is the best ever way you like to give back to the community?

Tyler Caglia: I’ve been networking a lot recently, sharing the numbers for my first three deals with new investors, and a lot of them have reached out to me, private-messaged me, and I’ve been trying to give back in that way.

Joe Fairless: On that note, how can the Best Ever listeners learn more about what you’re doing and get in touch with you?

Tyler Caglia: You can find me on LinkedIn, Instagram, or even preferably just email me, tcagliarei@gmail.com.

Joe Fairless: Tyler, thanks so much for being on the show, talking about your 5-step process for how you get started, and put idea to actually action, and then the lessons you’ve learned on each of the three purchases, how you got creative… And quite frankly, just you make it happen with what you want to do, from Google searching, and continuing to call the credit unions until you find one that is what you’re looking for with the line of credit, to just taking a very practical approach of “Hey, I’m gonna find the best agent rated on Zillow, I’m gonna call him/her and I’m gonna try and work with them.” That makes a lot of sense. It’s very practical and logical, but you also have to have persistence, and you clearly show that… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Tyler Caglia: Yeah. Thanks, Joe. I appreciate it.

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JF2120: Jumping In The Market With Patrick Menefee

Patrick served in the army for 6 years and is the founder of Invest DGP. Patrick started investing in June of 2019 and has acquired 12 units. Patrick is very open to sharing some of the hard lessons he learned from jumping in the market quickly and how he was able to improve his units and double his rent collections. 

 

Patrick Menefee Real Estate Background:

  • Founder of Invest DGP
  • Served in the Army for 6 years
  • Started investing in June 2019
  • Owns 12 units
  • Located in Charlotte, North Carolina
  • Say hi to him at : https://www.investdgp.com/ 

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Never have your inspector and appraiser go out to your property at the same time.” – Patrick Menefee


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, Patrick Menefee. How you doing, Patrick?

Patrick Menefee: Hey, Joe, I’m good. How are you?

Joe Fairless: Well, I’m doing well and looking forward to our conversation. A little bit about Patrick – he’s the founder of Invest DGP, he served in the Army for six years – so thank you, Sir, for that – and he started investing in June of 2019. He owns 12 units, and he’s located in Charlotte, North Carolina. So with that being said, Patrick, you want to give the Best Ever listeners a little bit more about your background and your current focus?

Patrick Menefee: Absolutely. Thanks, Joe and thanks for having me on. So like you mentioned, six years in the Army right out of college, and then I ended that in about February 2018, transitioned into financial services consulting, working with banks, financial institutions, traveling every week for the last two years. As I moved and transitioned to Charlotte, that was when I realized that I wanted to get involved in real estate in some facet or another; I just wasn’t quite sure what. So I turned 30 towards the end of 2018, and that was when I started setting some goals for myself, realized what I wanted to get to, and I spent a lot of time over the next six to seven months doing a lot of education, networking, listening to podcasts, meeting as many people as I could, reading all the books that I could get my hands on… And it was in, as you mentioned, June of the following year 2019 that I really decided to start taking action, and then within about five weeks, I had 10 units under contract. They were all small multifamily; one of them a fourplex, another one was a portfolio of three duplexes that were all side by side. The fourplex, I did it down by myself and then the duplexes were all with a partner.

So once I had a little bit of a foundation, once everything was– I actually made a decision to take action. Everything happened rather quickly after that. So as you mentioned, now I own 12 by the end of the year. The other two units are also small multifamily with a partner as well, and that’s really been my focus right now. It’s been small multifamily property. Ultimately getting into some of the bigger commercial, but primarily small for right now.

Joe Fairless: You were doing a lot of education, and then when you decided, okay, now it’s time to rock and roll, in five weeks, you had 10 units under contract. What was the tipping point where you made the decision now it’s time to go buy some property?

Patrick Menefee: Actually, I’d purchased my own primary residence back in March, and the company and the guy that I bought it through, they were having a networking event. I still remember the day; it was June 6th, and I was networking with people, talking to some people. I had my plan initially, which was going to be to use the VA loan and [unintelligible [00:05:36].02] houses and slow roll it and live in a house for a year, rent it out; that was my plan, and maybe pick some up along the way that made sense. But there was one couple that I was talking to. I can’t even tell you exactly what they said, but it was the exact conversation that hit me, and I realized that they had a couple of condos that they were renting out. They were actually doing what I wanted to do, and something right there just really kicked me and said, “Why aren’t you just taking action?” After that conversation, I doved in, and that was when I found– I actually had the fourplex. I technically didn’t get under contract until July, but I found it about a week later and started the negotiations with the seller. So it happened very quickly.

Joe Fairless: Okay. So it sounds like you had just built up knowledge and things were bubbling, bubbling, bubbling, and then there was some breaking point, and perhaps in retrospect, it’s an insignificant conversation. Maybe it was similar to other conversations that you had previously, but you were just ready. It was just that time and this conversation just happened to be at the right point and place and time where it just made you have that decision.

Patrick Menefee: Yeah, it definitely did. I probably had some more conversations, five or six times a month before that, but that one just did it.

Joe Fairless: Well, let’s talk about your purchases, those 10 units. You did the fourplex yourself, you said, and then you got three duplexes side by side with a partner. How did you structure those transactions with the partner?

Patrick Menefee: It was interesting. It was a mix of– by accident when that finally worked out, and then just some overall planning. I was looking for a partner on it, and I’d been doing a lot more networking and branding to let people know what I was doing. So as a result, some people from work were interested in working together on a deal.

So I was talking to one of my really good friends that I was in the army with, and we were talking through some of the options for how I might split this up and how I might pull off a partnership with him, especially because the guy was going to be someone out of state, was primarily just going to be investing cash. We worked out some terms that we thought made sense, and then at the end of it, I could work with this guy, but I didn’t even think to ask, “Do you want to do this and do you want to get involved instead?” and he said, “Sure.” So we worked out the terms, he brought the majority of the cast to it, and I did everything else. So it ended up– because it was six units, and this was something I wasn’t totally prepared for at the time, but since it was six units, I couldn’t get a conventional mortgage, so I had to get a commercial loan; and then on top of that, the way that we worked out the negotiation, the way we worked out the partnership was he was providing the majority of the cash, but I was going to be primarily on the loan. So that was not something that I could typically do going through most of the normal Fannie/Freddie loans, because if you provide that money, it either needs to sit in your account for two months, or it needs to be from someone who’s also on the loan. So we structured it that way, and then we split the equity accordingly. Me doing all the management and all of the activities and all of the primary effort and some of the bigger portions, but we worked it out in a way that worked out perfectly for both of us.

Joe Fairless: Reminds me of the saying, “If you ask for money, you get advice. If you ask for advice, you get money.”

Patrick Menefee: I have to write that down. It’s a good one.

Joe Fairless: That’s what happened here, right? You’re asking him for advice, and you got money.

Patrick Menefee: Yeah, that’s absolutely what happened.

Joe Fairless: Well, you said you got a larger portion of– is it each of the three deals based off of your responsibilities?

Patrick Menefee: Yeah, it’s very close to 50-50, but yeah.

Joe Fairless: How do you structure it? So 60-40?

Patrick Menefee:  It’s 55-45.

Joe Fairless: Okay, got it. Very close.

Patrick Menefee: Yeah. We, on this one — it worked out really well. We said– based on the fact that I was going to be doing all the work, we set the all-in cash as a percentage of the investment. So we said, “50% of the investment is going to be for the cash. So if you bring 100% of that, you get 50% of the deal. If you bring 50% of that, you get 25% of the deal.” So that was how we worked it out. He brought 90% of the cash and got 45% of the deal.

Joe Fairless: With the three duplexes – are they located in Charlotte?

Patrick Menefee: They’re just North of Charlotte. They’re about 45 minutes north in Statesville, North Carolina.

Joe Fairless: Okay, and what about the fourplex?

Patrick Menefee: That one’s just west. All of mine are just surrounding the Charlotte area, just because multifamily is hard to come by with solid cash flow within Charlotte. So the fourplex is in Gastonia.

Joe Fairless: Okay. How did you come across the fourplex?

Patrick Menefee: It was on the MLS, actually. It had been sitting on the MLS for almost six months.

Joe Fairless: Why do you think it wasn’t snatched up?

Patrick Menefee: As I’m still dealing with it, because it was a nightmare. They had it listed way too high. It was an older couple that had a large portfolio that they were selling. So this was one of them. They had it listed at $210,000. I ended up– after negotiating with them, I ended up getting it down to $160,000, which was fantastic, but they [unintelligible [00:10:29].22] did $210,000. Yeah, I think that was a big part of it, too. A lot of people saw $210,000 and said, “Absolutely not. I’m not interested in that,” because it was way overpriced at that, but at $160,000, it worked out. So I think that was a big part of it; and it’s also a 100-year-old house. They didn’t take care of it all too well. It just got neglected over time, and it was an old farmhouse that got converted into a fourplex. So it was the perfect storm of not too great, but a great opportunity.

Joe Fairless: So, talk to us about some challenges that you’ve had with it?

Patrick Menefee: Oh boy, where do I start? How long did you say we have? [laughs] I had problems from the acquisition part initially, not even getting into what the house was. So after I got it under contract, I started going through the due diligence process. I got it under contract at the beginning of July and was supposed to close at the end of July; I wound up closing on September 13, instead of July 29. Yeah, I almost lost the deal a couple of times. I had four closing dates scheduled and I had three different appraisals done.

Joe Fairless: What’s going on?

Patrick Menefee: The first time around, the first appraiser, I learned one very important lesson that I will, at any point, share with as many people as I can, and that’s – never have your inspector and your appraiser go out to the property at the same time. I now will base all of my properties around that, because the inspector looked at some of the stuff at the house. He was just having a casual conversation with people that were around them, pointed out a bunch of problems…

Joe Fairless: They love to talk.

Patrick Menefee: But he happened to point–

Joe Fairless: They love to share their knowledge.

Patrick Menefee: Yeah, and he’s a great guy, and he’s inspected all my properties, but he just said it to the wrong guy.

Joe Fairless: Yep. He was doing his job. He was inspecting the property and documenting everything, right?

Patrick Menefee: Yeah, absolutely. Unfortunately, the appraiser also documented that. So I had it under contract for $160,000, and he appraised it at $160,000, but he appraised it as– I think it was a C4 or a C5, so it was in too poor of a condition for banks to loan on; and I went in the inspection report, and it wasn’t like he cited specific things, he just cited comments from the inspector. So aside from getting it reappraised, I couldn’t go fix a certain thing and then get it back. So I went a different route, got a different appraiser. The next appraiser did the inspection. I actually went out and got the inspection done, and then no one ever heard from him again; just fell off the map. Very strange.

Joe Fairless: That is very strange. Okay…

Patrick Menefee: And then I finally got a third one. He did do the inspection; was very slow about all of it. He actually submitted the report, but when he submitted the report, he left the address off, which then took another week to get.

Joe Fairless: Goodness gracious!

Patrick Menefee: I don’t know how he left the address off of the report. Yeah, that could have been a sign upfront of things to come… But finally got it closed. It had tenants in it, which I thought at the time was a good thing, because I could go one by one and keep producing cash flow while rehabbing each one of the units. That turned out to be a huge problem. I evicted two of them. Dealing with the units themselves has been definitely challenging just because of how poorly they were taken care of, and then one of the tenants, on the way out, she, I think, I would say out of spite, she never registered any maintenance requests or anything like that, but on her way out, she called the city and registered a complaint. So I had a city inspector out there and all that stuff.

Joe Fairless: What was the complaint?

Patrick Menefee: It was just a general complaint of code violations. I had interacted with her before when I was out there doing some other work, and she had also said in other cases, she had talked about the lease and said how the lease was full of landlord-tenant violations. I have a other property manager that manages all of that, and I was asking her about it. It’s not something that we want to do… What’s wrong with it? What do we need to do? She said, “Well, it’s just old.” So it’s one of those lessons in dealing with tenants. So there’s nothing that’s ever going to be right.

Joe Fairless: Yep, some people you can’t please, no matter what.

Patrick Menefee: Yeah.

Joe Fairless: Alright. So where are you at with the business plan right now?

Patrick Menefee: Overall, on the six units, we initiated the refinance yesterday.

Joe Fairless: On the three duplexes?

Patrick Menefee: Yes.

Joe Fairless: Right. No, I’m talking about the fourplex. You were talking about the fourplex before, right?

Patrick Menefee: Oh, I’m sorry. Yeah, I’m sorry. When you said the business, I thought you meant overall.

Joe Fairless: Oh, sorry, yeah. So with the fourplex, where’s the business plan at?

Patrick Menefee: That one, I have two units that the rent has been increased. I made modest updates to them. I would eventually like to go in and do a little bit more, but kept the current tenants in and got a pretty good ROI on the improvements that I did make. I almost doubled the rent for each of those two units.

Joe Fairless: Tell us the numbers, please.

Patrick Menefee: Yeah, so when I took over, all four units were at $350 a piece. So $1,400 dollars a month total rent. I’m now getting from the two units that I did — I put a probably about $3,500 into those two units, and increased rent to $1,350 between the two. So pretty solid return on investment.

Joe Fairless: Wait, I want to make sure I’m hearing that right. You put in $3,500 per unit, correct? So $7,000 total?

Patrick Menefee: No, no, I’m sorry. $3,500 total.

Joe Fairless: Okay, even better. So you put $1,750 total, and… Let’s just do unit by unit. That one unit is now renting for how much more?

Patrick Menefee: One unit is up to $650. The other unit’s up to $700.

Joe Fairless: Wow, that’s incredible.

Patrick Menefee: Yeah, it’s a pretty solid return on investment.

Joe Fairless: Yeah, so let’s just do the $700 one. So that’s doubling your rent from $350 to $700. Wow, it’s quite the increase. If you hadn’t improved those units, and you just turned them over to a new tenant, could you have increased the rent at all from $350, and if so, by how much?

Patrick Menefee: Yeah, I could have. I probably could have turned them to about $500 or so.

Joe Fairless: There was already value-add built into it.

Patrick Menefee: Yeah, there absolutely was. Those units had been– I mean, I think the rent had been kept the same for– I can’t even speculate. I have no idea– for a very long time; that hadn’t been touched in a while. So there was definitely room to start with.

Joe Fairless: Nice. So you increased the rent $350 and you put in $1,750, correct?

Patrick Menefee: Yes.

Joe Fairless: So that’s 20% return on those renovation dollars. Nice job.

Patrick Menefee: Yeah, I can’t really complain about that. The other ones are getting to be a little bit more — and the one thing that I will say as a caveat is because they are lived in, there was a lot of stuff that I wasn’t doing. So I didn’t rip out and replace all the cabinets. I just updated what was there, and did some stuff in the bathroom, and replaced flooring where I could and all that stuff. But doing a full sweep of it, it will definitely, when I eventually get there, it’ll cost a little bit more, but it’ll also further increase rent by probably another $50 to $100 a month.

Joe Fairless: That area supports those additional rent increases?

Patrick Menefee: Well, I guess, given the current situation, I don’t know how much rent increases are gonna happen, but generally, yes.

Joe Fairless: Okay, got it. Well, now I interrupted you on the financing for the three duplexes. Will you pretend I did not interrupt you? What were you saying about that?

Patrick Menefee: Yeah, sorry about that. We had gone through the commercial loan — because they were all three on the same property when I bought them, the first thing that I did was subdivide them. So they’re all each on their own property now, and that way, I have a lot more flexibility if I need to sell one off to recoup some cash or whatever I need to do. So I’m refinancing them also into a 30-year fixed. So I initiated a refi last night; it’s definitely not a full BRRRR. Neither of them are going to be. Definitely not going to pull out everything that I put into it, but on this one, and especially that the six units, because I only put in 10% of the down payment to start with, I’m not going to see personally a big return, but I’m going to get my investor about somewhere between $15,000 to $25,000 back. I know that’s a– I had to give him a range, but with the whole electronic appraisal and everything that they’re doing with the virus, I’m less confident in my numbers now than it was a couple of weeks ago.

