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

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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

 

 

 

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Best Ever Tweet:

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

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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

 

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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.

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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.

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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.

 

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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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

 

 

 

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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.

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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:

 

 

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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.

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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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.

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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JF2173: Investing Long Distance With Mike Wilkinson

Mike is a full-time real estate agent and broker with 4 years of real estate investing experience. He currently owns 4 units in Cincinnati and 3 in Denver with a few flips under his belt. He shares why he started off by investing out of state and explains what factors he paid attention to before jumping to out of state investing and the steps he took to invest out of state comfortably. 

Mike Wilkinson Real Estate Background:

  • Full-time real estate agent and broker
  • 4 years of real estate investing experience
  • Portfolio consisting of 4 units in Cincinnati, 3 units in Denver, 3 flips
  • Based in Denver, CO
  • Say hi to him at: https://embarkdenver.com/ 
  • Best Ever Book: The Go Giver

 

Click here for more info on PropStream

Best Ever Tweet:

“A good property manager is a huge part of your team in making out of state investing relaxing” – Mike Wilkinson


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 Mike Wilkinson. Mike, how are you doing today?

Mike Wilkinson: Good. Yourself?

Theo Hicks: I’m doing good, thanks for asking and thanks for joining us. A little bit about Mike – he is a full-time real estate agent and broker, and also has four years of real estate investing experience; his portfolio consists of four units in Cincinnati, three units in Denver, and three flips. He is based in Denver, Colorado, and you can say hi to him at embarkdenver.com. So, Mike, can you tell us a little bit more about your background and what you’re focused on today?

Mike Wilkinson: Absolutely. So I think like many younger investors, I got going interested in personal development, financial independence, freeing myself from needing to always work a job and pay the bills and have some assets do that for me. So that all got started back in 2016, 2017, and I got my real estate license right out of college, I think the same way week that I had graduated, and jumped in and out of the industry for the first year or two there. I got started with the house hacking strategy as a first asset, and for the last couple of years here, I’ve been a full-time agent and focused mostly on the residential, single-family, small multifamily asset classes.

Theo Hicks: Perfect. So you have four units in Cincinnati and three in Denver. Did you do the ones in Denver first or the ones in Cincinnati first?

Mike Wilkinson: The house-hack in Denver came first, and then a couple of deals in Cincinnati, and then a few more deals here in Denver. So I hopped back and forth.

Theo Hicks: What made you do Cincinnati?

Mike Wilkinson: I actually had a roommate and very close friend of mine living with me in Denver at my house-hack there, and he had a girlfriend, now wife, who was living in Cincinnati, grew up there. She had just bought a house out there, and was charging her roommates very similar rents (over $600 a month) for living in her $100,000 house out there, nicely fixed up… And I was charging my roommates the same rent out here in a $380,000 house, and a light bulb went off in my head and I said, “Hey, man, it might make some sense to try and invest out of state,” especially when my then-roommate moved out there and I could go and fly and have a close connection and someone to enjoy some time with out there.

Theo Hicks: Those four units, are those four single-family homes, two duplexes, or what’s the breakdown for those Cincinnati properties?

Mike Wilkinson: It is one single-family home, which is the first place that I purchased, a straightforward 2% rule deal, a $50,000 house or $45,000 house with $1,000 rent, and then a triplex that actually has a commercial unit below that was being treated as a residential unit, and two apartments above; that was actually also purchased around that $50,000 mark. So a little different pricing out there than here in Denver.

Theo Hicks: Sure. So when you decided to start investing in Cincinnati, do you mind walking us through the different steps you took for anyone else who lives in a pretty expensive market and wants to venture out to a market where they can buy properties for significantly less? So setting up a team, finding the deals, managing the deals, just A to Z.

Mike Wilkinson: Absolutely. I think a common thread through a lot of my clients here who invest out of state is the property management aspect, and that being a huge determinant as to whether they are successful and enjoying out of state investing. I’ve experienced that myself recently, fired and hired a property manager and feeling a lot better about those investments now that I’m having a little bit more of a trusty relationship with the property manager. So that’s a huge aspect, and I’d say probably the most important aspect of your team out there.

Another huge aspect is just networking your butt off and actually going out there. I had the opportunity of having a friend out there who I could go and stay with and drive around with and use his truck and leverage some connections that way. So meeting up with other investors out there, and not just focusing on the real estate agents and the property managers and the lenders, but also networking with other investors out there who have years of experience investing in that market was a huge thing for me to bounce one investor’s idea off of another to get a clear picture of which parts of town, which neighborhoods I wanted to be in, what price ranges I wanted to be in there, and talking with people who have already decades of experience there, who aren’t looking to make money off of me, I think, is an important thing that not too many folks that I talked to out of state investing wise do. They seem to jump straight into talking to property managers and agents and the like.

Theo Hicks: Do you mind telling us why you had to fire that property management company and maybe walk us through the timeline? Because I know and I’ve talked about this on syndication school that I do in the past, that it’s typically a high timeframe in which you want to wait before firing just to make sure that they’re actually the reason why the property’s not doing very well… So I’m just curious what happened – was it an instantaneous firing thing? Was it three to six months of poor management until you made that decision? And then on top of that, what lessons did you learn that allowed you to not make the same mistake in hiring the next property management company?

