JF2321: Altus Investment Group With Kevin Dugan

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

Kevin Dugan Real Estate Background:

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

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Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

Kevin Dugan: Yeah, that’s correct.

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

Kevin Dugan: Yup. That’s correct.

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

Kevin Dugan: It’s about 50 right now.

Joe Fairless: All in Chicago?

Kevin Dugan: All in Chicago.

Joe Fairless: What’s your connection to Chicago?

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

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

Kevin Dugan: I do, I have a girlfriend.

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

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

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

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

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

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

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

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

Joe Fairless: Five years. Okay.

Kevin Dugan: Yeah.

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

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

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

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

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

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

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

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

Kevin Dugan: Yeah.

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

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

Joe Fairless: That’s pretty good.

Kevin Dugan: That’s really good.

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

Kevin Dugan: Section 8.

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

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

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

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

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

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

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

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

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

Joe Fairless: Especially what?

Kevin Dugan: During the wintertime.

Joe Fairless: Oh, man…

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

Joe Fairless: The Chicago winter.

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

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

Kevin Dugan: On that one? No.

Joe Fairless: No. Okay.

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

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

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

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

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

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

Joe Fairless: What’s your worst Craigslist experience?

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

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

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

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

Joe Fairless: Okay, so that’s a flip.

Kevin Dugan: Yup. Oh, a rental property?

Joe Fairless: Yeah, a rental property.

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

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

Kevin Dugan: Let me think about that one.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Kevin Dugan: Net or gross?

Joe Fairless: Net.

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

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

Kevin Dugan: Yeah.

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

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

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

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

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

Kevin Dugan: Yup.

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

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

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

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

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

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

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

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

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

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

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JF2314: Jump In and Learn With John Evans

John works as a supply chain manager and a part-time investor. He has been investing for a little over a year and already has a portfolio of a duplex, a single-family, one flip, and two commercial properties. He shares today how he has recently started and why he quickly sought out an experienced mentor to help him through his first multi-family property.

John Evans Real Estate Background:

  • Works as a supply chain manager and part-time investor
  • Has been investing for 1.5 years 
  • Portfolio consists of 1 duplex, 1 single family, 2 commercial properties, & 1 flip
  • Currently partnered with a local investor to complete his first multi-family property with 30-60 doors
  • Based in Florence, SC
  • Say hi to him at john@bedrockinvestmentgroup.net
  • Best Ever Book: Go-Giver

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Surround yourself with people who are doing it” – John Evans


TRANSCRIPTION

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

John Evans: I’m doing great, Theo. Thank you very much for this opportunity and having me on the show today.

Theo Hicks: Oh, no problem. Thank you for taking the time to speak with us today. A little bit about John – he works as a supply chain manager and as a part-time investor; he’s been investing for a year and a half, and his current portfolio is a duplex,  a single-family, two commercial properties, and he has done a flip. And he is currently partnering with a local investor and they’re looking to complete their first multifamily property, between 30 and 60 doors. He is based in Florence, South Carolina, and you can say hi to him at his email, which is john@bedrockinvestinggroup.net.

John, do you might telling us some more about your background and what you’re focused on today?

John Evans: Sure. Recently, I’ve just ended up partnering with a guy that basically — since I’m new to this, coming in and using leverage with him understanding and knowing the market. He is a realtor for the state [unintelligible [00:04:19].01] and also an appraiser, so he has some of the knowledge that I don’t have.

When I started really looking at doing this, I got on Bigger Pockets and a lot of good websites, obviously I used your guys’ website a lot, took the advice to learn for at least a year or so. I read a lot of books, educated myself, and then decided to partner with someone in the real estate space as a professional… And then also, we have recently just joined a mentorship with Robert Beardsley. So we’re doing that now, and I’ll tell you, that’s been a real big help for helping us understand really how to go about looking at the data and letting the data speak. I think it’s very important in this space – whenever you’re going out to raise the money, you definitely don’t wanna make a mistake with someone else’s money, including your own, because we’re gonna invest right beside our investors. So getting in that mentorship has been very key, and that’s what we’re doing right now.

We’ve also been kind of gearing up our social media presence, if you will. That was one thing that Rob has led us to do. You have to make sure you’re  telling people what you do, and the connections, and that’s been very important recently for our plan of action.

Theo Hicks: Perfect. So the local investor you’re partnered with, the realtor and the appraiser – the plan would be to buy a multifamily using other people’s money, correct? So you’re going to syndicate.

John Evans: That’s right.

Theo Hicks: Perfect. Okay. So let’s focus on that aspect of the business first. To start, how did you meet your partner?

John Evans: We’ve been friends for a while, we’ve met through some mutual friends. Our wives actually know each other as well.

Theo Hicks: And then how did the partnership come to be? Did you just one day ask him “Hey, I wanna do multifamily. Let’s partner up”? Or was it organic? Maybe walks us through how that happened.

John Evans: Sure, that’s a good question. He basically heard me talking about it one night; we were all together, and he had always wanted to buy an apartment complex on one campus, basically. So when you hear talking about an apartment complex, and then also doing syndications, and raising money to be able to help go and give someone else a return on their money – for someone who may not wanna actually be in the day-to-day operations of owning an apartment complex, that really intrigued him. He was like “You know, I’ve always wanted to do that.” So he said “Tell me what you know about it.”

I started explaining to him all the math, all the finance behind everything I’d learned, and then I started talking about Bigger Pockets. He didn’t know anything about that, so he started doing his own research. It was probably about a month after we initially talked about it, and he called me up and he said “Hey, let’s go out to dinner one night.” So we did. We had a quick meeting. We went out and we kind of discussed what our goals were and what we wanted to do, and then just kind of took from there.

Theo Hicks: What are the roles that you two are playing?

John Evans: It sounds like? Is he getting more of the money, and you’re gonna be more of the worker?

Theo Hicks: I actually do the finance underwriting piece, or the day-to-day process, or the day-to-day driven operations, and he’ll do more of the market type analysis, and then doing a lot of the research, finding the deals… It was kind of integrated; we both kind of play — not necessarily the same roles, because you can’t as you know, but he knows more the market side of things, and I know more of the finance and day-to-day operations types of things.

I manage my current duplex as well, and he’s actually managed his portfolio in the past also.

Theo Hicks: Did you break up those duties based off of who was better at what, basically? That’s what it sounds like.

John Evans: Exactly. We talked about what we both thought we’d be good at. I have more of an engineering/operations background from the manufacturing sector, and he’s always owned his own business, so he kind of has a good mix of knowing real estate, and also knowing how to operate a business.

I have an MBA, and majored in finance as well, so I kind of have the numbers side of the game, but I also don’t mind getting my hands dirty, doing the day-to-day operations as well.

Theo Hicks: So you mentioned that one of the things that your mentor focuses on is the data, so I’m assuming that means understanding how to underwrite the deals. So without getting into too much detail, because underwriting is a very complicated process, maybe tell us what’s the number one or the top few things that I should be looking at when it comes to data when I’m underwriting an apartment deal.

John Evans: You wanna look at definitely the return on investment for your investors, especially if you’re raising money. As far as before you even start underwriting, you wanna look at neighborhoods, you wanna look at demographics, you wanna look at the rents history of that area, and also crime rates; we look at that. We kind of have a five-step process.

Then once you go into the underwriting, you wanna load your data – we use his software. So it’s really good – you go and plug all your numbers in, and then you get an output. So you wanna go look at that output and see if the deal actually makes sense. Is there gonna be enough meat on the bone there to actually raise the money from someone else in order to give them the right returns? So it’ll give them a good picture of what they’re gonna make on their money; it’s one of the biggest things we look at.

Theo Hicks: You said there’s a five-step process… So step one was looking at the market. Step two was loading the data, and step three was looking at the output. What are the other two steps?

John Evans: So then we look at — if the deal makes sense, we go into submitting an LOI. That would be the next step. And then after that, if that offer comes back and it’s accepted, we go straight into due diligence pretty quickly. So that would be the next step.

Theo Hicks: And then the other thing that you mentioned  — well, you didn’t really mention this, but for raising the capital for these deals… So you guys are actively looking for a deal. Do you have some verbal commitments from investors already, and that’s how you determine the size of deal you can take down, or is the plan to get the deal first and then leverage that deal to raise capital?

John Evans: We have friends and family currently. There’s a group of around four people that we do know, that have a lot of interest in what we’re doing and they wanna place some money. Basically, they’re kind of done with the stock market and the volatility.

So when we started going and talking to them about what we were doing, they were very interested in it. Two out of the four definitely said they wanna do it. So we have friends and family, and then those two, and then two more potential already.

Theo Hicks: So you said family and friends, and then you’ve got the group of people that want to invest, that are differentiated from the family and friends… So how did you meet these people? Or how did they learn about your business?

John Evans: Knowing them from our local area, we approached them and told them what we were doing. And then we knew their background as well from being around us in the area… But once we approached them and laid out what we were doing, they were in.

Theo Hicks: And something else you mentioned – you’ve been focusing on the social media presence. Maybe walks us through that – that types of things you’re doing, what works, what doesn’t work, and what’s the ultimate purpose of the social media presence.

John Evans: Yeah, so usually, using Facebook it’s putting yourself out there. But first it was — and it still is a little bit – it kind of gets you out of your comfort zone. So it’s kind of challenging… I like it because it’s a challenge, and it makes me think… So meeting new people, creating a network is the main reason we’re using it right now, and just meeting a lot of people that’s actually doing this; surrounding yourself with the ones that are doing it, so you can learn more.

I really use it as a two-sided type deal, because I’m adding value to someone else, and I’m looking for the value they’re adding to me as well. I always go into our conversation with someone that I meet on, say, LinkedIn, because I’ve had some success in meeting a lot of syndicators on LinkedIn, and also some passive investors, which – I utilize that to be able to find out what are they looking for, what do they want out of a return from someone that’s actually syndicating and pulling them into their deal.

Theo Hicks: What types of things are you doing on LinkedIn and Facebook to add value to other people?

John Evans: One, for Facebook it’s posting non-traditional type thoughts. What I often find – I’ve had a few people that reached out to me lately – is they’re in the traditional mindset; go to school, get a job, all the good stuff that the Rich Dad, Poor Dad tells us that we should think differently; it kind of change our  mindset, which is one way that I was able to obtain the mindset to go out and try to do something non-traditional, so to speak.

I’m posting things that are non-traditional; I’m trying to get them thinking of a different way, and also adding value by doing like  a Thursday book recommendation based around investing, based around real estate, and then also the Best Ever Apartment Syndication Book – that type of stuff, that maybe someone that I know in my network that wants to do this, but they’ve never really studied it and they don’t really know about all of the tools and tricks that are out there in order to do some of this.

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

John Evans: Surround yourself with people that are doing it. When I first started, my banker owned real estate, my attorney owned real estate, down to the guy that I used to go in and fix the air conditioners in our units if they ever go out – he actually owns real estate; my CPA owns real estate. Interview people, find out what they’re doing, find out how much they know about this stuff, because you can gain a lot of value from those individuals, and they’re always willing to help you is what I’ve found.

Theo Hicks: Alright, John, are you ready for the Best Ever Lightning Round?

John Evans: Absolutely.

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

Break: [00:13:01].10] to [00:13:51].06]

Theo Hicks: Okay John, so you mentioned you did the Thursday Book Recommendation, so this should be a pretty easy answer… What’s the Best Ever book you’ve recently read, or recommended? Either one.

John Evans: Absolutely, Theo. The Go Giver is my go-to. That book has changed my life. It’s by Bob Burg and John David Mann. The Go Giver book.

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

John Evans: Start another business, always. There’s a  lot of opportunity out there, a lot of things that are being done today that you can go in and make better, and I believe that’s exactly what I would do. I’d follow the same path and start another business.

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

John Evans: I’d say the duplex that I currently own in the portfolio. I’m right at about 27% ROI on that one, and it cashflows $280/door.

Theo Hicks: If you’ve lost money on any deals, how much money have you lost and what lessons did you learn?

John Evans: I haven’t lost any money. That’s rule number one, don’t lose money.

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

John Evans: Going to community events that’s for a good purpose, that align with our purpose and our way. And then another thing we really like to do – and a lot of this is silent – I love to give back to feeding the hungry. That’s one of my purposes; it really touches home.

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

John Evans: You can reach me at John@bedrockinvestmentgroup.net. Also, I always like to give out my cell. It’s 843-858-1274. I’m also on LinkedIn and Facebook.

Theo Hicks: On LinkedIn and Facebook it’s just your name, John Evans?

John Evans: That’s correct.

Theo Hicks: Alright, John, thank you for joining me and walking us through your journey and what you’re focused on today. We talked about partners and how your business partner is someone you had known for a while. They’re a realtor and appraiser, and have a lot more knowledge than you, and you were able to get them on board with your multifamily plan by being educated and really telling him what you plan on doing, your knowledge about apartments or raising money, and then you mentioned that the duties were split up based off of your strengths. Some of those are overlapping, whereas some of the stuff is only done by you, or only done by him. He’s more of a marketing guy, and you’re more of the underwriting, number cruncher.

You talked about your five-step for underwriting deals, analyzing the market, looking at things like demographic, rents, crime rates, loading that data into a customized cashflow calculator which you got from your mentor, analyzing the output, and the important number to look at would be the ROI to the people who are investing, and making sure that it reaches their investment goals. And then step four was making an LOI, step five would be the due diligence.

You talked about raising money, how most of it is family and friends, plus a group of people that you’d met in the past, you approached them, told them what you were doing, and at least two of them are very interested in investing.

We talked about your social media presence and how you use Facebook and LinkedIn to not only add value to other people through things like posting your non-traditional thoughts, getting people thinking in a different way, different types of themes to post, like your Thursday book recommendation, but you’re also using it to add value to yourself, to educate yourself by meeting with apartment syndicators, meeting with passive investors and seeing what they want… And then this kind of links into your best ever advice, which is to surround yourself with people who are already doing what you’re doing. So in your case, surrounding yourself with other syndicators who have raised money for apartment deals in the past.

John, I appreciate it. Thank you for joining us. Best Ever listeners, as always, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

John Evans: Thank  you, Theo.

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JF2296: Bad Start but Strong Finish With John Dessauer

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

John Dessauer Real Estate Background:

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

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

John Dessauer: Yeah. Yup. Property management.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

John Dessauer: I’m ready.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

John Dessauer: You got it.

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

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JF2294: How to Buy PreREOs With Jorge Newbery #SkillsetSunday

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

Jorge Newbery Real Estate Background:

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

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: Correct.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: Yup.

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

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

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

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

Theo Hicks: Okay.

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

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

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

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

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

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

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

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

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

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2289: Shifting Focus to Turnkey With Alexander Cruz

Alexander aka “Xander” is a full-time real estate investor with 7 years of experience. He is also the director of CR of Maryland where they have 350 single-family properties in Baltimore owned and under management and will currently rehab and sell 140+ turnkeys in 2020. 

Alexander Cruz Real Estate Background:

  • Full-time real estate investor for 7 years
  • Partner of CR of Maryland a real estate company
  • CR of Maryland Portfolio consists of 350 single-family owned and under management, sell 140+ turnkeys in 2020,  completed 400+ flips, and 400+ wholesales
  • Based in Baltimore, MD
  • Say hi to him at: https://crofmaryland.com/ 
  • Best Ever Book: Relentless

 

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Best Ever Tweet:

“Focus and stick to one area” – Alexander Cruz


TRANSCRIPTION

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

Alexander Cruz: I’m doing great Theo, how are you?

Theo Hicks: I am well, thanks for asking, and thanks for joining us today. A little bit about Xander. He is a full-time real estate investor and has been for seven years. And he’s a partner of CR of Maryland, which has a portfolio of 350 single-family homes that are owned and under management. They also project to sell over a hundred and forty turn-keys in 2020, and they’ve also completed over 400 flips and over 400 wholesales. He is based in Baltimore, and you can say hi to him and learn more about his company at crofmaryland.com. So Xander, do you mind telling us some more about your background and what you’re focused on today?

Alexander Cruz: Sure. I’ll take you all the way back, I’ll keep it brief. I got into real estate back in 2011; I actually was hired by chance as an admin position for a broker. Quickly found out I wasn’t cut out for admin work, but I fell in love with real estate really fast. I did that for about a year and then I was an independent agent for about two years. And then that’s when I met my current business partner, who I still work with today. At the time that I met him, he was creating a new company in Maryland to be known as CR of Maryland, which is where we’re both from, we’re both Baltimore residents. At the time, our focus was just fix and flip. So at that time, it was me, Craig, and a project manager, and we were going out trying to buy homes, get them rehabbed, and then sell them.

So that grew a lot over time, we evolved a lot along the way. We went from being just a fix and flip company to focusing heavily on buying and renovating rental properties that we would keep for ourselves, so we built a pretty substantial rental portfolio here in Baltimore, and then of course also grew our property management team to oversee and manage it. And then that led us to last year, where we were reaching our intended limit of how many rentals we would personally have… And somebody said to us, “Well, why don’t you keep buying and renovating them, but instead of keeping them you can turn-key them? So you’re selling the property to another investor, but you retain the management.”

So it kind of clicked in our head and we made a big shift in our company, and that became our main focus. So probably about 90% of our time and energy is put into what we call our turn-key business. And like you said, we’ll deliver over 140 single-family properties this year in 2020 to turn-key investors from around the country, that we will buy ourselves, renovate ourselves and then continue to manage for many years to come. So it’s a really exciting part of the business… And we cover a lot of other aspects, we have a wholesale division, we have a retail real estate team… But our primary focus really is the turn-key business and property management.

Theo Hicks: How did you meet your business partner?

Alexander Cruz: Good question. Also a little by chance. So taking one step back again to the beginning… When I was in the admin role, I wasn’t good at it, but I worked hard and I maintained the relationship with my broker. So she’s the one that about two years later or whatever it was, that introduced me to Craig… Because I maintain a good relationship with her even though at that time I was no longer working for her; I was an agent in her office and she said, “Hey, I’ve got a guy coming in. I want you to meet him.” She had known him for years and she said, “I think you guys will work well together. I want you guys just to meet and talk and see what happens.”

And then over seven years, we became business partners, and depending on the day, our relationship can vary from best friend, to father-son, to business partner, and everything in between. But we have a really good relationship and it was all because of that introduction.

Theo Hicks: If you don’t mind diving deeper into that… So he obviously was doing his thing and you’re doing your thing, you guys came together, how did you decide how to structure the partnership in regards to compensation, and roles or responsibilities and things like that?

Alexander Cruz: Yeah, I would compare it to — not to sound weird, but let’s compare it to dating. So we didn’t go straight to a marriage. So in the beginning, our relationship was almost exclusively like agent and investor. Although we were working very closely together, I would get paid a commission when we would buy something and sell something. That’s how it started. So eventually it evolved, and we quickly figured out which of us was good at what. Again he’s a little bit older than I am, so he already had a pretty good base knowledge, but needed boots on the ground. We really had to hit the streets and find homes, and deal with contractors, and just do all the stuff that happens along the way. I was doing more of, I’ll say, that kind of heavy lifting, and I was the front-facing person, so I would deal with customers, agents etc, and he was more on the back end, building the business. So it was relatively easy for us to kind of define the roles, and then from there it just grew into a partnership, and we re-arranged pay and ownership and everything like that at the time.

Theo Hicks: So you were admin, and then you were a broker, and then you were a part of this company. And that’s when you started buying deals, right? So how does CR fund their deals? Maybe walk us through the evolution of that, so how you were doing it at first, and then what you’re doing now, and then how you got from A to Z.

Alexander Cruz: In total honesty, the blessing of my partner was that he had come from the business world already, and we had a pretty big amount of capital to work with. So for us, raising capital wasn’t the issue, it was more so how to use it and how to use it successfully. So that’s where the challenge of finding deals and having the right strategy in place to profit off of the deals – that was honestly the biggest challenge, because we’re in a competitive market and it has always been that way for as long as I’ve been in it.

Theo Hicks: So when you partnered up, he had a big book of people that he could just reach out to whenever he needed money?

Alexander Cruz: Correct. So I actually — and part of what I skipped in this story was he already had built and was running and owned a successful flipping company in Pennsylvania; even though he was from Baltimore he worked up there, because that’s where his previous business life was. So he was basically coming down here to recreate the same company, and already had a person in place, a PA that was running it day to day. So he didn’t have to be there every day, he spent all his time here, and wanted to do it in Baltimore. So that’s where it got grounded and started. So fortunately for us, the funding was in place.

Theo Hicks: Okay. So the harder part was finding deals to place that capital in. And so what is the best way to find deals, in your opinion?

Alexander Cruz: Yeah. And one thing that just caught my eye as you said that – the hard part was finding deals, but then also just growing, it’s really hard. We went from me, him, and one project manager, and today we have about 28 employees and team members. So this growth is super challenging; you hit that wall over and over again, and you have to revamp and adjust systems, and improve and implement systems. So in the beginning we had no systems.

Aside from that, the question was how do we find deals… So when we first started it was a lot easier, you could still find deals on the MLS pretty regularly. That quickly changed I’d say in 2014 or 2015; that’s when we started doing our off-market marketing is what we call it, so direct to seller marketing. The best strategy I can say is to cast a wide net. There are some months where certain things work better than others, and obviously, if you have the ability to market, you’re going to have to spend money on marketing. If you’re going to do that, I would talk to people who are already doing it and find out what’s working for them and what their strategies are. Don’t try to reinvent the wheel. There’s plenty of guys doing it and probably talking about it in podcasts or wherever else, so you don’t have to start from scratch. But we still do some mail, we still do some skip tracing, we do some outbound calls and texts, we have SEO, we have Pay-Per-Click, we have a Facebook page… Facebook you don’t really get many more seller leads from, but you can still create some awareness. So you have to cast a wide net and then constantly be evaluating your numbers. We look at numbers every single week, so we can tell what’s working, what’s not working and we can tinker and adjust. But you have to be consistent, you can’t just do something for a month and then give up.

Theo Hicks: Have you seen an increase or decrease in leads over the past six months?

Alexander Cruz: It’s been a bit of a wave. When COVID hit in March – I’m sure everybody talked about this, but it got pretty quiet for a few weeks to a month. And then right after that it, seemingly just started to spike back to normal again. I mean, it’s been very consistent for us for the past few months.

Theo Hicks: So out of all things you’ve mentioned over the past, say, six months, what’s been the number one source of deals?

Alexander Cruz: I think we’re getting our best value out of outbound right now. And when I say outbound, that’s calling and texting people. It seems to get the best response. We still do get a response from mail, and what’s interesting is actually some of our best overall deals sources back to mail. And I think a lot of that has to do with that we’re a legitimate operation. So it sounds silly, but our postcard has the Better Business Bureau logo on it, because we’re registered, or affiliated, or whatever it is… And that makes a difference to some sellers. And then they google us and they can see it, “Okay, they are a real company. They have 200 reviews and a website and everything else.” And at that point, there is a comfort level that you don’t always get out of everybody else.

Theo Hicks: Do you think that people can still replicate this professional persona without having to have a full-fledged company? Like what are some things they can do to gain that credibility if they don’t have a company like yours?