Joe Fairless: Yep, and just for the Best Ever listeners, we are recording this in the middle of the Coronavirus pandemic. So I recognize that this episode airs many months after we actually record it. So when he says virus, that’s what he’s referring to.

So the interesting thing that I heard, or one of the interesting things that I heard from you is that one of the first things you did was subdivide the three so that you have more flexibility. I thought I heard you say that you got a commercial loan on it initially. If I heard that correct, how did the conversation go with the lender where you said, “Hey, I know I’m getting this commercial loan, but I actually like to subdivide it and break it up”?

Patrick Menefee: That’s a great question. The one that I used is a regional lender. So I had the conversation with him upfront. I let him know what ultimately I was trying to do, and weighed out essentially the full roadmap. I’m looking to purchase these, I’m looking to subdivide them, I’m looking to rehab them and then ultimately look into refinance into a fixed loan. So I’ve had multiple conversations with a lot of different lenders before I settled on this guy, and a lot of places weren’t okay with it and understandably so, but as long as– it was, as long as when I refinance, everything is done at the same time, and they’re made whole on the back end, everything was A-OK.

Joe Fairless: What gave you the idea to subdivide?

Patrick Menefee: That’s a good question. I knew the conventional 30-year fixed route, and I knew that that was a way to get there. So that was really the only plan that I really had all along. But as far as what triggered it out at the very beginning, I think it was just because that was mostly what I knew, and I realized that it was a possibility that would likely add value, but also give me a lot of flexibility.

Joe Fairless: Absolutely. In my opinion, it’s an advanced thought process for you to think that way. So bravo to you on that, and it’s always good to have more flexibility than less, and especially if you can get more favorable residential financing even better… And get some of your money back out. I mean, there’s so many instances — and I would guess that more than 50% of investors would miss that part of the process and not subdivide; first off, not think about it, and then secondly, if they thought about it, not go through the process that’s required in order to subdivide. So bravo to you on that.

Patrick Menefee: Well, I appreciate it. I think that’s one of the big takeaways for anybody. I had no experience with subdividing, I had no idea what I was doing, but everything is easy enough if you just start taking action and figure it out. So I made a couple of calls and I started asking people and–

Joe Fairless: Who was your first call?

Patrick Menefee: I called my real estate agent and asked him if he knew anybody that did subdivision or anybody that he had worked with as a surveyor. Then next call after that was to the city to ask them what they recommended and what needed to be done.

Joe Fairless: And then who ultimately was the point person that you got a lot of help from?

Patrick Menefee: Everything after I had that initial conversation with the city planner, and she just laid out what needed to be done, I used the contact that my real estate agent gave me, who was a surveyor, and he took care of everything. He went out, and about the only involvement that I really had– my initial thought was, I didn’t even necessarily know if I wanted to separate all three individually, and I wasn’t sure if I could because of some of the setbacks. So we had a couple of conversations on that and he just showed me some of the property lines from before – because it used to be split as well. So he showed me some of those options and said that we can just revert back to what it was; and not only did I get all three split out, but I also saved money from what I thought I was going to pay, because he just went back to the previous one. So credit the enemy, did a great job and took care of all that for me.

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

Patrick Menefee: I think the biggest thing is what I mentioned before, just dive in and start taking action. You can spend all day trying to figure everything out like I did before, but the second that you jump in and decide to start taking action, a whole different world opens up to you and you learn a lot as you go.

Joe Fairless: We’re gonna do a lightning round. You ready for the Best Ever lightning round?

Patrick Menefee: Yeah, let’s do it.

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

Break: [00:22:48]:05] to [00:23:41]:04]

Patrick Menefee: Best ever book you’ve recently read.

Patrick Menefee: Tribe of Millionaires. I just finished it a couple days ago. I read it about two hours, couldn’t put it down. Speaking about the importance of accountability and mastermind and really being involved in something bigger than yourself. So it’s got me on the path to start some accountability groups.

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

Patrick Menefee: On that fourplex, the one thing we didn’t talk about is I didn’t listen to what the inspector said. I think I got a little bit excited and blinded by the first deal and the numbers on paper. His recommendation was to get everybody out there, all the contractors out there, plumber, roofer, electrician, all of that. I didn’t end up getting all that stuff ahead of time, and now I’m working through all those pieces as I pull some of the other two units apart. So definitely not listening to an inspector.

Joe Fairless: Best ever deal you’ve done so far.

Patrick Menefee: I think those three duplexes have got to be the best one. They’ve produced consistent cash flow the entire time. Having six units, if I have a vacancy, I’ve got five other units to cover it up, and it’s really been a very solid investment and a very good learning experience between the subdivision, the partnership, the commercial loan, the refinance. I’ve really run the full gamut on that one.

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

Patrick Menefee: Probably the two best places are going to be my Instagram account. I try to post on there regularly with lessons learned and always respond to anybody that I can; so that’s @investDGP. And then my website, investdgp.com, where I try to share a lot of what I’m doing; and then also anybody can reach out to me at any time, patrick [at] investdgp.com.

Joe Fairless: Patrick, thanks for being on the show. Thanks for talking about some moves that you’ve made in your real estate ventures, one of them being buying three, side by side duplexes that were all on one lot, and then subdividing it and maneuvering around the financing, as well as partnering up with a friend of yours to get those deals done; and then also your business plan for the fourplex and the 20% return on the renovations that you’re doing and the challenges that you overcame in order to get to that point with the inspectors and the appraiser and a couple other things. So thanks for being on the show. Hope you have a best ever day. Talk to you again soon.

Patrick Menefee: Thanks Joe. Really appreciate the opportunity.

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JF2118: Broad Experience With Alix Kogan

Alix is the President of Ashland Capital Fund and has 20 years of real estate experience owning 1,700 apartment units, single-family rentals, commercial and developments. He started in high-end custom homes and more recently has been focusing on student housing deals. Alix shares one of his new strategies which is investing in second lien mortgage debts.

Alix Kogan Real Estate Background:

  • President of Ashland Capital Fund
  • 20 years of real estate experience
  • The portfolio consists of 1,700 apartment units, single-family rentals, commercial and developments
  • From Chicago, IL
  • Say hi to him at:https://ashlandcapitalfund.com/ 

 

 

 

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Best Ever Tweet:

“My broad experience in real estate has helped me tackle new projects” – Alix Kogan


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are 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, Alix Kogan. How you doing Alix?

Alix Kogan: I’m great, Joe. How are you?

Joe Fairless: Well, I’m doing well, and I’m glad to hear that. A little bit about Alix – he’s the president of Ashland Capital Fund, he’s got 20 years of real estate experience, the portfolio consists of 1,700 apartment units, single-family rentals, commercial and developments. He’s based in Chicago, Illinois, and he has now turned his focus towards student housing. So we’re going to talk about his background, what his focus has been, and then what his focus is now. So with that being said, Alix, do you want to first, give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Alix Kogan: Sure. So I started in high-end design build, building custom homes for clients in south-west Colorado, ran that business for almost 20 years and I had a successful exit late last year in December. So pretty recent, but I have a parallel track for a good 18, 17 years or so. I started developing a single family portfolio, did some ground-up development, townhomes, condos, small subdivisions, and then as of three years ago or so, pivoted into multifamily, and that is, of course, how you and I met, and I’ve been doing that.

I’ve been partnering with groups as a key principal, lending out my balance sheet, and let’s see– distressed debt is another asset class I invest in, and then as of late, I’ve been pursuing some student housing deals; I’m excited about that opportunity as it’s not tied directly to the market’s economy as much as multifamily is. So it’s just another asset class to diversify for me.

Joe Fairless: When you said you were doing development for townhomes and condos, what are some differences from that versus the high-end custom homes?

Alix Kogan: It’s really completely different. The high-end custom homes, we always build on client’s land, there’s really no risk per se. It’s really — we’re working for a fee. So transitioning into development is a whole other world. Of course, it’s still a construction, but you’re assessing risk, you’re assessing the market. So really, it took a completely different mindset and skillset candidly to do that; the common thread, of course – we’re building. So it was interesting; it was good, and we rode the tailwinds of a great economy up until, of course, the recession of ’08, ’09. Then we ceased all development activity and concentrated on custom homes and rode through the recession. Well, a lot of our clientele actually came from Texas, and that market was doing very well. A lot of our clients were already the tail end of their careers that made their money, they put their money away, so they were still on a place to retire and build their retirement dream homes, and continue down that path and not be too affected by the recession.

Joe Fairless: You said you’re now focused on looking at student housing. What are some things you’re doing now in student housing?

Alix Kogan: We’re pursuing a couple of different deals currently. It’s a similar play, I suppose, to multifamily. What I like about it is in recessionary periods, like we’re likely heading into now with everything that’s going on, a lot of people go back to school, or they stay in school longer. So you’ve got that natural protection, as opposed to say A class multifamily where I think, where you could have some higher economic occupancy with that asset class — but student housing is an interesting plan. So we’re pursuing that. There’s some opportunities out there, there’s some groups that got over-leveraged, and looking to get out of their assets. So it’s an interesting time. So that’s what we’re– no, I wouldn’t say we’re completely focused on that. It’s just a second asset class in addition to multifamily that we’re looking at.

Joe Fairless: How are you coming across groups that are over-leveraged? Where are you getting those connections from?

Alix Kogan: We’ve made a great connection with a best-in-class property manager, and they of course, have connections with owners all over. They’re also an investor, as well as a property manager as well. So they are an interesting group where they understand the investments side as well as the management side, and they have a very specific buy box for a number of reasons with their business plan. But they’re running into portfolios or individual assets that don’t meet their buy box, and I’ve developed a good relationship with them where they’re bringing me those deals, so it’s a win-win. They get to property manage the asset if we are successful in taking it down. So there’s some good synergies in that relationship.

Joe Fairless: So I’ve never bought a student housing project. Educate me and perhaps some listeners on what would be a buy box. What components are in a buy box for student housing, and then what your buy box is compared to, say, the property management companies?

Alix Kogan: Sure. So the first one would be pretty easy to answer. So the relationship that I have there, they only buy core A Class assets, and they have to be pretty significant size to execute their business plan and to comply with their investors’ buy box, in essence. So in terms of what I look for, I can buy a smaller deal. I don’t have a specific buy box in terms of has to be a large deal, although I can take down a large deal; we’ll look at — for example, right now we’re looking at an opportunity about the $7 million acquisition range. That is considered somewhat small for some of the large players. They’re going to be in that 15+ million acquisition range.

In terms of what we look for, and that’s fairly consistent from whether you’re buying large or small, you’re looking for a successful school with growing enrollment, and that’s pretty key today to be successful. I think, that’s one of the biggest metrics. So not only does the asset have to be a good asset, you’ve got a school that’s got a great sports program; so tier one schools. So you look at that, you look at the asset itself, you look at similar dynamics; you’re of course looking at your rent comps, are you under market, amenities is also a big factor in terms of your rent growth and where you are in the market. So those are some of the big things that we look at.

Joe Fairless: Based on your experience with high-end custom homes and townhomes and condos and investing in multifamily, what do you think, from that experience, is most relevant to help you be successful in student housing?

Alix Kogan: I would say I’ve been fortunate that I’ve had a broad experience in different asset classes, and the common thread is real estate. So I don’t know that there’s one thing other than I may just have a broader view, I may look at different things. So I can’t think one major skill set other than just the broad experience.

Joe Fairless: Let’s narrow it down then. For the high-end custom homes that you did for 20 years and you said you exited successfully, what were some ways that your company differentiated itself from your competitors?

Alix Kogan: That one’s pretty easy – we were very early to the game in design build. So while a lot of my competitors were typical, what we call bid build, where they’re bidding on plans through architects or through clients directly, that have plans drawn… We adopted the design build model right out of the gates 20 years ago, where at first, we partnered with some outside resources. We’d outsource some of the design work, but really controlled the whole process from design to build, and then eventually became much more fully integrated with architects, interior designers. So that was certainly a key to our success.

In addition, of course, doing great design and won more awards than anybody in the area in south-west Colorado, and organically grew. Building a great team – no surprise, when you become the largest in the area, you need a great team behind you. So I was fortunate to have a great team to do that with. But those were some of the — great design, great team and the design build model that many people tried to follow, but fewer successful in doing it.

Joe Fairless: You mentioned distressed debt. What have you done with distressed debt?

Alix Kogan: That’s been an interesting space. I started down that road with non-performing notes. So buying defaulted mortgages in large pools and then working them out. So I’ve been doing more of a niche portion of the distressed debt, which is buying non-performing second liens. So rather than buying first liens, which– it’s a bit counterintuitive, but if you understand my business plan and the plan that we’ve been doing, which is buying non-performing seconds behind a performing first.

So I’ll give you an example. If you have a $500,000 house, you might have a $400,000 mortgage of $100,000 worth of equity, and then you also took out, say, a $100,000 home equity loan to finish your basement. You fell on hard times, you stopped paying in your home equity, but you continued to pay in your first mortgage. So those are what I’m buying as the second mortgages.

I like them because, obviously, it’s been demonstrated that the borrower still has some financial capacity because they’re paying on their first; and because I’m buying the second lien, the non-performing lien or note, at such a discount, I have the ability to go back to the borrower and help them stay in their house and say, for example, “You’ve been paying, $500 a month before you defaulted. Can you afford to pay $250 a month?” So because I’m buying at such a discount, I can work with them, help them stay in their home and get them current, and that’s been a really good investment class. It’s not the easiest business to learn, a pretty high barrier to entry, but once you get it dialed in, it’s a very interesting business model.

Joe Fairless: What discount are you buying those second liens on?

Alix Kogan: It’s a broad range. It also depends on what state. Every state’s got different foreclosure laws and timelines. So I would say anywhere from 5% of the unpaid balance up to 50% of the unpaid balance, and everything in between. So you literally have to underwrite each individual asset separately. How much equity does it have? How nice of a property is it? Because that, in essence, is your ultimate security; it’s that asset. Because you can, of course, foreclose from a second position subject to the first.

And then there’s more of a qualitative analysis of the borrower profile. You really have to understand who the borrower is, look at their credit, look at their specific situation, and somewhat assess what is the percentage that that borrower can do work out with you. So that goes into the pricing as well, of course.

Joe Fairless: So you said 5% to 50% that you’re paying. So just so I’m understanding correctly, depending on the state, depending on the situation, if it’s $100, you’re paying between $5 to $50 for that second lien position.

Alix Kogan: Yeah.

Joe Fairless: Wow. So your discount is between 50% and 95%?

Alix Kogan: Yeah. I’ve bought some assets where there’s a lot of risks, and  I’ve even bought them at 1%.

Joe Fairless: Alright. Give us that example, that specific example. Tell us a story about that property.

Alix Kogan: Something that you bid that low, there is no equity.

Joe Fairless: How much you pay for it?

Alix Kogan: So that borrower is completely upside down. So that’s one of those that you’re likely not going to pursue. You might take that asset, put it on the shelf and just wait until that borrower sells the house, and you may be in a position where you get a payoff. So that’s obviously very high risk; but if you have $100,000 unpaid balance and it’s still secure and you’re buying it for $1000 bucks, you can afford to just stick that in a drawer and just wait… Versus other loans that have equity, and the borrower is obviously more motivated to protect and keep that equity. They’re obviously motivated to do a workout with you. So those you’re going to pursue more aggressively, and spend time placing that with a servicer, or spending money investing in whatever legal you need to invest in, so that you could monetize that loan.

Joe Fairless: I know you said you’re buying large pools. So are the large pools of these defaulted mortgages, are they grouped into varying risk profiles, or…?

Alix Kogan: No, no. They generally are just sold in a pool. So you get a spreadsheet with a bunch of assets, and it’s really — you’re doing your own group and you’re assessing the risk and you’re saying, “Okay, 20% of these are in a judicial state, New York, for example, and the foreclosure time is very lengthy and expensive.” So I’m going to price that portion of the pool at whatever it is. 20 cents on the dollar versus, say, for example, California loans, which is a non-judicial state, and very quick foreclosure time. I may price those at 45 cents. So it’s all over the board.