Mike Wilkinson: So this particular property manager, so they had an in-house maintenance division, which can be a positive thing and can also be a negative thing. It’s a difference that you’ll see across a lot of property managers; depending on the area, maybe it’s a half and half. Some people do have that some people don’t. This property manager, when I originally started with her, had a separate maintenance team manager through the year or years that I’ve been with her, then her new husband had taken over the maintenance division there… And in checking in with my portal, all property– a lot of out of state property managers have some portal where you can see your expenses, and I do a fair amount of rehabs here in Denver and help clients manage rehabs, so I understand the costs quite well, and things started to not add up. I wasn’t getting the explanations when I was asking for them and therefore, I just quickly lost trust. It seemed all of a sudden that they were making their money in the maintenance division as opposed to helping me manage some profitable properties.

So that was the gist of it, and I think it’s an important question to ask a property manager right off the bat and ask if you have an option to go that route or not, and then making sure that you have some checks and balances there to make sure that those maintenance costs are competitive and appropriate, and that you’re not just being up charged and they’re making money off of you in that aspect.

Theo Hicks: An important question was to ask if you have to use their in-house maintenance?

Mike Wilkinson: Yeah. My new property manager out there, they do have an in house maintenance team. The real important question is, “What is your guys’s protocol? How do you do maintenance? Do you hire everything out to a third party?” A fair amount of property managers do do that and you ask, “What is the typical protocol here? Do you have one handyman that you always go to? Do you pay some people hourly? How does this work? Who owns it?” things like this to get an understanding of, “Okay, is this one of the most profitable parts of their company?” That’s not what you’d like to see, as opposed to this being just a necessary part of the job. And some people do run maintenance in house and therefore that’s helping save you money, especially when those are just simple jobs like changing locks or installing a new appliance or something like that… But it can also go the other way where you’d rather just pay a third-party $100 and they have the interest of keeping up their reputation and charging competitive rates and things like that. So I think the main question there is how do you run your maintenance division? Do you have one in house? Is this all third-party? And from there, asking the appropriate questions to see how things are handled.

Theo Hicks: You do own some properties in Denver and then in Cincinnati as well out of state, but which one do you like better? Do you like out of state investing or do you like in-state investing better?

Mike Wilkinson: More and more my perspective, especially leading up to my purchase around Christmas time this year, around New Year’s, that was a huge debate of mine going into that, the three or four months prior to that, and I had met with plenty of different investors chatting about it… And more and more, I have a leaned towards in-state investing. Here in Denver, I really believe in our market and have a lot of connections and efficiencies that I can utilize here. So being at a younger age, I’m not interested personally in using my cash flow right now, and getting a sprinter van and going across the country or anything like that. I see myself working, I enjoy my job a lot. I don’t need the income in the next, say, decade. So therefore, I think what needs to be considered is with the non-passiveness of real estate, we need to think about, if I have reason to believe these assets are going to appreciate. And here in Denver, I really do believe that they’re going to continue to appreciate, especially in these little pockets that I truly know, being a broker here.

So for those reasons and having connections here, having complete control, being able to go meet with a contractor face to face, line them out and then have the understanding of, “Oh, I’m going to make this right,” or, “I’m not going to see any more work from this person,” is huge.

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

Mike Wilkinson: So the best real estate advice ever – I would say that networking your butt off and providing value to your network without strings attached is a huge thing, and that is something that I leverage to stay top of mind in my database and network.

Theo Hicks: Perfect, and do you have any examples of ways that people can add value without any strings attached?

Mike Wilkinson: Yeah, asking the simple questions of “Who do I need to keep in mind to introduce you to, what are you looking for in your business, in your job, in your life?” For example, a couple of weeks ago, I found a colleague of mine a great job, and that goes a long way in a time like this, and is something that I’m not seeing anything out of, but I know we’ll go to pay dividends in the future, and I think that just providing value in ways that extend far beyond your interest in real estate is a huge thing to do.

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

Theo Hicks: Let’s go for it.

Break [00:15:09]:03] to [00:16:12]:05]

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

Mike Wilkinson: I would say along the lines with this providing value and my best ever advice, a book that I love is The Go-Giver, and I recently read the other edition of that it’s called Go-Givers Sell More. These are quick little books, but have a super meaningful message that is very simple and if you take that with you in your network and in your day-to-day, it’s a pretty foolproof way of having a big life.

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

Mike Wilkinson: Wow, if my business were to collapse today – well, I would go ahead and start a new one.

Theo Hicks: Besides your first deal and your last deal, what’s the best ever deal you’ve done?

Mike Wilkinson: I would say, best ever deal was a flip project which I was taking a client through, realized that the numbers were awfully good, and they didn’t want to act on it. I got their permission to act on it myself, and in a matter of five months acting as GC, we turned an 83 grand profit on it.

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

Mike Wilkinson: I’ve work as a volunteer with an organization called Families First, and do a weekly volunteering for them. They do a great job to help parents in need in ways of raising a family with the right support.

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

Mike Wilkinson: Sure, I would say by email is a great way. I’m always responding to email, and that is mike@embarkdenver.com.

Theo Hicks: Perfect, Michael. Thanks again for coming on the show and sharing your advice with us. Mostly, we focused on comparing in-state versus out of state investing, and why you prefer in-state investing. We talked about how you’re able to know the market a lot better, especially because your job is as a real estate agent and a broker. It allows you to have more control, you have more connections in your local area, it allows you to meet people face to face, and just overall, you like the in-state investing more than out of state investing, even though you do have some properties in Cincinnati.

We talked about some of the tips you do have for people who do decide to invest out of state and the two things you mentioned was one, that the property management company is the most important, and you told us how you had to recently fire a property management company because the maintenance costs didn’t seem to add up and you weren’t getting a good explanation as to why. So you said that an important thing to understand with a property management company is how maintenance is handled and what the typical protocol is, and making sure that there’s checks and balances so that the costs are competitive and appropriate. The second thing you mentioned about investing out of state was networking, but more specifically, making sure you’re actually going out to the market to meet with people and network with people face to face, and this includes property managers, brokers, lenders, but you also mentioned it’s important to meet with other investors too, people who aren’t there to make money off of you and are gonna have an objective opinion as well.