Alexander Cruz: Yes, sure. The biggest thing is just professionalism. We’ve talked to so many people over the years that say they called three other investors that never called them back. If you’re going to pay for leads, you’ve got to answer the phone and call people back. And then on top of that, you have to create a follow-up system. There is a local wholesaler we know well that he’s doing a ton of deals right now, and he doesn’t have a big operation; it’s like him and two other guys. But they are meticulous and I would say obsessive about their follow up. That is the biggest part of success, especially in the competitive market. Because half of it is just timing and luck. It’s when does the seller answers the phone, and then once you have them on the phone, are you doing a good job with them?

So you don’t have to have a big operation to establish legitimacy; you just have to treat people right, know what you’re talking about, and pick up the phone and call people back. If you say you’re going to call somebody, you’ve got to call them.

Theo Hicks: Is selling the turn-key deal in the back end a challenge at all, or is it pretty smooth?

Alexander Cruz: I’d say it’s pretty smooth. I don’t want to say that the product sells itself, but the combination of the product. So we have a really good market, the rent to sale price ratios are great, the returns are really high. And then on top of that, we go really crazy on our renovations. So we target homes that need everything, and then we do everything. So it’s as close to new construction as you’re going to get. These are full rewires, they have all new ductwork, brand new roof, windows, plumbing, and then of course kitchens and bathrooms are always brand new. So you have good numbers, you have a really solid product, and then the last part of it is you have us that’s going to properly manage it, and we’re local, we already own and manage well over 300 properties, we understand what has to happen, we have the systems in place, and we have the people in place.

Theo Hicks: What type of returns are these people who are buying these… If I want to buy a turn-key house from you, what should I expect to pay? And then what ROI should I expect?

Alexander Cruz: Our typical price point for a renovated house is going to be between $140,000 and $200,000. And then in that price point — when we build out our portfolio we actually show a 5% vacancy and a 5% maintenance and reserves. So we’re taking 10% off the returns off the top. Even after that, our cash on cash returns is typically 12% to 14%. So they’re pretty strong numbers, and I’m told consistently by potential buyers that our numbers are pretty much on the top that they see as they shop in different markets around the country.

Then the other nice thing is our market actually does have some appreciation. It’s nothing crazy like Dallas and Tampa and some of these other really hot markets; we’re pretty modest, 3% to 6%, but it’s a good number to have in addition to your cash flow.

Theo Hicks: Do most people, most of your clients, are they in Baltimore, or do they just buy it, it’s sight unsee, and they never even see the property and just kind of [unintelligible [15:04]

Alexander Cruz: Yes. Most of our clients come from outside of town. We’re involved in a couple of networks now that that’s kind of what they do, is educate and produce these buyers that are seeking renovated turn-key product and they’re considering areas all around the country. A lot of times they live in California, or Atlanta, New Jersey, just more expensive areas where they wouldn’t buy a rental locally, because it’s so expensive it doesn’t make sense. So we do get a lot of those. We have some local investors, too.

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

Alexander Cruz: The best advice ever, and something that we’ve at times struggled with, is to stick with and focus on one area that you’re good at or can be good at, and not get distracted and try to do too much. We’ve all done it as we fall for like the shiny object, and you start getting away from what you’re really good at. So for us, it’s buying and renovating, it’s really what we’re good at. So to spend a lot of time – and I’m sorry if anybody from the retail team is listening, but to spend 80% of our time on the retail team, that’s not where we get our best return on investment, and it’s honestly not what we’re great at. We’re good enough and we have a team in place and it provides us an extra outlet for leads and can take care of people in different ways there, but the vast majority of our energy is spent where we make our most money and can get our best return.

Theo Hicks: Awesome. So are you ready for the Best Ever lightning round?

Alexander Cruz: I’m ready.

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

Break: [00:16:33][00:17:14]

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

Alexander Cruz: I always go back to Relentless by Tim Grover. He was the trainer of Michael Jordan for many, many, many years, and then Dwayne Wade and several other amazing athletes. It’s all about mentality and your mental approach. And it’s applicable in sports of course, but also in business and life. I remember that book a lot, I love that one.

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

Alexander Cruz: I would probably, honestly, hop right into real estate sales. It’s the one thing that no matter what the economy is doing, is still happening. And you have the most control over your own success and you determine how much you work, how many leads you get, you can create that on your own… You really have the most control of your destiny there. So that’s probably where I would head.

Theo Hicks: Out of all the deals your company has done, what’s been the Best Ever deal?

Alexander Cruz: The Best Ever deal… It’s been a couple of homes that we have flipped… We actually have one this year, we just got a really good deal on it, off-market, in the wintertime. And there was an older couple, they needed seven months to move… They didn’t need that long originally, but then COVID, hit so the settlement got pushed out months while they were waiting to move into their retirement home… And we had a good price — they were ecstatic, because they got to be flexible when they moved. The house also had [unintelligible [00:18:27].25] So we then finally got them moved out, but the house was meticulous; so we literally just cleaned it up and put it back on the market, fixed the septic, and the market is stupid hot right now. So we actually made six figures on that. That’s one of our best deals ever.

Theo Hicks: On the flip side, of all the deals your company has done, tell us about a time that you lost money on a deal and then what lessons you learned.

Alexander Cruz: Ah, which ones? This actually ties back to what I said earlier… There’s an infamous street named Allendale, and I bought a house in Allendale that had, I kid you not, a hole in the roof that was probably about seven feet in diameter. And actually, the guy was still living in the house like this for years. So when we finally took possession, the hole and the water damage went all the way down to the basement. So we said, “Well, let’s tear the house down”, it was a rancher, “and we’ll build a two-story house on the foundation.” We’re good at rehab, we’re not good at building.

So really long story short, this dragged on for over a year. By the time we were ready to go, we had to tear the foundation out and build a new one. Then we decided to try and get a variance for the building’s set back lines so we could add a garage; we spent months and thousands on attorneys to do that, and the variance got denied. So we have no house, we have a hole in the ground, we are way upside down at this point, and we still have nothing after a year. Neighbors hate us, “What are you doing with the lot?” and finally, we’re like, “Let’s just sell the lot. We sell to a builder that knows what the heck they’re doing.”

So we finally did, and that nice profit I just talked about on the other deal, is about what we lost on this deal. It was just a total disaster. The lesson is, like I said earlier, stick to what you’re good at. If you don’t know how to build homes, don’t go and try to build a house, especially when it’s going to be expensive. Or if you’re going to do it, find somebody that knows what they’re doing, and you need to partner with them or pay them to guide you through it. Don’t try to reinvent the wheel; find an expert, and rely on them.

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

Alexander Cruz: Sure. So my girlfriend is a school counselor at a title one school locally, and they have a lot of underprivileged kids. So we partnered with a local charity called Baltimore Hunger Project, and they serve kids in elementary school all over the Baltimore area that are what they call food insecure. These are kids that go home from school and might not have dinner that night at all, and might not have breakfast until they get to school the next day. So what Baltimore Hunger Project does is provide meals to these kids every week, and they’ll send them home on the weekends with a big pack of food, so that they’ll have food through the weekend, and hopefully gets them until Monday.

When the pandemic hit and schools closed, the Baltimore Hunger Project, I forget — the number is crazy; they went from serving 600 kids a week to over 2,000 kids a week, and they continue to grow. Because now they’re not going to school, they have no way to get this food. So it’s been a huge operation to expand it, and we’re really honored to say that we’ve been able to help them financially and also with time, so that I can still, in a way, get back to the kids at my girlfriend’s school, and then also other kids in the Baltimore area.

And then recently we also partnered with them to purchase 30 laptops for kids at an elementary school nearby that didn’t have them. It’s a small private school, so they weren’t given like they were at the public schools. These kids just didn’t have laptops, so we were able to provide 30 laptops to them. So that’s an ongoing thing for us. We really are huge in giving back to the kids in the community here.

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

Alexander Cruz: Sure. So the easiest way is to go to crofmaryland.com. There’s a Contact Us tab that’s super easy, you can just do that. Or you can click the turn-key tab and click over to that page, there’s a Sign-Up link there was well that’s specific to the turn-key properties. You can always reach us there. You can sign up on the page to automatically get dumped into our system, and then we’ll reach out to you to schedule a call and discuss things further.

Theo Hicks: Perfect Xander. Well, thanks for joining us. Lots of solid advice given in this episode. A few of the takeaways that I got was how you make a business partner and the importance of not, I guess, burning bridges at any…

Alexander Cruz: That’s it.

Theo Hicks: …any job that you do in the past…

Alexander Cruz: It’s huge.

Theo Hicks: Because you never really know when some relationship that you created will result in, for you, a massive business.

Alexander Cruz: Yup.

Theo Hicks: And then you also talked about how you are finding deals. That at first it was in the MLS, and then now you do off-market marketing. And why it’s important to cast a wide net, because what works one month or one year might not work the next month or the next year. Results are what’s important also – track, and then not try to reinvent the wheel and just kind of see what other people are doing that works for them and do the exact same thing.

So you do mailing, skip tracing, hop on calls, SEO and Pay-Per-Click. And you get the most deals from the outbound call and texts. But the best deals come from the mail. And you talked about why it’s important to be a professional, right? You’re a professionally run company, so you got the Better Business Bureau logo on the mailers and then they look you up and they see all the reviews on your website… So they know they’re working with a professional company, but you don’t have to necessarily be a company to still have these same professionals. And you gave the example of the wholesalers – they’re a small crew, but because they’re meticulous in their follow-up, they’re still able to do a lot of deals. And so follow up is key here.

And then your Best Ever advice was to not fall on the shiny object syndrome, and you mentioned that everyone does it and you gave us an example of your worst deal. But to focus on what you are good at. And then when you’ve got your business and you’re doing the one thing you’re good at, you are kind of studying further within that to focus on the areas that result in the greatest ROI.

So you’ve talked about in the podcast before, a dollar an hour, 10 dollars an hour, a hundred dollars an hour, and a thousand dollars an hour job, and making sure you as a CEO are focusing on those higher dollars per hour jobs, and contracting up everything else. So Xander, I appreciate it. Thanks for joining us. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Alexander Cruz: Thanks, Theo.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2233: 4th Generation Real Estate Investor Corina Eufingere

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

Corina Eufingere (u-finger)  Real Estate Background:

 

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Best Ever Tweet:

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


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

Corina, how you doing today?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Corina Eufingere: Yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Theo Hicks: Alright, Corina. Are you ready for the best ever lightning round?

Corina Eufingere: Yes.

Theo Hicks: All right.

Break: [00:17:35] to [00:18:23]

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

Corina Eufingere: Right now, I’m just finishing up, I’m 97% of the way through it. It’s What Every Real Estate Investor Needs to Know About Cash Flow by Frank Gallinelli. This is a book that there’s a lot of math in here, a lot of equations in here, a lot of useful terminologies. What I love about it is he breaks it down into “These are terms that you’ll hear people say, but they’re really not that important anymore, these are old terms, and then these are the metrics that you really should be looking at when you’re purchasing your properties.” That’s what I love about his book.

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

Corina Eufingere: You know, I’d probably do the same thing I think Robert Kiyosaki says in his Rich Dad, Poor Dad. Even if this business collapsed today and mine does, I still have all the knowledge that I’ve accumulated over the years, I still have all my experience, so I’d just start over again.

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

Corina Eufingere: I am an 11-year cancer survivor. So one of the ways that I love to give back is I love to communicate with people who have been recently diagnosed with cancer or are going through it. I had it at a point in my life where I thought I was invincible. I was in my mid-20s and everyone thinks they’re invincible then.

One of the things I really enjoy doing nowadays is giving hope and direction to those young people who have been faced with that same awful diagnosis that honestly, no 20 somethings should have to deal with, but when you do, if you go into it with the right mentality, you can come out on the other side with such a positive, awesome view of life that you’re going to look back at the old person and then be like, “Wow, this might be the best thing that ever happened to me.”

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

Corina Eufingere: I do have an Instagram account, it’s Landlord Chick, and you can reach me over there. You can, of course, reach me at http://briopropertieswi.com/. I’m usually lurking around on Instagram a couple times a day. Also on BiggerPockets as well.

Theo Hicks: Perfect. Corina, thanks for joining us today and essentially walking us through how you were able to create your property management company. First, you talked about why you created your own property management company is due to all of the various horror stories you’ve heard about third party management. I’m sure a lot of people listening can relate.

You mentioned you started your management company before you bought your properties, and we focused on the management company in this conversation. You actually started off with a pretty quick start. You mentioned that you ended up inheriting employees, as well as clients from a previous private management company, someone who had worked with you growing up, who were retiring and didn’t want to close everything down and tell their clients ‘good luck’. So you took over those 73 units.

You mentioned that after you had your leasing agent and your two maintenance people, your next hired your property manager, who took away a lot of the admin work away from you. And you mentioned that you made sure that she knew what she was doing, she was qualified. You posted an ad in Craigslist for a social media manager, and actually this person replied, and you realized how experienced they were, that they were an investor-friendly agent in the past. They were trained by one of the best. And they focus a lot on risk liability, which you really liked.

After that, you hired a third maintenance person and then a regional manager who was someone who’s the boots on the ground in an area that was a little further away from where you managed most of your properties, and where the rest of your team is. And then you mentioned your last hire was the Director of Operations, who’s responsible for keeping the documents and policies up to date.

And then you mentioned what you did, which was still focusing on some of the admin work end of month processing for owners overseeing payroll, but then also focusing on the bigger picture and how to grow your company.

And then your best ever advice, which I think is really good, is that make sure that you always remember that you have a tenant who’s a human being. The biggest complaint you’re going to get from tenants is that they’re not treated like a human being, so making sure you’re focusing on the tenant relations aspects of the business and not just looking at them as just a number on a spreadsheet.

Thanks again for joining us, lots of solid property management advice. Best ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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JF2232: Self-made Multimillionaire Willie Mandrell

Willie Mandrell is a self-made multimillionaire real estate investor, broker, coach, lecturer and author and has been investing in buy & hold rentals for 13 years. He shares how he started and his journey to where he is today. 

Willie Mandrell Real Estate Background:

  • Self-made multimillionaire real estate investor, broker, coach, lecturer & author
  • Has been investing in buy&hold rentals for 13 years
  • Portfolio consist of  40+ units valuing at $10 million
  • Based in Boston, MA
  • Say hi to him at: www.WillieMandrell.com 
  • Best Ever Book: Retire Young, Retire Rich

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“What helps me is I wake up every morning with the same focus” – Willie Mandrell


TRANSCRIPTION

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

Willie Mandrell: I’m doing well, Theo. Thanks for having me on the show.

Theo Hicks: Absolutely. Thanks for joining us. Looking forward to our conversation. A little bit about Willie; he is a self-made multi-millionaire real estate investor, broker, coach, lecturer and author. He’s been investing in buy and hold rentals for 13 years and has a portfolio of over 40 units valued at $10 million. He is based in Boston, Massachusetts and you can say hi to him at his website http://www.williemandrell.com/.

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

Willie Mandrell: Yeah, sure. I’ve been a buy and hold investor since the very beginning of 2006. So 14 years, right at the height of the market, right before the market crashed 2007/2008, rode the market down and rode it back up again, and made some stupid mistakes, made a lot of great purchases… But I love the business; rental business is great, housing is something that’s always going to be needed, doesn’t go out of style… It’s been a great business for me.

Theo Hicks: You’ve got 40+ units. How many buildings is that? What are the types of buildings you focus on? Is it all single families? Are they a four-unit property? Somewhere in between?

Willie Mandrell: In Boston, everything’s a three-family. Almost all of our stock is twos and threes. Fours are pretty rare. They’re out there, but they’re rare. The majority of my portfolio is three family, so roughly 12-13 of them. I don’t even know. I can’t keep the count anymore. I know it’s a lot for the landscapers, it’s a lot for the snow removal guys, but 13 properties, 14 properties somewhere around there. I have a couple single families mixed in there as well.

Theo Hicks: Sure. Maybe tell us about one of your earlier deals. I know in Boston—I’ve talked to a few people in Boston on the show before; real estate is a little bit more expensive than it is in, say, Ohio or somewhere, so you’re going to need a little more money to buy these properties up front. So maybe walk us through one of your earlier deals. Walk us through how you found it, how you actually afford the down payment, what the business plan was, what the numbers were, things like that.

Willie Mandrell: Yeah, sure. The earlier deals — I worked with a lot of, on the brokerage side, a lot of buyers as well. The earlier deals are always those properties you find on MLS; they are FHA deals, mass housing deals here in Massachusetts, low down payment, 3%, down, 3.5% down. You scrape that money together. Me personally, I went out and borrowed some money from my mother, borrowed some money from my grandmother, friends, I did what I had to do, worked a couple extra jobs, and got that down payment. I think it was at the time roughly $15,000. My first multifamily sold for roughly $400,000.

Today, those prices in Boston since 2006 have basically doubled. The market obviously took a little bit of a dip and now they’ve pretty much doubled. But it’s the same method. Today, if you’re just getting into the business, it’s a high barrier to entry here in Boston. Yes, the real estate prices are high, you do what you can to scrape, crawl, grab, pull, and get yourself in the business. But once you do, it’s really great.

Today, I am no longer spending or putting 20% down or 25% down. My focus is on the BRRR strategy; the buy, rehab, rent and refinance strategy. I’m going out and looking for dilapidated three families, anything that is seriously broken down; heating systems, roof, bad siding, bad windows, no insulation, anything that needs a significant amount of work, and basically buying that with the combination of private money and commercial construction financing, rehabbing the property, and then going out and getting a commercial loan where I can put that into a permanent financing position.

Theo Hicks: I want to talk about that, but I want to ask a few follow up questions on that first deal. The first deal, you said that you used an FHA loan. Did you house hack this property?

Willie Mandrell: I did; lived in one unit and rented out the other unit. In addition to that, it was a three-bedroom unit, so I rented out the other two units and my bedroom as well. I was relatively young, I think it was 23 at the time, and I still wanted to travel, still wanted to do other things with myself, so it was a great opportunity… I think my mortgage was roughly, call it, $2700. I was getting about $1500 from the lower unit, and then another thousand bucks from the other two tenants within my rental unit, one of them being my brother. I would say 85-90 percent of my mortgage was paid off by somebody else. It was a great experience right from the start, and that’s why throughout the housing market crash 2007, I was still able to hold on, because the majority of my mortgage was being paid by other people.

Theo Hicks: Did you do the first BRRR strategy house with your own money or did you immediately jump from this house hack to raising money for BRRRs, or was there like an in-between step where you did something else first?

Willie Mandrell: Oh, yeah, no, there was definitely an in-between step. I think it’s very difficult for you to go from buying your first house to doing a complete rehab. Some people do it, but you really want to learn the business and learn rental property business, you want to learn, how to evaluate and how to figure out ARV and everything else.

For me, there was a couple in-betweens. I started a rental brokerage, and to be quite honest, I don’t advise everyone to do this. This is not what you’re supposed to do. But I was given a line of credit for my rental brokerage; brokers was doing pretty well,  I received a line of credit, and I used that line of credit as funding for the downpayment. In that particular situation I had about $100,000 line of credit for my rental brokerage and used almost all of that as downpayment and then the rest of the purchase price came from hard money at the time. It was hard money, it was financing 75% to 80% of the purchase price, and then 100% of the construction loan was given by hard money. That was my first BRRR strategy.

Theo Hicks: Was that a house hack, turnkey, or did you do some renovations there too?

Willie Mandrell: Minor. For the most part, it was turnkey. Very turnkey compared to what I’m doing now. I’m going in and pretty much gutting things down to the studs now. For the most part, that first house hack was all cosmetic; kitchens, bath, paint, carpet type of situation.

Theo Hicks: Perfect. Okay, let’s talk about the BRRR strategy. Maybe let’s start by talking about the private money raising for that. How are you structuring that with the people you’re raising money from? Who are you raising money from?

Willie Mandrell: Sure. When you first start out – and this is why it’s difficult to go out and do the BRRR strategy the way I’m doing it now initially, because you don’t really have those connections, you don’t have the resume. But once you build up a solid resume for yourself, you have that first two-family that you bought or three-family that you bought with an FHA loan, and then you can probably work the system, buy another one with a very low downpayment loan as well.

Now, you have four, five, six units under your belt. That initial private capital is probably still going to come from somebody within your family, somebody who understands what you’re trying to do, what you’re trying to build. It might be an aunt, it might be an uncle, it might be a parent, it might be a cousin.

The initial loan for me was my grandmother, who provided that initial private capital to go out and do and purchase that third or fourth property that I was working on. I basically presented it to her as, “Hey, I have this great opportunity. I’m going to buy this property under market. When I’m finished fixing it up, it’s going to producing let’s call it $2,000 a month. I think that the $24,000 or $25,000 that I’m borrowing from you right now, I can basically if everything goes smoothly, get it back to you within two years, basically giving you the cash flow of $2,000 a month.”

With my track record – she’d basically said, “Okay, you bought one two-family, and you bought another three family. I see what you’re trying to do.” That prior resume made her comfortable to make that purchase; couple that with the plan of getting that money back to her made her comfortable enough to go ahead and make that initial loan.

And then from there, it’s just networking. At that point, you start to go out and you get to networking meetings, you’re talking to everybody that you know, you’re telling them what you’re doing in the business, and then from there it springboards, and now you have eight units or 10 units under your belt, and you really start to put your name out there, and you gain the trust of other people. And now your access to private lending starts to expand.

Theo Hicks: Perfect. The structure is you return all their money within a certain timeframe because you’re doing full rehab. Is she getting that cash flow—that two grand a month, is that happening after you return the money to her? Is she getting the upside, like are you giving her money plus equity, or is it just, you give me the money and then two years later, you get the money back, plus you’ll get an ongoing cash flow forever?

Willie Mandrell: No, she had no desire, —and again, this is my relative, right? What you’re saying is—great question. It is a typical private money situation that I’m working on today. They’re either equity or debt partners.

My grandmother in this particular situation said, “I just want my cash back.” That’s pretty much what it was. I want to help you and I want to do what I can. There was no embedded interest rate, there’s no equity position. I own the property outright and still do today.

Today, though, my private money lenders are not my family members. They’re looking for a return on their investment. I either structure it as debt or equity. If there’s a really sweetheart deal on the table and I know that I’m going to be in and out of this thing in no time, and I can get all my money back and refinance and pay the lenders back, I’ll probably structure that deal as a debt partner. So meaning, “Hey, Theo, can I borrow 100 grand from you,” or “Here’s an opportunity to invest 100 grand with me, and I’m going to pay you 12% on your money.”

So 12% of the money on 100 grand is roughly 1000 bucks a month. Once I’m all said and done, if I’m rehabbing that property for six months, and it takes me another three months to lease up, then they’re going to earn $9,000 on their money during that nine-month period. Then I’m able to basically go back to the bank and once I consolidate those loans, and refinance out that private capital, I’m basically paying that private lender back; that’s a debt structure.

Or I can structure it as equity, and basically say your $100,000 comes in. And that $100,000 is now giving you a position of 20% within the property. For every $1000 that the LLC disperses from this property, you’re taking $200. And then if we ever sell the property in the future, let’s say we sell it for $100,000 profit, $20,000 of that $100,000 is yours. So they would own whether up or down; if you’re an equity partner, you participate based on your percentage ownership.