Joe Fairless: Did you say California is quick to–

Alix Kogan: Yeah, believe it or not…

Joe Fairless: That– I would have missed that on a true-false test.

Alix Kogan: Right, exactly. With all the legislation and everything that happens in California, it actually is a non-judicial state. So you can foreclose and get at the asset in 90 to 120 days. So it’s a much faster process in California.

Joe Fairless: Tell us a story of a defaulted mortgage, either a pool of mortgages or an example or two where you’ve lost money.

Alix Kogan: Sure. I had a recent loan that– and fortunately, we were pretty careful. I don’t buy really high-risk loans, but in order to buy a pool of loans, apparently, you have to buy some loans that are higher risk; but I try to keep those at a minimum. So I only honestly have one that was recent; a Kentucky loan that basically foreclosed and we got wiped out by the first lien and completely lost. It was a $7,000 investment, [unintelligible [00:17:37].26] a million dollars that we took down. So that can happen, but if you’re careful, that’s pretty rare.

Joe Fairless: Yeah. So how can you be careful and make that rare if you’re buying a large pool of loans, and it sounds like that’s just gonna happen during the course of business?

Alix Kogan: Well, one, they’re gonna price them at a risk price. So it’s all modeled into it. Think of it as you’re buying a portfolio of single-family homes, you know you’re going to have some delinquencies in one home. Somebody stops paying rent, but you have the income from the other homes to offset that. It’s really the same principle. I’m going to make money, I’m going to hit home runs on some. I mean, I’ve had some that I’ve made 200% return on my investment, and then I have one that I lose $7,000 on. So you just price the risk into it, and then there’s some people that specialize in unsecured and no equity loans. It’s just their business model. So I would even resell some of those loans, and just get my money back and focus on the good loans that I prefer to work.

Joe Fairless: Okay. Tell us the story of, on the flip side, one that you’ve made 200% on or just done really well, just a specific example.

Alix Kogan: Sure. Just recently I invested $113,000 in an asset in California. The house is worth $270,000. We, unfortunately, had to foreclose, got that house back, and up until just a couple days ago, I had a contract for $270,000. So you can do the math on that. That would have been a great exit strategy. Unfortunately, with what’s going on in the world right now, that buyer fell out of contract.

So we’ve got the house, it’s worth $270,000. I can turn it into a rental. I’m hopefully going to sell it to somebody else, but you can see the return is huge if I can obviously monetize, which I’m sure I will… And that whole timeframe was about seven, eight months.  Okay. So let’s talk about the team. I don’t think you’re the one tracking down all these owners and having conversations based on what I know about you… So who’s your team? How do you structure it? How are they compensated, that sort of thing? Sure. I’m on the acquisition side, so I’m developing relationships and finding the assets. Once I find the assets, I have an asset manager in California that works remotely. He’s got 30 years experience in servicing the distressed debt space.

Joe Fairless: How’d you find that person?

Alix Kogan: Just the whole networking, talking to different people, and I met him, and that’s been a great relationship. So he’s literally working out of his house.

Joe Fairless: If you can think back to who introduced you to him, I’d love to know exactly how you found him. You don’t have to name names, but just throw us the breadcrumbs.

Alix Kogan: I think the trail started on LinkedIn or I connected with somebody on LinkedIn, and they had pointed me in his direction for just networking, and that he may know sellers, and one thing led to another, where you think you’re going to buy an asset or get some referrals for sellers, and before you know it, you’re talking to a guy who actually is an asset manager that may have excess time and be able to develop a relationship. So that’s what we did.

It started off as — for him, I was somewhat of a side hustle in addition to other asset management work that he was doing, and as my portfolio grew, he’s come on board nearly full time with a little bit of consulting that he still does with outside funds and outside investors.

Joe Fairless: Wow. So you were randomly reaching out to people on LinkedIn based on what they have in their profile, asking them about distressed debt?

Alix Kogan: Yeah, specifically targeting sellers of distressed assets at that time, and just happened to run it across the guy. So there’s multiple ways that you can do this, and you also, of course — to answer your question fully in terms of the team, there’s also third-party servicers that we use. So they’ll do some of the work, and then my asset manager will serve an oversight with them as well as borrower outreach and talking to the borrowers as well. So it’s really a small team, a small little boutique firm, if you will, in that asset class, and I’m soft capitalized, I don’t have investors in that world. So it’s really a third bucket of my business plan – student housing, multifamily and distressed debt.

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

Alix Kogan: Learn the asset class well. It seems very obvious, but in terms of investing in different assets, learn that asset class well before you invest. Then if you have an opportunity to invest passively, learn as you go. I think that’s a great way, and you’re a prime example. I invested with you early on and got my feet wet in multifamily until I got comfortable enough to start looking at my own deals, and I think that’s a great way. And that’s also what I did with distressed debt. I invested passively in a more of a joint venture with a guy when I first started and learned the business, and then of course, the natural progression – I felt that I could do it on my own, and hire an employee that knows more than I do, and that’s just the way you scale and grow.

Joe Fairless: That’s a pretty good formula for people – invest passively to learn the ropes, plus build your ally group up so you can form allegiances, and then you learn the business simultaneously as well as actively learning, then go active and then hire someone who has more experience than you. But now you’ve got some experience and you know the ropes, you just don’t know the intricacies of someone who’s been in the business for decades. That’s a really good formula. I’m glad that you walked us through that. We’re gonna do a lightning round. You ready for the best ever lightning round?

Alix Kogan: I guess.

Joe Fairless: All right. Well, we’re gonna do it anyway. So hopefully you are. First though, a quick word from our Best Ever partners.

Break: [00:23:39]:05] to [00:24:34]:03]

Joe Fairless: Alright, what’s the best ever book you’ve recently read?

Alix Kogan: A book name Lifescale, which is interesting; a book that I’m halfway through.

Joe Fairless: Okay, Lifescale. Okay, got it. What’s a mistake you’ve made on a transaction?

Alix Kogan: Bad partner. Easy to say in the rearview mirror. He looked good on the front end, but I think more due diligence on the partner than the asset class is important. I got myself in trouble a few years ago with — and fortunately, we unwound that well, but… More due diligence on the partner than the asset.

Joe Fairless: What are some questions knowing what you know now that you would ask prior to engaging in a future partnership?

Alix Kogan: I think it’s more time getting to know someone, really as much as you can learning how they think, definitely more reference checks… But I think it’s time, and unfortunately, we’re in a business that moves pretty fast, whether it’s notes or multifamily or student housing – the deal comes up and it comes to you from a potential partner. So I’ve learned to slow down and only move forward when it feels right and I have enough of a comfort level with a partner. So as you know, I’m a KP on deals and people bring me deals all the time, and I really have to just slow that process down to get to know them better.

Joe Fairless: On that note, how can the Best Ever listeners learn more about what you’re doing and get in contact with you?

Alix Kogan: Ashlandcapitalfund.com is my website, and my direct email is alix [at] ashlandcapitalfund.com

Joe Fairless: Alix, thanks for being on the show talking about your areas of focus that you’ve had, and then now what you’re focused on, the three areas, with one of them being student housing and why you’re focused on that; you also talked about non-performing notes in your process there. Thanks for being on the show. I hope you have a best ever day. Talk to you again soon.

Alix Kogan: Thanks, Joe. Take care.

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JF2114: Creating A Deal Through Nurturing With Robbie Faithe & Tosh Hoshino

Robbie & Tosh, are partners who have 13 years of combined experience. They share a story in finding a mobile park deal that was attained by nurturing a relationship over an extended period of time. You will learn how they determine if a mobile home park is a good deal or not and what they like to focus on.

Robbie Faithe & Tosh Hoshino Real Estate Background:

  • Robbie has 11 years experience in real estate
  • Tosh has 2 years in real estate
  • Robbie current holdings consist of 66 doors mix with single family, Multi-family, & a Mobile Park
  • Tosh has 59 units under management including 1 single family
  • From Albuquerque, NM
  • Say hi to him at: www.Robbiefaithe.com 
  • Best Ever Book: Everything Store, Pitch Anything

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Find out where you want to be, and find a mentor who is crushing it. Listen to podcasts, and always educate yourself. ” – Robbie & Tosh 


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks, today’s host, and today I’ll be speaking with two guests. Today we have Robbie Faithe and Tosh Hoshino. How are you guys doing today?

Robbie Faithe: We are doing great!

Tosh Hoshino: Thanks for having us.

Robbie Faithe: Yeah, thanks for having us. Great to be here.

Theo Hicks: Absolutely. Thanks for joining us. I’m looking forward to our conversation.

Robbie Faithe: A little bit more about their backgrounds – Robbie has 11 years of experience in real estate, and Tosh has two years of experience in real estate. Robbie’s current holdings consist of 66 doors that are mixed between single-family, multifamily and a mobile home park. Tosh has 59 units under management, including one single-family home. Both are from Albuquerque, New Mexico. Say hi to Robbie at robbiefaithe.com. Do you guys mind telling us – maybe start with Robbie – a little bit more about your current background and what you’re focused on today?

Robbie Faithe: Yes, absolutely, and thank you again for having us on. It’s an honor to be here. So I got started in real estate actually when I was in college; I got my real estate license when I was finishing my undergrad degree at the University of New Mexico. This was about 2009 at the time. The market was not doing so well, and I had accumulated  a couple homes, and I decided the best thing to do at this current point in time was to sell the homes, and I decided rather than to hire a real estate broker to sell my homes, I just reallocated that money into my own education and got a real estate license. That’s how I got started as a broker, and I’ve been selling real estate ever since.

So I started with a brokerage that focused on distressed sales. So I really cut my teeth on the REOs and distressed sales, short sales as well, and just kind of built my business from there.

Right now, as you’ve mentioned, I’ve got about 66 doors that I currently own. It’s a mix of single-family, multifamily and a mobile home park, and the focus now is starting to get more involved in some of the larger multifamily properties, with the most recent acquisition being that mobile home park.

Theo Hicks: Thank you for that. Tosh, what about you?

Tosh Hoshino: For me, I think probably like most of the people, I just bought a residential property to live in, and met my wife, and moved in with her… And since day one had a tenant, who’s lived with me, and I guess 14 years later I still have a tenant, and the house is paid for. That’s how I got started. And the recent acquisition of the mobile home park with Robbie… And for me, I’ve been a commercial real estate broker for two years now, and before I joined this industry I was in the car business. My qualifying broker recruited me after I’d decided that I just did not wanna be in the car business any longer… And it’s been just eye-opening every day, just learning about the industry.

My focus is mobile home park acquisitions and dispositions. I sold three mobile home parks currently, and trying to find a good deal, which is pretty tough to come by nowadays… But analyzing deals, and trying to get more under our belt.

Theo Hicks: So how are you two involved together? Is it just that mobile home park deal?

Tosh Hoshino: I’ll answer that, Robbie, if it’s cool with you.

Robbie Faithe: Yeah, go ahead, Tosh.

Tosh Hoshino: So the car business that I was telling you about – I met Robbie through that relationship. He’s bought two cars from me, and he was in real estate at that time, and after I’d decided to leave the industry and join the commercial real estate world, I read — just doing research about what are good investments, and mobile home parks kept coming up. We have always kept in touch, but – I mentioned about the mobile home park, and I think at that time, around the same time or right before he was really getting into it… So when this opportunity came up, we’ve known each other — and of course, not business-wise, but I think just understanding his character, and we just decided to partner up and jump in it. That’s how this happened.

Theo Hicks: So you were interested in becoming a broker, and decided to pursue the mobile home park deals. You found this deal and presented it to Robbie, and you guys both agreed to go in on it together?

Tosh Hoshino: It’s actually the other way around.

Theo Hicks: Oh…

Tosh Hoshino: So Robbie, why don’t you fill in on that part?

Robbie Faithe: Yeah, so I’ve been researching mobile home parks, and it’s a very interesting asset class… I decided to start out by building  a database… I decided just to kind of go down this road and see what I can do to find an opportunity. So I built out a database of local mobile home parks, I was able to skip-trace the owners, and I just started cold-calling.

This park actually was the second phone call that I made, and it took months and months of nurturing the relationship before we even got to the point where the seller was comfortable enough providing me with information… But that’s pretty much how it happened. I just cold-called someone in my database that I built out, and just asked simply if she was interested in selling, the answer was yes, and we immediately scheduled a coffee meeting, and built rapport, and eventually got it under contract.

After it was under contract, I was really interested in bringing on someone who may have a little bit more experience in this realm, and I did. Tosh was already more versed in mobile home parks than I had been at the time, so we decided to partner up on it.

Theo Hicks: You said it took you a long time to nurture that relationship… Do you mind explaining maybe let’s say from the first phone call – what you said on the call, and then what steps were taken with that individual until you eventually got the deal under contract?

Robbie Faithe: Absolutely. It was just a very casual conversation. I simply called the seller up, and she happened to answer, and I just told her who I was, and I asked her if she was interested in selling that park. The answer was “Well, maybe…” So the conversation was just very casual, I just was trying not to be too intrusive and ask too many personal questions; I just kept it very casual, and decided that the best thing to do was just to get the seller more comfortable with me. So I decided just to see if we could schedule a coffee meeting. We met at Starbucks, and it probably took about 5-6 different meetings for her to get comfortable enough to disclose some of the financials on the park.

It was definitely a process. We were in escrow for about ten months after we got it under contract, because this is a typical mom-and-pop operator, very sweet lady, we still keep in touch post-closing… But she didn’t have the best records, so it was a little tricky to obtain all the necessary information that we needed to make an educated decision. Eventually we got there, but that’s kind of how the conversation started.

Theo Hicks: One follow-up question on the actual back-and-forth… So you said you had that initial coffee meeting, and then you guys met 5-6 more times. Was it just quick coffee meetings, just catching up on life things, was it just talking about  the property itself? Because you mentioned it took a while to actually get numbers on the property, so I’m just curious what you guys talked about all those times.

Robbie Faithe: Yeah, she was pretty good about just giving me some general information. I had a bunch of questions about the property. So it was a lot of discussing how the property was being operated, who was managing it, her involvement, what her goal was in the case that she would want to sell it… Just so I can get an understanding for what the motivation was.

Then a lot of the rapport building was just kind of talking about where she came from, her family, a little bit about myself and my family… So by the time we were into the second, third, fourth meeting, we established a pretty good friendship, and that really helped enable us to get the terms that we were looking for. We were able to get some wonderful seller financing terms, and that was partially because during those conversations I was able to find out what her motivation was. She was at the point where she was looking to divest, and she didn’t want to be involved anymore in the operational aspect of the park. She was just interested in receiving monthly income, so it worked out perfect. That was a great segue for owner-financing; she was educated on it enough to feel comfortable pursuing that… So that’s how we were able to get those terms.

Theo Hicks: Thanks for sharing that. I think it’s gonna be very helpful, because a lot of people talk about “You need to cold-call people, and built rapport”, but not many people get into the specifics; you went into a lot of specifics there, so thanks for sharing that.

So you also mentioned that you were in escrow for ten months after getting the property under contract. It sounded like it was difficult getting all the information you needed to fully underwrite the deal… So either one of you can answer this – do you mind telling us overall what types of things people need in order to fully underwrite a mobile home park? And then maybe you can also talk to us, if this is true, about how to make assumptions when all the data isn’t there. Because it sounds like a lot of these are owned by mom and pops who aren’t using the fancy property management software and they track every single line item. So the two questions are “What do I need to underwrite?” and then “How do I get all the information if it’s not readily available from the owners?”

Tosh Hoshino: As far as the “What do you need to underwrite it” – rent roll is definitely important, and just checking that along with the bank statement; make sure that the income is coming in… And just the operating expenses – what is the seller paying, and what are the tenants paying, and what are the maintenance and repairs and any cap ex items that has been done in the last few years. Let’s say if some of those items are missing, then – it’s not a rule of thumb, but if it’s tenant-owned homes, then you would typically use 30% to 40%, 40% being that if the water and sewer is not charged back; and if it is, then you use typically 30%. So that’s some of the things that we use… But both of us actually underwrote it, and just  kind of comparing notes and make sure that we were on the same stance as far as the financials.