And then you also gave us your best ever advice, which is to network and provide value to the network with no strings attached, and you gave examples like introducing them to different contacts, maybe referring them to people, and then you gave a specific example of how you were able to help someone find a job. So just asking questions, probing questions to figure out if there’s any way you can help them in order to strengthen that relationship. So again, Mike, I really appreciate you coming on the show and giving your best ever advice. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you soon.

Mike Wilkinson: You too. Thanks, Theo.

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JF2167: My First General Partnership Deal With Alexander Felice #SituationSaturday

Alexander Felice is a career banker working in risk analysis for SBA lending. Alex is a previous guest on episode JF1614 and is now back after completing his first general partnership deal and today he joins us to share the lessons he has learned through this deal. 

Alexander Felice Real Estate Background: 

  • A career banker working in risk analysis for SBA lending
  • 6 years of real estate investing experience
  • Portfolio consist of 40 BRRRR deals, and a 24-unit multifamily 
  • From Fayetteville, North Carolina
  • Say hi to him at: https://www.brokeisachoice.com/ 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Start off small to get your reps in first, proof of concept, before doing bigger deals” – Alexander Felice


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks and today I’ll be speaking with Alex Felice. Alex, how are you doing today?

Alexander Felice: I’m extremely well. Thanks for having me.

Theo Hicks: Absolutely, thanks for joining us. So Alex is a repeat guest. So make sure you listen his first episode; it’s Episode 1614. Since today, I didn’t know it’s Saturday, we’re gonna be doing a Situation Saturday where we talk about a sticky situation that our guest is in, and have a conversation about any challenges he’s facing and what he is doing to overcome them. So that’s gonna be the focus of the conversation today, but before we get into that, let’s go over Alex’s background as a refresher. He’s a career banker working in risk analysis for SBA lending; he has six years of real estate investing experience, his portfolio consists of eight BRRRR deals and a 24-unit multifamily. He’s from Fayetteville, North Carolina, and you can say hi to him at brokeisachoice.com. So Alex, before we start talking about your sticky situation, which is your first JV deal, do you mind telling us a little more about your background and what you’re focused on now?

Alexander Felice: Yeah. So I got into real estate trying to — I had a job I hated, so I had to get out of it. So I started buying single-family homes, because I was broke, and that’s all I could swing, and that went well for a little while, but it doesn’t take long before you realize that there’s no economies of scale, which is probably something everybody who listens to the show already knows or has figured out – that you have to go to big multifamilies to get the economies of scale. So after about eight of them, I started moving towards that, but it’s a challenge to grow, for me at least, to go up to– some people do hundreds of units in their first bid; that was not something that I was capable of, so I switched into slowly going towards multifamilies, and lately, I’ve been doing flips. I still want to do multifamily, but I’m just gonna go a little bit slower than I had anticipated, but yeah, that’s the transition that I’ve been at.

Theo Hicks: Sure. So you’ve got the 24-unit multifamily. Is that the JV deal?

Alexander Felice: Yeah, last June, we closed on a 24-unit multifamily. I did it with four other people, all of which whom I met on the internet, which was neat, and our original intent was to syndicate, but the 24-unit at a million dollar purchase price, it didn’t warrant the cost to do that. So we JVed it, and it’s gone reasonably well, with some hiccups.

Theo Hicks: Sure, yeah. So before we get into the hiccups, I want to just set the stage a little bit more. So you mentioned it as a $1 million purchase price. What was the original business plan?

Alexander Felice: So the plan was, it was five people who had never done this before, and we all have the same idea – multifamily, buy for cash flow, value-add if we can. We wanted something that– we were worried about preservation of capital first, and more so than anything, I wanted the experience. I have a giant ego and so I was trying to make sure that I didn’t let that run the show. I said, “Look, I just need to get one of these. I need to get five partners that I know I can return money to, and get the experience,” and then– I have a long life ahead of me that I can buy bigger, bigger deals. I didn’t want to go off and buy something that I couldn’t handle the first one. So idea was to get my reps in, proof of concept, get one done so that I knew I could do it and then the sky’s the limit.

Theo Hicks: How did you find the deal?

Alexander Felice: Broker. We were talking to brokers for probably four or five months, just looking at everything. One of the partners was just looking at deals, looking at deals, looking at deals. So this one, he brought to me, my partner; he brought it to me and we looked at it. It was in an area that we knew well that I already invest [unintelligible [00:06:19].18]. It was about what we wanted to do, and I wish there would have been more value add, but it was a deal that we knew we could make money on and we said, “Okay, let’s snowball.”

Theo Hicks: Perfect. So a million dollar purchase price, found it through a broker. The last thing I want to know is about your partner. So you said you met him on the internet. Do you mind walking us through that? I mean, a lot of people do that as well. I actually met Joe through the internet and I’ve been working for him for four years. So I’m just curious, can you walk us through how you met those four people in more specifics?

Alexander Felice: Well, on my website, what I’ve been doing as an experiment for three years now, interestingly, is I put up on the contact page — so the first thing you see is, “Do you want a video chat with me?” There’s no strings attached, there’s no nothing, no cost, no– I don’t sell anything. So I just put it on there and see who will reach out, and sure enough, I booked a month out for Thursday nights, and strangers just going on the internet and they video chat me and I do deals with some of them. So these are four people that I met through doing video chat with me, because they just wanted to be interested in what I was putting together.