Theo Hicks: Is this something where you offer debt and equity in the same deals, or do you offer only debt for some deals and only equity for other deals?

Willie Mandrell: When I started off, it was a little bit too complex to do both in the same deal. Today, we do have deals where we are offering debt and equity to potential investors. Obviously, your equity position will be lower, but you are also achieving some type of return right from day one as well based on the performance of the property.

The calculations are a lot easier for debt. It’s a better upside for you if the property’s doing really well. It’s a better upside for an investor if the property’s not doing really well. Equity – if the property is doing really well, you’ll probably wish you’d gave away less equity and you’ll wish you had debt. There are give and takes for both. It all really depends on how you want to structure the deal and your access to capital at the time.

Theo Hicks: Sure. I’m trying to understand… From your perspective, why wouldn’t you just do debt in every deal?

Willie Mandrell: I’ll give you a perfect example. Today, we’re looking at Coronavirus. Since March, we’ve been dealing with this thing and no one has a crystal ball and no one really knows where the markets going to go. If this was 2014, we’re trending upward and it’d probably be best to do debt. But let’s say hypothetically we take a 10% to 15% downturn in the next couple months. It actually is safer for me, especially because—let me give another example. Here in Boston, we have an eviction moratorium, right? We’re not allowed to evict anybody. We have roughly 36 to 40 million Americans out of work at the current time. So if I have tenants that are not paying their rent, it’s better for me to have an equity partner, because that equity partner is also participating in that downside. If I had a debt partner, they want their interest payment regardless of the performance of whether the tenants are paying or not. The equity partner participates, it’s safer for me in an unknown environment. The debt partner doesn’t participate, it’s a better investment for me when things are a little bit more certain, if that makes sense.

Theo Hicks: That totally makes sense. Thanks for elaborating on that. All right, Willie, what is your best real estate investing advice ever?

Willie Mandrell: Stay patient. The best real estate investing advice I can give to anybody is stay patient. I’ve been in this business for 14 years now. People look at me and they see the end product, right? They see what’s at the end of 14 years. But it was a struggle going through the 2007, 2008, 2009 years, where people were getting foreclosed on and my home was worth less than what I owed on the property. It wasn’t certain whether my tenants were going to lose their job. This is a great business. I’m in my mid to late 30s right now, I’m probably going to see several more recessions. But I understand that I have a 20-year timeline before I’m even looking to settle down or retire and cash out.

Real estate – and again, this is just my opinion – people in society today, we live in a world where everybody wants something tomorrow; instant gratification. They’re not willing to wait for it typically. You can’t do that in buy and hold real estate. It’s a long game. It takes 5-10, 15-20 years to really start to see, but the upside is so great that if you just stay patient, this business is a terrific business.

Theo Hicks: All right, Willie. Are you ready for the best ever lightning round?

Willie Mandrell: Absolutely. Let’s do it.

Theo Hicks: Okay.

Break: [00:16:24] to [00:17:11]

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

Willie Mandrell:  Retire Young, Retire Rich. I wouldn’t say it was recent. It was probably maybe five years ago, but that was the game-changer for me. That was the one book that said—I’d read Rich Dad, I’d read The Millionaire Real Estate investor, I’d read The 10X Rule. A lot of great books. Start With Why, another great book. But Robert Kiyosaki’s Retire Young, Retire Rich is kind of like the next level to Rich Dad, Poor Dad. It really kind of took my mindset to the next level and said, “Yes, I can do this. This is absolutely doable for me.” It was more about just buying real estate than it was all the other things that come around that topic as well; the asset protection side of it, the making your real estate business an actual business.

I think people go in and they get that first multifamily or that second multifamily, and then they get stuck. They try to do everything themselves. They try to manage, they try to be a legal adviser, they try to be their own accountant. You can’t do it like that. That book really kind of took me to the next level and allowed me or helped me turn my rental property business into an actual business.

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

Willie Mandrell: If my business were to collapse today… I would have to push back on you and say, I would want to see how my business collapsed. Because that’s the thing that I love about real estate – you always need somewhere to live. I don’t know what a business collapse would look like. I still own the property at the end of the day. I look at it like this, if the market was to take a serious dip, we got hit by 25% in terms of my values – well, my net worth is going to take a serious hit. A lot of my net worth is tied up into the value of the real estate. My net worth would take a hit. But I’m not sure that the cash flow would change.

Let’s say for instance, 100 million people lost their job, right? And I have 10% to 20% of my tenant base that can’t pay, well, there’s a lot of other people in the country really struggling at that point, and I don’t see banks foreclosing, I don’t see banks taking my property back from me, because where would they go with it?

I can go on this long road of this hypothetical scenario that I’ve done 100 times in my head, but that’s what I love about real estate – the hypothetical collapse, I just don’t it see happening. If it did, I would do everything I could to find more money and to buy more real estate, because I don’t think that the collapse would last very long. I think we would end up coming back. Again, at the end of the day, everyone still needs somewhere to live and I think real estate is one of those investments that are tried and true, and that you can bank on.

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

Willie Mandrell: Education. I don’t think that I’m unique in any way. I think probably the only thing that makes me unique is, I wake up every morning with the same focus. I think that this business takes a lot of focus. It’s again, and like I’ve mentioned before, it takes patience. It’s a long haul. The thing that I would tell people and the thing that I go out and kind of preach is patience, consistency. But the way I give back is just through education; letting people know that you can do this as well. I’m not unique. I’m not gifted. I’m not Mark Zuckerberg, right? I didn’t come up with this secret algorithm for Facebook in my dorm room. This is one of the oldest businesses in the world. I did it, my grandmother did it. There was hundreds of people before her that did it. You can do it too. That’s kind of my message out to the general public in most cases.

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

Willie Mandrell: I would say Instagram and LinkedIn, I’m @wjmandrell. I also run a real estate investment group called Wealth Builder Nation. We are at at Real Wealth Builders on Instagram as well. I’m also on LinkedIn, and Facebook as well.

Theo Hicks: Perfect. Willie, thanks for joining us today and giving us your best ever advice. Some of the big takeaways from me was learning about how to determine whether to use debt or equity or not. When you’re raising money, the two options are debt versus equity. The debt would be get 100 K, pay 12% interest. You fix the property up, you lease it up, you refinance in however long, you hold on to it, you pay them back their equity plus interest.

Your example is nine months, the $100,000, down 12% would be $9,000, pay them back entirely and then the deal is yours. Equity would be, you borrow 100K and they get a percentage of the deal, say 20%. You offer both on your deals now, but equity is the safer bet for you during a downturn, because that investor is going to want that interest rate no matter what. If you’re not able to hit that 12% interest, I’m assuming the property as collateral – they can take the deal from you. That was interesting to learn.

And we talked about some strategies on how to raise money. You were very specific in saying how you first need to build a solid resume, do your first deal, FHA. Try to figure out another way to do your next few deals with low money down. Transition to raising money from some family member. For you it was your grandma, and she was nice enough to give you money without asking for any type of equity or interest rate. Do that and then start networking, you said.

Willie Mandrell: Absolutely, and that’s going out and networking, telling everyone and anybody who will listen exactly what you’re doing.

Theo Hicks: And then from there, it springboards. Lastly, was your best ever advice which is to stay patient. Realize that buy and hold real estate is a long term game. You’re not going to see massive upsides for a few decades. But once you actually do, the upsides are going to be massive.

Willie, thanks again for joining us. Best ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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JF2229: Wholesaling Deals With Emilio Basa

Emilio Basa is a full-time investor with 6 years of real estate investing experience who started off by wholesaling his first property within 4 months of learning how to wholesale. He consistently will wholesale about 3-5 a month and with this experience, he shares how he goes about growing his business so you can take the same steps.

 

Emilio Basa Real Estate Background:

  • Full-time investor
  • 6 years of real estate investing experience
  • Portfolio consists of 5 rentals, 2 flips, and over 30+ wholesales
  • Based in Detroit, MI
  • Say hi to him at: www.quickpropertysolutions.co 
  • Best Ever Book: Traction

 

Click here for more info on groundbreaker.co

 

 

Best Ever Tweet:

 

“I network with other wholesalers to share deals and grow my business” – Emilio Basa


TRANSCRIPTION

Theo Hicks: Hello, best ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’ll be speaking with Emilio Basa.

Emilio, how you doing today?

Emilio Basa: I’m good, Theo. How are you doing?

Theo Hicks: I’m doing good as well. Thanks for asking and thanks for joining us. Looking forward to our conversation. A little about Emilio; he is a full-time real estate investor with six years of experience. He has five rentals, two flips and over 30 wholesales under his belt. He is based in Detroit, Michigan, and his website is http://www.quickpropertysolutions.co/.

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

Emilio Basa: Absolutely. I’ve been doing it for six years. When I started, I primarily was strictly wholesaling. When I first started, I say six years, but to be honest, the first two to three years, I was doing it part-time because I was always doing other businesses. I did web design. I was also a musician in the Detroit area, so I was still doing gigs and things like that. I really was doing wholesaling just to try it out and just to do it part-time.

And then just over the years, I just started realizing that—I kind of took to it really quickly. I think I did my first deal in—after learning wholesaling, I did my first deal in four to five months. It wasn’t like a big deal. For me at a time, it was a lot. It was a $1,000 assignment. I started doing wholesaling. And then what I started doing was I started gradually trying other investing methods like rentals and flips, and I’m actually doing my first note this year, and just trying different strategies. But the core of everything has always been wholesaling for me.

Theo Hicks: How many wholesales are you doing per year or per month or whatever frequency is you wanna say?

Emilio Basa: It really depends. Consistently, I’m doing three or four a month right now. I think in December and January, I think I did six a month. It comes and goes. I think with the COVID thing too, we kind of slowed down a little bit.

Theo Hicks: Sure. What’s your preferred method for finding these deals to wholesale?

Emilio Basa: Funny enough, 70% to 80% of my business was actually joint ventures. In my market, you’ve got to be careful with some wholesalers, because some of them are kind of shady and they kind of try and steal the contract from underneath you. But I’ve always been somebody really easy to do business with and I always worked really hard to get a deal sold. A lot of the times people just started bringing me deals, and then more and more, I guess word got out because people just started reaching out to me.

I wanted to say, the last two quarters of last year, almost all my deals were joint ventures. I focus on [unintelligible [00:05:48].21], joint ventures, direct mail… That’s been trailing off. I don’t really do cold calling. And then Lately, I’ve been doing text blasting, which has been working phenomenal, actually.

Theo Hicks: I definitely want to talk about the texting, but I want to circle back to the JV. You said that people are bringing you deals.

Emilio Basa: Yeah.

Theo Hicks: What does that look like? They’re coming to your house? They’re calling you up? How do they know who you are?

Emilio Basa: They just call me up. Yeah, they just call me up. What I do is, whenever I have a deal, I put it on every social media platform you can think of, and then people reach out to me. When people reach out to me, I’ll just ask; are you a cash buyer? Are you a wholesaler? Most of the time people will say, “I’m a wholesaler looking for deals for my client.” And then I really just kick it with them, and just talk about their business and how their wholesale deals are going. And then I just pretty much say, “Hey, I’m growing my buyers list and I’m very transparent. I’m fair.  I’m easy to do deals with.” And then I really just pitch the pros of doing deals with me, which that’s pretty much it. Everybody works hard together to get the deal done, and people just like doing deals with me. So people just started bringing me deals.

To this day — the one deal that we’re closing on now, it’s three houses, online contracts; that came to me from another investor that I did a wholesale deal with. They’re actually his houses, and we’re doing that deal together right now.

A tip for a lot of people too is if you’re trying to build your wholesaling business, whenever you see, “We Buy Houses” signs in the road,—I read somewhere some people take those signs and they take them out, they throw them in the trash. I call all those signs and then I just say, “Hey, are you a wholesaler? Because I’m a wholesaler and a buyer.” I call all those signs. And then a lot of the times you find some really good people.

Theo Hicks: Nice. Basically, you’re networking with other wholesalers, so that a wholesaler brings you a deal. And then you’ll put it on social media and then another wholesaler will reach out, and you’ll kind of JV together to sell that deal.

Emilio Basa: Yes.

Theo Hicks: Okay, I just wanted to make sure I had that right. Is it just a 50/50 split of the assignment fee?

Emilio Basa: It depends on what the deal is. That’s the thing. It’s like, when you’re doing a deal, you just wanna be transparent with everybody. Whoever has it in the first position, you say, “Hey, how much do you have it under contract for?” If they trust you and they want to do deals with you, they’ll tell you. At the end of the day, I’ll tell them, “I don’t care how much you make. You can make 20 grand, 30 grand. If I make two, then I make two. But if it’s a good deal, and I could find a buyer, then that’s what it is.” Because some people won’t tell me and then some people are like “I want 10k, and I’ll take nothing less.” I’m like, “Okay, that’s fine. Well, I’ll try and do this. And I’ll try and work the deal this way.” And then what I do is I have a JV agreement.

What I used to do was either splits, or I had two contracts; one was a 50/50 split, and the other one would be where I’d add my fees on top. And usually, that worked out pretty well, until sometimes with some deals, I’ve had up to six wholesalers on one deal. It was definitely—it was a daisy chain, that’s for sure, because one guy had it, and then another guy told me about it, so he wanted to cut… And then I told another guy about it, who told somebody else and that somebody else brought the buyer.

Theo Hicks: Oh, man.

Emilio Basa: I know, it was a big mess. The way I work out in my JV contract, I literally have six blank lines. And then I put down everyone’s LLC, and then next to the LLC, you write the amount down, and then at the bottom, it says ‘total’ and then everyone has to sign it. So then when you take that agreement, you send it to the title company. There’s two ways you could do it – everyone could get paid straight out of the settlement statement, or one person can take the lump sum check, and then pay everybody out. But that takes a lot of trust. A lot of people won’t do that. They rather would be on the settlement statement, on the HUD, and get paid out that way.

Particularly, I don’t like doing daisy chains, but sometimes some deals that’s what happens. It just unfolds that way. If you have a deal and no one else is buying, but this one guy found a buyer, but it’s not his buyer and it’s another one’s buyer, at the end of the day I’m like, “Dude, let’s work it out.”

Theo Hicks: Yeah, so it sounds like it’s pretty negotiable, right? It’s kind of like what people want.

Emilio Basa: It is. Yeah, yeah.

Theo Hicks: Okay.

Emilio Basa: The tricky thing is that when you’re dealing with two people like me and another wholesaler, our values pretty much match up. Everybody just wants to do a smooth deal. No one gets too greedy, things like that. And then the more people you add, the more personalities you add. So sometimes somebody actually might get really greedy. If you get one person that kind of messes up and messes up the deal, then that’s where it could kind of derail the deal. But for the most part, especially when they start finding out how many people are involved, there’s not a lot of meat on the bone, but everyone wants to get a deal done, so let’s get it done.

Theo Hicks: Sure. Let’s transition to talking about the mass texting you do. Walk us through that.

Emilio Basa: I just started doing it. I’ve probably been doing it for two months now. I’m not going to lie, I pay about $3.50 a bandit sign, and I used to put them up myself. But now I’ve got one guy that delivers them for me, so I pay him three bucks. So my cost per bandit sign is usually $6.50 or $7 a sign.

My response rate was, let’s say 10-15 percent, and sometimes I get some pretty good deals. But with text blasting, it’s 20 cents a text and you could send out 1,000 texts. If you just get one deal, the cost per lead is extremely, extremely low. You’re spending $200 to close out on a contract as opposed to doing like a bandit sign or direct mail. Let’s see, I’m closing one today and that was from a text blast from four weeks ago. I closed one, two weeks ago, that was also from a text.

Theo Hicks: Are these text to wholesalers or are these to the actual sellers?

Emilio Basa: The tricky thing is for text blasting wholesalers, a lot of them are already on my email blast. If ever I need a deal, I’ll either just send out an email blast and just say, “Hey, wholesalers, anybody got a deal that you’re looking to sell, reach out to me,” or when I call people on the bandit signs, I’ll say, “Hey, what’s your name,” and then his name’s Jason. I’ll put in Jason-wholesaler. So whenever I need a deal, I’ll literally go on my iPhone, type in wholesaler, and maybe like 50 wholesalers pop up, and I just text them all the same message. I just copy and paste it and I say, “Hey, I need a deal, what do you got?” And then I paste it to the 50 wholesalers, and you’ll get a deal by the end of the day for sure.

Theo Hicks: Nice.  So for the 20 cents per text, though—

Emilion Basa: That’s to the seller.

Theo Hicks: Because you’re going to find a deal to put under contract. How are you getting their numbers? Is there like a service that does it all for you, who you’re targeting? Walk us through that.

Emilio Basa: I just started using Prop Stream.

Theo Hicks: Sorry, what’s it called?

Emilio Basa: Prop Stream.

Theo Hicks: Prop Stream. Okay.

Emilio Basa: Yeah. Prop Stream is a software where you can look up different lists. As a wholesaler or as an investor, your best deals come from motivated sellers. What you want to do, instead of targeting a blanket area, let’s say you’ve figured out one county’s got 80,000 leads or 80,000 people that own homes. But then what you want to do is you want to find the motivated list out of there. There’s either pre-foreclosures, there’s bankruptcies, divorces, things like that.

With Prop Stream, what you could do is you could type in a county or a city and then you could start adding different attributes to filter down to your criteria of what you’re looking for. You could target specific lists, so you could target — absentee owners is a really popular one. You could do absentee owners. And then what you could do is you could filter down by—if you only buy three bedrooms and up, so you could filter that.

An important one that I do is I get rid of all the LLCs. I do individual owners only. So that filters out a lot of LLCs. And then what you’ll do is you’ll get a list at the end of it. What you could do is you could export that list. What I do is I take that list, and you can either skip trace it in Prop Stream, but whatever text blasting service you use, and there’s a ton of them. I think there’s one called Roar, there’s one called Sherpa, there’s Batch Leads… You could take that list, and then you could put it in your text blasting software, and then you just start sending it out and then see who’s interested.

Theo Hicks: So you’re having a lot of success with that. You’ve done two deals so far. What was the assignment fees in those?

Emilio Basa: One was 15 and this other one that was a double close, it’s a five.

Theo Hicks: How quickly are you able to get these deals under contracts after someone reaches out to you? Is it pretty quick? Is it that day? Or does it need a little bit more work?

Emilio Basa: No, it depends on their motivation and it depends on their situation. Ideally, I would love to get it under contract after the first call. But a lot of the times the sellers – some of them might be motivated, but they’re not really motivated to close that day. A lot of the times, you really have to work a lead by just following up with them, and then just building that rapport.

I’ve got a deal right now – it’s in Moore, Michigan. The lady, I probably called her four or five times. Really all it is, is just like you catching up with her to see how things are going. One thing that I’ve changed this year is I actually learned wholesaling from a few people, but the one that it’s honestly is like my mentor and my largest influencer is Sean Terry. A lot of people that know Sean Terry – that’s the Flip to Freedom students… With Sean Terry, he’s a really good salesman. I don’t want to say it’s the hard sell, but when he goes into an appointment, he’s leaving with a signed contract. That’s the goal. A lot of the times if somebody isn’t terribly motivated, or they’re in a situation where they’re kind of getting to that point, there’s no point in trying to do a hard sell.

What I’m doing lately is I’m actually not trying to do a hard sell. If listing it with an agent might be better for them. I actually don’t think I’m the right buyer for you. I actually think an agent is better for you. Have you tried being an agent? Have you tried doing this? Have you tried doing that? What happens is is that whenever you start suggesting them other options than you buying it—because they’re on pre-foreclosure list, they’re used to people bombarding them trying to really pitch him to sell that day. When they talk to somebody that honestly says, “I don’t think I’m the right buyer for you,” it kind of puts their guard down, and they could start talking to you as if you’re not trying to sell the house, you’re really just giving them your honest opinion.

They appreciate the transparency more than somebody that’s just looking for that person that’s truly motivated, because I think some wholesalers – if they’re not truly motivated, they’ll really probably just walk away from the deal. But a lot of the times, if you just build that rapport, and you’re there, and you call them up and just see how things are going, they appreciate that more than somebody that’s just trying to buy their house.

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

Emilio Basa: I would say be uncomfortable, which means I talked to a lot of newer investors, and a lot of them, they’re making that first call or they’re doing their first walkthrough, and sometimes — I know a ton of them that have a bunch of calls that they have to make and they just stare at the phone… Or bandit signs. They have to put up a bandit sign. I was just talking to somebody the other day. They ordered 50 bandit signs and they were ready to go and then they went out that night and literally they didn’t do it. A month later, the bandit signs are still in their garage, just sitting there. That’s the thing – be comfortable with being uncomfortable. Because when you start off with one thing like wholesaling, wholesaling is to me the—I don’t wanna say kindergarten. It’s like elementary. It’s like the basics of real estate investing.

What you’re going to do is you get out of your comfort zone and then when you start graduating up to other things, like when you start doing your first flip, or doing your first rental, you’re going to do things that are very uncomfortable, and you have to get used to that, because by you being uncomfortable, you’re stretching out and you’re growing as a person, as an investor.

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

Emilio Basa: Sure, do it.

Theo Hicks: Okay.

Break: [00:16:48] to [00:17:39]

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

Emilio Basa: A book by Gino Wickman called Traction. That’s a really, really good book. I just started it, I haven’t finished it, but it’s a really good book about scaling out your business and trying to put a team together and creating a vision for your business. It’s just been a great book so far.

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

Emilio Basa: I’ll be honest, I’d probably would start the same business. I’d just starting another same business. That, or — I was a musician before. If I could try and make money as a musician, then I might go back to that.

Theo Hicks: Tell me about your best wholesale deal, your biggest assignment fee. Kind of walk us through how you found it, who you sold it to, things like that.

Emilio Basa: Well, I got two that are tied. My biggest one was in Detroit. It was a double close. We made about 26k on that one. That came off of a bandit sign lead. That was an amazing deal because I didn’t even have to negotiate the price. He said his price and I was like, “Holy crap, that’s a really good price.” I was like, “I’ll meet you there tomorrow,” and he met me up there. I built the rapport… It took them a week to sign it, but that was a pretty good one.

But I think honestly one of my favorite deals, my best deal that I remember was – I do virtual wholesaling too, and I was doing deals out in Washington, out in Seattle. I wasn’t doing houses, I was doing vacant land. I remember I just bought the course on how to do virtual wholesaling land, and then three months later, this deal pops up and that one was a $20,000 assignment off of virtual wholesaling.

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

Emilio Basa: I give a lot of advice over the phone. I don’t really mentor, but I get a lot of wholesalers that are new to the industry, and I love to just talk to them about how to grow their business. Any advice I could give. Oh plus, I also have a YouTube channel where I cover Detroit real estate investing. It’s https://www.youtube.com/quickpropertysolutions. I also look out for out of state investors that are buying in Detroit, because a lot of them get burned or get their money stolen or something like that. I created a YouTube channel where I’m starting to give advice on that channel as well.

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

Emilio Basa: Probably just reach out to me — I think the YouTube. I’m very active on YouTube. If anybody was interested, they could go on there and leave a comment, or just go to my website, http://www.quickpropertysolutions.co/, or the YouTube, which is https://www.youtube.com/quickpropertysolutions. I’m on Instagram too and Facebook, so they could pretty much find me anywhere.