Robbie Faithe: Yeah. He’s talking about expense ratios when he’s saying 30% to 40%.

Theo Hicks: Okay. So rent roll, along with the bank statement… So is that something that you can get before you put the deal under contract, or is that after?

Robbie Faithe: I think it’s on a case-by-case basis, depending on how the property is being operated. In this particular instance we had an idea what the general numbers were… And this was just purely off of conversation, when we were talking. She was able to eventually share some of the financial information about what the monthly gross scheduled income is… And sometimes that’s just what the sellers are willing to share with you. But in this particular case, we were able to get some supporting documents after contract; it does sound a little backwards, but before we went into contract I made sure just to have a conversation with the seller, that “I understand you’re not wanting to share a ton of financial information for me at this point; I’m okay, I’m going ahead and putting together an offer for you based off of the numbers that you’re representing. In the case that there’s some inaccuracy here, I just need you to understand that we’re gonna need to adjust the price again.” And that’s actually what happened.

Initially, we went under contract and it was based off of a monthly figure that she had given us that was not accurate. After we went under contract and we obtained rent rolls, tax returns, it turned out that she didn’t intentionally misrepresent the property, but she was factoring in some of the utility bill-backs into the gross scheduled rents… So after incurring the utility costs she wasn’t actually collecting that monthly amount… So we were able to actually negotiate $100,000 off immediately, before we even really began physical due diligence on the property.

Theo Hicks: That was my follow-up question, which is “What types of contingencies did you put in place, or conversations did you have before putting the deal under contract?”, when you don’t have everything; but you mentioned what to do there, so thanks for sharing that as well.

Alrighty, for the money question – what is your best real estate investing advice ever? Let’s start with Tosh.

Tosh Hoshino: I would definitely say that listen to a podcast, always educate yourself… There’s an invaluable amount of information out there. So that’s the advice that I would give to anyone.

Theo Hicks: And Robbie?

Robbie Faithe: It’s a really good question… My perspective on that is find out where you wanna be, and find somebody who’s just crushing it in that area. If you can find a mentor who’s already in a position or a place where you see yourself or where you envision your business going, then that’s the most valuable think you can do – get a mentor who’s already at a place that you wanna be at.

Theo Hicks: Alright, perfect. Are you guys ready for the Best Ever Lightning Round?

Tosh Hoshino: Yup.

Robbie Faithe: Yes.

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

Break: [00:16:19].21] to [00:17:10].26]

Theo Hicks: Okay, so – Lightning Round. Both of you guys can answer these questions in whatever order you want. The first one is what is the best ever book you’ve recently read?

Tosh Hoshino: For me it’s “The Everything Store”, about Amazon and Jeff Bezos, and just his vision about being customer-oriented, looking for the future, and just not letting anyone getting in the way of his vision.

Robbie Faithe: Yeah, that’s a great one. For me it’s “Pitch Anything” by Oren Klaff. This is a fascinating book. It kinds of links science and psychology into sales, and there’s a lot of value there for folks who are in sales, and just people in general.

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

Robbie Faithe: Tosh, do you wanna get that one?

Tosh Hoshino: That is a good question, “What would I do…?” I don’t know. I’ve never thought about that. I’ll let you answer that, Robbie.

Robbie Faithe: I think that having done a decent amount of deals, I really learned and discovered that you don’t necessarily have to have the money to be able to put together a good deal. You have to find the opportunity. So I would just continue to do what we’re doing, deal sourcing; I think that’s kind of the top of the food chain. Once you can secure a deal, the money always tends to flow… So if I had to start over, I would just focus 100% on just finding opportunities, and bringing the people together to be able to make that come to fruition.

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

Tosh Hoshino: I would say that just be available to anyone who reaches out to you, and just give advice as much as you can, that you’re competent of. That definitely will come back to you to help you as well.

Robbie Faithe: Best ever way I like to give back is I do some casual one-on-one coaching on the side. I’ve been able to create financial independence for myself, and I’m super-passionate about how real estate has enabled me to create that lifestyle. I love to educate others on how real estate investing can do the same for them.

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

Robbie Faithe: The best ever place to reach me – I’ll go ahead and give out my email. It’s Robbiesellsabq [at] gmail.com.

Tosh Hoshino: And for Tosh it would be thoshino [at] gmail.com.

Theo Hicks: Alright, thank you guys for sharing your personal email addresses. Hopefully a lot of Best Ever listeners take advantage of that and reach out and ask some questions about mobile home parks and other things you guys are experts in.

Just to summarize what we’re talked about today – we talked about how you guys both got started in investing, and how you guys met (interestingly) at a car lot, where Robbie bought a few cars from Tosh… And then for the mobile home park that you guys worked on together, Robbie decided to do mobile home parks, started building a database to find opportunity, skip-traced to find the owners, started cold-calling and found a mobile home park on the second call.

You talked about how you initially met this person for coffee and it took multiple months to nurture the relationship… And we talked specifically about what you did. You called them, had a casual conversation, asking if she was interested in selling. She said “Maybe.” You guys met for coffee, you had about 5-6 different interactions after that. She talked about how the property operated, who managed it, what her goals were, you talked about her family, where she came from, your family… Just to build a personal relationship, but also get information about the deal.

Eventually, she began disclosing the financial information; you guys put the property under contract… And something that you mentioned is that usually you’re not gonna have all the information that you need to underwrite the deal – the rent roll, the bank statements, the operating expenses, the cap ex… So you make assumptions based off of what you were told, and then based off of the 30% or 40% expense ratio rule, and then let them know that “We’re basing this off of what you’re saying; if it turns out to not be true, we’re gonna have to adjust the price”, and you mentioned that you were able to adjust the price by $100,000 right off the bat, because of some misinformation… Not purposefully, but just misrepresenting something on accident.

You mentioned that the property was in escrow for ten months as you ended up buying it, and so we talked a lot about that deal. Then we also talked about your best ever advice; for Tosh, it was to listen to podcasts and always educate yourself, which if you’re listening right now, you are on the path towards doing… And then Robbie’s best ever advice was to find out where you wanna be, find someone who’s there already, and attempt to bring them on as a mentor.

So Robbie and Tosh – I really appreciate you guys coming on the show and sharing your story today about the mobile home park. Best Ever listeners, as always, thanks for tuning in Have a best ever day, and we will talk to you tomorrow.

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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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JF2106: Charge Your Roommates With Nicole Heasley

Nicole Heasley has been in real estate for 4 years and started out by house hacking single family homes. She has house hacked single unit homes with 3 rentals and in this episode, she will share how she went about doing this and why it was nothing out of the norm for her. 

 

Nicole Heasley Real Estate Background:

  • 4 years of real estate investing experience
  • Currently owns 3 rentals
  • From Boardman, Ohio
  • Say hi to her at: heasleyhomebuyers@gmail.com 
  • Best Ever Book: 

 

 

 

 

Click here for more info on groundbreaker.co

 

 

Best Ever Tweet:

“Start meeting people now, find that meetup and attend now. You need to know people.” – Nicole Heasley


TRANSCRIPTION

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

Nicole Heasley: I am wonderful, thank you guys so much for having me on.

Theo Hicks: Absolutely. Thanks for taking the time to join us. A little bit about Nicole – she has four years of real estate investing experience, and currently owns three rentals. She’s from Boardman, Ohio, and you can say hi to her at heasleyhomebuyers@gmail.com. Nicole, do you mind telling us a  little bit more about your background and what you’re focused on today?

Nicole Heasley: Absolutely. I graduated from Kent State University in 2015, and I got a job with a large REIT that owns, redevelops and manages outdoor retail shopping centers. So I was looking to move from Kent to Cleveland, and I didn’t know the area that well. I was gonna get an apartment, and a roommate, and my dad said “Why don’t you get a house, and let someone pay your mortgage for you, instead of paying someone else’s mortgage?” And I thought “Okay.”

I got an FHA loan, 3.5% down, and fortunately, North-East Ohio is a very affordable place to live. So for less than 5k I was able to get into a 3-bedroom house, and live near the Cleveland clinic, and some universities, and I rented out the spare bedrooms in my house for three years. And then of course, I was getting commercial real estate experience doing accounting work and short-term leasing for the REIT that I was working for… And I kept going from there.

The original plan was to pay down my student loans, but then once someone paid my mortgage for me, I was like “Can I find someone to make my car payment also, and maybe pay down a vacation, and put some money in my retirement account?” Once you get that first check, you’re kind of hooked.

So instead of taking that money and paying down my student loans – which I should have done, kind of – I went ahead and bought more properties. I bought two more properties over the next three years. Now I’m out of that house in Cleveland, so I have three rental properties.

Theo Hicks: Perfect. Are all three of those single-family homes?

Nicole Heasley: They are all single-family  homes. One in the Cleveland area, two in the Youngstown area.

Theo Hicks: Let’s talk about the numbers on that first deal. So you got it for less than 5k down… What was the purchase price, and then maybe tell us — I know this is the house-hacking strategy, but typically when you hear of house-hacking it’s a duplex, so you live in the other one… Whereas here you’re kind of renting it out — people are all living in the same unit, basically.

Nicole Heasley: Right.

Theo Hicks: Maybe walk us through, for people who want to house-hack a single-family home, some of the things to look out for when finding roommates, basically.

Nicole Heasley: Absolutely. So it never occurred to me — I didn’t know that I was going to fall in love with real estate. Remember, I’m fresh out of college, I’ve got this accounting degree… I originally wanted to be an English teacher, but I figured out “Well, they don’t make a lot of money.” I had no idea what I wanted to do with my life, and I was just kind of following whatever doors I could kick open. So I had already been living with roommates in college for the past five years… What was another year or two?

So it didn’t seem weird to me to share a bathroom and a kitchen with someone, because I had already been doing that for so long. And I had also already lived with strangers before. You’d figure in a dorm you’re kind of living with a stranger, but also there was a summer where I was kind of between houses. My one friend was moving was moving out of our apartment, I was gonna move in with some other friend 3-4 months later… So I had to go to Craigslist and find some roommates and find a place to live for 3-4 months… And I didn’t die. I didn’t get scammed, or killed, or robbed, or any of those things.

I met the person at a public place, I scoped out their social media to make sure — they said they went to Kent State, so I made sure I saw some pictures of them around campus, or wearing a Kent State sweater, or have connections that are also at Kent State. I could have taken it a step further and ran a background check on them, but I didn’t go that far.

So I had some experience to rely on to tell myself “I can keep doing this, even though I’m not in college anymore.” And again, with the Cleveland Clinic nearby, I had a lot of nurses live with me, I had a lot of medical students live with me. I also had a teacher and a social worker. So I had just young professionals come and live with me. And same thing – we met at a public place, we scoped each other out on social media, I made sure someone was present when they came and saw my house for the first time. They usually brought someone with them to come see the house for the first time… And I never had an issue with it, not once.

You also wanna get the numbers, I’m sorry — so I bought that house for 108.8k, and I put 3.5% down. So I got them to pay for my closing costs. I didn’t pay the closing costs, I just had the down payment, really. So it was just that 3.5% down on 108.8k, which would probably be between 3k and 4k, I think.

Theo Hicks: Three-bedroom house… Obviously, you live in the master suite, I’m assuming…

Nicole Heasley: I didn’t. I took the smallest bedroom, because I could get more rent out of the two larger bedrooms.

Theo Hicks: That’s smart. So what were the two rents you were able to get?

Nicole Heasley: I started out at $525/month per room, utilities included. I did want the garage space. If I’m gonna buy a house, I want a space, because we get a lot of snow… I want a garage space. If I’m giving up the extra bedroom, I at least want a covered car. So whoever rented the other side of the garage paid an extra $25/month. And then everytime someone would move out once a year, I would up that number by $5/month.

So I think at the end I was making close to $1,100/month, and my payment was $1,000.

Theo Hicks: Perfect. That was my last question, what was the payment. So basically cash-flowing $100/month, while having free rent.

Nicole Heasley: Yeah.

Theo Hicks: So when you moved out, you had your room rented out, and the other garage space, and then what did you do from there? Had you already had those two properties, or did you house-hack again?

Nicole Heasley: No. The second property – it was funny, my dad also caught the real estate bug and he decided that he wanted to try to flip a house. And he did pretty good for his first flip, but he finished a lot later than he thought he was going to. So he finished around August, got it up on the market, someone buys it, then they decided that they’re gonna go buy a car, and they lose their financing. At this point it’s probably October and no one moves in October in North-East Ohio.

So he pulls it down from the market, because he doesn’t want people going on Zillow or the MLS and seeing 300 days on market. And he keeps telling me “You should buy this house, you should buy this house.” Well, I had loaned him my savings money to do the flip, and I said “Dad, you have all my down payment money.” So what he did was he added my name to the title, I took out a Home Equity Line of Credit on the property, and I paid him out with that. So that was property number two.

Property number three was actually the house that I grew up in. My dad was driving down the street and saw that it was for sale. We looked it up, the price was right, we went ahead and did 20% down, and just bought it conventional. It was already fixed up, ready to do.

Theo Hicks: So for the deal you bought from your dad – a single-family home again, and then you rented it out?

Nicole Heasley: Yeah.

Theo Hicks: What was the rent and what was your monthly payment?

Nicole Heasley: My monthly payment, because it’s a Home Equity Line of Credit is $250/month, and my rent is $740/month. Now, that doesn’t include taxes and insurance. Because it’s a Home Equity Line of Credit, it’s not all in one payment, like a mortgage would be. I think my taxes are maybe $35/month, and insurance is around $70-$75. So all-in — I’m getting about $350/month out of that house.

Theo Hicks: And then for the childhood home – that’s pretty cool. What did you buy it for? You said it was already turnkey, so you just bought it, rented it… What was the monthly payment and what was the rent?

Nicole Heasley: I bought that for 49.9k. That payment is $400/month, and that’s including taxes and insurance, and I get $875/month out of that, including pet rent, because she has a little Yorkie. Now, also, I am not including maintenance, vacancy… I always put away at least 35% a month for vacancy, for repairs and maintenance. My dad is my property manager, so he gets that fee each month as well.

Theo Hicks: You said $35/month?

Nicole Heasley: 35%.

Theo Hicks: 35%, okay. So 35% for [unintelligible [00:11:16].04] reserves, and then – how much do you pay your dad to manage the properties?

Nicole Heasley: 10%.

Theo Hicks: Okay.

Nicole Heasley: Pretty standard for the industry.

Theo Hicks: How do you find these deals?

Nicole Heasley: So the second house was a rental that my dad’s friend owned, and he was losing his renter and he was gonna get rid of it, and my dad saw the potential there. So he found that deal off-market. And then, like I mentioned, because my father is local, he saw the second deal just driving down the street, happened to see the For Sale sign in the yard.

What we’re finding now, now that people know that we’re doing this and they know that we’re doing it well, people are starting to come to us when they know someone who wants to get rid of the house.

We also have built up a pretty good network in the area – other investors, other agents, just from networking. So occasionally I’ll get a message from someone who will say “Hey, I saw this. It looks like something that you guys like to own. I just want to send it your way in case it interests you.”

Theo Hicks: Alright, so how did you build that network? Just by doing these deals? Or are you doing stuff outside of these  deals, like attending meetup groups, and stuff?

Nicole Heasley: One, I’m on Bigger Pockets. I try to get on there every day, at least 15 minutes, chat on the forums etc. I started attending meetups in Cleveland, and then once I left Cleveland, I started my own meetup in Youngstown. I joined real estate groups on Facebook, and I just tell people, I talk to people about what I do. Now, since my 9-to-5 job has always been real estate, and it still is – I’m not at the REIT anymore, but I’m working for a company that produces property management software… So I’ve kind of always been surrounded by real estate people. And I just tell people what I do. I talk to them when I’m looking at a property, when I’m buying a property. I just talk to them about my activity, I tell them about the meetups. When I come into work the next day, “What did you do last night?” “Well, I went to a real estate meetup.” Sometimes I’d go to them on my lunch breaks when there wasn’t a quarantine.