I’m very transparent on my website about the deals that I do and how I do them, so it resonates with certain people. So people reach out to me and over time, it was, “Hey, I want to do multifamily next,” and so you say that to people enough– the rule of investing or the rule of networking is, just tell everybody what you’re doing. And so I’m very loud on social media, and I’m very loud on the internet, and it attracts the people that I needed. So over time, I got four other people that wanted to do the same thing as I did. They wanted to be part of what I was putting together, and it’s not more complicated than that. It’s just you have to put yourself out there and you have to be consistent, you have to be loud, and it inevitably will attract the people that wanna do the same thing as you.

Theo Hicks: Can you give us an example of you being very loud on social media?

Alexander Felice: I don’t go– No, I guess not. I wear a lot of bright pink. I say things that other people think they’re controversial. I don’t think any of that I say is controversial, but I’m very unapologetic on the internet and I’m not good at marketing strategy. I’m just good at saying my authentic thoughts and I’m just good at saying them loudly, and I do it quite often.

Theo Hicks: Perfect. Okay, so we’ve get the context for the deal set–

Alexander Felice: For instance, my website is called Broke is a Choice; that’s a jerk thing to say to a lot of people. That’s the thing I mean, where broke is a choice, but it’s a little bit rude; that’s my style.

Theo Hicks: Yeah, I like it. So when I first read that, I was like, “Ah, it’s a really cool website. I like that.” I think it’s a lot of attention because of that website.

Alexander Felice: There you go. That’s it.

Theo Hicks: And in the pink too. I’m sure the pink helps as well. Okay, so 24-unit, four partners, including you. We talked about how you met them, purchase price, how you found the deal. So the deal’s purchased. You mentioned that it’s going relatively smoothly. Maybe explain to us what happened after you bought the deal.

Alexander Felice: So I’m a career banker, so I should have known this, but I made– one big error that I made was, I didn’t anticipate the maintenance costs to go to escrow to the bank. So we have a certain percentage that goes to reserves to the bank every month that comes out of cash flow. Well, I didn’t anticipate that in my projections. So that cost every month, plus insurance on year one charged me for year one and year two. The bank took the second year to an escrow. So I have about 10% of my gross potential income that comes out of cash flow every month. Is it the end of the world? No, not a little bit, but it does reflect on my ability to pay out investors cash on cash year one.

Theo Hicks: I’m sorry, but before you continue, I’m just confused. So it was reserves — so you’ve got reserves coming out each month. What about the insurance? You’re saying it was a lump sum?

Alexander Felice: No. So say I have $13,000 a month in gross potential rents. Well, I have $500 a month that goes to the bank for repair escrow. Now that’s pretty standard. I just fumbled it, I was paying attention to a lot of the things. So I put that into the projection. So $500 a month comes out and it goes to the bank. Now that’s our money, but we don’t get it every month. We won’t get it till whenever, probably two or three years down the road. The second one is $715 in insurance. Now, we pay $750 in a month in insurance for year one, but the bank is taking an additional $715 a month for escrow to pay for year two. Now that’ll come off at the end of year one, but for that first year, we have $1300 a month that comes out of our cash flow to go to escrow costs; that’s 10% of gross potential rent. It’s not painful, but it’s really annoying.

Theo Hicks: It wasn’t disclosed to you by the lender at closing?

Alexander Felice: It was probably something that would have been caught by anybody who’s done this before, and I should have caught it myself, but when you’re doing these deals your first time, and everybody who had done this on this team was a first-timer, it’s one of those things that just slipped by us, and I wish I would have better accounted for it. It’s not the end of the world, but it is very frustrating, because it messes up my year one cash on cash returns for investors.

Theo Hicks: 100%, yeah. Okay, any other challenges with the deal?

Alexander Felice: Yeah, it’s too small. I’ll never do 24 again; that’s ridiculous. It’s way too small. Most of our problems were scale problems. I’m trying to think of some good examples, but my first thought was to go to multifamily for economies of scale, but I don’t think you’d get economies of scale until you get to probably– now that I look back, probably 100 units is what you really need. Maybe a little less than that, but 24 is not enough, at least not for us. The rents are $600 to $625. I’ll never do that again. I don’t want anything less than mid-market rents, and that’s in my market $1,100 to $1,200. Maybe some of that is personal reasons, personal approach, but these are the things that I learned. Went too small, we were too timid with the money, we should have gone bigger, we should have been bolder, and I think it would have actually made us more.

Theo Hicks: Are you managing the deal yourself or is there a third-party management company?

Alexander Felice: We have a third-party management company.

Theo Hicks: Okay. Do they have someone on-site?

Alexander Felice: No, it’s not big enough to do on-site management, in-house, to do it full time with them. So we have a third-party management company. I love them; they’re working out fantastic, they’re taking great care of the place. Actually, our expense ratio is less than the previous owners who were self-managing. So I don’t have a problem on the expense side. What I have a problem really is– so we bought it in mid-2019 at, now we know, at the top of the market. I knew it then, but mania gets, I think, everybody in the beginning at least, “I should just pay less.” But the property is being run as well as it possibly can be, in my opinion. We just have the deal up a little bit shaky. And we’re going to end up making good money in this property, I just look back and think of all the things I could have done better.

Theo Hicks: Yeah, totally. So you’ve got four other people. What is everyone’s role in the joint venture?

Alexander Felice: So my main partner – we have somebody who does the financial side, so they’ll do my books, and then another guy just helped us get it and he’s helping us get the next deals, and then some people play less of a role than I would have liked, but I’m okay with that. So I just do– I manage the property manager and I manage monthly reports. My other main partner does the accounting books, and then another guy’s doing acquisition side.