Theo Hicks: Well, thanks for joining us, Emilio. I really enjoyed our conversation; lots of interesting takeaways. I definitely like your mindset. It seems like you go against what most other wholesalers do, which is helping you be successful.

A few of the things I hold from this was I liked how you mentioned how some wholesalers see a bandit sign, they want to yank it out of the ground and throw in the trash, light it on fire.

Emilio Basa: Oh my God…

Theo Hicks: Whereas for you, you actually call them up because you found a lot of success doing joint ventures with wholesalers. It’s kind of like 70% to 80% of your deals have been JVs, you put your deals on social media, and you’ll have people reaching out to you that actually happen to be wholesalers, and those are people that will do deals with.

You also mentioned that you do text blasting, so you kind of walked us through that and why it is kind of a much lower cost per lead.

You said if you use a Prop Stream as a software, you talked about how to create the list, make sure you’re targeting a specific county, find motivated sellers list, like pre-foreclosures, delinquencies, divorces, absentee owners; you can filter by the number of bedrooms. You’ve personally filtered out all the LLCs, you only want to target individual users. Then you export that list into the text processing software that will send text messages to all those people.

I also liked how you said whenever a wholesaler calls you from a bandit signs or whatever, you’ll save their name in your phone as wholesaler. So whenever you need a deal or you have a deal, you just have your own kind of customized text blasts with your cell phone, you just blast all the wholesalers in your phone.

You also mentioned that when you’re talking to them, you don’t do the hard sale. Instead, you kind of just build a rapport and be honest, even if that means that you believe you don’t have the best option for them. By doing that, you found that they open up a lot more and are willing to work with you a lot more.

Lastly, your best ever advice, which was to be uncomfortable and you gave a lot of examples about that.

Emilio, again, thank you so much for joining us today. Best Ever listeners, as always, thank you for listening, have a best ever day and we’ll talk to you tomorrow.

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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JF2222: Active Investor & Podcast Host Steven Pesavento

Steven Pesavento is the Host of “The Investor Mindset Podcast” and an active investor himself who has flipped over 200 homes within his first 3 years in business. Steven started out in AirBnB before focusing on flipping homes, house hacking, rentals, and now is working on his first commercial deal. 

Steven Pesavento  Real Estate Background:

  • Host of “The Investor Mindset Podcast” and active investor
  • Full-time real estate investor for 6 years, the first 2 focusing in on AirBnB
  • Has flipped over 200 homes within his first three years in business
  • Based in Denver, CO
  • Say hi to him at: www.theinvestormindset.com 
  • Best Ever Book: Never Split the Different

 

Best Ever Tweet:

“I look for a partner who is good at something that I am weak in” – Steven Pesavento


TRANSCRIPTION

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

Steven Pesavento: Theo, I am doing phenomenal. How are you doing today, my friend?

Theo Hicks: I’m doing phenomenal as well. I like the energy, looking forward to our conversation. Before we dive into that though, let’s go over Steven’s background. He is the host of The Investor Mindset Podcast, as well as an active full-time real estate investor for six years, with the first two focusing on AirBnB, as well as flipping over 200 homes within his first three years in business. He is based in Denver, Colorado, and you can say hi to him at his website, which is https://theinvestormindset.com/.

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

Steven Pesavento: Absolutely. I got into real estate just like so many others, kind of fell in through Rich Dad Poor Dad, but it took me about 10 years before I finally got into my first deal. I read that book when I was 17. But I actually started in AirBnB land, and I had no idea at the time that I was investing until years after I was already doing it. But I was essentially renting out my personal home and two other homes that I had leased from another owner, and then I had furnished those, and I was renting them on Airbnb. I started making money that way.

When I finally got into real estate full-time, and I really actually saw myself as a real estate investor, I started flipping houses, and in those first three years I had flipped over 200 houses. A portion of those were wholesale deals, but over 50% were full-blown flips, or new construction projects or land development.

And then I kind of shifted gears and I’ve focused on multifamily. I’m working on a 220 unit apartment building right now in Columbus, Ohio, so I’m excited to get that closed and over the finish line. Real estate has just been an amazing vehicle to create wealth, but it’s also been an amazing community, because I’m a real big believer in personal development and mindset and growth. Being surrounded by so many people who really believe that it’s possible to live a life different than what the norm is and that we can go out and create what we want, it’s been amazing to be surrounded by those kind of folks in this community.

Theo Hicks: Awesome. Thanks for sharing that. I want to ask one quick follow up question on your AirBnB, kind of how you started. You mentioned that you went out and rented out someone else’s house, and then re-rented that out to other people. What made you get into that, and then why did you stop doing that?

Steven Pesavento: What I was doing essentially was doing a master lease. I had the right to sign a lease with the landlord and I had the right to re-lease it to somebody else. Why I started doing that was I actually was dating somebody who lived out of state, and I was traveling to go visit quite often. I had heard about this thing, AirBnB, and it was right when it was just beginning back in 2014/2015. I rented my house one weekend, and actually, I made money after travel costs, after everything by going out of town that weekend. It was this “A-ha!” moment of, “Wow, Holy smokes, I can make money doing this.” It ended up being a vehicle. I used the money I made from AirBnB to fund a startup with a few friends that had just graduated from Stanford, on this on-demand storage startup.

That ended up not working out, but the experience of being able to rent out my home and know that no matter what, I knew that it was possible for me to make a pretty big chunk of money… I was making seven times rent during the busy season, about an average of four times rent on average over the year.

But what shifted or what changed for me was that in the state of Colorado, and specifically in the city of Boulder, they changed the laws, and a lot of cities across the country have made sweeping legislation that stops people from doing AirBnB for this specific type of strategy that I was doing. I just didn’t want to really play in that gray area. After about a year after the regulations changed, and things were becoming more clear, I made the decision to shift gears.

Theo Hicks: Sure, perfect. Okay. So then for your first three years, you focused on flipping after doing the AirBnBs; you did 200 flips. When did you transition into multifamily? Is this 220-unit your first deal?

Steven Pesavento: The 220-unit that I’m working on right now is my first commercial deal. I’ve bought plenty of residential multifamilies over the years and raised tens and tens of millions of dollars for that business. But this is the first deal that I’m working on where I am a managing partner and raising capital. I’m working with some extremely experienced operational partners that have experienced 25,000 plus units of management, they typically own 3,000 units at any given time.

One of the things for me that was really important, and it was the same way that I got started in the single-family space, was going out and finding operational partners that had a track record existing.

My first partner in flipping, he had built hundreds of houses, he had flipped hundreds of houses, and he had lost tens of millions of dollars back in 2008. Having that kind of experience ends up allowing us to move much faster forward and skip a lot of the challenges along the way, which is why we were able to flip so many houses so early on in my career, was because I was able to bring skills that he didn’t have; how do you go find the deals? How do you go raise the capital? How do you go and build the structure to make that a machine? And he knew how to manage the operational side of the business. I’ve essentially done the same in multifamily; I’ve been working at becoming educated for about a year, and about six months ago I made the hard switch to really ramp down my single family business almost completely out of the single family business at this point, and focused 100% of my effort on the commercial side.

Theo Hicks: Before we talk about the 220 deal, I wanted to focus on what you mentioned about finding partners with experience. You’ve already mentioned one characteristic you want to find in an experienced [unintelligible [00:08:52].14] experience, and number two would be complementary skill sets. Is there anything else that people should be looking for when it comes to finding a partner? And then also, what did you do to actually find these people? And then, I guess maybe on that same track, how specifically do you go to Google and look up experienced partners? How do we literally find them? But also, how did you make yourself, or what about you, was attractive to these people?

Steven Pesavento: Love the question. This is phenomenal. I actually just answered a lot of this in Episode 129 on The Investor Mindset, so I highly encourage you guys, head over there, check it out. If you like what I’m talking about here, you’ll probably like that episode where we dive deeper. But essentially, what I was looking for in a partner was somebody who had the track record and was good at what I wasn’t good at, who their unique ability was not the same as mine.

Where I looked was I went to networking events. I went out into the community and I was coming from a place of giving value, of always offering something without asking for something in return. One of my first mentors – I ended up making a deal to create a $10,000 website to allow me to follow her around. It’s a very, very good value delivery ratio there.

The same thing was true here. I built this relationship with this partner at some local events, and I think what really did it for him was that I had the background experience on marketing, about how to communicate and handle sales directly with homeowners, with investors, with people on that front, as well as the hustle, wanting to go out and grind and put this together, and the energy to go and do it.

When you meet somebody, and you get that feeling that you know they’re going to be successful, it’s just a matter of time – it creates this kind of energy. I feel it whenever I go to events with big players there as well, that are on their way up, it’s that feeling of knowing that you can either work with them, or potentially they’re going to be a competitor. Or it’s that feeling of, “Okay, I see this person coming to this event, and they’re continuously growing, they’re making progress.”

When you can bring that kind of energy to a conversation, when you can bring that energy to a relationship, to a partnership, people are attracted to wanting to work with you. That’s what I did to find these partners. Over time, you build those relationships and you start to understand, who do you trust, who trusts you, who do you connect with? You want to find someone that has the same core values as you. I think all of these things are super critical when it comes to partnership.

Theo Hicks: Thank you for sharing that. Something else you mentioned as well was that you raised tens of millions of dollars for your flips. I’m assuming that you’re responsible, or at least partially responsible for raising money for this 220-unit deal. If that’s the case, I’m just curious, how did you find that transition with your investors? They were used to investing passively in fix and flips, which is obviously a different structure than investing in large apartment deals. Were they on board? Did you have to do some convincing? Maybe walk us through that process.

Steven Pesavento: You know, it’s such a good question. For anybody who’s listening who wants to connect, just reach out to me, happy to share any advice on this front or if you’re interested in passive investing, put the same thing out there, you can just find me, Steven Pesavento, on LinkedIn or anywhere else.

But what I did was, I really don’t believe in convincing, right? I really believe in educating. I’m a big believer that you put good information out, you put good vibes out into the world and the right people and the right things are going to come back to you; you kind of create this space for greatness to happen in the middle.

What I did was I was working with these folks, delivering for them over and over again. When you flip 200 houses, you’re going to have some that are losses. When you’re able to say to your investor, “Hey, we wrote a check for $70,000 to sell this house, which means we’ve lost that $70,000; there’s good lessons learned. But guess what, here’s a check for you for 30k or 15k, or 20k”, or whatever it might be, and they’re seeing themselves get paid, it builds a huge level of trust. Because when you take care of your investors, they really believe in what you’re doing.

What I really did was when I had this “A-ha!” moment about commercial when I realized how powerful it could be for building my business, as well as building other people’s financial freedom, that I had to share it with them. I started calling my investors, started letting them know, “Hey, we’re going to be going in this direction, it’s going to be a long-term transition, but once we’re focused there, that’s where the sole focus is going to be.” And because I spent a good solid year building relationships, becoming educated, and really laying the foundation, when I essentially brought up that “Hey, we’ve got this deal,” they already were primed, they already knew about what we were doing, we knew why it was valuable to move this direction. For many of them, they were ready to jump at the opportunity because the structure that we have offers them all of the benefits that they were getting on the note side, but with a lot of the equity benefits that come along when you’re investing in a syndication.

It was really just creating the space and educating folks so that they could then opt-in and say “Hey, yeah, I am interested in joining you on this next deal.”

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

Steven Pesavento: You know, Theo, as somebody that is a go-getter and go-giver, just going out there and trying to do as much as I possibly can, the best advice ever is to be patient, is to slow down and to realize that you can accomplish more than you think in five years and less than you think in one. Be willing to double down on the things that you know are important and stay focused, but to be patient that some of the best things take time, and it’s worth it to wait for them.

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

Steven Pesavento: I sure am.

Theo Hicks: Okay.

Break: [00:15:10] to [00:16:08].

Theo Hicks: Alright, Steven, so I saw behind you had Go-giver books. Obviously, it’s probably one of your best ever books. Besides that, what is the best ever book you’ve recently read?

Steven Pesavento: One of the books that I constantly keep going back to—well, actually, there’s two books I keep going back to. It’s the book Never Split the Difference and  The ONE Thing, and I read The ONE Thing every single year because it’s a baseline for me to be reminded about the focus that’s necessary to succeed, and Never Split the Difference because it’s a way about communicating more effectively. And yes, it’s about negotiation, and it just happens to be that I’ve been fortunate enough to be able to interview both of those authors and The Go-Giver, author, Bob Burg on the podcast.

If you guys haven’t read those, I highly recommend them. They’re books that will change your life for sure.

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

Steven Pesavento: I would immediately take a deep breath. I would recognize that I have to accept what’s going on in my life right now, and that, “How are we going to move forward?” The way that I move forward is I would go and find a way to add the most amount of value in the quickest amount of time to somebody or an industry that can afford to pay a lot for it. Finding a way to add so much value that I could make a large windfall of return, and would be able to get right back up on my feet pretty quickly.

Theo Hicks: I guess this next question would probably apply to your fix and flips. But tell us about a time that you lost the most money on a deal. How much did you lose and what lesson did you learn?

Steven Pesavento: Well, there’s going to be some bumps and bruises along the way when you’re focused on appreciation in real estate, when you’re just focused on pushing that value of the price up, which is what you’re doing in flipping.

I bought this large house, it was outside of Raleigh, North Carolina in a town that should have been able to afford this price point; but it was a unique house, it was in a unique area and it required a very specific type of buyer. We bought it thinking we were going to make 100 to 150 grand on it, we thought it was a home run. It was just a list and we would end up rolling in the cash.

Well, after having it sit on the market for about a year, because of some failures in our own systems while doing that many deals at a time, when we actually sold that property, we wrote a check for about 70 grand. It was one of the best days, because there was a huge realization, not only in the power of having multiple streams of income and not just focusing on appreciation, focusing on cash flow and having a hybrid approach, but it was also that feeling of knowing that once you’re able to close something out, sign that away, I wrote that check and obviously that money was gone… But it was such a relief to know that that was off of our plate, and that we could move forward. That was definitely one of the big lessons learned.

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

Steven Pesavento: I love directly working with young people through Junior Achievement. I go into classrooms, teaching mindset and entrepreneurship in schools. I believe it’s a big thing, because I think the school system is broken in so many ways. For some folks, just having the opportunity to hear another way of living or to hear that somebody maybe wasn’t the best student or wasn’t always doing the right thing in my youth, but to be able to then take myself and put myself into a successful position, it creates a really cool level of inspiration for these young kids who maybe were thinking there’s no other option for them, but to take some crappy job… But to really be able to go and see, “Hey, it’s possible for me to maybe create my own thing, go find a mentor and go down that path.”

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

Steven Pesavento: You can definitely reach us on social media. You can find me Steven.Pesavento on all the platforms, but I really encourage you, if you found this conversation valuable, to definitely subscribe to the podcast, The Investor Mindset. But if you’re a passive investor and you’re looking for more resources, we’ve put together a phenomenal deep dive guide on passive investing, and you can find that at https://action.theinvestormindset.com/passive.

Theo Hicks: Okay, Steven, I really appreciate you coming on the show today and giving us your best ever advice. I guess the main takeaway that I got, and I’m sure our best ever listeners got, was your advice on partnering up with experienced people. You mentioned how you did that for your flipping business, and you’ve also done this for your commercial apartment business you’re beginning to launch.

And you said, obviously, the main benefit of that is being able to scale faster, as well as skip a lot of the mistakes you would make on your own. And then more specifically, you mentioned that you want to find someone who has a strong track record, and is good at what you aren’t good at, has different unique abilities. You mentioned that you were able to find these people at networking events, and that you were offering value to these experienced individuals without asking for anything in return. You gave the example of creating the $10,000 website in order to basically shadow someone. You mentioned that for your business partner for, I believe, of your multifamily business, they really liked that you had experience in marketing, handling the sales process, investors, as well as the hustle.

And then you talked about how best ever listeners can attract those types of experienced people. It has to do with energy and making sure that whenever you’re going to these events, you’re consistently improving. So each time to go there, you’ve done more than you did before, and that is able to attract people towards you.

And you also mentioned that you also want to find people who have the same core values as you. And you also mentioned some advice in transitioning investors from one asset class or one real estate niche to the other. In your case, it was investing in fix and flips to investing in apartments. And you said you don’t believe in convincing, you believe in education, so you focus on educating and making your investors aware of this transition, and how it will benefit them. And this transition for you was about a year, so by the time you actually had a deal, they were primed and ready to go. They knew that they were getting the same benefits and then some by investing in these apartments.

And then lastly, your best ever advice which is to be patient, to slow down, and then realize that you can accomplish more in five years and because more than you think you can in five years in 10 years, and you’ll probably accomplish less than you think you can in one year. So doubling down on what is important to you, but also realizing that the best things take time.

Again, really appreciate you coming on the show and sharing your advice. Best listeners, as always, thank you for listening, have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2211: Don’t Underestimate Your Potential With James Evans

James Evans is the Owner of Gladstone Capital with 6 years of real estate investing experience with a portfolio consisting of 20 rentals, condo conversions, limited partnerships, and creative joint venture deals. James got into real estate because his job has him traveling constantly where he felt like he shouldn’t have to pay for a mortgage since he was never home which started his journey into renting houses and eventually grew into a nice portfolio. 

James Evans  Real Estate Background:

  • Owner of Gladstone capital 
  • 6 years of real estate investing experience
  • Portfolio consists of 20 rental units, condo conversions, limited partnership, and creative joint venture deals
  • Based in Boston, MA
  • Say hi to him at: https://gladcap.com/ 
  • Best Ever Book: Living with the Seal

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“We tend to underestimate our own potential” – James Evans


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks and today, we are speaking with James Evans. James, how are you doing today?

James Evans: I am doing great. How are you doing, Theo?

Theo Hicks: I’m doing great as well. Thanks for asking and thanks for joining us. Looking forward to our conversation. Before we jump into that, let’s go over James’s background. So he’s the owner of Gladstone Capital. He has six years of real estate investing experience and has a portfolio of 20 rental units, condo conversions, limited partnerships and creative joint venture deals; so a little bit of everything. He is based in Boston, Massachusetts, and you can say hi to him at his website, which is gladcap.com. So James, do you mind telling us a little bit more about your background and what you’re focused on today?

James Evans: Absolutely. So a quick version of the background – I was a finance major in 2006 through 2010, so through the financial crisis. Got out of school and ended up getting a job at PricewaterhouseCoopers on the consulting side of their business. So I was traveling around all the time. I would leave DC where I was living on Monday, fly out to my client site, fly back on Thursdays. It got crazy. I was just living on the road, never had any local projects. And after a year, I decided that it was stupid to be paying rent with all the time I was spending in hotel rooms. So I convinced a couple of my friends to let me just crash on their couch during the weekends, so I paid 100 bucks in rent, or 200, or whatever it was. It was something very, very much lower than the typical DC rent. So I was able to save a bunch of money that way. And then also traveling all the time, most of my meals and things like that were expensable during the week. So it was a ton of fun to fly all over the place, that nomadic kind of lifestyle.

I had been thinking for a while about saving up to buy my first place and simultaneously moving back home to the Boston area. So when I looked around at a few places, and I guess the math I was doing was I wanted to be able to buy a two-bedroom place where I could have a roommate to cover the majority of my living expenses. Living that couch life, I got really addicted to this low overhead lifestyle that I was loving and wanted to keep that going. So I ended up getting a really good deal on a place, and everything spiraled from there. Second part of the question is what I focus on now, right?

Theo Hicks: That’s okay. So you bought a single-family house and you rented out one of the units to someone else?

James Evans: It was a condo, a two-bedroom condo, and I rented out one of the bedrooms.

Theo Hicks: Perfect. So what are you doing today?

James Evans: Today, like you said, I’ve painted the board. I was doing a little bit of a lot of things, so in progress on a few joint venture development deals with other local partners around here… I have been slowly and steadily building up a multifamily portfolio of rentals, I have done some property management for others, I’ve done things outside of real estate. I bought, owned and operated and sold a website… I own a food truck with a few friends… So like you mentioned, I’m all over the board right now.

Theo Hicks: Yeah, you’re doing it all.

James Evans: Yeah. So the phase I’m in now is looking at everything through a different lens and figuring out what to actually keep on my plate, and really focus on and try to compound my efforts on over the next ten years or so.

Theo Hicks: That’s a good place to start. So you’ve got a lot going on, and you also have a full-time job?

James Evans: Correct.

Theo Hicks: Okay. What’s your day like? What’s your week? Like? Are you waking up at 4 o’clock in the morning and [unintelligible[00:07:18].27] blocked off to focus on each individual enterprise? I’m just curious, how do you do all that?

James Evans: So I wish I could tell you I was following the 4-Hour Workweek protocols correctly and was batching all my emails and time blocking things out really well, but I think — I try to do a little bit of everything every day and just keep momentum going. Like I said, now I’m focused on subtracting out the superfluous and really… The lens I’m looking at things through now is what I call return on headache. And I think what I want to do going forward is pick one, maybe two things that are really high headache, complex, take a lot of work to get through the other side of, but have a really high and the rainbow at the end of the road, or the pot of gold at the end of the rainbow – I’m mixing up my phrases – but really high reward. I think that’s where the really high impact, life-changing things come from, are these high headache, high return activities.

And then also where I can, pick off the low headaches, medium to high return things. A lot of how I do the rental portfolios fall into that category where I can put on some upfront time to make sure it’s a good deal. But then I have property managers and hands-off besides making decisions and holding people accountable. So I’m using that lens to cut out the middle tier of that things. So property management, the website I was running, I’ve really taken a step back. I sold the website, I’ve stopped doing property management for the most part, and self-managing any of my own rentals. So just trying to find those areas where I can either pay or cut off to eliminate a good chunk of headache and time [unintelligible [00:08:44].22] my day-to-day.

Theo Hicks: Sure. I like that concept of return on headache. Just to make sure I’m understanding this properly… So you’re saying that you want to focus on the things that do give you a headache, but that also result in higher returns, and get rid of the things that aren’t giving you a headache and then aren’t giving you a high return?

James Evans: Yeah, those are the two categories I’m focused on. So one, high headache, high return and maybe one, maybe two things like that. I haven’t quite narrowed it down yet, but I’d like one midi project/ten-year goal to track through that’s going to be complicated, it’s going to be messy, that I think I can do a better job in and have a higher return than if I put that time into something else.

Theo Hicks: So do you have an idea? Is it going to be real estate? Just in the intro, we’ve got your rental portfolio, we’ve got condo conversions, we’ve got limited partnerships and JV, some more passive deals. Do you have an idea of which one you plan on diving all in on, or is it something that’s not on that list?

James Evans: With the list right now, I would say building the multifamily portfolio is probably one of the highest priorities there. The joint venture deals I’m doing also tend to be lower headache on my end. Again, some upfront work, but I’m pretty hands-off, because I’m not super involved in the construction side of things. I really like the people I’m working with, so I don’t consider it a high headache thing. So those are the two real estate related tracks I’m gonna start focusing on.