Theo Hicks: Yeah, that’s really nice, because I know a lot of people who work full-time jobs and do real estate on the side can’t really talk about it at work, or are afraid to talk about it at work… So that’s nice that you’re able to do that.

Nicole Heasley: When I switched jobs — it’s such a part of my personality; if I didn’t talk about real estate, that would take up most of the things that I have to talk about… So I kind of felt things out when I interviewed for my current position, and they were really enthusiastic about my real estate endeavors… So that was a greenlight for me.

Theo Hicks: Perfect. So for someone who hasn’t bought a property before, maybe just graduated from college or just got out of high school, what would be your best real estate investing advice ever to that type of person?

Nicole Heasley: Start meeting people now. Find that meetup. If you can’t find one, if you can’t attend one in person right now, find a virtual meetup, start a meetup. You need to know people, you absolutely need to know people.

Theo Hicks: What’s one tip you’d give to someone who wants to start their own meetup? What’s the first thing that they need to do, or what’s one tip you have for them to create a successful meetup, that lasts a long time and it’s not just a few meetings and then it kind of fizzles out.

Nicole Heasley: Consistency. We hold ours at the same place, on the same date, every single month. It is the second Wednesday of every month, and it’s at a local bar/restaurant. We are there every single month, without fail. We try not to move it, ever.

Theo Hicks: Perfect. Okay, Nicole, are you ready for the Best Ever Lightning Round?

Nicole Heasley: Yes.

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

Break: [00:14:43].00] to [00:15:33].03]

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

Nicole Heasley: I’m going to say — gosh, it just floated out of my head… Shoot, do you know Scott Trench, CEO of Bigger Pockets? It’s the wealth-building book.

Theo Hicks: Is it called Set For Life?

Nicole Heasley: Yes, thank you. Thank you so much. [laughs]

Theo Hicks: I just googled it.

Nicole Heasley: That book has been really helpful. It pushed me to make  a job change… But I’m also going to say, for people who are quarantined, and they’re thinking this is the worst thing ever, and their life is over, and this and that – read the Diary of Anne Frank. If you wanna talk about being trapped somewhere, and being in a really dire circumstance… It could be worse. And you need that attitude adjustment.

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

Nicole Heasley: Start rebuilding it. [laughs] I’d get on board with my network and I would talk to them and I would say “Hey, what do I do?” I have some awesome people in my life who would help me figure it out.

Theo Hicks: Well, I’m gonna ask this question and then I’m gonna ask a different one to kind of throw you off-balance a little bit… But I think you’ll be able to answer it. What’s your best ever way to give back?

Nicole Heasley: To the real estate community?

Theo Hicks: It could be that, it could be other communities, or something in general… But if you want, you can answer it based on giving back to the real estate community. It’s like charities, things like that.

Nicole Heasley: I think real estate investors are overlooked as an asset to the community, because when they fix up a property, they improve the value of that property, they’re also improving the value of all the properties around them. So I think that just by being someone who cares about their properties, you inherently give back to the community, by someone who makes sure that the paint looks good, that the lawn is mowed, that the roof is intact, that people have a safe, clean, habitable place to live, and affordable – that in itself gives back to the community.

That being said, I also try to just stay involved — when new people have a question about real estate, even if it’s a question that is asked all the time on Bigger Pockets, or that other people might get annoyed with, I just try to take the time and answer those questions… Because we were all new once.

Theo Hicks: Alright, so this is a unique question, which — I don’t know why I didn’t think of this earlier; I should definitely add this to the Lightning Round… What’s your best ever way to stay sane during the quarantine?

Nicole Heasley: Running. Getting outside.

Theo Hicks: How many miles do you run at a time?

Nicole Heasley: Usually around 3.5 to 4. I try to do that every other day. But I used to do a lot more, and I’m trying to use the quarantine to increase that… But taking on old hobbies that you’ve maybe forgotten about, or starting new ones. And Zoom meetings.

Theo Hicks: There you go. Alright, and then lastly, what’s the best ever place to reach you?

Nicole Heasley: Probably LinkedIn or Bigger Pockets.

Theo Hicks: Perfect. So you just search Nicole Heasley on LinkedIn or Bigger Pockets. Well, Nicole, thanks for joining us today and walking us through your journey through three rental properties. So we talked about your first deal that you did with the FHA, 3.5% down loan, single-family home; you rented out two of the rooms, as well as the garage space, and ended up moving out, and eventually renting out that third room. Then you gave us some tips on how to find roommates, some of the best practices for living with strangers.

Second deal was a house your dad actually flipped, and you were able to buy it by taking equity from your first deal to buy that, so we talked about the numbers on that deal. Third deal was your childhood home; you bought it with 20% down, and you also gave us some numbers on the reserves (you do 35% each month), as well as 10% for the property management.

We talked about how you found the deals… It sounds like none of the deals — maybe the first one was an MLS; I didn’t ask you how you found that one, but…

Nicole Heasley: Yeah, that was from the MLS.

Theo Hicks: Okay. So the first one – MLS. Second one was an off-market deal from a friend of your dad’s… And then the third one – it was on-market, but your dad found it by essentially driving for dollars.

Nicole Heasley: Yeah, he saw the For Sale sign. We weren’t looking on Zillow, or anything.

Theo Hicks: Yeah. And then you mentioned that now people are actually coming to you for deals because of the network you built up, so you gave us some tips on the things you do to build your network – Bigger Pockets 15 minutes a day, attending meetups, starting a meetup group, Facebook groups, and just telling everyone you meet what you do and your recent activity.

And then lastly, your best ever advice for someone who wants to get started, which is to start meeting people, start building your network now, and following the advice you gave about how you created your network… And your tip for a meetup group was consistency, so make sure you’re meeting at the same place, happening at the same time, the same day every single month, being consistent. You host yours at a local bar/restaurant.

Nicole Heasley: Don’t forget social media – Facebook, Meetup.com and Bigger Pockets. Any place that you can post it.

Theo Hicks: Perfect. Exactly, posting it to those sites, so you find people to attend. Alright, Nicole, I appreciate you coming on. Enjoy the rest of your day. Best Ever listeners, as always, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

Nicole Heasley: Thanks, Theo. I had a great time.

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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JF2103: Part-time Out Of State Investing With Nick Giulioni

Nick has 3 years of real estate experience, working full time in e-commerce sales for a large tech company. While working full-time he has acquired a 48 door portfolio consisting of singles, duplexes, and triplexes in Indianapolis, and he is based in San Francisco. He explains how his W-2 has helped him pursue real estate investing because of the insurance of a guaranteed income.

Nick Giulioni Real Estate Background:

  • 3 years of real estate experience 
  • Works full-time in eCommerce sales for large tech companies
  • Has a 48 door portfolio consisting of singles, duplexes, and triplexes in Indianapolis
  • From San Francisco, California 
  • Say hi to him at: https://giulionirealestate.com/
  • Best Ever Book: Never Split the Difference by Chris Voss 

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Trying to make my partner happy and get them across the finish line was my top priority.” – Nick Giulioni


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Nick Giulioni. How are you doing, Nick?

Nick Giulioni: I am doing so well. I appreciate you having me on.

Joe Fairless: Well, it’s my pleasure, and I’m glad you’re doing well. A little bit about Nick – he’s got three years of real estate experience, but get this, he’s got a 48-door portfolio consisting of single-family duplexes and triplexes in Indianapolis. He’s based in San Francisco though, so we’re gonna talk about that. He works full-time in e-commerce sales for a large tech company.

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

Nick Giulioni: Absolutely. I have been extremely lucky over the last several years. I got into my first investment down in Southern California. Actually, it was a house-hack that my wife and I bought just about two weeks after we got married. If that didn’t prove that we can make it, nothing will. And since then, I’ve really invested myself into learning more and more about out-of-state investing. I’ve built an incredible network out in Indianapolis, and done a variety of different strategies, including portfolio acquisitions and seller financing to balloon my portfolio in that time and really be able to give back a little bit more.

Joe Fairless: Portfolio acquisitions and seller-financing. It sounds like you’ve got a couple tricks up your sleeve for how you’ve gotten to 48 units in three years, versus plodding along doing one deal of a single-family house at a time. So let’s skip to the good stuff – portfolio acquisitions and seller financing. Talk to us about maybe a specific example for each of them.

Nick Giulioni: I’ll tell you a little bit about a combination that I did. It was my most recent large deal I’ve done, and it was actually a 32-unit deal that was on the market for about 2.2 million dollars. I looked at it and really realized there was no way for me to be able to take it down, and went and negotiated with the seller a little bit; I negotiated down to a price that I thought was a little bit more fair, in the 2.15 range. I was able to bring a partner in to come buy six of those doors on their own, through traditional financing, and have the seller actually seller-finance the entire rest of the acquisition just to myself over the course of 20 years.

Joe Fairless: Okay, let’s unpack that… Let me make sure I’m writing that down correctly… A 32-unit, originally listed for 2.2?

Nick Giulioni: 2.2 million, yeah.

Joe Fairless: 2.2. You then said “No, I don’t want 2.2, I want 2.15”, so a decrease of approximately $50,000, because you said it was about that… You said the range…

Nick Giulioni: Yeah.

Joe Fairless: So you now have an interested seller at 2.15… But do you have the money to purchase that?

Nick Giulioni: This is actually an interesting one… I had no money.

Joe Fairless: You had no money. So you did not have any money to purchase anything… [laughs] Let alone a 2.15 million dollar property. So then you brought in a partner, that partner purchased six of those, and then the remaining units were seller-financed over 20 years.

Nick Giulioni: Yeah, that’s correct. So really, what I did is I sat down and I tried to have empathy for everybody involved. I kind of sat down and looked at it from everybody’s shoes… So this seller was in a position where he probably didn’t want to vacate the units, individually sell them, deal with all of the hassle associated with that… So he wanted a single transaction in order to get it all done.

Then I looked at it from my partner’s point of view – they were looking for a great deal. They weren’t looking for as much leverage or as much risk as I necessarily was… He just wanted to buy something below market value and add it to their portfolio… And for me, I wanted as many doors and as much cashflow as I could possibly get. So really, I just kind of had to look at it from all sides, and from the seller’s perspective, my partner coming in with traditional financing – that actually looked like cash to pay off their outstanding notes. So in all of this, I was able to piece something that was pretty darn special together.

Joe Fairless: Got it. So was it two separate transactions, or…?

Nick Giulioni: It was two separate transactions contingent upon one another.

Joe Fairless: Okay. Did the both close on the same day, or the same week?

Nick Giulioni: They did, they closed on the exact same day. It was actually one of the smarter moves I’ve made recently. I actually had it closed on the second of the month, and by doing that, I actually received a check at closing for prorated rents and taxes and all that stuff… So I actually got a check of $30,000 to take down all of these doors. About 1.6 million dollars of property.

Joe Fairless: Right. You say 1.16?

Nick Giulioni: No, 1.6 million.

Joe Fairless: Got it. So it was like 550k for those 6 units?

Nick Giulioni: Yeah, my partner brought in about 550k.

Joe Fairless: And he paid it all cash for those six units?

Nick Giulioni: They did use cash off of a HELOC of an existing property they had.

Joe Fairless: Got it. And when we say “partner”, is this person in the seller finance deal with you as well?

Nick Giulioni: Nope. Completely separate transactions.

Joe Fairless: So when we say “partner”, it’s really he bought his thing, you bought your thing, and then you went about  your separate ways.

Nick Giulioni: That’s correct, yeah.

Joe Fairless: Okay. Wow, props to you on this. The seller financing terms – can you talk to us about that? You mentioned it was over 20 years, but any other details?

Nick Giulioni: Absolutely. It is a 20-year amortization, 20-year term, so I don’t have to worry about it over that period. The rate was actually on the higher side, at 6%, but this was actually about 9-10 months ago. I’ve actually gone to the seller since then and asked if they would be willing to renegotiate those terms, given where current market conditions are. Now, this have gotten a little wonkier here in the last couple days, but generally, rates are in the low-fours to five, and I have actually gone back to them and we are currently negotiating a refinance to change that to over 30 years, and a 5% rate.

Joe Fairless: Okay. And what is their position, where they were amenable to doing this type of structure. You said they wanted the ease of transaction, but can you talk a little bit more about why they would do this?

Nick Giulioni: Yeah – for them, they needed to move out of the Indianapolis area, and they had been self-managing for years, and were really just looking to retire. So from their perspective, this looked like a continued passive income; it meant that they didn’t have to necessarily pay capital gains all at once across their entire portfolio that they had spent decades putting together… And it was an easy transition for them. They knew that at some point there was a decent chance I may end up refinancing and they could get cashed out… Or they may just carry it to term.

Joe Fairless: Okay. And approximately how old are the sellers?

Nick Giulioni: They’re on the older side. This was definitely a retirement play for them.

Joe Fairless: Okay. So 50, 60, 70…?

Nick Giulioni: I would say in the late 60s.

Joe Fairless: Late 60s, okay. And the property – I think I picked up on that based on what you’ve just said, that these units are spread out over Indianapolis… But will you elaborate? I might be misinterpreting it.

Nick Giulioni: No, these were actually all very close to each other; they’re in a neighborhood called Irvington. Definitely one that’s on the upswing quite a bit. It’s been appreciating quite well for me. It’s an area I’ve loved for actually a long time, and this just happened to fall in my lap, so it was pretty convenient, from my perspective… Actually, several of them are on the same block. There’s this one block in Irvington that — basically, I own the entire thing, on both sides.

Joe Fairless: The gentleman who used a HELOC to get the six units for about 550k – how did he choose the six units that he chose?

Nick Giulioni: That was a lot of horse-trading going out throughout the entire situation, and making sure that there was enough equity within the pieces without putting me into a negative equity situation… So it really just came down to “Hey, where do we think these are all worth? Let’s figure out how to build some equity for you on the buy, because I’m getting so much value with the 100% seller financing.”

Joe Fairless: Okay. So during that horse-trading, what are some lessons that you learned or some observations that you had as a result of those conversations? …because a lot of people haven’t been in that type of situation, with this type of structure.

Nick Giulioni: I probably could have been a little bit harder and been a better advocate for myself. I was just feeling so lucky that this whole thing was working out that I wasn’t being too tough, or anything. At the end of the day, I was trying to be fair to everybody involved, and I felt like I was getting one heck of a deal, no matter what happens. So for me, trying to make my partner happy and  get them across the finish line was my top priority… But there were several ways I could have probably improved it for myself, and gotten a property that I would have preferred… But in the grand scheme of things, it’s a small price to pay.

Joe Fairless: Doing some quick math – and correct me if I’m wrong, but $550,000 is $91,000 a door.

Nick Giulioni: Yup.

Joe Fairless: And the difference is 26 units remaining, and that is a 1.6 million dollar all-in price, which is 61.5k/door. So your per-unit cost is significantly less than what his per-unit cost is in a similar area… So what am I missing, where it sounds like you’ve got a really good deal, because you’re paying much less per unit?

Nick Giulioni: That’s a great question. I definitely took on some of the lower-end properties that needed a little more work, and  have thus invested since then to get them up to my expectations. I also took on more of the multifamilies. There were quite a few duplexes and triplexes in this, and the per-unit on those were significantly lower, where my partner was more interested in the single-family space.

Joe Fairless: Okay, got it. Where does the money come from to rehab the ones that need help?

Nick Giulioni: So I was being a little flippant when I said I didn’t have any money to invest. I actually did, and at that point I had 20 doors, give or take… So I was essentially using cashflow to do it. And like you talked about, I am extremely lucky to work in e-commerce sales, and am able to throw that W-2 in there. My wife and I live well below our means, and are trying to accelerate this as quickly as humanly possible.

Joe Fairless: You live in San Francisco. Are you from Indianapolis?