Theo Hicks: Did everyone involved invest money in the deal?

Alexander Felice: Yes, I did this so everybody went in equal, or very close to equal. Me and my main partner have a slightly larger share, so that we can take the guarantee, and then the other partners didn’t have to take the guarantee, and they took a small share for it. I spread it out equally so that I could– how do I say it? People are taking a chance on me because it’s my first one, so I just said, “Hey, look, just believe in me. I’ll give a return and I don’t care what the work costs me, I just want to make sure that I can show that I can get this done, I can show a profit, and then I’ll take a bit of cut in the next one.”

Theo Hicks: Yeah, exactly. So since everyone’s in the deal for equal amounts, are the profit split done equally as well?

Alexander Felice: Yep. You’re split with the amount that you put in, both equity and cash flow.

Theo Hicks: Okay, perfect. Any challenges with doing a JV as opposed to doing the syndication route? Any challenges with control, or everyone having a say, anything like that?

Alexander Felice: No, but people is my specialty. So I didn’t expect any of those challenges from the start. Everybody knew that I was gonna lead the deal for the most part, and that’s worked out well. I didn’t take in anybody that I thought it was going to be more of a hassle than I was willing to take on. So I haven’t had any problems with that. The syndication route, I’m up for it in the future. I underestimated the challenge of the cost to price balance of doing syndication. With the syndication, thhe attorney costs you 15 grand, it’s like, “Dude, don’t do it on a million-dollar deal. It doesn’t make sense.” But the problem is not that we should have syndicated, the problem is that do a bigger deal. That’s the correct solution, in my experience.

Theo Hicks: So with all the lessons you learned, what would be your ideal next deal?

Alexander Felice: I would like an A or B Class property in a bigger area, in a growing area with higher rents and more investors. I would go bigger even if it means less returns. I think the stability is worth the premium by a longshot. The C Class properties, the numbers look good, but it’s just not what I would do again. I’d go with an A Class property in Raleigh or Charlotte, that’s what I’d prefer.

Theo Hicks: And then do you have a network of people that if that ideal deal were to fall into your lap tomorrow, you could raise the capital?

Alexander Felice: I think so. Funny, in this business everybody who’s done no deals – that uphill battle is really hard, but once you do one, it’s like the doors really open up. So obviously that gets bigger as you do more. I think I have– a lot of people didn’t want to do the first one with me, even though I’ve been doing single-families for a long time, and I have a big social media presence, a lot of people were interested… But I’ve had literally people tell me, “Yeah, I’ll do the second one with you. I don’t want to do the first one with you.”

And also, the first one, you don’t have a problem with — it’s hard for me to explain. I have a problem selling the first deal to people, because you don’t really know if it’s going to close when you get a hold of it, because I was new… And so you go to somebody, it’s like, I really can’t sell them as confidently as I’d like, because I’m not sure how to do this. So they can feel that, and that hinders me. So it’s like a cyclical thing; I’m not as confident so they aren’t as confident, so then I’m not as confident. When we go to do this next one, I think that will be mostly entirely removed, and so I’ll be able to much more confidently go out and get funding, and I’ll have learned a lesson from this first one, and I perceive that to be a much lesser problem.

Theo Hicks: Alright, Alex, is there anything else that you want to mention before we close out the interview?

Alexander Felice: Buy something that makes money. You can grow, you don’t have to do everything on your first one. Ego, I’m prone to ego, and it got me in a little bit of trouble on this one, and I know that problem for other people, but I play the long game. This multifamily thing, it works, but you don’t have to do it on the first deal.

Theo Hicks: Alright, thanks for sharing that. Alright, Alex, well, I enjoyed this conversation. I look forward to checking out your Broke is a Choice website and some of your comments on social media, but in the meantime, some of the biggest takeaways that I got from the episode was – number one, how you were able to put together a joint venture deal with four people you’d met on the internet.

I really liked your strategy of having a “Do you want to video chat with me?” on your contact page, and that’s how you were able to meet the individuals you did this deal with. You also mentioned how the roles and responsibilities were allocated, but your biggest lessons on this deal was number one, not anticipating the reserves that need to go to the bank every month, as well as having to pay a monthly insurance rate that was covering year one and year two during, year one. So another is understanding what the lenders’ criteria is for reserves and insurance and taxes. I know taxes is another thing that people talk about as well, that might be a little bit different in year one.

The second thing you said is that 24 units is too small, because most of the issues that you’ve come across have been economies of scale issues, and so you prefer to focus on 100 units or more, because that’s where economies of scale come into play. You also mentioned that you wouldn’t do $600 to $625 rent ranges anymore, and that you want to go a little higher than that. You also mentioned that you probably should have paid a lot less for the deal, but were really excited.

Alexander Felice: A little less, Theo. Not that much, a little less.

Theo Hicks: And then the last thing we talked about having a little bit of trouble selling the deal confidently – because you hadn’t done it before, so you weren’t exactly sure how things were gonna play out, so you didn’t feel comfortable saying something you didn’t really feel confident and comfortable with, and then in turn, they could feel that, so they were less confident and it’s a negative feedback loop.

So again, Alex, I appreciate you coming on the show. Make sure you guys check out his previous episode; again, that’s 1614. Go to the website Broke is a Choice, take advantage of the free video chat. It’s not every day that guests offer that to listeners. 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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JF2166: House Hacking Together With Sam & Nick Riccio

Sam & Nick Riccio have been in real estate for 3 years and currently own 6 doors consisting of a condo, triplex, and duplex. They are solely focused on house hacking, and they share how they went about house hacking their way to 6 doors and share why they decided to take this route instead of buying and renting out properties. 