Some bigger multifamily projects where I can have a property manager, cash flow as well, and I can just put it on autopilot for a five to ten year period… And then the joint venture deals which are more complicated, and I get to shadow and be involved with as it makes sense, but I don’t have the weight of every single decision on my shoulders, I’m not getting calls from subcontractors in the middle of the afternoon, and I can just be more involved a more strategic level.

Theo Hicks: Sure. So you’ve got your 20 rental units. How many properties is that?

James Evans: As of now, it’s five. So I have two six-units, a five-unit, a duplex and a single-family.

Theo Hicks: Okay.

James Evans: I think that math checks out.

Theo Hicks: Yeah, totally. So just to be clear, the biggest one, you said, is a six-unit?

James Evans: Yep. So two six-units. I’m on a contract on an eight-unit right now as well.

Theo Hicks: Okay. Let’s talk about the eight-unit under contract. So walk us through where did you find it, and then what’s the purchase price, what’s your plan…

James Evans: So it’s in Manchester, New Hampshire. That’s the area I look in predominantly; Southern New Hampshire. I can get into that later if you want to… But I found it through an agent. It was listed. My agent had another contract with a different buyer. Six months go by and the buyer’s circumstances change. The seller’s taking forever to get documents back and they just couldn’t get the deal closed. Sellers, upstate New Hampshire, no internet, everything gets paper signed to track down bills, financial statements, things like that. So just– it didn’t work out for the last buyer, so I ended up coming in and offering significantly less amount than it was originally listed for. So it grosses about $94,000 a year, and we’re buying it for $500,000. So a good deal, a good cap rate going in, pretty clear path improvement. Looking at things like doing either RUBS, or separating out some of the utilities, reduce expenses. And then as the units turnover, we’ll clean them up and fix what needs to get fixed to get higher rents. So kind of your bread and butter…

Theo Hicks: Sure. Do you know what the rehab costs are going to be, and then how much you will be able to raise the rents by?

James Evans: Initial capex budget is going to be around $50,000, and that’s going to be spread out across the board, some common area, things that needs to get fixed, and then unit turnovers. Some require a little more work than others. And then depending on the units, $50 to $100 a month in rent increase.

Theo Hicks: You said, “we”. So something else I wanted to ask too is, how are you funding all this? And then are you the only person, or do you have business partners you’re working with as well?

James Evans: Great question. So this is one of the first multifamily deals I felt comfortable enough to go out and raise private capital for, or doing that with private investors for some of the money. I’m going to put in some as well, and then bank financing for the majority of it. So I do tend to say “we” more than “I” because like anything, there’s going to be a lot of people involved in this. Even if this was like the other rentals I have where it’s solely my own balance sheet and money, my property manager’s involved, the broker’s involved, tenants involved… It’s a team sport, so I say everything with “we” even if it’s just me doing things.

Theo Hicks: So this is the first time you’re raising capital for the deal. How much money do you need to raise? How much do you already have? And then who are these people you’re raising money from?

James Evans: We’ll raise between $75,000 and $100,000, and I have about $60,000 so far, and commitments for the rest. So we’re just waiting on a closing date and a few other stipulations to get ironed out. But who we’re raising money from – a lot of them have been investors from previous deals we’ve done. So the joint venture deals, those I’ve brought investors into as well. That was my trial run raising money, and it was an interesting, unique experience doing it because I had really experienced developers and operators that were my backstop. I had always been hesitant to do something for my own projects, because I felt like I needed to skin my knees and learn using my own money before I would put anyone else’s money at risk.

So having two guys who do this full time, one of them being a contractor who has worked in the industry for a while, I was really confident in their ability to perform. I thought it was great deal, so I felt really comfortable bringing my friends and family into the project. So we’ve done two deals together in these joint ventures, and now some of the investors who have gotten to know us through that have expressed interest in things that provide monthly cash flow or quarterly cash flow versus development projects, which are you write a big check upfront and then a year, a year and a half, two years later you get a bigger check back, hopefully.

Theo Hicks: Yeah. So just to confirm. In the JV deals, one of your responsibilities was to raise capital. So you brought family and friends on to those deals. And then for this deal, you’ve got those same friends and family plus other people the other JV partners brought on as investors in those deals for this deal.

James Evans: Yep. So the people I brought to the other deals, plus so many people that have been following along and their time wasn’t right, or whatever, that just have been in the background, but now are interested.

Theo Hicks: And what structure are you offering these investors on this deal?

James Evans: These are going to be notes at 10% monthly interest-only payments two-year term. So by that time, we’ll be able to get the rehabs done, do a cash out refinance on this one, and a few other buildings. So that’s the game plan there.

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

James Evans: In two words is “buy low”. I think buying low, you can make up for a lot of other mistakes. But nothing on the back end you can do can really make up for paying too much for something. Thousands of other pieces of advice that I’ve learned along the way, but I think that a lot of it comes down to buying low.

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

James Evans: Let’s do it.

Break [00:15:45]:07] to [00:16:59]:04]

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

James Evans: I’d say, Living with a SEAL by Jesse Itzler. Key takeaways from that were how much we tend to under index our potential. There’s an interesting story in there about him going in to do pull-ups with this Navy SEAL who he had hired to live with them for a month. He did maybe,10 or 15 and was just toasted, arms were linguini. But the SEAL made him stay until he did 100. He did it. I think that key lesson throughout the book was that we tend to give up on things at about 40% of our actual potential. It’s a fun, quick read to go through and always brings me back to that key takeaway.

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

James Evans: If my business were to collapse today, what would I do next? It’s tough because you have to think in terms of what does collapse mean… So I was ready for that, and tried to prepare for people to stop paying rent as a result of COVID, and things really coming back… But I’d be really grateful for the journey that’s brought me down and what’s happened. I always know there’s potential and you have to have backup plans and cash sitting on the sidelines waiting to go back. So I think that’s a great equalizer in real estate. You’re buying cash-flowing asset, so one of the worst things that can happen is everyone stops paying rent at the same time, and then you’re sitting with mortgage payments. So then what’s the next step? Okay, can I work with my lenders to defer my mortgage payment so that we can time with these cash flows better? If a fire burned down one of my buildings or something like that happened, you’d hope and pray everyone’s okay, and make sure you contact your insurance agent right away. So I think it depends on the nature of the collapse.

Theo Hicks: Out of all the deals you’ve done so far, what was the best ever deal?

James Evans: The best ever deal is maybe not always, but I think it tends to be the first one. The first place I lived got me started, got me interested in real estate and I think everything circles back to the first condo I bought.

Theo Hicks: And then on the flip side, tell me about a time you lost money on a deal. How much did you lose and what lesson did you learn?

James Evans: I haven’t lost money on a deal, knock on wood, yet. I think there definitely have been times where I haven’t made as much as I thought or I’ve had to put in a lot more of my own time than I anticipated… So I think one of the key is, again, it comes back to buying low, making sure you’re doing inspection and just being really thorough in your upfront analysis and negotiations.

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

James Evans: So there are two big organizations I work with and devote a lot of time and energy to. The first one is called Build, and the mission of Build is to help teach entrepreneurship in lower-income schools and help students start an actual functioning business while they’re in class. So it’s incorporated in the curriculum. The teachers are school employees, and then they have Build mentors come in and help work with the students. So I mentor them weekly on Thursdays, and that’s been a really rewarding experience. Now I’m on the rising leaderboard for the Boston chapter. So getting to work at a more strategic level with them as well.

The second organization is the Pan-Mass Challenge, which is a 200-mile bike ride over two days, and we have a team of about 100 people, and we raised $500,000 towards glioblastoma research. It’s a rare brain cancer. John McCain famously passed away from glioblastoma. But it doesn’t get a lot of funding because as deadly as it is, the numbers aren’t as high as other cancers in terms of actual people diagnosed with it. So that’s been a really rewarding experience. Last year, the Pan-Mass Challenge, as a whole, raised $63 million to Dana-Farber, and some of that actually came from you and Joe, so I appreciate the donation towards my ride. I think that was super awesome of you guys, and that’s just been an amazing experience. Amazing organization. A 100% of rider-raised funds go directly towards cancer research. So they run a super lean team. It’s heavily volunteer-organized, and they’re just really efficient with everything they do.

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

James Evans: James@gladcap.com for email. And then I’m also on BiggerPockets. My website, Gladstone Capital, gladcap.com. Instagram, @gladstonecapital. So I think those are the best areas.

Theo Hicks: Perfect, James. Well, thanks for joining us today and walking us through your journey. I think the biggest takeaway that I got that I really enjoyed, and I definitely want to think about a little bit more, because it kind of goes against conventional real estate wisdom, where everybody’s talking about the four-hour workweek type of lifestyle, whereas yours is the concept of return on headache – making sure that you’re focusing on things that are hard, require less effort and headache, but also have that super high return. So picking a few of those things, focusing on those, and then trying to make everything else passive.

So as opposed to making everything passive, still have a few things that you put a lot of time and effort into, and then trying to take other things that are maybe a little bit of lower headache, but also don’t result as high of a return as those high headache tasks. So I definitely want to think about that one, but I appreciate you sharing that with us…

And also sharing the eight-unit you currently have under contract, walking us through the process for that and walking us through your process for raising money for your own deal for the first time. And then also we’ve got your best ever advice which was super straightforward and simple and to the point, which is to buy low.

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

 

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JF2201: The Hands-Off Investor Author Brian Burke

Brian Burke is the President and CEO of Praxis Capital, a vertically integrated real estate private equity firm and in the past 30 years has acquired over half a billion dollars in real estate. He has been in a previous episode about 5 years ago, episode 305, and in today’s episode he will be sharing why he wrote the book “The Hands-Off Investor”  which is catered to the passive investor to teach them the ins and outs of investing

Brian Burke Real Estate Background:

  • President & CEO of Praxis Capital a vertical integrated real estate private equity firm
  • In the past 30 years has acquired over half a billion dollars in real estate; 3,000 multifamily units & 700 single family homes using proprietary software
  • Can be found in a previous episode JF305
  • Author of “The Hands-Off Investor”
  • Based in Santa Rosa, CA
  • Say hi to him at: www.PraxCap.com 
  • Best Ever Book: Ted Talks book

 

Click here for more info on PropStream

Best Ever Tweet:

“Don’t take on too much debt” – Brian Burke


TRANSCRIPTION

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

Brian Burke: I’m doing great. How about yourself?

Theo Hicks: I’m doing great as well. Thanks for asking and thanks for joining us again. So Brian was on the podcast all the way back in Episode 301. So that’s five years ago from when we’re recording today. So make sure you check out that episode, and today we’re gonna talk about what Brian’s been up to since then.

As a refresher, Brian is the President and CEO of Praxis Capital, a vertically-integrated real estate private equity firm. In the past 30 years, he has acquired over half a billion dollars in real estate, which covers 3,000 multifamily units and 700 single-family homes, using a proprietary software. He’s also the author of The Hands‑Off Investor. He is based in Santa Rosa, California, and you can say hi to him at his website praxcap.com. So Brian, do you mind telling us a little bit more about your background and what you’re focused on today?

Brian Burke: Absolutely. So I started out in this business 30 years ago flipping houses, and then grew into what you’d call a production house flipper where we were doing about 100 and something houses a year for a while there. We built a big rental portfolio of single-family homes at the bottom of the market, and then about 20 years ago, we shifted some of our focus over to the multifamily side. And then about 10 years ago, actually about 12 years ago now, really started going full speed in the multifamily side.

So our primary business focus right now is multifamily real estate. We acquire assets from Arizona all the way to Florida in the southern parts of the US and right now we own in Arizona, Texas, Georgia and Florida, and shopping in several other markets as well. Our portfolio now is approaching 3,000 units, and that’s really all we’re doing right now, is just focusing on operating our portfolio through the pandemic and looking for opportunities to grow the portfolio as we cross through to the other side.

Theo Hicks: Sure. So I definitely wanna focus on your multifamily business, but I know you recently released The Hands‑Off Investor book, and I actually have it in my bookshelf behind me. So that book’s focused towards passive investors, right?

Brian Burke: Yeah, it struck me that there was no book out there really written to show passive investors how to invest in syndication offerings. There’s books out there, and you guys did a great one on how to be a syndicator, how to raise money from other people, how to structure syndication offerings, but there was no book to show those “other people”, when you’re using other people’s money, there’s no book to show the other people what to look for in those offerings to make sure that they’re suitable for them, and I set out to change that and help fill that gap.

Theo Hicks: Perfect. So do you want to give– obviously, it’s a very long book, but maybe some tips on how to select the right sponsor, because obviously, there’s hundreds, if not thousands, of sponsors out there who are investing in apartments. So how do I as someone who does not know anything about real estate or at least not a lot about real estate, decide which sponsor to give my hard-earned money to?

Brian Burke: Well, the worst answer I can give is read the book first before you do anything. But it’s a true answer, because if you don’t know a lot about real estate, the book is going to teach you a lot about real estate. Because if you’re gonna be a building inspector, you need to know about construction techniques before you can inspect buildings. You might not have to be a contractor, but you have to know building techniques in order to know if contractors are doing the right thing. This is similar. If you’re investing passively in real estate, you don’t have to be buying real estate on your own, but you have to know enough about how to buy real estate, how to operate real estate, what things to look for to make sure that you’re making smart decisions when you’re looking at passive opportunities. So I always say that the sponsor that you’re investing with is the number one most important factor. If you find a good sponsor to invest with, chances are they’re going to be bringing you quality offerings to invest in, and you can spend a little bit less time worrying about the real estate itself, as long as you can get past the sponsor that you’re investing with. So my number one top tip for a passive investor is carefully select the sponsors that you invest with, because they can make or break you.

Theo Hicks: Okay. So let’s transition into the active side now. From my perspective, you see a lot of information when it comes to multifamily focused on raising money, focused on finding deals, maybe not so much underwriting deals, but since it’s a little bit longer to elaborate on, something you don’t see a lot on, at least from my perspective, is asset management. So can we focus on that in this conversation? Can you maybe walk us through some of your best practices for asset management and more specifically, maybe separate them between asset management tips for someone who has 50, 100 units, as opposed to someone who has thousands and thousands of units?

Brian Burke: It’s funny you ask that question because a lot of books out there, guru courses and that stuff, they always focus on the acquisition. It’s always about “Oh, you can find a deal, you can buy a deal, you can get the money for a deal”. That process only lasts a few months, maybe a few weeks, maybe a few months for you to find something, get through escrow and buy it. People neglect the part that actually takes several years, and of course, that’s the part of asset management and property management and operating all the way through to success. It’s a very, very important piece and a smaller operator who owns a few units, maybe you own a few hundred or maybe a few dozen or maybe just a few, it’s probably most efficient for you to use third party property management where they can come in, manage the asset for you. You can leverage their expertise, you can leverage their team, their resources, their scale, their local market knowledge and all those things to manage the property. And then managing the asset is really a job of managing the manager or managing the management company, in this case, making sure that they’re sticking to budgets, they’re hitting targets, they’re producing the income that you’re looking to produce, that they’re containing expenses.

So when you’ve acquired the property, you’ve probably (or at least you’ve hopefully) gone through and done a financial analysis forecast of what you think the income and expenses are going to look like. Your job as an asset manager, in this case, is to make sure that the management company is delivering to those objectives.

As you scale and get larger, there’s going to be a point where you might decide to manage your own assets, and that’s what we did. We made this decision about three or so years ago to form our own management company. We have an expert that’s in charge of the management company that runs it and gives us complete control over our assets, start to finish. So as you grow, now you’re going to be thinking about enterprise-grade property management and asset management systems, software, technology, all those things.

So for us, we have an enterprise-grade management system where I can look in there at any time all the way on the property management level to see rent rolls, income and expense reports. I can look and see move-ins and move-outs, and all those things, all the way up to the asset management level, where I can get key performance indicators for individual properties, the portfolio as a whole or a subset of the portfolio at a glance in a single dashboard. So having those kinds of tools is critical as your business grows, because now you’re actually running a large company here, not just managing a small property at that point.

Theo Hicks: When you made the decision to transfer from third party to in-house management, was it a certain dollar amount? Was it a certain number of units? Or was it something else that made you decide to make that transition?

Brian Burke: There were really three factors at play. One was, we felt that the scale that we were looking to achieve and we were beginning to achieve – we were at about 1,500 units when we made this decision – was such that we felt we could support a dedicated property management team. When you’ve only got a few units or a few hundred units, the management fees associated with that don’t support having an entire company dedicated to property management. As you get larger, you add up those management fees, you realize, “Okay, I could hire a full-time person with these management fees and we can start to do that.” So that was one of the aspects.

The other was that we were looking for institutional investors to invest alongside us in our assets, and our experience has been institutional investors prefer to invest with groups that manage their own assets. So in order to have the key to unlock that door, we needed to bring it in-house.

And third and finally, and probably most importantly, the team that I needed became available. In other words, I met through mutual contact someone who had started national multifamily management company footprint six times in his 40-year career, had done it for large institutional owners and had about 45,000 units of property management experience, and I had the ability to bring him on board with us to head up our management company. When all the stars align and the time is right, you pull the trigger, and that’s what we saw. All the stars were aligned; it was just time.

Theo Hicks: So logistically, how does that transition work? Is it very similar to the transition when you take over a property where it’s just an instantaneous thing? Or was there a longer transition where your new team worked with a third party team to make sure they knew what was going on first? Can you walk us through how that works?

Brian Burke: We did it a little bit differently. So it’s interesting, because the CEO of my management company, he had previously with another organization that he worked for, took about 25,000 units from third party management to in-house management in about a 90-day period of time. So he’s got experience doing that. We chose not to go that route. Instead, what we did is we just started folding in all of our new acquisitions into the internal management company and left the existing portfolio with third party, and then we just slowly started moving it over as the time was right. So really, all the new acquisitions went into the new management company. Most of the stuff that we had with third party was getting a little bit towards the end of its life where we were going to be selling anyway, and so we could let it ride with the management that was in place. And then as we sold those off, the management company — we had just management company attrition. We did this change about three years ago. We still have one property left that’s third-party managed, and maybe we’ll transition that one someday or maybe we’ll just wait until we sell.

Theo Hicks: Transitioning a little bit to what you’re talking about with the software and the technology and the management system. So for you, is that what you’re doing to track the progress at the property, just going into that software? Or I’m assuming you still have meetings with someone at the property management company that you own. So what’s the frequency of those conversations and what are some of the important things you talk about? Maybe what’s the recurring agenda for those conversations.

Brian Burke: Just like a third-party management company, we have the same high-level conversations on a regular basis. So we do a weekly to bi-weekly call with the senior management team where essentially, everybody on the capital and acquisition side is on that call, along with the property management operations team. So our org chart on the management company side, we have a CEO that’s in charge of the company, we have a Chief Operating Officer that’s in charge of the on the ground, street-level stuff, and then we have area vice presidents that are in charge of a certain region. So those individuals will be on the call with us, we’ll discuss each property and its performance, anything that has come up that we need to be aware of. We’ll look at all the KPIs to see “Okay, this property may be running a little lean on occupancy. What are we going to do about that?” and have conversations that are targeted based upon what we’re seeing in the data.

So we treat it just like a third-party management company. Really just the advantage to us is that because we own the management company wholly, we have complete control over all those personnel. We have the access to all the software so that we can see the entire portfolio through our business intelligence platform, and you have everything in a unified spot. This system is pretty robust. It drills all the way down to the property level. The property managers on-site use the same software that I’m looking at for day-to-day property management. So when they do a move in, it’s going in this system. The rent rolls are generated through this system, the invoices go through this system. So it’s an entire property management company in a box.

Theo Hicks: Perfect. Before we get into the money question, as the head of this massive multi-company organization, what does your week to week look like?

Brian Burke: Well, I would say that the majority of my time is spent on answering emails. It’s really just that exercise of — you’re getting pinged constantly from different directions for, “Hey, we need this, or there’s that, or here’s a deal coming up, or here’s an issue at a property we need to address.” But really, I spend a lot of time in the office. I like to tell people I’m just chained to my desk… Between investor communications and oversight of the assets, and I’m a pretty hands-on guy… So that means that I just had to spend a lot of time looking at absolutely everything, which means I don’t get very far away from a computer very often.

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

Brian Burke:Well, it’s 2020 as we’re recording this, we’re in the middle of a coronavirus pandemic. I think the best real estate investing advice I can ever give is most applicable to a time just like today, and this advice is actually designed for the climate that we’re currently in, and that is – don’t take on too much debt. Investors who buy with conservative leverage were the ones that survived the last recession. The ones that took on too much debt are the ones that failed in the last recession. So don’t take on too much debt, but couple that with always have plenty of cash. So if you’re a syndication sponsor and you’re raising money from individuals for your deals, make sure you’re raising plenty of cash to have excess reserves for those downturns, which they’re certain to be one year in the coming months. If you’re a passive investor looking to invest in an offering, make sure that the sponsor is raising plenty of cash, so that they don’t run short and put your investment at risk.

Theo Hicks: Can you be a little bit more specific? So how much extra money are you raising? Is it based off of the purchase price? Is it per unit? Is it a lump sum? Did you always do this for every property?

Brian Burke: Yeah, we tend to do ours as a percentage, and that varies, too. So I guess about a year ago, our percentage would be 1% of the purchase price of the property just for free cash. And then you’re also going to have additional cash that you’re going to have for funding impound accounts, funding utility deposits, funding first month’s mortgage payment; all of those are in addition to the 1% free cash.

Nowadays, I’ve been increasing that. We’re looking more at 1.5% free cash, plus we’re also abiding by the agency requirements for nine months principal and interest reserve that goes into a lender controlled account. So in that case, sometimes we’re raising as much as 3% or even 3.5% or 4% sometimes of the purchase price of the property just for cash reserves.

And then the other thing that we do is a lot of people like to use extra leverage to boost investor returns by funding capital expenses, like unit upgrades, new roofs, that sort of stuff, through a lender controlled reserve that’s through a bridge loan, where you’re borrowing the renovation dollars and you’re drawing them off as you renovate. We’re not doing that. We’re raising the renovation money ahead of time in cash. So in that case, we may have a few million dollars that are available for us to do renovations. But if things go really bad, that’s a lot of excess cash that we also have that allows us to survive an adverse event. So when it comes to having cash reserves, all I can say is the more, the merrier.

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

Brian Burke: Let’s hit it.

Break [00:19:34]:05] to [00:20:37]:02]

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

Brian Burke: I really liked this book called TED Talks, and it was written by the guy that is in charge of the TED Talk organization. It was a great book that talks about techniques for public speaking, and as an author, as a business executive and as someone who is in the financial services industry raising money from high net worth individuals and family offices, it’s really important that we’re able to effectively speak in public, and this is a great book to help find new ways to engage your audience.

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

Brian Burke: I’d do it again. I’ve already been through this before. I’ve survived multiple market cycles; the Great Recession. 30 years’ time, I’ve had the chance to reinvent myself several times so far through different market cycles, and I’ve been very fortunate that in 30 years of doing this, I’ve never lost a nickel of investor principal. So I would first do everything I can to safeguard the investors that I have already, and then I would build the business right back up to where I have it now. They can take away the business, but they can’t take away the knowledge.