Nick Giulioni: I am not from Indianapolis. I do have family out there… I just listened to way  too many podcasts early  on, and found out that Indianapolis was a pretty strong market, and opted to lean in there.

Joe Fairless: Why did you pick Indianapolis?

Nick Giulioni: A variety of reasons why I like it. Number one, it’s affordable, and when I was starting out, I definitely had less capital to work with… So that was a good starting point. It cash-flows fairly effectively. The 1% rule tends to work on almost every deal there, assuming you’re not in a super A-class neighborhood. And in the grand scheme of things, it’s actually a pretty cool city. I know a lot of people probably that are listening here haven’t actually been there, but it’s a darn cool place to go hang out. And if I get to see family AND I get to make money, it’s a win in my book.

Joe Fairless: How did you find the deal?

Nick Giulioni: This particular deal actually came to me from a seller’s agent who I’d worked with in the past on a different portfolio acquisition, and actually had come to the table with a relatively similar transaction style… So this agent knew “Hey, Nick’s a creative guy. Even if he doesn’t have the money, he’ll figure out a way to get it done and bring some partners into the equation. She actually brought it to me off-market.

Joe Fairless: And how did you initially have that relationship with her again?

Nick Giulioni: We had done a 13-unit deal together about a year earlier, and had come up with a similar type of arrangement… She had found my buyer’s agent at that point, and honestly, it was just luck and happenstance that  that first transaction actually occurred… And then the second one followed just given my reputation at that point.

Joe Fairless: What deal have you lost money on?

Nick Giulioni: Oh, yeah… My second deal in Indianapolis – gosh, that one still hurts! I had done one awesome triplex deal with this new hungry agent, and had done very well with it, trusted him, and he said “Hey, this duplex is a slam dunk. Go for it.” He gave me some estimates… It turns out that he didn’t really inform me that he was representing both sides of that deal. And I remember getting into the house after investing about 50% more than his rehab budget, and just looking around and sitting there in tears.

Joe Fairless: You literally cried?

Nick Giulioni: Yeah, I was literally crying in the place and realizing I could never let somebody live here… So that’s when I called my new buyer’s agent, who I’d had brief interactions with, and I said “Hey, we’re listing this one.” I think I lost about $5,000. And I’ve gotta tell you, best education I possibly could have had was that $5,000, because I learned a variety of things… How to build a  more effective network, how to make sure that you have different parties that are watching your backs that are not related… It was a very cheap education as compared to a lot of it out there.

Joe Fairless: And when to cut your losses.

Nick Giulioni: Absolutely, yeah. We closed on that house the day before Christmas Eve. It was the best Christmas present I possibly could have asked for that year… And definitely, I sent the guy — because the guy was moving in actually on that day… I made sure that he had a Christmas tree delivered on his front porch when he got there.

Joe Fairless: Oh, that’s pretty cool. Okay, so the real estate agent was representing both sides, didn’t disclose it, or wasn’t announcing it very transparently if it was disclosed somewhere… But from a numbers standpoint, regardless of if he was repping both sides, it still boils down to the numbers, and if the deal makes sense… So what about your process have you changed in order to validate the numbers?

Nick Giulioni: I’m no longer trusting agents to give me any estimates of rehab. That certainly has changed. Or at least if I do trust their initial estimates, I’m always making sure that prior to closing and prior to my inspection window closing I always have one of my contractors go through and check it out, and actually give me at least a little bit more detailed scope of work. So that’s definitely an important lesson in that one.

On top of that, I will oftentimes now have my property manager check out the house, check out the area prior to that inspection window closing, making sure that they’re comfortable actually representing in that particular area, and just kind of validating, making sure that there’s a certain amount of accountability. The agent obviously wants to make the sale. That’s how they make their commission. But then you have to make sure everybody else along the chain is holding that individual accountable for what they say.

Joe Fairless: I’d love to learn about your process when you come across a deal, and how you verify the deal is a good one, knowing that you don’t live in that city… So let’s just pretend — or maybe even use an example, the last deal you closed on; you heard about it, then what took place to say “Yup, I’m definitely making XYZ offer.”

Nick Giulioni: My most recent is a condo. I purchased it from a buddy of mine who’s actually a wholesaler. I think he’s an incredible, incredible guy; we’ve been friends now for about a year… But I’ve gotta tell you, I wasn’t gonna trust his numbers without having him validated…

So he’s a wholesaler… I had him actually walk out there with my inspector (that I paid for), and go through this house and put together “Hey, these are the challenges with the house.” I had then my contractor, who wasn’t able to get in there prior to closing – I had him actually look at the inspection report and put together a scope of work based on that. And to be honest, the repairs that I would wanna do were slightly above where my buddy’s estimates were… And that’s okay, because the two of us chatted it through and made sure the numbers made sense… Because this is one that I’m hoping to BRRRR, and then do  short-term rentals on. It’s an incredible condo. But I just had to make sure that he understood that the $5,000 estimate wasn’t where it was probably gonna come in. It was probably gonna come in closer to 10k-11k, in that range, and just make sure the numbers made sense on those new criteria.

Joe Fairless: What’s been a surprise that you’ve come across, that we haven’t talked about, while purchasing these properties?

Nick Giulioni: Yeah, there’s a lot of challenges that I’ve faced that have been surprising. I’ll tell you the most recent of which – and I apologize I’ve gotta be a little more vague than I’d like to… I recently had a property manager go out of business pretty immediately. And unfortunately, there was no warning and there were no funds to get my security deposits back, get my rents, anything like that. Currently, we’re exploring options with insurance, and stuff like that, to get it fixed, but… This happened actually right before this last Christmas, and having to scramble there on the 18th of December to find new property management for not just my properties, which obviously was tough, but trying to protect all the other investors out there who were affected. That was definitely a challenge I hadn’t accounted for. And you don’t build that into your proforma; that’s not something that exists in any of those Bigger Pockets calculators.

Joe Fairless: [laughs] How were you notified that they’re closing the doors?

Nick Giulioni: I was informed by one of the employees, and validated it with a different employee. The funds were no longer there, and the company was shutting down.

Joe Fairless: Oh, wow… And besides insurance options, are there also legal options that are being considered?

Nick Giulioni: They’re definitely being considered. I think at the end of the day nobody wants to end up in court… So I think finding the insurance option is probably everyone’s best bet.

Joe Fairless: What type of insurance would cover a property manager disappearing in the middle of the night?

Nick Giulioni: It would potentially be called errors and omissions insurance. All agents should have that insurance. I’m learning a whole lot more about this currently…

Joe Fairless: [laughs] More than you wanted to…

Nick Giulioni: Way more than I wanted to… So maybe that’s a follow-up call. Once I’ve seen this whole thing through, you and I can talk a little bit more about what it looks like on the other side.

Joe Fairless: What’s the most profitable deal that you’ve got so far?

Nick Giulioni: I’ve gotta tell you, that one I was telling you earlier, about the big seller finance deal, where I was able to get 26 units – that thing’s been absolutely incredible. From a high-level, I actually don’t really cash-flow on it all that effectively, given how highly leveraged I am, and being at 6% interest rate… It cash-flows a couple hundred dollars, but if we really look at the total internal rate of return on that one – I have no money in the deal; I actually got paid, so I have negative money in the deal…

Joe Fairless: What about the renovation though? I thought you were renovating the units…

Nick Giulioni: Yeah, you’re right; I’ve probably invested about 50k.

Joe Fairless: Well, that’s a lot of money…

Nick Giulioni: That’s a lot of money, but I got a check for 30k at closing, so let’s consider that 20k invested, which again, is real money… But then my monthly paydown, just all my loan by itself, is in the range of $5,000 at this point… And I’m still getting a couple hundred dollars of cashflow. On top of that, the houses have actually appreciated, and I believe will continue to appreciate even in these kinds of crazy times. So I would say that for $20,000 locked in a  deal, I’m certainly making out like a bandit in that one. Heck, I think I’ve paid for it just in the loan paydown in the last couple months.

Joe Fairless: Props to you for putting that deal together, and having the creativity and the resourcefulness to get it done by bringing in the partner to buy cash, and then doing seller financing.

Based on your experience, for someone who is wanting to educate themselves about portfolio acquisitions and seller financing, what’s your best advice ever to that person?

Nick Giulioni: I think I said it earlier, but you’ve gotta have empathy, and really sit down and try and understanding it from everyone’s point of view. One of the books that really resonates with me – I actually read it after this particular deal, but I’ve found it very helpful in understanding the mechanisms by which I was working – was actually “Never Split the Difference”, by Chris Voss. It’s one of the best books I’ve read. I probably re-read it every quarter or so, just to remind myself… There are so many tactics that are just absolutely incredible. And it’s not necessarily just about portfolio acquisitions, it’s about negotiating in general and having empathy for those you’re working with.

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

Nick Giulioni: I’m so ready!

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

Break: [00:22:49].13] to [00:23:24].08]

Joe Fairless: What’s the best ever book you’ve recently read, besides “Never Split the Difference” by Chris Voss?

Nick Giulioni: Man, a tough one… I definitely love to read; I try and read at least a book every single week, and write up a book report… So I’ve gotta say the most recent one that I’ve really enjoyed was “The Infinite Game” by Simon Sinek.

Joe Fairless: Well, you can’t just slip in there you write a book report about books that you read and then me not ask a follow-up question… [laughter] What is the outline for the book report that you write?

Nick Giulioni: I actually just kind of free-form it as I go, and try and find what the most important points are, and just [unintelligible [00:23:52].05] for myself. I read so much, and I’m trying to learn so much that it’s easy to forget things. So if I’m able to just kind of go back and quickly reference the key points… I actually send this out to a couple of friends that hold me accountable, but… The general approach is to just get a couple of key points so that I can remember what was actually important in everything I read.

Joe Fairless: Do they send you their notes on books they read?

Nick Giulioni: Not as many as I should be getting. I should be giving them a much harder time.

Joe Fairless: [laughs] But it’s understood that this group of friends or this group of people exchange reports on books that are read…

Nick Giulioni: No, I’m just the weird one that actually sends out an email blast.

Joe Fairless: You’re the one, okay. Got it. Alright. [laughs]

Nick Giulioni: I’m just the weirdo over-achiever.

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

Nick Giulioni: In my infinite wisdom once, in a portfolio acquisition that I did – it was four units. I was trying to think ahead and realized that if I got them all on individual notes from the same seller, then it would be easier to refinance, versus having to refinance all of them simultaneously. What I didn’t realize is that by doing that, I was actually taking up one of those 10 golden slots that you talk about when doing conventional financing… So in my infinite wisdom of trying to make it easier to refinance, I basically screwed myself up for conventional loans moving forward.

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

Nick Giulioni: I love reaching out to people and helping people get started in real estate. My wife has started helping me with a blog, but I hop on calls with people, 5-10 different investors every single week, trying to help them get started… So that would be my way of giving back.

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

Nick Giulioni: You can reach out to me on Bigger Pockets, you can find my website at giulioni.com; I hope it’s in the show notes, because it’s got a lot of vowels… And I would love to help anybody who would like to reach out.

Joe Fairless: Is giulionirealestate.com also your website?

Nick Giulioni: That’s correct, yeah. They both go to the same place.

Joe Fairless: Good stuff. Nick, thanks for being on the show, talking about your portfolio acquisitions and seller-financing deals, how you structured it… One key thing that you do for any deal, and that’s have empathy for all; one resource for practicing that – Never Split the Difference, by Chris Voss… And getting into the numbers of the deals, which we all love.

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

Nick Giulioni: Thanks so much.

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JF2100: Start Now With Heath Jones

Heath is a Neuroscientist for the US Army, helping the soldiers reduce hearing loss through studying and testing. Heath jumped in with both feet when he started into real estate, buying a 4-unit and a 16-unit back to back. Heath mentions that his confidence to jump in came from many free resources available online, including the Best Ever Show.

Heath Jones Real Estate Background:

  • Neuroscientist for the US Army
  • He started investing in February 2019 purchasing a four-plex
  • Now he has 5 properties: 4-unit, 16-unit, and 3 rentals SFRs
  • Located in Enterprise, Alabama
  • Say hi to him at:  www.hsquaredcapital.com 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Start now, it’s never too late to start, and there are no real good reasons not to start.” – Heath Jones


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Heath Jones. How are you doing, Heath?

Heath Jones: I am doing fabulous, thanks for asking me.

Joe Fairless: Well, my pleasure, and I’m so glad that you’re doing fabulous. A little bit about Heath – he’s a neuroscientist for the U.S. Army. He started investing in February 2019, when he bought a fourplex. Now he had five properties – a 4-unit, a 16-unit and three rental single-family homes. He’s located in Enterprise, Alabama. With that being said, Heath, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Heath Jones: Yeah, so my day job is helping to protect hearing of soldiers by doing research and experiments to test apart things that may be contributing to hearing loss, and finding ways to reduce that. I started investing in real estate because at one point I was a contractor for the DoD, and then I transitioned to a more permanent role with the federal government; that came with a decrease in annual salary, but loads of benefits…

But that crunch month-to-month was definitely gonna be a big chunk, so my wife and I had started talking about ways of increasing our monthly income, and started doing research and came across real estate as a potential option. That really spoke to me, because I don’t understand stocks and bonds; it’s all Matrix code to me, on a ticker tape… But I do understand going to a property, seeing a building, and then cashing a rent check each month. So that really spoke to me.

We started looking at getting rental property. This was Thanksgiving of 2018; we were talking to some friends who had done this, one single-family a year for ten years, and they had a 10-home portfolio. We were like “Oh, that seems like a good idea. Why don’t we do that?” So we started to look at properties. That was Thanksgiving 2018. I’m from Texas originally; we go home for Christmas, we’re driving back to Alabama, and we’re like “Alright, one property a year, five years – we’re gonna do it.” When we got back, we started looking at single-family homes, and trying to run the numbers and find a way to make the deals work, but all of our analysis – the best we could squeeze out of a place was maybe 200 dollars extra a month. I was like “Man, that’s a lot of upfront capital to put into  a place to just make 200 extra dollars a month. Why don’t we try to look at multifamily?”

So we started looking at four-units, how much they were going for; there weren’t any on the market at that time… And as soon as the first one came up – it was a triplex. We ran the numbers, it worked, we put in an offer, but we didn’t get that one… Luckily. It was actually overpriced, as we learned later.

Then we did the four-unit. It came on the market at 3 PM, we had an offer to selling agent by [5:30] that day, and had it under contract by the next morning. After that, I was looking for other properties that were multifamily. I found a 16-unit and I showed it to my wife; she’s like “Oh, that’s a good five-year goal…”

Joe Fairless: How soon after that?

Heath Jones: Oh, I actually had the 16-unit under contract before we closed the four-unit.

Joe Fairless: Wow! Okay, please continue.

Heath Jones: So I kept telling her we could do it, and at that time I was listening to your podcast, I was listening to Michael Blank, I was watching Matt Faircloth’s videos on YouTube, the DeRosa Group. So from what I was researching, from the things I was reading, the content I was consuming, it seemed very possible to me for us to acquire that 16-unit. I just had to get my wife on board. So the strategy I used was I started watching the videos while we were laying in bed together just loud enough for her to hear… [laughter] So I’d be listening to something and she’s like “Hey, they just said X, Y and Z. What do they mean by that?” So I’d pause the video and I’d start talking to her about it… And she was like “Well, if you actually make the 16-unit happen, I’ll be all-in with you.”

So I worked hard; I had to raise about 120k, because all of our money was tied up in the four-unit… So I did research about setting up a PPM, and getting investors, and it seemed like it was gonna cost $15,000 to have lawyers draft up a private placement memorandum… So what I ended up doing was going to friends and family members and saying “Hey, I’m starting a real estate business…” And this was primed, so over the course of several weeks I would mention that I was doing real estate. “Oh, we’ve got this 4-unit under contract. We’re looking at multifamily.” So I had prepped my family to know that I was doing this, and then at one point I was like “Hey, I was wondering if I could set up a personal loan in which I would guarantee you–” For all my loans it was 5%. I was like “It’s not as good as you can find in other places, but we’ll keep the money in the family instead of going to some hard money lender…” Because I told them “I’m gonna make this happen, with your help or not. I just wanna get this first big property acquired.”