 

Samantha & Nick Riccio Real Estate Background: 

  • 3 years of real estate experience
  • Currently own 6 doors, consisting of a condo, 3-family, & 2-family home
  • From Boston, Massachusetts 
  • Say hi to them at: www.eaglehill-properties.com 
  • Best Ever Book: The one thing

 

 

Click here for more info on PropStream

Best Ever Tweet:

“Network and focus on your plan, don’t get caught trying to compare yourself to others.” – Sam & Nick Riccio


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. My name is Theo Hicks and today I’m speaking with Sam and Nick Riccio. Sam and Nick, how are you guys doing today?

Nick Riccio: Good. How are you? Thanks for having us.

Samantha Riccio: Happy to be here.

Theo Hicks: Absolutely, I’m doing great. Thank you for being here. I look forward to our conversation. Before we get into that, a little bit about their background. So they have three years of real estate experience, they currently own a six-door consisting of a condo, a three-unit and a two-unit, they’re from Boston, Massachusetts, and you can say hi to them at eaglehill-properties.com. So Sam and Nick, do you guys mind telling us a little bit more about your background and what you’re focused on today?

Nick Riccio: Absolutely. So as you said, we started investing back in 2017, we’ve been house hacking small multifamilies in Boston, and we’ve primarily been focusing on that, like I said, for the last three years, and now we are just renovating our duplex that we will be owner-occupying once we stabilize the property.

Theo Hicks: So you’ve got the condo, the three family and then the duplex you’re working on now. So all three of those were house hacks?

Nick Riccio: Yeah.

Theo Hicks: Perfect. So which one was first, the condo or the three-family?

Samantha Riccio: The condo was first and then the three-family came after. It actually started as a duplex and we converted it to the triplex while living in it.

Theo Hicks: Perfect. Let’s talk about the condo first. So I guess, maybe taking a step back first, why did you decide to do the house hack as opposed to just buying it and renting it out?

Nick Riccio: We wanted to get started in Boston. We really like the market, we’re here locally, so we thought it was a good way for us to get our feet wet and be close to our properties. Really expensive market. So for us, that was the way for us to enter the market, being able to get in at low down payment and get started that way.

Theo Hicks: Perfect, and then what did you buy the property for and then which house hack loan did you use?

Nick Riccio: We bought the condo at a conventional low down payment loan, I think we put 5% down, and then on the duplex/triplex conversion, we did an FHA loan and put 5% down.

Theo Hicks: What was the purchase price of the condo?

Nick Riccio: It was $325,000.

Theo Hicks: How long did you guys live in that property for? Was it turnkey or did you invest any more money into it?

Samantha Riccio: Yeah, so the condo is turnkey, and we lived there for about seven months, and that’s actually how we ended up acquiring that duplex. It was an attached property and our neighbor on the other side who was actually living in that duplex and the landlord’s currently living above her had reached out to me after we had been living there for, like I said, about seven months, and we had become friendly, and she was like, “Hey, my landlord’s selling. I’m gonna have to move. I love the area.” She was all bummed out, and I had asked, “Hey, can I have your landlord’s info? I’m actually really interested in the property.” So we bought it off-market that way and that’s how that came about.

Theo Hicks: You said that was your neighbor, that was in the same building?

Samantha Riccio: Yeah. Yes, it was three condos on one side, and then on the other side, like I said, it was a one-unit at the bottom and then the landlord, that current owner had lived [unintelligible [00:05:44].09] level unit upstairs. But from the outside, it looks like it would be a six-unit building. So we shared a back porch and became friendly that way.

Theo Hicks: Nice. So you bought the duplex after living in the condo for nine months, and then that’s the duplex you converted into a triplex, right?

Samantha Riccio: Yeah.

Theo Hicks: So maybe walk us through that. So did you know beforehand that it can be converted to a triplex, what made you decide to convert it into a triplex, and then walk us through the numbers on that deal.

Nick Riccio: Yeah. So because it was an attached building, like Sam said, it looks like a six-family home. So we knew that since our side of the property was put in three condos and it was an identical layout, we had a really good understanding that it would work, and then on top of that, we were able to do some research with the city, and see that at one point it was used as a three-family. We were actually able to find the original blueprints from a million years ago. So we were able to do some of that due diligence, which led us to feel pretty confident about it.

Theo Hicks: Did you know you were gonna convert it to a triplex before you bought it or was it after you had already acquired it?

Nick Riccio: It was part of our due diligence. We ran it both ways, we were trying to see– we had a larger unit and it was just two units if we’d be better off, but we decided it would be more advantageous to have it as a three-family.

Theo Hicks: Perfect. So what was the purchase price and what was the cost to convert it to a triplex?

Nick Riccio: I purchased it for $630,000, and we did the rehabs in two stages. We allowed that tenant that brought us into the loop on the house, we allowed her to stay. So we didn’t renovate her unit, but we converted the second and third floor and we separated them and did that work, and then later we did the first-floor unit once that tenant moved out… But all-in it took us about $80,000 to do the renovations.

Theo Hicks: So you moved out of the condo and into this triplex now. What did you rent the condo out for once you left?

Samantha Riccio: Yeah, so we rented the condo out at that point for just covering our mortgage. We made 20 bucks on a good day, but it’s been a few years so now we’re able to profit a little bit from that. So it was $1,900 dollars for the one bed/one bath condo.

Theo Hicks: That’s what it is now is or that’s what it was in the beginning?