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

Brian Burke: Well, I’ve got a lot of those. I’ll take a recent one. We’ve got one right now that I’m really proud of. It was two properties next door to each other that we bought for about a little under $40 million for the two of them, from two different sellers that were listed by two different brokers at almost the same time. We ended up buying both properties, and then what we did is we just cut down a small section of fence on a driveway that connected the two properties, and then we were able to make the two properties into one. One of the properties was using an apartment unit as a leasing office, so we ran all the leasing out of the other property that had a real leasing office, converted that unit back into a rental unit. But by combining the two properties, instead of having a little over 200 units each, we have one property that’s almost 540 units. By doing that, we achieve some incredible economies of scale, we saved a ton of expenses. We were also able to increase rents at a dramatic amount because the property was under rented. We were able to make some really good improvements. Within about a year to a year and a half’s time, just based off of the increased income, we resubmitted that to our lender to look at a refinance and found that we’d increase the value of that property by about $10 million in about a year and a half’s time. So a 25% increase in a really short time is a great accomplishment, and $10 million is a really meaningful number.

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

Brian Burke: Ours is through a charity organization that I started with Jay Heinrichs, a friend of mine. It was really his idea; I can’t take all the credit for it. It’s called A Hero’s Home. You can find it at aheroshome.org. We’re raising money for the purpose of providing a fully fixed up renovated home, free and clear, to a deserving US veteran, service member, first responder, something that’s near and dear to my heart. I just can’t wait to hand those keys over one day here soon. We’re about two-thirds of the way towards our goal.

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

Brian Burke: The best ever place is just as you said at the top of the show, through our website, praxcap.com. You can also find me on Instagram, either @investorbrianburke or at @praxcap, and also on biggerpockets.com quite frequently, answering questions on the forum. So you can frequently find me there as well.

Theo Hicks: Alright, Brian. I really enjoyed our conversation today; a lot of takeaways. We focused mostly on asset management. But before we get into that, we did briefly talk about passive investing. So the most important decision for a passive investor is selecting the right sponsor, and your advice was to read your book or to get educated on the process that you will know if the sponsor is doing the right thing.

From asset management, we talked about the difference between being a smaller operator and a larger operator, which is really who was actually managing the deal. So when you’re smaller, it’s better to go with third party, but eventually, you get to the point where it makes more financial sense to go with the larger operator, and we talked about the advantages of that, which essentially gives you complete control over the personnel that allows you to have access to the same software that the management company does.

You mentioned when you made your transition, and the three factors were one, that’s scale we just talked about. The second one was when you want to work with institutional investors, they prefer in-house management. And then the third one was that the team you wanted happened to become available. We talked about how you actually did the transition, and there’s really two ways to do it. You mentioned that the CEO of your property management company had experience doing full transitions over a nine-day period, whereas you guys instead decided to include new acquisitions into this new management company, and then the existing ones remain in the third party. And then whenever you sold those, they obviously left a third property management. You got one last thing you need to sell before you’re fully managed by your own property management company.

We talked about the communication with your management company, which is the same as it is with a third party – bi-weekly calls, everyone in your team is on those calls. We’ve talked about each individual property and their performance, anything that has come up with those properties that you know about, focusing on those high-level KPIs as well.

We talked about what your week looks like, which is just answering a lot of emails and staying at your desk. And then we talked about your best ever advice, which was twofold, which was  don’t take on too much debt, because those are the investors that did not survive during the last recession, and the ones who did not take on too much of that did survive. Then we talked about having plenty of cash in excess reserves. I really like when you said the reason why you are raising the capital for renovations is that it gives you the opportunity to have even more excess cash. If something were to happen, you can pause renovations and have all that money, as opposed to borrowing that from the lender and you have access to  none of that money. Then you gave more specifics on the numbers for raising extra money for free cash.

So I really enjoyed the conversation, Brian. Best Ever listeners, as always, thank you for listening. Have a best ever day and I’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2197: Two Years In Real Estate With Jeff & Taylor Adams

Jeff & Taylor Adams are a husband and wife team attacking the real estate world. They share how they began investing with house hacking to out of state investing due to the cost of real estate in their area. Being only two years into their journey they have faced many different situations and they were very willing to share to help you pursue your personal real estate adventure.

Jeff and Taylor Adams  Real Estate Background:

  • Jeff is a software engineer and Taylor is a realtor and co-founder of @womensinvestmentnetwork
  • 2 years of investing experience
  • Portfolio consists of Duplex and a mix of long-term rentals/AirBnBs, a single-family home, and one 5-unit building
  • Based in Boston, MA
  • Say hi to them at: Instagram @TaylorColemanAdams
  • Best Ever Book: Four Hour Work Week

 

 

 

Click here for more info on PropStream

 

Best Ever Tweet:

“Listen to what you want to do and make sure you network with as many people as you can and try to add value to those relationships” – Jeff & Taylor Adams


TRANSCRIPTION

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

Jeff Adams: Great, how about you?

Taylor Adams: I’m doing great. Thanks for having us.

Theo Hicks: I’m doing great. Thanks for asking and thanks for joining us. Looking forward to our conversation. Before we get into that, let’s go over Jeff and Taylor’s background. So Jeff is a software engineer and Taylor is a realtor and the co-founder of Women’s Investment Network. They have two years of investing experience. Their portfolio consists of a duplex and a mix of long term rentals and Airbnbs, a single-family home, and a five-unit building. They’re based in Boston, Massachusetts, and you can say hi to them at their Instagram page, which is @taylorcolemanadams. So do you guys mind telling us a little bit more about your background and what you’re focused on today? And we’ll start with Jeff.

Jeff Adams: Our background is so intertwined. I mean, we’re a married couple, obviously. We met in college, we did the whole “We’re gonna get jobs…” I became a software engineer in robotics and Taylor went through a few things, you can talk about that… But really, the thing was, we needed to figure out how we were going to buy a house that we could actually live near our jobs and afford. The prices in Boston are crazy and our jobs were in the city of Boston. And the commute to get into Boston, if you’re even just 10 miles from the city, can take an hour and a half. So we started looking at single-family homes, but they’re just too pricey. So then we started looking more towards the duplexes. I mean, I’ll let Taylor do some of her background before we get into the real estate side.

Taylor Adams: Yeah, absolutely. So my background, I graduated from Northeastern University, and I started in finance, found out that was not for me, and I moved into higher education where I was before I left that work to become a real estate agent.

So I transitioned into real estate after Jeff and I started investing. So going off of what Jeff was just saying, we were looking for our single-family home to start out our lives together and decided to move forward with the duplex. At the time, we didn’t know anything about house hacking or BiggerPockets, and we eventually decided that we wanted to continue to buy properties because we got the bug. But we wanted to buy locally with our own money and realized that was going to take too long and it was going to be too expensive. So we started to explore out-of-state investing, and that’s what led us to dive into the properties that we purchased over the last two years.

So we dove in to test the waters in Tennessee with a single-family house. We found out we loved it and decided it was time to scale up to a five-unit. Given all of this happening, the market in the Boston area was super, super hot, and Airbnb was something of a lot of interest to us. So we decided to turn our upstairs unit into an Airbnb in our house hack. So we were full steam ahead at this point. We’re ready to scale up into large multifamilies. We had a 25-unit under contract. We ended up backing out of that because the numbers didn’t work out, and then COVID hit. So now we’ve been pivoting our strategy a little bit to try and take advantage of all the new opportunities that we’re seeing.

Theo Hicks: Perfect. Thanks for sharing that. So let’s start with the duplex. So you didn’t know about the house hack, but was it a house hack deal? Did you owner occupy it and then rent upstairs to cover your payments?

Jeff Adams: We did, exactly. We rented out the second unit.

Theo Hicks: Great. So do you mind telling us the numbers on that deal?

Jeff Adams: Yeah. So I’m more of the numbers person in the partnership… So it was on the market for $650,000 which around here was a pretty good price at the time. It might be crazy for some areas of the country. We did the inspection, we found some issues, we were able to negotiate down to $625,000. There was a renter in place that was paying $900 a month. So we asked that it be delivered vacant, because they were month-to-month renters. So then, we were able to get that rented out for $2,000 a month upstairs – that’s a three-bedroom – and then we lived in the other unit that’s a two-bedroom.

Taylor Adams: And we did 4% down using an FHA loan for that.

Jeff Adams: Yep.

Theo Hicks: You guys still live there now right?

Taylor Adams: We do.

Theo Hicks: Okay, perfect. So then after that, you said that you wanted to keep investing and you moved to out of state. So why did you select Tennessee?

Taylor Adams: We were evaluating a number of different markets, but we found out that the cash flow in the Sunbelt was really appealing. So we narrowed our search down, landed on Memphis for the cash flow, the low barrier to entry as far as pricing, and then started speaking to some of the more substantial property managers in the area to get a better sense of the market, and that just propelled us to move forward with Memphis.

Theo Hicks: How did you find these property management companies? What type of questions did you ask them? How many did you talk to? What was the timeframe between speaking with them to buying a deal, things like that?

Jeff Adams: There’s a few places you can look for the list of property managers to call down. Back then, we didn’t know as much. So we were looking at Google and looking at just Zillow, who was renting out the most units and stuff, which wasn’t a terrible strategy, but there’s also lists of qualified property managers that you can go through. So we actually compiled a list – I think we had 10 or 15 – and did more research on them offline, looking at reviews and stuff, and we could just cross off a whole bunch right away.

So I think I ended up talking on the phone with three of them. And it was the questions like– a part of it was how do you handle vacancies and turnovers and just the logistical questions, but a lot of it for us, too, was trying to get a sense of whether we could just trust this person. If they’re 1000 miles away from us and handling an asset that we put money into, and it’s going to be giving us money every month, is this a person that we feel that we can deal with? Some people on the phone, you can tell right away. Your gut just says, “This isn’t the right person for me.” Maybe for someone else, they’d be fine, but not for me. So we finally narrowed it down to the person who said the right things and we actually trusted, and then went and saw him in person and did a tour of Memphis for the whole day with him and then decided, “Yes, this is definitely the guy.”

Taylor Adams: Yeah, and the guy that we ended up going with, he is really well connected in the area. When we met him, you could tell that he really had a good relationship with lots of different contractors and people in the area and he could build those relationships and that was really important to us.

Theo Hicks: For sure. So at this point, you knew that you were gonna do Memphis and you were just trying to find the right team on the ground in Memphis.

Taylor Adams: Yep, exactly.

Theo Hicks: Okay. How did you find the deal?

Jeff Adams: So the property manager also has his real estate license. So he actually helped us find it. It was just on MLS, on Zillow, all that, and we just went through a whole bunch. We went down there and physically looked at ten properties. It didn’t end up being one of those. A few days later, after we got back, we found the one after maybe ten more that we investigated.

Theo Hicks: What was the number? So similar to before – what did it cost? Did you put your money into it? Was it turnkey? And then what’s it renting for now?

Jeff Adams: We got it for $65,000. I think that was $5,000 less than his price. We only had to put about $2,500 into it. There wasn’t too much to do; just the little stuff that comes out of inspections and just like you’ve got to fix that system and this thing. And then it was already rented out for $895 a month, and I just– they had a year left on their lease, so that’s lasted for a while. We actually had to evict them because they stopped paying last fall. But that was a pretty easy process in Tennessee. It’s very landlord-friendly down there. And then we got a new tenant in for the same price, $895 a month, and that one’s been going pretty smoothly.

Taylor Adams: And that one, we did 25% down on that property.

Theo Hicks: Yeah. So it was a pretty steep price reduction from the 650k in Boston down to 25k. So [unintelligible [00:10:24].11] difference. Perfect. Okay, so then the next deal after that, you said, was a five-unit, right?

Taylor Adams: It was, yep.

Theo Hicks: Was that also in Tennessee?

Taylor Adams: Also in Tennessee. Pretty close to our single family.

Jeff Adams: Yeah. So that one, five units, it was listed at $140,000. We did an inspection, got it down to $120,000, renting it out. It’s on average, I think, $400 a unit right now.

Taylor Adams: And I think we put 20% down on that property.

Theo Hicks: Was that an MLS or was that off-market?

Jeff Adams: That was on the MLS, yeah.

Taylor Adams: And that one’s been quite a bit of work. That one is definitely more of a BRRRR strategy. We’ve put quite a bit of money into it so far and will continue to, and we hope to double the value of the property, so that we can refi it at around $240,000.

Theo Hicks: Okay, so are you gonna increase the rents on that after you do the repairs?

Jeff Adams: Yeah. So we actually got two vacant units when we bought it. So we rented those out, and then there’s two units that are way below market. They’re at $350,000, and we can get them probably up to $450,000 or $500,000 if we redo those units.

Taylor Adams: Yep.

Theo Hicks: Okay, something else you had mentioned during your intro was that you had a larger multifamily under contract and then backed out and then Coronavirus it, and then you’re pivoting to take advantage of new opportunities. What are these new opportunities?

Taylor Adams: When everything happened, we had planned on continuing to move forward with syndication, but our investors were feeling a little bit unsure about what was going to happen during lockdown and whatnot. So what we decided to do was really focus on our house hack, which we hadn’t really been focusing on at all. So over the course of the lockdown, we refinanced the property, we’ve done a ton of renovations, and we’re actually in the process of transitioning our Airbnb upstairs to a long-term rental, because it just makes more sense for our area at the moment. And by doing these two things, the refi and turning upstairs into a long term rental, we actually are going to be able to get another house hack. So that’s something that we’ve been focusing on with the assets we already have.

And then really just trying to free up cash and focus on what are going to be the big opportunities that happen once we’re in a “post-COVID” world. So we’re thinking about, do we want to continue to look at large multifamilies or does it make sense to continue our approach around smaller multis? Is there opportunity in other asset classes? So we’re trying to keep our investors in mind and what they’re interested in and make sure that we are putting them in positions where they’re not at a ton of risk, given the uncertainty of the market right now.

Theo Hicks: Do you have any potential new asset classes you want to move into in the post Coronavirus world?

Taylor Adams: Yeah, this might sound crazy, but we’re really curious about retail space right now. We know that because a lot of smaller businesses, unfortunately, are going out of business, we anticipate that’s going to be a burden on these landlords who are holding these retail spaces. So we’re interested in keeping an eye on what happens with some of these and seeing if that’s an asset class that we can move into.

Theo Hicks: Yeah, that’s definitely an interesting approach. Alright, so starting with Taylor, what is your best real estate investing advice ever?

Taylor Adams: My best advice would be to listen to what you want to do. So people who have never invested will have lots of opinions and tell you to not invest in real estate. But this is your journey, so you should pursue it anyway if it’s something that you’re passionate about.

Theo Hicks: And then Jeff?

Jeff Adams: So going off of that one, some people are going to say things that you don’t know anything about what you’re doing and you shouldn’t listen to that, but there’s also gonna be a lot of people out there that have already done exactly what you’re looking to do. So networking is just so important, getting to know those people. And you don’t want to pester people every day like, “Well, what do you do about this?” But just being around them, you often pick things up that you just wouldn’t have otherwise. So being able to add value to them and network with those types of people is going to help you on your journey.

Theo Hicks: Before we go into the lightning round, I do have another question. What advice would you give to others out there who want to start a real estate business with their husband or wife in order to make sure that that goes smoothly? What are some things you guys do to make sure that the business functions smoothly together 24×7?

Taylor Adams: Yes, especially right now, we’re together a lot. Well, first of all, it’s a ton of fun. So I think that the biggest thing is communication and making sure that you’re on the same page. We very much treat this like a business. So we’re doing quarterly, monthly, weekly meetings to make sure that we are on the same page and we’re approaching this in a very specific fashion, and I think that helps to balance it out. But then also do not forget to take time to not talk about real estate and to talk about something else, or else you could be talking about real estate 24×7.

Theo Hicks: Anything to add there, Jeff? Or you’re just, “I agree”?

Jeff Adams: Yes.

Taylor Adams: Yes, I agree.

Jeff Adams: That’s another key, is agreeing.

Taylor Adams: Yes. [laughs]

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

Taylor Adams: Yeah, I think so.

Break [00:15:40]:03] to [00:16:43]:09]

Theo Hicks: Okay. And we’ll just do for all of these, we’ll do Jeff first and then Taylor second. So what is the best ever book you’ve recently read?

Jeff Adams: For me, it’s the 4-Hour Workweek by Tim Ferriss.

Taylor Adams: And then for me, I’m gonna say that it’s the Seven Levels of Communication by Rick Masters.

Jeff Adams: [unintelligible [00:16:57].21]

Taylor Adams: I’m sorry. Seven Levels of Communication by Michael Maher.

Theo Hicks: Perfect. Okay, if your business were to collapse today, what would you do next?

Jeff Adams: We’re just always starting new businesses. This isn’t the first thing that we’ve done. We’ve started software-based things… I think we would just find a new business to create.

Taylor Adams: Yeah, we’re a little bit of serial entrepreneurs. I think that the other thing that I would say is that we would figure out a way to make it work, because I think we’re really passionate about real estate. So we would want to figure out a way to pivot in a way that allows us to continue to do it even if it’s not exactly what our strategy looked like before.

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

Taylor Adams: So I’ll go ahead and say… So I actually started a community for women who are interested in investing in themselves, in their future. I definitely see that there’s not as many women in the investing world as I would like. So this is something I’ve created to help women gain the confidence and just inspire them to get involved.

Jeff Adams: Yeah, and we just like to help people get there. We help to mentor other people that just haven’t done anything yet. So that’s why I’m really excited for what Taylor’s doing with her women investors network.

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

Taylor Adams: For me, that would be my Instagram @TaylorColemanAdams.

Jeff Adams: And for me, email is fine. So it’s jeff.adams.c@gmail.com.

Theo Hicks: Perfect. Well, Jeff and Taylor, thanks for joining us today and walking us through your two-year journey. I really enjoy these conversations. I really like getting into the weeds and details on specifically what you guys have done to get started because other people who haven’t started can take a look at what you did over the first two years and replicate that so they can get their first deal.

So we talked about your first deal is that duplex in Boston and then from that, you transitioned to doing out of state investing with that single family property in Tennessee. We talked about why you chose Tennessee because of the low barrier of entry and cash flow. We talked about the process for understanding the market out of state, not really knowing it, never being there, or at least not living there, and that was through property managers. You created a list of 10 to 15 managers, you did some online research like looking at reviews, and you narrowed down to three. And then when you spoke to them, you obviously asked them the logistical questions about how they operate properties, but you really wanted to know if it was somebody that you could trust.

And then ultimately, you landed on one person who you ended up actually going down and touring Memphis with this person who was really well connected in the area and you ended up going with them. They also help you find this first deal, which is that single-family home. You went through the numbers on that. After that, you scaled up to the five-unit, which you also found on the MLS. The plan on that one is to do more rehabs and increase the rents. And then your next thing was to do the Airbnb upstairs, which we didn’t really talk about, which is fine. And then now, you said you’re going to be focusing on your house hack. So you refinanced it, you’ve done a lot of renovations and rather than doing the Airbnb upstairs, you’re going to do a longer-term rental.

And then in the future, that plan is to do another house hack, as well as making sure you’re freeing up some cash to focus on other opportunities, which you said you’re looking into the retail space because all these smaller businesses are going out of business and the people who actually own these retail spaces are probably going to be motivated because they’ve got no one paying them.

We talked about your best ever advice. For Taylor, it was to listen to what you want to do as opposed to letting other people tell you what you want to do. And then for Jeff, it was making sure that you’re networking with people who are already doing what you want to do. And then we talked about some best ever tips for working with a spouse or significant other – communication, making sure you’re on the same page, making sure you’re still structured in doing your quarterly, monthly and weekly meetings. And then you mentioned that it’s also important to take time to talk about things that aren’t real estate related and then obviously, making sure that you guys are agreeing a lot on things. So Jeff and Taylor, again, appreciate you guys coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever and we’ll talk to you tomorrow.

Website disclaimer

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

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

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

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

Oral Disclaimer

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

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JF2190: Begin With House Hacking With Anthony Angotti

Anthony started out house hacking and after some time he met some business partners to begin investing in apartments. When he first started out he took the initiative to do the renovations himself so he would be better equipped for future deals when hiring help. Now he hires help rather than doing it himself since he now owns 76 units.

 

Anthony Angotti Real Estate Background:

 

 

Click here for more info on PropStream

Best Ever Tweet:

“In the beginning, I was the handyman, leasing agent, I was everything while working a full-time job. If I would have outsourced sooner, I would have been able to leave my job much faster” – Anthony Angotti


TRANSCRIPTION

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

Anthony Angotti: I’m doing fantastic. How are you?

Theo Hicks: I’m doing fantastic as well. Thanks for asking and thanks for joining us. Looking forward to our conversation. Before we get into that, a little about Tony – he’s a full-time realtor and investor with five years of experience, has a portfolio that consists of 76 units. He is based in Pittsburgh, Pennsylvania, and you can say hi to him at angotti.realestate@gmail.com. So Tony, do you mind telling us a little bit more about your background?

Anthony Angotti: Yeah, sure. I got started with house hacking. So that’s how we got started. We moved into an REO duplex, fixed up one side, lived in the other while we fixed it up, took that, repeated that a few times. We moved from duplex to duplex to duplex. But in the meantime, I met some business partners that were actually realtor clients when I first met them, and we started moving more into the apartment rental space. So we started buying small value add apartment buildings, and that’s how I’ve grown over time.

Theo Hicks: So when you said you move from duplex to duplex, did you continuously house-hack every single year?

Anthony Angotti: We have three, so a couple lasted a little bit longer, but we still live in the third one. My wife and I plan to probably do one more before we get sick of moving. Moving that much is quite the endeavor. So we’ll probably do one more this way and then move to a more traditional single-family house after that.

Theo Hicks: Would you mind telling us the numbers on that first house-hack that you did?

Anthony Angotti: Yeah, sure. So our local market wasn’t as hot at the time as it is now. Pittsburgh, the market’s been a lot more competitive. So we found an REO side by side, three bedrooms both sides, each one had a garage. So it was a pretty nice setup, pretty solid building outside of the repairs we needed to do. We bought it for $155,000, and then we used a 10% down portfolio loan on that. So with a local bank, it was an owner occupant loan, but we didn’t FHA or anything with that one. And then we did all the work ourselves other than there was a repair to the sewer line, and all the initial repairs cost around $15,000. So I don’t know if you have any questions on that specifically, but I could just go into the rents and stuff too, if you want.

Theo Hicks: Yeah. So you said you did all the repairs yourself. You did all the labor yourself?

Anthony Angotti: Yeah, yeah. Bought the materials, did a lot of the labor. That was a super beneficial experience to me because I learned a lot. I wasn’t particularly handy before. My father was helpful and YouTube was exceptionally helpful, but I had no real experience. By training, I’m a microbiologist. So it’s not like I came from a contractor background or something. But by doing that work, it really helped me understand what goes into projects, which then has led to a lot of benefit where I am now, because now I don’t do any of the work. But when I talk to contractors about different jobs or repairs or things, I’m a lot more knowledgeable because we’ve done that thing.

Theo Hicks: Did you just do the repairs yourself in that first house hack, and then after that contracted all that out?