So I set up personal notes with all of them. So I have little loans for the down payment, which we’ve been paying off over this first year of owning it.

Joe Fairless: So how much in total were the loans?

Heath Jones: 120k.

Joe Fairless: Okay, so that was the equity.

Heath Jones: That’s correct.

Joe Fairless: So you’ve still got another loan on the actual 16-unit.

Heath Jones: Right. I have it on a seller-financed note. I negotiated with the seller to do seller-financing for 5.5%, with a five-year term, with a balloon payment at the end of five years. But we also wrote into the contract that I could get an extension if I needed to for a rate of no less than 6%. So by the time the fifth year comes up, I’ll have to either refinance, or exercise that extension… But the property needed some work; I’ve done a lot of work to it to begin with, and hopefully getting the rents up. I got a lot of bad apples out that weren’t paying rents.

That was one of the first lessons I learned – the difference between economic occupancy and actual occupancy. So they were full, but there were three people that hadn’t paid rent in 2-3 months, and I kind of inherited those headaches… But I got it all turned around, and rockin’ solid now.

Joe Fairless: Well, let’s talk about that… You said the seller financing note after five years is “no less than 6%.” Is there a cap?

Heath Jones: The language actually states that it will be whatever the market rates are. I wish it would have just stayed like that, because then I would just refinance with all the rates now… But I think at the same time they didn’t want it to be lower than the 5.5% or 6%.

The way it’s structured is that if the rates jump up to 6.2%, 6.3% or something like that – I think that’s what it would cap at, whatever the market average is… But if the market average is lower than 6%, then because I’m asking for a five-year extension, then that’s kind of what I’ll have to pay to keep the note [unintelligible [00:10:15].19]

Joe Fairless: Oh, it would be an additional five years?

Heath Jones: Yes.

Joe Fairless: So in total it could be ten years.

Heath Jones: That is correct.

Joe Fairless: Wow. Okay. And I was wondering about the 5% loan on the equity, what lender would allow you to borrow money like that for the equity… But mystery solved. It’s a seller-financed deal.

Heath Jones: Correct. Typically, most lenders won’t carry the first if you’re carrying a second note… So that was alleviated by the fact that I’m financing the property through the seller themselves.

Joe Fairless: Okay. And as far as having the conversation with the seller about seller financing – was that your idea, or his/her idea?

Heath Jones: That was my idea. So the way I went about it – I actually found this deal on LoopNet. This was — just getting started, you just use the resources that you have available. You don’t have any connections, there’s not really anybody at my local real estate meetup who are doing multifamily… All the agents here are mostly single-family homes, so they  might sell some four-units, or they might try to sell a 16-unit, but they don’t really know the ins and outs for the transactions of this size.

So I found it on LoopNet, and what I ended up doing is I didn’t wanna go through the broker that was listed there, because I knew that was gonna be a large amount of money for the seller… So I actually went to the county records, and I found out who owned the building. They had an LLC listed, I looked up the LLC, and of course, there was a number online. I called, and spoke with the secretary of the owner, told him I was interested. I got a call back maybe 20 minutes later from a broker friend of the seller, who – we were then talking and I was like “Hey, would you be okay with seller financing?” And they said “We would have to discuss it. We need to meet you. We like that you’re local in the area, and that you’re there.”

They said they had gotten 8 or 9 LOIs (letters of intent) on the property, but whenever I sent them mine, they knew that I was gonna be their guy… Because I had not only included in my letter of intent the terms that I was looking for, but I also included an amortization  schedule, what it would look like, how much they would make in interest payments over a 5-year, how that added to the balloon at year five, and got them close to what they were asking for.

They were asking 635k for it, and I had evaluated it based on what I thought the cap rate was for this area to be — what did I say…? It was 45, and I told them I would give them 500k for it… And we met at the middle at 560k. But then after the due diligence process there were some things like the insulation needed to be brought up to code, little things like that that kind of added up… So I was able to negotiate another 20k off the price.

So all in all, I got it for 540k, with the 120k down payment seller-financed for a 30-year amortization at 5.5%, with a 5-year balloon, and the extension.

Joe Fairless: Bravo on navigating that. That is not a cookie-cutter deal, especially as your largest one.

Heath Jones: Well, I have to say I wouldn’t have been able to do it if it wasn’t for your podcast, your YouTube videos, Michael Blank and Matt Faircloth… The information that I got from reading your guys’ articles and watching the information you’re providing – I don’t know if I could have navigated it as easily. So I’m just so grateful that you guys have been doing what you’re doing… And to be a part of it today, it feels pretty amazing. So I thank you again for having me on.

Joe Fairless: Well, it’s one thing to listen and to read, it’s another to put into practice. And you put it into practice. Let’s talk about challenges that have come up on the 16-unit since you’ve taken over. How long ago did you close on the 16-unit?

Heath Jones: We closed on the April 4th, 2019.

Joe Fairless: Okay. So what are some challenges that you’ve come across.

Heath Jones: A couple of the challenges is finding contractors to do work that you need done, and having them be reliable and not overcharge you… When you do find contractors, it’ll show up consistently them pricing it up a little bit more, because they know they’re consistently showing up… They get the job done… I’m a little OCD, I have to say, so there’s a lot of times where I watch them do the job, or I come and look, and I’m not really as happy with the work, but they did meet the statement of work, what I asked for.

Another challenge was — since I was self-managing, I did everything by myself. I do have to say, my wife was one of the big reasons we got the extra 20k reduced. She is a negotiation master, and helped guide me on that side of things. I couldn’t have done it without her. But I was the one who was going to the property and knowing on doors and asking people to pay rent. And that’s not really what I was used to, but I wanted to take the first year to understand how to property-manage, I wanted to learn what I could ask a property manager to do if I was to invest in a property that’s far away or out of state… I wanted to see what it would take to actually try to increase rents… More specifically, I also wanted to know if they were going to be taking me to the cleaner’s for flooring, and paint jobs… I now have a better sense of how much things cost.

But the challenge was getting the bad apples out, trying to do things without evictions… I didn’t have to do cash for keys, luckily, but eventually the persistence of asking them for the rent, remaining in constant contact with the bad apples kind of made them know that the management was different, and that the Notice to Quits – we were about to take action; so they ended up moving out anyway.

Now I’m screening a lot more stringent than the previous property management company, so my tenants are good, paying rent in time… So just interacting with the tenants was something that I hadn’t thought about while I was filling out my Excel sheets and making phone calls, and things like that. So that was a challenge for me that I had to get past.

I have one year experience as a property manager, and I do have to say, for the good property managers out there – they deserve a lot of credit. They do a thankless job sometimes, and… They are making their share for doing that job, but I’ve got a lot of props out to the good property managers that are out there.

Joe Fairless: Here’s a hypothetical scenario – tomorrow you come across a 16-unit in a similar area. What are a couple things that you might do differently on this next approach? Whether it’s on the negotiation side, the terms side, the execution side, budgeting side… What are a couple of things you would do differently?

Heath Jones: The one thing that I would do differently is I would also build up a capital expenditures reserve account. My number one goal was first get the down payment; at any cost, I need to get the down payment to close this deal. So that was the watermark on the wall that I was trying to hit. With that being said, since I knew that trying to raise additional money for any of the fixes – what I ended up doing was I also asked the seller and I negotiated it to have deferred payments for the first three months. So what I was anticipating was that for the issues that I knew about, I would need X amount, and the gross income at that time would cover most of those. So I was gonna pay for the repairs out of those first three months of the rental income.

And of course, you always have more repairs than you anticipate, and you always have more issues that come up, that cost more than you thought… So the one thing that I would do differently is to build in a bigger budget, or raise more money for the capital expenditure budget and reserves.

At that time I hadn’t really come across interest-only payments, so deferred was kind of the strategy I employed… I might defer payments for a little bit longer, or I might ask for interest-only payments during the first year, while I fix everything and get the bad apples turned.

Joe Fairless: How much would you build into the cap ex reserve account for that hypothetical 16-unit?

Heath Jones: Oh, man… I would feel comfortable — and this is assuming that you don’t have to replace roofs, or HVACs, or anything like that. Well, I would feel more comfortable if I had maybe 20k to 30k in a reserve, that I could deploy if an HVAC went down for some reason, or the roof started leaking and insurance wouldn’t cover it. Turning the carpets — so what I’m trying to do as well is I’m trying to move away from having carpets in the units, so I’m trying to put in LVP that is sectioned, so if there is some damage, I can just remove a particular panel and then not have to redo the whole floors… That is running anywhere – depending on if I also have to do the carpets upstairs, which I wanna do LVP upstairs as well – between 2k and 3k for the apartments right now.

And painting as well. Painting costs a lot more than I thought it did, and it’s either gonna cost you in sweat and agony if you’re doing it yourself, or it’s gonna cost you to have someone go do it for you. So I guess a little long-winded response to why I would wanna keep at least 20k or 30k for the 16-unit in reserves, and then keep replacing that whenever I don’t have any issues. That way it’s still there in case I need it.

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

Heath Jones: Oh, man… Start now. It’s never too late to start, and there’s no real good reasons not to start. Just excuses. Everybody I’ve read, or watched, or talked to, they all say the same thing. They all say “I wish I would have started sooner.” You would be amazed and surprised at what you can accomplish if you make the decision to start and you set your mind to completing that particular goal.

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

Heath Jones: Yes, sir.

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

Break: [00:21:30].20] to [00:22:05].23]

Joe Fairless: What’s the best ever book you’ve recently read?

Heath Jones: I’ve read a lot of real estate books, but just getting close to the finishing is Crucial Conversations.

Joe Fairless: I love that book. What’s the best ever deal you’ve done?

Heath Jones: The best ever deal I’ve done is the 16-unit. I got it for a really good price and a lot of favorable terms in the way I financed it.

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

Heath Jones: Oh, man… I have a five-year-old and a three-year-old. My daughter is in Girl Scouts, so we give back to the community through Girl Scouts. They just finished doing all their cookie sales, and we’re still dropping off cookies at places… So I’m helping the community through her Girl Scouts. I’m a former Eagle Scout, so that kind of fits the way I have done things in the past, and that’s how I like to deal with that.

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

Heath Jones: You can find our Facebook group, the Multifamily Real Estate Experiment Facebook group. My partner Hutch (the Marine Investor) and I, we started that Facebook group. We have a podcast with the same name, you can find us there. You can also email me at heath [at] hsquaredcapital.com. You can also go to our website hsquaredcapital.com. I’m on Bigger Pockets… I actually took your advice from the Best Ever conference this year and I’ve started going in and posting and trying to answer questions that I might have some information about, or try to start discussions… So I’m on Bigger Pockets. I’m also on LinkedIn… So any type of way, feel free to connect; I’m more than happy to talk real estate, talk strategies… I’m just here to help other people improve their lives as well, through real estate or any other means.

Joe Fairless: That 16-unit is just a spectacular case study for how to manufacture a deal. You found it on LoopNet, you have seller financing, you got creative with how to get the down payment (with the promissory notes), and then you were not the only LOI in the game, according to the seller’s broker (there were about 8 LOIs), but you put the amortization schedule in there and you were very detailed… And should you come across a similar opportunity, a couple things that you would do differently is in additional to deferred payments have interest-only payments for X period of time, as well as build up a cap ex reserve account and bring that to the deal (about 20k-30k).

Thank you for being on the show, I enjoyed it. I hope you have a Best Ever day, and we’ll talk to you again soon.

Heath Jones: Sounds good. Thanks for having me again.

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JF2093: Bad Decisions To Good Decisions With Will Harvey

Will is a Principal at CEO Capital Partners and recently left his W2 job to do real estate full time. He shares a great story of how he had a life of making some bad decisions in college related to alcohol and because of a great friend he was able to overcome this and now is a successful investor. 

Will Harvey Real Estate Background:

  • Will Harvey is a Principal at CEO Capital Partners
  • From Ashburn, Virginia
  • He started in real estate in 2016.
  • Personally owns over 1.5MM  in real estate mixed between rentals and Airbnbs
  • Recently left his W2 job to do real estate full time.
  • Say hi to him at : www.wealthjunkies.com  

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Seek advice from qualified people.” – Will Harvey


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Will Harvey. How are you doing, Will?

Will Harvey: I’m doing well.

Joe Fairless: I’m glad to hear that, and looking forward to our conversation. A little bit about Will – he’s the principal and CEO — he’s a principal at CEO Capital Partners…

Will Harvey: That’s right. Most people mess it up and say it how you originally said it…

Joe Fairless: Yeah, I was like “Wait, there’s a preposition there.” At CEO Capital Partners. He’s based in Ashburn, Virginia, right outside of DC. He personally owns over 1,5 million in real estate in the DC area, which is a mix between rentals and Airbnbs. He’s been investing in real estate since 2016, and recently left his high-paying W-2 job, so congrats on that. With that being said, Will, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Will Harvey: Absolutely. Growing up, I was always on top of my dad. He’s been in business a long time… And he always taught me that — I’d go to a restaurant and I’d be like “I wanna work here one day.” I’d go to Chipotle when I was really young, and I’d be like “I wanna work here. The food is so good.” And he would always teach, “Now, you don’t wanna work here. You wanna own it.” So I was always instilled that whole “Own the ladder, instead of go up the ladder mentality.” So that was good.

I had a bunch of side hustles as a kid. I started out selling golf balls. I would find golf balls, clean them up, and sell them at a nicer course. As I went along with selling stuff  on eBay for people, and cut grass… And getting into high school I started going down the wrong path. I got into drugs and alcohol. Once I got into college, it got ten times worse. I just got real strung out on a bunch of stuff… I was there for three total semesters. My last semester was just a train wreck. I ended up pulling out of school, I came home…

Joe Fairless: What happened in that last semester?

Will Harvey: The main thing was just blacking out all the time.

Joe Fairless: It’s important to be conscious during college.

Will Harvey: Exactly, yes.

Joe Fairless: You’ve gotta be conscious during class time too, right?

Will Harvey: That’s right. So blacking out, and driving, and just doing all kinds of stupid stuff. Anyways, I came home, and I was actually home on winter break, and had just a total God moment. My Christian faith is what got me through everything that I went through. A family friend was in my parents’ driveway; I was living with them at the time. After a real bad blackout, my friend had punched me in the face a couple times, because I was trying to drive, and I was saying stuff about them… So the next day my face was all swollen and messed up, and this guy saw me and he’s like “What happened?” I was like “I don’t really remember.” And he thought about it — at the time he was sober 18 years; he was an alcoholic himself. So a couple days later he reaches out to me and he’s like “Hey, I was thinking about you over the last couple days, and I think this might be a little bit bigger than you think… So I would love to sit down — I’ll just tell you my story  and we’ll just go from there. No pressure.” And again, by the grace of God, I was kind of at the bottom, so to speak, so I agreed to meet with him.

Joe Fairless: And how did you come across this person in the first place?

Will Harvey: He was a family friend, lived in my neighborhood…

Joe Fairless: Okay.

Will Harvey: So I went and met with him. His story was identical to mine. I was sitting, talking to him, and I was like “Well, if he’s alcoholic and his story is exactly like mine, then what does that make me?” Two days later we told my parents; I admitted that I had a problem with alcohol, and ended up making the decision to pull out of school and get sober. I started going to AA meetings, and  all that.

Joe Fairless: Good for you.

Will Harvey: Yeah, I appreciate it. It was very humbling. Most 19-year-olds are not doing that, so it was very humbling, moving back in with your parents when you had the freedom of living at school and doing all that. Anyways, fast-forward–

Joe Fairless: And I’d say that everyone has areas in life that they need to have that sort of awareness and about-face; we’ve gotta do something else. It’s just that certain things, like alcoholism, drugs, other things – it’s more obvious from the outsider standpoint. But we’ve all got that stuff, right? Everyone has that.