Samantha Riccio: That’s what it was in the beginning. Now we’re at $1,950, I believe.

Theo Hicks: So you moved into the triplex after the renovations were done, and then once the tenant moved out downstairs, you renovated that unit. So purchase price, $630,000, investment was 80k. What were the two rents you got from the two units that you did not live in?

Nick Riccio: Before we renovated the first unit, we were collecting $2,900 between the two units. So it was $1,950 in one unit and then that first-floor tenant was only $1,000 a month. After we renovated it, that $1,000 rent became $1,950 per month.

Theo Hicks: Nice. And then do you guys still live in that three-unit now while you’re doing this second duplex?

Nick Riccio: No, we actually moved out, because we wanted to fully stabilize it. We moved out and we’re actually back living with Sam’s folks here while we’re renovating that property.

Theo Hicks: Is that unit you moved out of also rent at $1,900?

Samantha Riccio: No, we’re actually getting $2,200 for that unit. It was our owner unit, so we put in a little bit more; we had a washer dryer in the unit, it also came with a parking spot, and we do also have additional parking out back that we rent out for additional income as well, to increase the rental of the property.

Theo Hicks: So you’ve got the duplex now. Do you wanna walk us through how you found that one? Was it off-market or was it MLS deal? How did you find it?

Nick Riccio: We found that on the MLS.

Theo Hicks: What did you buy it for and then what’s the rehab cost right now?

Nick Riccio: This one’s a pretty big project for us right now. We purchased it for $840,000 and we’re gonna put about $130,000 into it in renovations. We’re finishing the basement to make a bi-level unit which will turn into a five-bed, two-bath. So quite a bit of work there.

Theo Hicks: Duplex, you’re finishing the basement to add additional space to one of the units or is that single unit right now and you’re making it into a duplex?

Samantha Riccio: Yeah, so adding additional space to one of the units. So the first-floor unit was a two-bed, one-bath and then when we walked the property, it had crazy ceiling heights in the basement, like over 8ft, which is obviously tough to find, especially in the Boston area. So we decided to add down to the basement adding three beds and one bath. So altogether, it’s a five-bed, two bath unit, and then we’ll live in the upstairs which we’ll  have renovated as a two-bed, two-bath.

Theo Hicks: That’s what I was gonna ask you next – which unit you guys gonna pick, but it was a 100% smart move. So how much do you think you’re gonna rent that big unit out for?

Samantha Riccio: We actually already have a signed lease and they signed the lease when it was fully framed, just completely under construction, for September 1st; that’s a pretty common rent cycle here in Boston, and they signed for $6,000.

Theo Hicks: For how much?

Samantha Riccio: $6,000.

Theo Hicks: Oh, wow. Are all the properties in the same market or are they different neighborhoods in Boston? Obviously, it’s a big city, so one street over might be a little bit nicer than the next street. So I’m just curious, because $6,000, as opposed to $2,000, is a pretty big difference.

Nick Riccio: Yeah, they’re really close. But yeah, one of the neighborhoods– the condo and the triplex are in a neighborhood called East Boston, which is now a really up and coming area, which is why we chose it, but it hasn’t matured yet. The duplex is in a neighborhood called South Boston, which is your young professionals, lots of buyers, lots of restaurants, beaches, really close to downtown. So it’s a hotspot for the young professionals.

Theo Hicks: So you guys are moving around a lot. Do you guys plan on continuing to house-hack, or at some point you will you stop doing that and rent or buy your own home and then start buying this straight up regular traditional loans? Just curious.

Samantha Riccio: Yeah, we’ve definitely moved quite a bit, especially now jumping back to my parents’ house. We lived with Nick’s parents for a little bit during our last renovation, so we’ve moved a lot. We’re planning on staying in the duplex for a little while, and maybe exploring some different financing with commercial loans and trying to maybe dip into the condo conversions here. It’s pretty big in the Boston area, and then be able to use that profit to roll into more rental properties, and then as far as us, we talk all the time – who knows where we’ll land; but we’re definitely open to continuing to house hack as we find the properties.

Theo Hicks: How are you affording the down payment? So you said you got $325,000, 5% down, you’ve got a $630,000 plus the 80k renovations, and I think you said that was FHA, so I’m assuming that’s 3.5% down, and then you’ve got the $840,000 purchase price with 130k in renovations with 3.5% down. So how are you covering the down payment and how are you covering the renovation costs?

Nick Riccio: That’s a good question. So they’ve all actually been 5% down. So the FHA allows 3.5%, but with the competition here, most sellers, we’ve found they’re not happy with the 3.5%, so we’ve been forced to go to 5%. But most of the down payment and the funds have come from us just personally saving, and then credit cards and things like that, and then now we’ve recently started to use a home equity line of credit. So we’ve been able to use that for some renovations, then we were able to use that actually for a portion of the down payment for our most recent acquisition.

Theo Hicks: Are the renovation costs? Because I know the first one was turnkey, but with that second one and the third one, the 80k renovation and the 130k renovations – are those included in your FHA loan, or are those on top of the FHA loan, and you paid out of pocket?

Nick Riccio: Those are out of pocket. So the numbers I gave was just acquisition.

Theo Hicks: Alright, Sam and Nick, I want you guys both to answer this question – what is your best real estate investing advice ever?

Samantha Riccio: Alright. So mine’s definitely going to be network.

Nick Riccio: And I would say mine is focus on your plan, don’t get caught trying to compare yourself to others with it being so easy now with social media. Just stick to your plan.

Theo Hicks: Any tips that you have for creating a real estate business with– I’m assuming you guys are married, right?