Anthony Angotti: The house hacks – because we did three that way – each one that we did that way, we’ve done most of the repairs hands-on, at least for the unit that we lived in. For the properties that I didn’t live in, other than a couple at the beginning, we hired everything out. The apartment buildings, I haven’t really done any personal work in. But some of the smaller buildings at the beginning, that’s what we did, because we didn’t start with a ton of money, so it would have been very difficult for us financially to pay somebody to do every little thing.

Theo Hicks: What was the rent you demanded for the other three-bedroom and then about was the rent that you demanded for your unit once you moved out?

Anthony Angotti: So at the time, our total rent with garages is around $2,550 a month. Each apartment, before pet fees, they rent for $1,200 a month now. At the time, I think we rented the other side for $1,050, but the rents have gone up since then. And then we rent our garages separately from the tenants. So we pull in different rents for those.

Theo Hicks: So you rent the garages to someone else?

Anthony Angotti: Yeah. They’re detached garages, so I actually have a contractor that rents them. It’s my painter. He rents that from us, which is a pretty nice extra revenue source. It’s just on the back of the property, so it’s not like it’s connected to the tenants’ unit. It’s a totally separate thing. We’ve actually done that with a lot of our properties, because in Pittsburgh, there are quite a few properties that have detached garages and tenants are generally used to street parking. So since the market doesn’t dictate having off-street parking, we’ve usually just used the detached garage as an additional revenue source.

Theo Hicks: Is that something that you just proactively asked your contractor, your painter, if they needed a place to rent, or did they come to you, and then that’s how you got the idea?

Anthony Angotti: For that particular one, my painter actually lives on that same street. So I was just talking to him and he was talking about he needs a place for his stuff and I said, “Well, you can rent my garage. I’ll charge you $100 bucks a month for it,” and that’s what he did. But I did think about that initially as what I was going to do, and we’ve had good luck just renting them on Facebook groups for contractors. I’ll just join a contractor group on Facebook and list it for the area, or Craigslist or stuff like that. We found pretty good luck with that on the other ones.

Theo Hicks: Nice. And then last question about the house hacking before moving to the apartments. You said that you got a 10% down portfolio loan. Is there a reason why you didn’t pursue the lower down payment 3.5% FHA loan or one of the 203k loans that would include the rehab costs in the financing?

Anthony Angotti: I think, at the time, we had already just engaged that lender and I was brand new, so I wasn’t hooked up with a mortgage broker or anything; I just knew that bank. Additionally, that 10% down loan didn’t have PMI or anything because the bank kept it in-house. So if I would have done an FHA, I would have had PMI until forever unless I refinanced the mortgage insurance, if people aren’t familiar with the abbreviation. So we went with that, and the rate was a little bit higher, but the underwriting of it was nothing. Our documents we signed at closing were probably 15 pages. So compared to a secondary market loan that they sell to Fannie or Freddie, our underwriting and our document package was nothing. So it was a super easy loan. There were repairs on the property. There was a cracked vertical sewer stack, so that would have never passed FHA or something, and the bank was the one selling it, so there’s no way we would have got that repaired prior to closing. So that wouldn’t have been an option for us.

Theo Hicks: This portfolio lender – did you use them for all of your house taxes and also these apartments?

Anthony Angotti: We used them for the second house hack. We did FHA for the one we currently live in. I used that bank’s commercial division for some of my apartment buildings, although I do have other banks that I use, too. We have maybe three main local commercial lenders that we use for our apartment buildings.

Theo Hicks: Perfect. So let’s talk about the apartments. So I guess my first question is what’s the biggest apartment that you have?

Anthony Angotti: 10-units. So we focus primarily in smaller buildings. Two reasons. One is that’s what’s in Pittsburgh. There aren’t a ton of large apartment complexes. There are some, but they hardly ever come up for sale, and they’re just not very prevalent. Most of the apartment buildings are going to be in the 5 to 20 unit range, but that’s the biggest one that we have right now.

Theo Hicks: What was the second reason?

Anthony Angotti: Just how frequently you encounter them in the market. There just aren’t a ton, especially because we keep our portfolio pretty geographically tight. So it’s not Pittsburgh as a whole. We focus primarily around where I live. We can touch on it a little bit, but our strategy is to in-source everything. So we have an in-house property manager, we don’t have a third party company. We also are hiring an in-house handyman… So we try to keep our portfolio hyper-local to cut down on their windshield time, so they don’t drive as many places.

Theo Hicks: So let’s talk about the 10-unit deal. So the same run that you gave me for the house hack – How’d you find it? What were the numbers, and then what was the business plan?

Anthony Angotti: So the first one that I did was a 10-unit. It’s set up a little bit like a complex. So there’s actually a 5-unit building, 4-unit building and a little house all on the same parcel. So the way that we found that was actually… I have a few different partnerships. The one partnership that I worked with here, this building is a little bit further away from our normal geographic range, but the current owner was somebody I used to work with. So we’ll talk about it too later, but one of my biggest piece of advice is just to tell everybody that you know that you’re in real estate investing, because you never know where the next lead comes from. So this was just a former coworker and he had an apartment building that they were way under renting. So the market rent for the units– right now, we get $750, but he was renting everything between $350 and $400 a month when we bought it.

It was funny, because I told him what the market rent was, I was transparent with him, and I was like, “Why are you only getting $350 or $400 on this?” He said, “Well, we like a certain type of tenant and we fill it really fast when it’s like this.” And I said, “Okay” Then I found out later that the only place he was marketing his apartments was in the newspaper. So he was still just posting newspaper ads. That was the only way he was finding tenants, which explains why most of the tenants there, they’re all social security type tenants. They all just get their security checks, which is nice.

But we bought that for — I believe, it was $255,000 was the price… $255,000 when we bought it, and then part of that in first position was a commercial lender and the second part of it was seller-financed. So I believe about 70% of that is through the bank loan, and about 30% of that is the seller finance. So that’s the purchase info on it.

Theo Hicks: And then was it a turnkey type of deal, or you just took it over and turned the units over, or was there some renovations that needed to be done?

Anthony Angotti: There was nothing immediate that was pressing. However, like I said, when we purchased it, everything was super under rented. So our strategy when we went into it was to get everybody up to at least $600 a month. So we sent everybody, right after we bought it, a letter, everybody that lived in the building. They were all pretty decent tenants. There were no troublemakers in the building when we bought it. But we just said, “Look, we bought the building. All of your rents when your leases are up, they’re going to $600 a month. If you want to stay, that’s great, as long as you pay the rent. If you want to move out, we gave you plenty of notice. You should have time to find a place. All good there.” Over time, we’ve had five people leave, and we’ve just been renovating the apartments as they’ve left and our rent’s now, like I said, are around $750. I think all of them are $750 for all the ones that have left. So we have five tenants left at $600 and five tenants left at $750.

Theo Hicks: And then I don’t know the exact number, but I’m just curious… Let’s say you bump the rents up by $150. How much money did you invest into those units to get that $150 rent bump?

Anthony Angotti: Depending on what we’ve done, because the building does have older wooden windows, so on a few of them, we’ve taken the opportunity to replace the windows… But we’ve spent anywhere between $5,000 and $8,000 per unit. The units were in pretty good shape. They pretty much just needed paint, flooring, appliances, basic bathroom reno, just a surround and some paint and a ceiling fan, and then the kitchen was just painting cabinets, new countertop, that sort of thing. So it wasn’t a very expensive turn.

Theo Hicks: So you mentioned– and I hope this isn’t your best ever advice. I want to focus on this a little bit. So you mentioned that one of your good piece of advice is to tell everyone you know about investing in real estate, because you don’t really know where your next lead is going to come from. Have you ever done a deal off the MLS, or have all of your deals come through these word of mouth types of referrals?

Anthony Angotti: Well, the one I just mentioned was off MLS. A lot of what we do is off-market. Now, at this point, we send out a lot of mail and stuff like that, so we get a lot of leads that way too. But most of my smaller buildings, most of the house hacks that I’ve done– actually, all of those have been on MLS deals. That’s nice for me because like I said, the most recent one we did, we used an FHA loan. I’m also a realtor, so I got my commission. So this place was a free house. We used our seller assist and I got my 3% commission, so we’re out half a percent for down payment, so that’s pretty sweet.

But most of our buildings have either come off-market through our own efforts, whether it was mail or networking, or off-market through broker relationships. So we’ve had a few that came just commercial broker pocket listings that way. I don’t know that we bought any apartment building that has been publicly listed, to be honest.

Theo Hicks: And then the last question before the best ever advice, going back to the house hack. I house hacked, but I was single. Were you married for all of these house hacks?

Anthony Angotti: We were together.

Theo Hicks: Maybe give people some advice on how to navigate doing a house hack when you’re married, when you’re living with someone else.

Anthony Angotti: The funny thing about it is whenever we were renting, we were probably ready to get married then, and I was not thrilled about working for somebody else. It wasn’t really even a problem with a specific job, I just didn’t like it. So my wife just was introducing me to different things, and she introduced me to the Bigger Pockets podcast. She was like, “Hey, maybe this is something you could do to quit your job,” and I think the first episode I listened to was about house hacking. And then I told her– I was like, “Look, we have money to do one of two things. We can either get married or we can get this place and live for free.” Initially, she was obviously like, “Well I don’t know about renovating a house. I’d probably just get married first.” Then I said, “Well, just think about it for a week. Let me know.” After she looked at the numbers of that, she came to the same conclusion that I did – that you just save so much money that it can accelerate everything else in your life financially. So that’s what led us to do that the first time. I was just showing her the benefits, and also at the same time saying, “Well, we can still get married, but when we do get married, we’re gonna be in a way better place financially.” So for her, she’s been supportive from day one, so it wasn’t super difficult. But I think that having her see all the benefits financially of it was the biggest thing that helped her get on board with it.

Theo Hicks: Thanks for sharing that. Alright Tony, what is your best real estate investing advice ever?

Anthony Angotti: My best advice ever is to just not wait to outsource your tasks. So I think personally, I waited to hire somebody to help me for way too long. We’ve grown fairly quickly in five years, but I probably could have been, at this point, quit my job way sooner had I just hired out a lot of the stuff. At the beginning I was the handyman, I was the property manager, I was the leasing agent, I was everything, and I was also working a full time job. So my time to focus on growth, both of the portfolio and personal growth was just non-existent. So I think outsourcing, whether that’s to an employee or a third-party manager, third-party handyman, whatever, you’ll see double the return in income easily over what it costs to actually pay that person.

Theo Hicks: What’s the first thing people should outsource?

Anthony Angotti: If you’re self-managing, I think probably property management is the first thing that you should outsource, unless you have one or two properties. But once you get past two properties, you have to take management off your plate.

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

Anthony Angotti: Yep.

Break [00:18:57]:03] to [00:19:59]:07]

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

Anthony Angotti: Best ever book that I recently read was actually The Millionaire Real Estate Agent. So it’s not geared specifically towards investing. Like I said, I’m also a realtor. That’s by Gary Keller. The thing that I took away from it the most was just, like I said, about outsourcing, about building a business that works for you and you’re not so much working inside the business. So that advice really resonated with me. I believe he also has a book, Millionaire Real Estate Investor, that’s a little bit more specific towards investors. But that book was very useful for me.

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

Anthony Angotti: Start building it again.

Theo Hicks: Very simple. Alright, what deal did you lose the most money on? How much did you lose and what lessons did you learn?

Anthony Angotti: We haven’t had one that’s lost significant money yet. The one that we’re currently in, the house hack that we live in now, was pretty costly. I did it because it was the last deal that I used my W2 income for before I quit my W2 job. So I would say that just being a little bit more patient to find a deal was what I learned from that. It’s not going to lose money long-term, but it’s definitely not super profitable.

Theo Hicks: On the flip side, let’s talk about the best ever deal you’ve done, and this is the deal you made the most money on whether it’s in rents or equity created.

Anthony Angotti: Oh, so the deal that I made the most money on… Probably that 10-unit that we talked about. We easily added just in expense reduction and income creation, over $175,000 on new value, and our cash flow is pretty ridiculous right now. I don’t have it up in front of me, but when it’s performing– it varies month to month, but we make easily over $2,500 a month in cash flow on that one. So that’s a pretty good one.

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

Anthony Angotti: To the investor community, I host investor meetups locally, and I think even though the business benefit from that has declined a little bit the more business I’ve done, just helping everybody out with questions and their deals and stuff, if that’s useful. And then just in the general community, I coach ice hockey. I played ice hockey in college, so that’s something that I like to stay involved in.

Theo Hicks: Nice. So then what’s the best ever place to reach you?

Anthony Angotti: I just started a podcast called Be Free RE. You can find us on any of the platforms, but the unique thing about our podcast is that we actually answer listener questions on air. So people can call in and leave a voicemail, we play your voicemail on the show and then answer it. The number for that is 412-212-8366. And then if people want to reach out individually– I’m sure a lot of your listeners are on Bigger Pockets, so I’m on there as Tony Angotti, and then they can find me there.

Theo Hicks: Perfect. Best Ever listeners, definitely take advantage of that whenever people give out phone numbers or email addresses. Alright, Tony, I really appreciate you coming on the show. I always love talking about house hacking, because I did it and it’s always interesting to hear how other people have navigated that interesting strategy especially when it’s–

Anthony Angotti: It’s the cheat code to life; financial life, at least. It’s the biggest cheat code you can do to fix your finances.

Theo Hicks: Yeah, it really is. So you went into detail on the first house hack that you did. We went over the numbers. We also talked about how you were able to do all the repairs yourself, except for obviously that sewer line by using YouTube, as well as help from your dad, and that’s been beneficial to you when talking with contractors on future deals. You talked about how you were able to rent out the detached garages to someone who wasn’t the tenant for extra source of income, then we transitioned in talking about your apartments where you focused on that first deal and how you were able to increase the value substantially because of the fact that the rents were so under market rent. You learned to focus on the smaller buildings because of the supply in the area and you also like to make sure that everything is in-house, so you’re hyper-focused on a certain area so people aren’t driving around all the time.

And then you also gave us some advice on how to find the deals and that’s telling everyone you know about what you’re doing in real estate, because you never really know where that next lead’s gonna come from. You gave us advice on how to do the house-hacking when you’re married or dating someone and it’s really just explaining the benefits to them, and letting them agree and come to the conclusion that it’s a good idea themselves.

And then lastly, your best ever advice, which was not waiting too long to outsource some of the tasks like property management, leasing, doing the repairs yourself, things like that. So Tony, I really appreciate you coming on the show and sharing your advice. Best Ever listeners, again, make sure you take advantage of his offer to answer some of your questions on the podcast. Definitely call into that number. Thanks for listening as always. Have a best ever day and we’ll talk to you tomorrow.

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JF2181: Don’t Ignore Low Hanging Fruit With Andrea Weule

Andrea is a real estate investor, author, and educator. She has completed 100’s of deals across the United States and continually shares her knowledge with new investors. She has completed numerous wholesale deals, rehabs, lease-option deals, private money lending deals, and owns a number of rental properties. Andrea always has constant new deals in the pipeline. She is always growing their retirement money through deals with other investor partners. Even living in Colorado, she has completed deals in twelve other states.

 

Andrea Weule Real Estate Background:

  • Full time real estate investor and President of Archway Investment Corp 
  • 13 years of investing experience
  • Currently holds 24 rental properties and has completed over 500 deals; wholesale, flip, lease options, etc.
  • Based in Englewood, CO
  • Say hi to her at: https://wealthhealthgrowth.com/ 
  • Best Ever Book: Doing Good Better

 

 

Click here for more info on PropStream

Best Ever Tweet:

“One good thing about being a wholesaler is you get to keep the really great deals for yourself and pass the good deals to others” – Andrea Weule


TRANSCRIPTION

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

Andrea Weule: I’m doing awesome. How are you, Theo?

Theo Hicks: I’m doing great as well. Thanks for asking and thanks for joining us, and looking forward to our conversation. Before we jump into that, a little bit about Andrea’s backgrounds – she’s a full time real estate investor and the president of Archway Investment Corp, she has 13 years of investing experience, she currently holds 24 rental properties and has completed over 500 deals; these are wholesale, flips and lease option deals. She’s based in Englewood, Colorado, and her website is wealthhealthgrowth.com. So Andrea, do you mind telling us a little bit more about your background and what you’re focused on today?

Andrea Weule: Absolutely. I actually started out in real estate for the homebuilders. I got a traditional job out of college, worked in every department of the homebuilding industry, from warranty to construction to sales and marketing, and I definitely enjoyed that, and then decided that I should be making a lot more money myself if I’m doing this much work. So my husband and I dove into real estate full time. Actually, I guess part time, while I was still working our day job and all that, but really just loved taking communities, neighborhoods houses and fixing them up and improving them and helping people grow their wealth through real estate including ourselves, and it’s been quite a journey. It’s been awesome. I live here in the Englewood, Colorado area, south of Denver, but we’ve invested in 16 different states now. So we’ve been able to take our business on the road, if you will.

Theo Hicks: Perfect. So based on what you’re saying, it sounds like right now you’re doing a real estate yourself, but you also have a coaching or consulting type program as well?

Andrea Weule: Correct. Yep. I focus real estate wise, mainly on wholesaling and rentals right now mainly because I think they’re the ones that I enjoyed the most, and I think the market is prime for both of them right now for sure. And then I love helping other people find their niche in real estate, helping them grow their real estate or their wealth through passive income, if that’s their strategy, or if they’re more creative and like doing flips and different things like that, helping them find their passion and their future profitability through real estate.

Theo Hicks: So let’s base our conversation on those two categories. Let’s first talk about your portfolio, and then let’s talk about your consulting coaching program. So you said you focus on wholesaling and rentals right now, you said that you have 24 rental properties?

Andrea Weule: Yep.

Theo Hicks: How many wholesales are you doing per month right now and how many rental property deals are you trying to do per month? Or it can be per year too, whatever time frame you want to use.

Andrea Weule: Well, I like to always keep things as real as possible. So in the wholesale world, we are doing one every month for sure. Some months are great. I’ve done a couple of months where I’ve had eight different closings, and then again, some months, things just don’t stack up the way that you want them to, and that’s just how real estate world works; we only get one. But I do a lot of investing here in the local market with helping people find fix and flips and projects that way, and then I do a lot of wholesaling in the Midwest, helping people in more expensive markets like Denver, Seattle, California, find cash flowing rentals and wholesale them deals in the Midwest. So that’s where I focus a lot on that.

And then for rentals, we’re averaging one a quarter. We’ve been a little slower the last couple of years just because I felt like the market was hitting the top of the market. I still wanted to grow our portfolio, but definitely wanted to not be too aggressive and buy something that I’m banking on appreciation that’s not going to happen for 10, 15 years. And then we also took some of our properties and did a lot of evaluation in the last six to nine months. So we bought a handful of properties, which is why we’re down to 24, because we wanted to make sure that the properties we’re holding long term are the properties that we want to hold forever. And so those properties that were good, but not maybe amazing are the ones that we wanted to liquidate for now, while the market was up, take that cash and then be able to have that cash available to capitalize on maybe slower or lower price point market over the next couple of years and continue to build up that rental portfolio.

Theo Hicks: Is your wholesaling business the lead pipeline for your rental business or are those two separate things? Are you getting leads for your wholesaling business and buying some of those, or you’re getting leads, wholesaling all of those, and then getting leads separately for the properties you’re buying as rentals?

Andrea Weule: Both. So in Denver, I’m not interested in buying properties here as much, just because our price point is so high. So the wholesaling that I do in Denver is a lot more for a fix and flips type investor. Whereas again, in the Midwest, all the properties I’m seeking out, I’m always going to consider myself. And I think that’s the beautiful thing about being a wholesaler – I think you can always focus on finding great deals, passing them along, but keeping the really great deals for yourself. So that’s definitely been our strategy in the Midwest.

Theo Hicks: Yeah, that [unintelligible [00:07:50].27]. It sounds like a good way to– because as you mentioned, you’re buying every quarter. So when you’re not buying rentals, you’re wholesaling, and then you’ve also got a continuous lead of deals coming in that you can always find a way to make money off of. That’s what I was getting at.

Andrea Weule: Absolutely, absolutely, and it just definitely keeps bringing the funds so that I have a reserve of cash to buy properties when the great ones appear.

Theo Hicks: Can you tell us a little bit about your lead generation strategies? Maybe more specifically, just talk about– it sounds like you’re wholesaling the deals in Denver, and then in the Midwest, you’re wholesaling and then also considering buying those, but you don’t live there.

Andrea Weule: Correct.

Theo Hicks: So let’s talk about that. What’s your lead generation strategy for these deals that are out of state?

Andrea Weule: So any market that I love, I always have a good agent sending me deals at all times, because I feel like when you ignore the MLS, you are ignoring the low hanging fruit. If somebody lists their house for sale, they want to sell it. So I try not to ever ignore that. Yes, there’s a lot of competition. Yes, they might want to sell it retail, but it seems silly to me to ignore it. So I’m always making offers via the MLS. But I would say my favorite off-market strategy is getting lists. I usually use ListSource, I pull lists. Most of my listings, I’m focused on active adults. So I look at 55 or better, people who have lived in their house for 20+ years that may be considering downsizing, maybe moving to more of a assisted living or low maintenance living, and I focus my mailers on those leads. So a lot of the verbiage that I’ll use in those mailers will be “Are you looking for your next adventure? Are you looking for less stress?” things like that, so I’m hopefully talking to them more directly. And then in addition to sending the mailers to them, and I always do at least three mailers for every address that I call, I also try to do bandit signs. I get people in those remote markets to put out bandit signs in areas that I’m focusing on. I just post ads via Craigslist under the Gigs category, hire somebody, have signs shipped to their house and they can put up signs for me. I use a couple of different programs to have them- -make sure that I get the signs out there. They take pictures with them and I can see the geotag on where the bandit signs are. I can pay them very easily through PayPal. Sometimes I have people that will continue to put out signs forever for me, I have people that they do it once or they don’t ever do it, and maybe it cost me the amount of signs, but I get boots on the ground without me flying out there. And then lastly, I also take that same list and I put each of the addresses and people’s, individuals’ information into Spokeo, and I look up phone numbers and emails and I cold call and shoot emails to them.

So I figured if I approach them three times, I have a better conversion rate and I’ve been fairly successful that way, and then I found once I get somebody talking to me and interested, it’s pretty easy to do things remote. With technology these days, people can take pictures with their phone and text it to me, we can get on a Zoom call, a Skype call, a FaceTime call, and they can walk me through the house and I can get a good feel for the condition of the house right there, and have all the data that I need just from what’s on the internet and my conversations and pictures that I get from those leads.

Theo Hicks: Well, thank you for sharing that. I don’t have any follow up questions. You answered every question; you gave us a step by step process, so I appreciate that. Let’s transition into the other part of your business, which is your consulting coaching business. So your website, which I’m assuming this is the website of your coaching business, wealthhealthgrowth.com. So you already mentioned that you help people find the niche that they want to do, help them grow their wealth, but what about the health aspect of that? What’s your approach with that?

Andrea Weule: My husband is obsessed with biohacking, and again, I’m actually listening to the book Superhuman, which is all about biohacking right now. But really, the healthier you are, the more that you can accomplish, the more you can grow, the more you can learn, the more money you can make. I found people that take good care of their bodies, their minds and their spirituality, they can accomplish so much more. They have more energy, they have more focus, they have more drive and can get more done for themselves, for their family, for their businesses.