Will Harvey: Right. Admittedly, now I’m addicted to work…

Joe Fairless: Well, your website is wealthjunkies.com, which after knowing this story — I was gonna ask you why you called it WealthJunkies.com.

Will Harvey: Exactly, that’s right… So fast-forward, after I was home and living with my parents, about a year and a half later I ended up walking on and playing football at a school in Ohio.

Joe Fairless: Which one?

Will Harvey: It was Ohio Dominican University.

Joe Fairless: Nice.

Will Harvey: It’s in Columbus, overshadowed by the other school in Columbus. [laughter] But I ended up playing there, and that was great, until I had double hip surgery. Then I came home and I kind of started my real estate journey. So I got into the mortgage business; a family friend got me into the mortgage business in 2015. I learned the business for about a year, and at the end of 2016 is when I went off into sales. So 2017 was my first year. I did well, and it was phenomenal; I lived it, breathed it, slept it… And it was actually before I started in sales. I was able to buy my first house.

The way that it all happened was I was in the mortgage business, and I didn’t know a ton about real estate, but I knew that it was a good thing, and I knew that I should buy a house, because I can  start building wealth. But I was making $30,000 at the time, and living in the DC area, you won’t qualify for [unintelligible [00:08:11].16]

So I went to my dad and I said “Hey dad, I have a potential opportunity for you.” And he’s like “Oh, great. Here we go.” So I showed him his house, and I was like “Look, I can’t qualify on my own, but I’ve done my research. This is the rental income that I can get. I’ll live in one room, I’ll rent out the other two. Can I borrow your ability to qualify?” So he agreed, and signed on the loan. I was able to get the house.

In the first month with two tenants – one was my brother and one was another family friend… The first month they paid me the rent, it almost covered the entire mortgage, and I was hooked on real estate. Hook, line and sinker. It was a house-hack before I ever discovered Bigger Pockets or anything like that… And I highly advocate that to anybody that I talk to, especially if they’re single and don’t have kids, or anything. I highly advocate for doing that.

Fast-forward a little bit more, I started originating and I started making good money, and at the end of ’17 I bought another house. Then fast-forward another eleven months from there I bought another house. Again, the houses here are ridiculous in price. One of those rental properties was over $400,000.

Joe Fairless: Dang. And you were putting like 20%  down?

Will Harvey: I put 10% down, because I moved into it. So each property I bought, I bought as a primary residence and moved into it. I had the lender’s consent, used the same lender, and they were cool with it. So that helped. All the rates are in the three’s, which is nice; I wasn’t having to do investment loans.

But after I got to three, I just realized that there was a serious scalability problem with what I was trying to do, and that’s kind of what led me into multifamily. So that’s when I started learning about it and going from there. If you wanna ask some questions based on all that…

Joe Fairless: Sure, yeah.

Will Harvey: Or I can keep going. What do you want me to do?

Joe Fairless: Well, your “personally owns” part – mystery solved  there. Because I introduced you as personally owning 1.5 in real estate in the DC area. Three homes, 400k(ish) a pop. There’s that. Is that all the portfolio, or is there something else?

Will Harvey: I actually have one more, and I had one that we sold; it was a flip. And then there’s another flip I’m doing with a partner right now… That was just a killer deal. I own it, but it’s in a company, and it won’t be owned for long; it’s not a long-term house.

Joe Fairless: Okay. And just to get an idea of cashflow, just pick one of the four homes, please, and tell us what’s the income, what are the expenses, high-level, and what are you making per month?

Will Harvey: Yeah, sure. I’ll pick the second one. It was the most expensive one. The cool thing about this one is that it was bleeding at one point. So I was able to kind of use the knowledge that I learned from multifamily and apply it to this. That’s what helped.

Joe Fairless: Oh, okay… Yeah.

Will Harvey: So I did have one person renting the majority of the house, and then I had Airbnb in the lower level; it was a separate entrance. The house was perfect for that… And I put a lock on the outside of the door, so they couldn’t access the rest of the house. It’s like a separate unit, essentially. And I had someone else renting the rest of the house. But what I did – once their lease was up, it was a three-level townhouse.

Instead of just doing the Airbnb and renting the rest of the house out as one lease, I kept the Airbnb and I did two separate leases for the two bedrooms that were upstairs. And by doing that – it was crazy; it turned it around phenomenally. Now it’s cash-flowing about $400/month… Which doesn’t sound like a lot, but since I’ve bought it, it went up in value $50,000. So it’s a high appreciation area. I know you preach the three rules – not to go for appreciation…

Joe Fairless: Right. Well, my approach is buy for cashflow, and then increase the value through value-add plays… And here you go, a value-add play. You kept the Airbnb, but then you changed it from leasing the other one as a regular rental to leasing it by the bedroom…

Will Harvey: Exactly.

Joe Fairless: …and then you separated that out. Let’s compare the Airbnb income per month, versus one-bedroom per month. What’s the difference there?

Will Harvey: The Airbnb is about $1,100/month. If you average it out, that’s what it comes out to. So it’s about $1,100/month.

Joe Fairless: Income?

Will Harvey: Income, yeah.

Joe Fairless: Okay.

Will Harvey: And then from that $1,100 — there’s not a whole lot of expenses. Let’s say about $60/month in expenses. There’s a cool app I’ve found where you can get a turnkey cleaner; it’s pretty cool. It’s called TurnoverBnb, for anybody listening…

Joe Fairless: Thank you. I wasn’t gonna ask that, but I should have, so thanks for offering that…

Will Harvey: No, absolutely. TurnoverBnb. So that’s about $1,100. But that room is so much smaller than the rooms that I’m doing a lease. So apples to apples, it’s hard to compare them… But it’s still more than what I’m doing for the leases.

Joe Fairless: What’s the bedroom rent?

Will Harvey: The master is $1,000, and then there’s another — there’s like a master two, and that one is a little bit smaller than the true master; that one is $950. So the Airbnb is better. The Airbnb is tiny compared to both of those rooms, and I’m still getting more rent.

Joe Fairless: So the reason why I asked that question was because of the follow-up, which is why not have all three be Airbnbs?

Will Harvey: Because it’s more of a headache to do it that way. I see it as more of a headache. Airbnb is not passive. People are coming… And I have it very passive now; I’ve been doing it for over two years, so I’ve kind of worked out all the glitches and have  it pretty automated… But one of the renters in the house I know very well, and she kind of oversees everything. So I’m giving up a little bit of income by not doing Airbnb for the sake of having peace of mind.

Joe Fairless: What, if anything, does she get compensated for overseeing it unofficially?

Will Harvey: If it’s something where I need her to clean it, she will, and I’ll just knock $50 off a rent. If it’s an emergency cleaning and the TurnoverBnb can’t do it in time, or there’s something that comes up with a guest, and they need something – then she’s there, and I kind of compensate her as I go. It’s a good arrangement that we have.

Joe Fairless: In terms of the process, with the Airbnb over the last couple of years you said you’ve got it down more or less to a smooth system… What are some major changes that have taken place over those two years?

Will Harvey: Getting rid of the stupid keyless entry that was giving me so many problems…

Joe Fairless: Oh, really?

Will Harvey: That’s a huge one, yeah.

Joe Fairless: Getting rid of it?

Will Harvey: Yup. It sounds crazy. That’s the reason I got it, was because I thought that it was gonna be so easy, nobody will lose a key, they [unintelligible [00:15:00].14] but it created so many problems.

Joe Fairless: Which one did you have?

Will Harvey: It was Schlage. They’re a name brand product, and it would always mess up. I’m not trying to dog on them, but…

Joe Fairless: You’re just speaking facts.

Will Harvey: Yeah, exactly.

Joe Fairless: So the battery went down sometimes, or…?

Will Harvey: No, it actually wasn’t the battery. It was really — I know I’m kind of getting in the weeds here, but there was this part inside, and it was like a little disk, and it would slip, and basically it would just spin freely, and it wouldn’t turn it. So I’d have to take it apart…

Joe Fairless: So why not just get a refund and get a different type of keyless entry?

Will Harvey: I don’t know, I bought it a while ago, and everytime I’d go over there I would just wanna fix it and be done with it and move on. So I’d youtube it, try to figure out how to do it… It would work for a little bit, but then a month later it would go bad. So the solution there was get a lockbox and have a key. So far, the good old-fashioned keyed entry has been fine.

Joe Fairless: Okay. What else?

Will Harvey: Another thing is I have a virtual assistant who handles all guest communications. A big thing with Airbnb is being a super-host, so you wanna do that… You wanna become a superhost, and in order to do that you’ve gotta get a bunch of reviews, and you’ve gotta be really good. So I had a virtual assistant – she’s awesome. Her name is April. And I’ve put together a process where as soon as someone books, she sends them a message and says “Hey, here’s the Wi-Fi, here’s this, here’s that.” There’s those frequently asked questions, so we kind of answered all of those questions in this first message.

So she would send that, she would say “If you need anything, let us know.” On the day they arrive, she would message them again, and basically reiterate that and say “If you have any issues with check-in, let us know.” And then while they’re there, for the long-term people, every Thursday she would message them and ask if they need anything. And then when they leave, there was a sequence where she would message them and try to get them to complete the review.

So that’s huge, in automating it… Because I was always too busy to ask for reviews and do all that. So having a system in place where she would do it was very helpful for me.

Joe Fairless: How did  you find the VA?

Will Harvey: UpWork. Neal Bawa motivated me to do that.

Joe Fairless: And how many VAs did you work with until landing with this woman?

Will Harvey: She was the very first one…

Joe Fairless: Wow.

Will Harvey: Yup. There’s a lot of people that have gone through a lot of VAs and not been satisfied, but knock on wood, she’s awesome.

Joe Fairless: Where is she located?

Will Harvey: Philippines.

Joe Fairless: And how much per hour?

Will Harvey: Five dollars and five cents.

Joe Fairless: And any bonus for doing stuff?

Will Harvey: I’d give her a Christmas bonus… If she makes a decision and it’s thinking outside of the box, she does something that’s impressive, I’ll give her a bonus. 10 bucks, 25 bucks, somewhere around there.

Joe Fairless: Had her for how long?

Will Harvey: I’ve had her since July or August of 2019.

Joe Fairless: Wow. Good. I’m glad to hear that.

Will Harvey: Yeah. It’s going great.

Joe Fairless: So now your focus is what?

Will Harvey: Multifamily.

Joe Fairless: Where are you at with that?

Will Harvey: Myself and four partners – we started a group about a year ago… And we got involved as a co-sponsor on a few different deals, and we were able to raise money on our first one. We raised about half a million dollars… And then about three weeks later there was another opportunity that came up, where we were able to co-sponsor… And that’s where we’re at now. We have one that we’re working on, and as this records, it’s under contract in Columbia, South Carolina… Which is pretty cool, because it’s the school that I was at, where I was a colossal screw-up, where I was getting into all the drugs.

Joe Fairless: Is that the Gamecocks?

Will Harvey: Yeah, University of South Carolina.

Joe Fairless: Yeah, nice. Now they’re USC.

Will Harvey: Yeah, exactly. That’s right.

Joe Fairless: I’m sure I’ve just made a lot of South-Caroliners upset when I said that… [laughter]

Will Harvey: Absolutely. That’s what everybody says.

Joe Fairless: Alright. Well, I’ll just join the crowd then and just blend in and run away.

Will Harvey: [laughs] You’re good.

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

Will Harvey: When I was in the mortgage business and I started learning about multifamily, and I knew it was something that I wanted to do, like you said in my bio, I was high-paid, I was making a couple six figures, and I was in my early twenties… But I just wasn’t happy. I wasn’t enjoying it. I felt like a hamster on a wheel. And I would ask people advice. And everybody that I was asking was in a position where they weren’t financially independent, they weren’t financially free or anything like that. They were working. So the advice – what I’m getting at is seek advice from qualified people.

Everybody I was seeking advice from was not in a position where I wanted what they had, so why was I asking them for advice? That’s my advice – try to find people that are actually qualified to give you  advice on what you’re asking about.

Joe Fairless: That’s a good reminder… Because there’s all different areas of life that we need advice on, and we might have a trusted friend that we always go to for advice, but is that trusted friend qualified in that particular area of life to give advice on? That’s interesting…

Will Harvey: You’re not gonna go to somebody and ask them about your marriage if they’ve been divorced five times… You know what I mean?

Joe Fairless: Well, it would be good to hear their advice and then just do the opposite.

Will Harvey: Yeah, that’s a good point. [laughter] That’s right.

Joe Fairless: Alright, we’re gonna do a lightning round. Are you ready for the best ever lightning round?

Will Harvey: I am.

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

Break: [00:20:35].17] to [00:21:20].03]

Joe Fairless: Alright, what’s the best ever resource you currently use in your business, that you couldn’t live without?

Will Harvey: I would say with the personal portfolio I have – I will keep it with that – I would say the TurnoverBnb and the VA. So two.

Joe Fairless: Yeah. We talked about obviously you go over to TurnoverBnb – that’s an easy Google search – and then for the VA you talked about going to UpWork and finding a VA.

Will Harvey: That’s right.

Joe Fairless: What’s a deal that you’ve lost the most amount of money on, if any? I don’t think there is one based on what we’ve talked about. Maybe a flip, or something.

Will Harvey: No, there was no actual deal where I’ve lost money, but I’ve lost money when I first got into multifamily. There was a deal that I was trying to do on my own. It was a 14-unit property in a rural part of Virginia. I had deal goggles on, I wanted to close it so bad, and it was a pain in the butt. The seller was asking for stuff that was unreasonable. Long story short, I had the attorney do the contract over and over and over. The deal ended up dying, and then I got the bill for the attorney, and it was $9,000.

Joe Fairless: [laughs]

Will Harvey: That wasn’t fun.

Joe Fairless: What were some unreasonable deal points that the seller was asking for?

Will Harvey: I was so naive and inexperienced… He wanted to save money on closing costs; instead of doing a traditional purchase, he wanted me to purchase the underlying LLC that owned the property. I was getting advice from everyone saying that’s such a bad idea. You don’t know if he’s in litigation with someone… So it just created a lot of billable hours.

Joe Fairless: Yeah, that’s a pretty hefty attorney fee for a purchase and sale negotiation contract.

Will Harvey: That was my “Welcome to billable hours” moment. I wanted to throw up when I got that bill.

Joe Fairless: It sounds like you  had a very responsive attorney.

Will Harvey: Yes… [laughs]

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

Will Harvey: My mom started a non-profit, and you guys actually featured it on the Best Giving, or Best–

Joe Fairless: Best Ever Causes, yup.

Will Harvey: Best Ever Causes, yeah… Helping Haitian Angels. It’s an orphanage in Haiti.

Joe Fairless: Oh, yeah. That was fairly recently. Best Ever listeners, you can go to BestEverCauses.com. If you click on Recent Causes – I’m on there now – you can see that organization Helping Haitian Angels. Good, I’m glad to hear that.

So how can the Best Ever listeners learn more about what you’re doing?

Will Harvey: They can go listen to our show. We got our motivation from you, Joe, like we were talking before this started. I got roped into doing a daily podcast because of something Joe talked about at the conference… So thank you so much for that, Joe. It’s a lot of work, as you know…

Joe Fairless: Yes… Yes, it is.

Will Harvey: It’s awesome stuff. Our podcast is Wealth Junkies, you can find us there; or you can just shoot me an email, will [at] wealthjunkies.com.

Joe Fairless: Thank you, Will, for sharing your story, some challenges, some ways you overcame it, some lessons learned, like make sure we ask advice from people qualified in the area that we’re looking to get advice on, your Airbnb approach, TurnoverBnb, the VA, adding value to one of the properties that you own; it was losing money – what do you do? Let’s rent out by the bedroom, and let’s make sure we have that Airbnb rockin’ and rollin’. Some really applicable stuff, as well as what you’re focused on now with the multifamily.

Thanks for being on the show. I hope you have a bes