So again, it’s more whole approach to investing in real estate because I find when I’m working with people, a lot of their struggles, it’s not really real estate based. It might be time management based, it might be struggling with objections with their family, it might be they’re exhausted all the time, whatever that may be. So we can incorporate just small tweaks. We don’t have to completely upheave somebody’s life, but we can make small tweaks to their life, to their daily schedules, to how they approach things to help them be more successful with their real estate business, and actually live a more fulfilled life.

Theo Hicks: What is the most unique or interesting biohack that your husband’s done?

Andrea Weule: You know, that’s a fun thing. He loves cryotherapy, he loves infrared saunas. We have grounding mats all over our house. So you plug in these mats to the ground in your house so that when you’re just sitting on the couch watching TV, you’re getting the benefits of grounding like you’re standing on the soil outside. We have a Trusii machine which hydrogenates water. So you can get hydrogen in your water which is supposed to help with clarity, your skin, energy, all kinds of different things. We have a daily calendar. He’s got me meditating, which I’m very type A personality, so meditating has been a struggle. So we’ve compromised on I will work on my meditation practice, but we’ve moved on to doing yoga which has a lot of the benefits of meditation, but I actually get to move and do something. So it’s definitely been a journey to learn all that our bodies can do and our minds can do if we hold ourselves accountable.

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

Andrea Weule: My best real estate investing advice ever is pick a swim lane. Especially when you’re new to investing in real estate, everybody wants to try everything. They want to try the latest, greatest strategy, they want to try whatever it may be, and the struggle with that is you never get to the other side of the pool. If you’re changing lanes all the time, you’re never going to get the results that you want. So I always, especially when I’m working with people, have them take some time to think about what got them excited about real estate in the first place, have them spend a lot of time going through what their actual current resources are, what do they have and how does that apply to what they want to do in real estate, what resources do they need to potentially plan for or partner up with somebody for to focus their real estate investing, and then to truly set that goal and work it daily.

I think people struggle so often with coming up with what is the latest, greatest and they have all these big plans, but their day to day activities are not aligned with their goals. Their day to day activities are not getting them the results that they need to moving themselves forward. So ensuring that they have the right passion, they have the right resources and they have the right goal, and then they’re working it every single day. And I truly believe in creativity and that’s why we’ve done so many deals. I believe creativity is amazing and there’s all kinds of different options, but the baseline end goal strategy should be defined, and then you can add perks to it if you will. So you can add a kickboard, you can add water wings, you can add some flippers if you want, but stay in your swim lane until you get the results that you need, and then branch out from there.

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

Andrea Weule: I am.

Break [00:15:33]:09] to [00:16:45]:02]

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

Andrea Weule: The best ever book that I recently read was Doing Good Better by William MacAskill. It’s a data-driven book about how to be more effective with your altruism. So how to give better if you will, and it’s just is very Malcolm Gladwell-esque and it’s a lot of statistical data, but it really definitely opened my eyes about how to be more effective and more efficient with almost everything I do.

Theo Hicks: Yeah, I think I remember seeing him on Joe Rogan’s podcast a few years ago. Okay, if your business were to collapse today, what would you do next?

Andrea Weule: What would I do next? That is definitely a scary thought. I think I would focus a lot more on personal development. I think I would go into more coaching with helping other people build their business. We’ve built up our business very successfully, and I think I have so many tools and life experiences to help others grow their business with whatever that may be, breaking through a lot of the things that I talked about earlier – time management, what are your fears, obstacles and moving yourself forward.

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

Andrea Weule: Best ever deal we’ve done. It was probably a lease option we did here in the greater Denver area. My father in law’s one of my best bird dogs. He met somebody at his office that got a new job, was trying to sell this house, and this is in the 2009, 2010 downturn of the market, and the guy called his realtor and his realtor said, “You’re going to have to this, this, this, this, this,” and just listed off all the negatives about him selling his house right now and all the costs that it was going to take. So the guy was just like, “I don’t care, I’ll just let the bank have it.” So he’s venting to my father in law. My father in law says, “I don’t know what Andrea does, but can she call you?”. So I called him, I offered to buy his house on a lease option. So in three years, we’ll buy your house, we’ll pay your mortgage, and I think I even gave him an extra 50 bucks a month; taxes, insurance, all that plus an extra 50 bucks a month, but the option price was what he owed at the time we purchased the house. So he wouldn’t make any money at the end. So he just gets to walk away and that’s that. We leased it for two years, and then sold it for about two and a half years in and made $35,000 on the closing costs of it, and it really cost us nothing. We had never put anything into it because we cash flowed about $250 to $300 every single month after paying him his fees, and again, it was in great condition. So it was a long term lease option deal that was a homerun for us.

Theo Hicks: Nice. And on the flip side, tell me about a deal that you lost the most money on, how much you lost, and then what lesson you learned.

Andrea Weule: So I would say it’s probably one of the rentals that we have right now is probably our least favorite deal. It’s one of those deals that I trusted, but I didn’t verify. So I had this deal brought to me by an investor friend and all the numbers looked right on paper, and we’ve done a couple of other deals in the market, so we didn’t think much of it, so we moved forward.

The issue was when we looked at the tax rate for this rental, the tax rate that had been paid for the last several years had been homesteaded. So it was a much lesser rate than the actual tax rate for an investor like myself. So that was a shocker, but then also at the same time, they were passing a large mill levy in that area. So the taxes went from what I thought was going to be somewhere around $40 a month to $260 a month. So our cash flow pretty much went down to negative $10 a month for the property. Granted, it’s appreciated and we’ve just used this property with our other properties that are in that same LLC to float it out. So it’s definitely worth more equity [unintelligible [00:20:37].11], but it definitely was a shocker when I didn’t pay enough attention, I didn’t do the research. So again, you can trust, but always verify.

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

Andrea Weule: I love service organizations. They’re a dying breed in today’s world, but I’m actually starting my fifth year as Kiwanis Club president. We sponsor key clubs, do all kinds of different service work throughout our communities, and I think being involved with service organizations is huge, and that’s really what I do with Archway as well. I am the president of their investment corp, which is– Archway is an affordable housing nonprofit here in Denver that has over 600 units of affordable housing. We work with the VA to get veterans off the streets and into housing, and have services there to provide food banks for them. Also, I do career education. We have after school activities for parents that have kids. So the parents can work longer and make sure the kids are getting their homework done and staying out of trouble. So again, just being involved in your community, and a simple way to do that is to get involved with a service organization. Kiwanis, Lions, Rotary, Optimists – any of those are great organizations that are always doing amazing things in the community that people are not really joining anymore due to lack of time and different priorities, but service organizations are amazing.

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

Andrea Weule: Through my website, wealthhealthgrowth.com or you can shoot me an email directly at info@wealthhealthgrowth.com.

Theo Hicks: Alright Andrea, thanks for joining us today and walking us through your business. We talked about your three main focuses – wholesaling, rentals, and then coaching.

Andrea Weule: Yep.

Theo Hicks: So from a rental perspective, you told us how you do an average of one per quarter, and that you recently sold some of those properties, and then you’ve got your wholesaling business where the goal is to do at least one every month, but some months, more than one; other months, just one. And that you focus on, for the wholesaling at least, out of state, finding really good deals, and then always trying to hand pick out the best ones to buy yourself and then wholesale the rest, and then you’ve gone into a lot of specifics on how you generate your out of state leads.

You mentioned that first and foremost, you don’t want to ignore the MLS. So you always have good agents in those markets who are sending you MLS leads, because  there’s a lot of low hanging fruit on there. And then you said for your off-market strategy, you get a list from ListSource and you focus on 55 or older, people that have lived in their house for 20 or more years. So people who are most likely looking to potentially move out to a retirement home or some vacation home or something. And you talked about you send those people mailers. First of all, you do three mailers per address, and you said that you direct your verbiage toward that target market, which is saying things like, “Are you looking for your next adventure? Are you looking for less stress?”, you talk them more directly.

You also post ads in the gig section on Craigslist to have people post bandit signs. They have to take pictures and prove that they actually did it. You got trackers on the signs, and then you pay them through PayPal, and then you also use Spokeo to find the phone numbers of the people from your list to do cold calling. And then you also mentioned that once you’ve got a lead and you’re trying to work your way through the deal with them, it’s not that difficult with the technology because you can do FaceTime or Zoom calls, do property tours, they can send you pictures, so you have a pretty good idea of what you’re getting into.

We also talked about your consulting business. We focused mostly on the health and how your husband is into biohacking. You mentioned that you have a more holistic approach to real estate investing and that the healthier you are, the more money, more energy, the more you’re gonna accomplish, and then you gave us some examples of some biohacks like cryotherapy, grounding mat, hydrogenating your water, meditating, doing yoga.

Then you also mentioned that with some your clients, something that you realized is that people’s issues aren’t really real estate related, like not knowing how to do a deal, but it’s something else, like a relationship problem or a personal problem or a mindset problem. So I thought that was also interesting.

I also really liked your best advice, which was to pick a swim lane, because if you’re trying to swim across the pool, the fastest way is to stay in one lane and go as opposed to keep changing lanes constantly, going back and forth. So what that means is that when you’re new, there’s a lot going on, there’s a lot of different niches, strategies, people. You need to find the one that makes you the most excited, and you said, then you figure out what resources that you currently have, it’ll help you do that specific niche, and then figure out what resources you don’t have that you need to outsource, so you can be successful in that specific niche. And then you need to go out there and set a goal and work towards it daily.

So that’s everything we talked about on the show today. I appreciate you coming on, Andrea. I’ve really enjoyed the conversation. Best Ever listeners, as always, thank you for listening. Have a best ever day and I will talk to you tomorrow.

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JF2180: Sight Unseen Offerings With Gabriel Petersen

Gabriel Petersen is a full-time real estate investor with 5 years of real estate experience. He is also the owner and founder of Great Northwest Home Buyers and Equal Housing Group. He used to be in digital marketing for many years and has implemented digital marketing into his real estate business to help him generate deals. He also shares how he decides what to offer properties when it is a sight unseen deal. 

Gabriel Petersen  Real Estate Background:

  • Full-time real estate investor with 5 years of real estate investing experience
  • Owner and founder of Great Northwest Home Buyers and Equal Housing Group
  • Portfolio consist of 3 flips, 2 wholesale deals, 2 doors under management & contracted a 50 pad mobile home park
  • Based in Seattle, WA
  • Say hi to him at: https://therealestateinvestingclub.buzzsprout.com/
  • Best Ever Book: War and Peace

 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Paid advertising is like a switch, you turn it on, and you get leads” – Gabriel Petersen


TRANSCRIPTION

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

Gabriel Petersen: I’m doing fantastic. How are you, Theo?

Theo Hicks: I’m doing fantastic as well. Thanks for asking and thanks for joining us; looking forward to our conversation. Before we hop into that, a little bit about Gabe – he is a full-time real estate investor with five years of real estate investing experience. He is the owner and founder of Great Northwest Homebuyers and Equal Housing Group; his portfolio consists of two flips, three wholesale deals, and then a duplex, and he’s currently under contract for four mobile home parks. He is based in Seattle, Washington, and you can say hi to him at his podcast, which is called The Real Estate Investing Club With Gabe Petersen. So Gabe, do you mind telling us a little bit more about your background and what you’re focused on today?

Gabriel Petersen: Absolutely. So I actually got into real estate from digital marketing. I started in the corporate world, did that for a very, very long time, and just wasn’t super-thrilled about it. I wanted something different so I started testing out different fields. I got into digital marketing, did an e-commerce store, and as time went by, me and a friend, we decided we wanted to buy a house, and so we went bought a triplex out in Tacoma, Washington, and in doing that, I decided to use my digital marketing skills to start to get leads and I found it it’s pretty easy to do that and I figured I was onto something, so at that point, I focused my attention on to real estate since then. I stayed in corporate for a little bit too long, in my opinion, and then probably about a year ago, I switched gears to full-time. So have been focusing on mobile home parks in Washington State specifically, but also nationally, we market for mobile home parks, and single and multifamily.

Theo Hicks: Perfect. Do you mind telling us some of the skills that you learned in digital marketing and how you apply that to finding leads? You mentioned it was easy, so tell us how we can also easily find leads through digital marketing.

Gabriel Petersen: There’s a caveat there. It took me a long time to figure out how to do it, but once I figured it out, it became easy, but it’s not a secret. I’m sure everybody listening, they’ve watched some show or some guru out there that explains it, but we do PPC, so both Microsoft and Google PPC, and then Facebook ads. Facebook, we mostly do for remarketing, but we’ve also done just standard Facebook ads. And then on top of that, we also do everything else behind the scenes – drip campaigns, email marketing. We’ve tried text marketing, as well as ringless voicemails, so the whole thing together works pretty well, but the thing that really got me started in the beginning was PPC, Google PPC.

Theo Hicks: Sorry, PPC is pay per click, right?

Gabriel Petersen: Yeah. So Google ads, Google search, search ads.

Theo Hicks: Yeah. So it’s pay per click, and then what’s the other one, because I know there’s two versions. Pay per click and what’s the other one?

Gabriel Petersen: Pay per click, and then organic SEO. SEO is a little bit harder. You’ve gotta have a lot more time, in my opinion. Our site’s ranked, but that’s not where we get the majority of our leads. Everybody who’s getting started in digital marketing for their real estate business, I would recommend either hiring somebody to do SEO or just get started with paid advertising, because paid advertising, it’s like a switch. You turn it on and it goes, you start to get leads. But with SEO, you really got to build it up and it takes time and little bit more effort than a lot of people are willing to get going with.

Theo Hicks: So let’s focus on the four mobile home parks because it sounds like this is what you’re transitioning to. So do you find all those through PPC or something else?

Gabriel Petersen: See, I think three of them, we found with PPC and then the last one was cold calling. So sellmymobilehomeparks.com is our landing page. So we run national campaigns, and that’s PPC across the entire USA, and once we start getting leads coming in, we send them an offer, and based on our specific criteria for buying mobile home parks, if it really fits it, then we’ll buy it ourselves. Otherwise, we wholesale it to other people; but that’s how we got three of them. The last one in Washington State, we actually called the owner.

Theo Hicks: You mentioned before we went online, the breakdown of how you plan on approaching these four. Do you mind saying that again? So you said you’re gonna buy some and then wholesale the others.

Gabriel Petersen: Yeah, we’re actually going out there today, George Washington, it’s a little city out in Washington, and that’s the one that we think we’re going to buy. And the reason we’re going to buy that one is because we got killer seller financing terms. It is 80,000 down, and then 3.5% interest. So we think we’re going to go pull the trigger on that one. The other ones don’t quite fit our criteria for MSA, so we’re going to be wholesaling those ones.

Theo Hicks: How do you, just for your business in particular– so you mentioned that you do the national campaigns, and then once the leads come in, you’ll submit an offer, and then I’m assuming that this one you plan on buying, this will be your first time going to see it in person?

Gabriel Petersen: Yep.

Theo Hicks: So how do you come up with an offer price, sight unseen?

Gabriel Petersen: Actually, I do this with single-family too, is we offer sight unseen, and the reason is because when you’re doing digital marketing, when you get a lot of leads coming in, you just don’t have the time to go to all of the properties. So what we do is we create an offer options letter and we look at the demographics of the area, we ask the seller questions for mobile home parks, we’ll ask them, “What’s the pad rent? Are you on city sewer, city, water?” etc, etc. So once we get a picture of what the property is like, be it a single-family or a mobile home, then we’ll go back, we’ll plug it into our formulas, and we’ll pump out and offer options, and that’s really just to make sure that we’re all on the same page. That us as the buyer and the seller are on the same page of where we think we’re going to end up with our actual PSA signed.

If they agree to the range that we send them and they like what we’re talking about, what we think we can offer, then we’ll go out to the property, we’ll actually see it, we’ll walk it and we’ll get it under contract. But this mobile home park that we’re going out to today, we actually got that under contract before we signed it because we love the terms of the seller financing; you don’t get that very often, not many sellers who are willing to do that, especially when it comes to mobile home parks. So we’re giddy about it; we’re excited.

Theo Hicks: So you offer options. What are the factors in that? So obviously there’s a price range, but are there also one that says seller financing and one, you’re buying all cash or other ones, you’re financing it? Is it like all the different offers you’re willing to do on the property and if any of those makes sense to them, then you go out into the property?

Gabriel Petersen: Yeah, exactly. For a single-family, there’s three options. There’s gonna be two seller finance options, one all cash, and when we look at the all-cash, we’re looking at it as a flip, and then for the two seller finance options, one will be interest-only, and then one will be just standard seller finance, and with each one of those numbers, we can pay a different amount based on the rent and the cash flow that we can expect. So we’ll give that to them, they can look over the three options, figure out which one fits best for their specific situation, and then we can go forward with that.

With the mobile home parks, it’s just two options. We do seller-financed and we do all-cash. Seller finance is always going to be higher than all cash, because, well for one, it’s easier. It’s an easier transaction for us to do seller financing, so we’re willing to pay more for the property because there’s probably going to be less down, there’s going to be less of our time involved getting it to the finish line.

Theo Hicks: So when you’re coming up with these numbers, what’s the target return metric that you’re basing it off of?

Gabriel Petersen: That’s tough. I should have a better answer for you there. We should have one metric, 20% IRR; we don’t though. So we look at each one individually.

For single-family, I like to have at least $200 — well, I’ve been going a little bit higher, so at least $300 per door in cash flow. That’s what I’m offering on there. For mobile home parks, we like to get it between a 9 and a 12 cap. It depends. If it’s on septic and well, then we’re going to want a higher cap rate. If there’s other aspects of the property that make it less attractive, we’re going to want a higher cap rate. If it’s in a great area, we’ll go lower, 9% actually. If it’s in a really great area like near us, Tacoma, Seattle, we’ll go down 6%. So I guess we do have metrics that we go for. So cap rate for mobile home parks, cash flow for single-family.

Theo Hicks: What made you decide to transition from or at least add mobile home parks?

Gabriel Petersen: Well, that one was actually my partner. He had been really interested in this for a while and got us excited about it as well, and then once I started looking into it, it just made a lot of sense. I’ve always wanted to do large multifamily properties, but there’s a lot of capital involved with those ones. They’re just really expensive. Mobile home parks, they’re not as expensive. You have the same number of units and you don’t have to deal with a structure. So there’s no leaky pipes, there’s no broken windows. You think about the headache that comes with owning a property and managing a property, that’s usually gone with mobile home parks, because what you’re dealing with is the electrical is the infrastructure; electrical, the water, the sewer, things that don’t normally break and are easy to be maintained.

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

Gabriel Petersen: It’s tough. I asked this on my podcast too and never thought about it myself, but I like the advice “Don’t give up.” I know it’s trite, but it is honestly, in my opinion, really good advice. There’s so many times when I have just been like, I don’t know– leads aren’t coming in as well as we thought they were or the deal didn’t turn out as well as I thought it was going to do, and I just feel like, “Oh, I just want to give up. I’m tired of this”, but if you just keep going, it is gonna work out. You just have to just pedal to the metal and just keep going forward. So don’t give up. That’s the best advice I can give.

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

Gabriel Petersen: Let’s do it.

Break [00:12:21]:03] to [00:13:25]:05]

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

Gabriel Petersen: That’s tough. So I’m reading War and Peace right now I have this thing about reading the best books critically acclaimed. So I started reading War and Peace; it’s really big. I don’t know if it’s the best book ever recently, but Seneca, On The Shortness of Life is probably the best book that I’ve read in the past year.

Theo Hicks: I think War and Peace is like Crime and Punishment. I had a hard time reading that book, too.

Gabriel Petersen: Yeah, it’s long. There’s like [unintelligible [00:13:50].00] pages.

Theo Hicks: I know. It’s long and super detailed, but I’m gonna check out War and Peace. I like reading older books. Okay. What is the best ever deal you’ve done?

Gabriel Petersen: The best ever deal we’ve done… Actually, probably the wholesale that I did just two months ago. It was a duplex near me here in Washington, and I ran the numbers and I had this number in mind that I was going to buy it for, and then in conversation, we had talked to another real estate investor friend of ours, and he offered to buy the contract from us for $70,000 more than we were going to be in the contract for, and we were like, “Well, that’s a no brainer. Let’s do it. $70,000 – that’s an easy paycheck. Let’s close it right now.”

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

Gabriel Petersen: Oh man, probably just start another business. Corporate – some people like it; it’s not for me. I really like being an entrepreneur, doing my own thing. So I’d probably just start a new one. There’s tons of different ideas out there. I did digital marketing for a bit, I might do that, but I want to stay in real estate. I do really like real estate a lot. So hopefully I can just restart the same thing I’m doing right now.

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

Gabriel Petersen: Probably my time; in my opinion, that’s the biggest, greatest gift you can give somebody is the gift of your time. So if anybody needs advice or just wants me to look over a deal or anything like that, that’s probably the best gift I could give is just my time.

Theo Hicks: On that note, what’s the best ever place to reach you?

Gabriel Petersen: Go to www.therealestateinvestingclub.com, that is the website for my podcast. Or you can reach out on LinkedIn. Just search Gabe Petersen, real estate investor. I’m sure I’ll pop up; my pretty little face with a blue shirt.

Theo Hicks: Perfect. Okay Gabe, thanks for coming on the show today and giving us your advice on digital marketing and mobile home parks. We talked about how you’re able to find most of your deals and that’s through PPC, pay per click. The other one is SEO and so you mentioned SEO is a little bit harder, takes a little bit more time. So your recommendation was when you’re starting out to focus on a paid advertising, and then maybe hire someone else to get the ball rolling on SEO.

We talked about your transition into mobile home parks. Your business partner was interested in it for a while, and you’d always wanted to do multifamily, but multifamily is a little bit more expensive than mobile home parks, plus there’s a lot less structural things that can go wrong with mobile home park compared to multifamily.

Currently, you’ve got four deals under contract. You found three of them through pay per click and national campaigns and one of them was through cold calling, and then you’re going to end up buying one of those, which you’re actually going to see– I think you said today or very soon, because of the really solid seller financing you were able to get.

We talked about how you’re able to submit offers on these properties without seeing them in person because obviously when you’re doing mass marketing, you’re not gonna be able to see every single deal in person. So you mentioned that you create an offer options letter. So you ask the seller a bunch of questions, do some research to get a picture of what’s going on at the property, and you plug all the information into your calculator to get offer options.

You said for single-family homes, you’ve got three options – two seller financing; one of those being interest only, the other one being standard, and then one being all cash. And then for mobile homes, it was two offers – one seller financing, which is gonna be the highest and then other one, all cash.

The metrics that you want to see to come up with these numbers, the offer numbers for single-family homes is about at least $300 per door in cash flow, and for mobile homes, it is a 9% to 12% cap rate depending on the location and a few other factors. And once you get that offer, you send those in and then if they agree to the offer range or one of the offers or they’re interested, then you will go out and actually see the property.

Then lastly, we talked about your best advice which was to not give up and you gave examples of times where you wanted to give up but had major breakthroughs. So again, Gabe, really appreciate you coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Gabriel Petersen: Thanks, Theo.

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