Samantha Riccio: Yes.

Theo Hicks: Any tips on how to successfully navigate creating a business with your husband and wife?

Samantha Riccio: There’s a laundry list, but I definitely think communication is key. We over-communicate to a fault even sometimes, but there’s a lot of moving parts every single day, especially with all these projects going on. I think keeping each other in the loop, keeping a to-do list that we can both have eyes on, cc-ing each other on emails. We start the day talking about what we want to get done and we need to get accomplished and we end the day doing the same things, and in middle of that day [unintelligible [00:14:18].13] we both feel like we’re on the same page.

Theo Hicks: Anything else to add to that?

Nick Riccio: I’d say that’s really it, and the biggest thing is the communication. We’re moving towards trying to just use the same inbox, because it’s hard just constantly relaying messages to each other when you’re getting a ton of them a day. So I think just being able to always have each other in the loop is probably the biggest thing.

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

Samantha Riccio: Yeah.

Nick Riccio: Let’s do it.

Break [00:14:47]:09] to [00:15:55]:03]

Theo Hicks: Okay. So I’d like both of you guys to answer each of these questions. First one is what is the best ever book you’ve recently read?

Samantha Riccio: Rich Dad, Poor Dad.

Nick Riccio: The One Thing.

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

Samantha Riccio: Start it back up tomorrow,

Nick Riccio: Start networking as soon as possible.

Theo Hicks: Out of all of these deals you’ve done so far, which one did you make the most money on? Let me take that back. What was the best deal out of these three deals, and it could be money or something else? Why was it the best?

Samantha Riccio: I’m going to go with the duplex, because we’re getting a great living space out of it, definitely the best we’ve had, and money-wise, we’re thinking we’re going to have hopefully $500,000 of equity in it. So we’re feeling like that’s a pretty good deal.

Nick Riccio: Yeah, and I’d say the triplex, just because it’s shown us how powerful the cash flow piece is and it’s allowed us to take more risks moving forward.

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

Samantha Riccio: Definitely connecting with our audience on Instagram. We started our Instagram account not too long ago and have really connected with a bunch of people on there and talking to new investors and current investors. So I just think that free knowledge and networking is a big part of it.

Nick Riccio: For us, now that we’re seeing the power in real estate, we’re actually trying to bring our parents into the fold so we can help get them prepared for their soon to be retirement.

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

Samantha Riccio: Probably Instagram. Like you mentioned, we do have our website but Instagram is @renosandrealestate. We’re on that every day checking our direct messages and love connecting with people there.

Theo Hicks: Perfect. Alright, Sam and Nick, I appreciate you guys coming on this show and sharing the details on all of your house hacks. So we talked about your first condo that you bought for 5% down, $325,000 turnkey property, lived there for seven months and then ended up buying the duplex/triplex that was on the other side of the same building as you, and you spoke to the neighbor and they said that the landlord was selling and you contacted the landlord and ended buying that one for 630k, and then did a two-stage rehab where you first converted the larger upstairs unit into two units, and then once the bottom tenant moved out, rehabbed their unit, and you mentioned that you were able to get $1,900 dollars for two of those units and $2,200 for your unit once you moved out, and then when you moved out of that condo, you were able to get $1,900 at first and now you’re getting about $1,950 in rent. And then next the duplex you’re working on now which you found on the MLS – a larger project, 840k purchase price, 130k renovations, you are converting the basement into an additional three bedrooms and one bathroom, I believe, and then you already have a lease signed for $6,000; it’s great to hear. And then you plan on staying here as [unintelligible [00:18:39].00] for a little bit longer and then are potentially exploring some condo conversions. How you’re funding all these is all 5% down and it’s just personal savings, credit cards and then you did mention that on this most recent deal, you’ve been able to use a HELOC loan for the down payment.

We talked about your best ever advice. Sam said networking, Nick said to focus on your plan and don’t get caught up comparing yourself to other people, and then your main tip for creating a business with your significant other, husband and wife, is to make sure you have very good communication, which I’m sure is good for relationships in general, but especially when you’re doing business together.

Sam and Nick, I really appreciate you coming on the show and sharing your journey with us. I wish you the best of luck with this current duplex and on any other future house hacks that you do, as well as teaching your parents how to do the same. Best Ever listeners, as always, thank you for listening. Have a best ever day and I’ll talk to you tomorrow.

Samantha Riccio: Thanks so much.

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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JF2162: Knowing Enough To Be Dangerous With David Ounanian

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

David Ounanian Real Estate Background:

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

 

 

Click here for more info on PropStream

Best Ever Tweet:

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


TRANSCRIPTION

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

David Ounanian: What’s up, Joe? Thanks for having me. Long-time listener, first-time caller.

Joe Fairless: Well, awesome. Well, I’m looking forward to our conversation and you know the drill then, you know how we approach these conversations.

David Ounanian: Yeah, yeah. I’m excited to dive into it.

Joe Fairless: A little bit about David – he’s the founder of Transform St. Louis LLC, he’s a full-time investor and agent, he’s got three years of real estate investing experience and seven years as an agent. His portfolio consists of 12 properties using the BRRRR method, and flipping three to four properties a year. Based in St. Louis. So with that being said, David, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

David Ounanian: Sure, Joe. So like so many of us, I was raised in a middle-class family and told that I needed to go to college and get a job working for somebody else. So that’s what I did. I got my degree in Computer Science and became a software engineer at a big corporate company, started climbing the corporate ladder there, spent about ten years before I realized I was miserable, and the scariest part of that was I didn’t know why. I had a great job, where I could work from home and I was making six figures a year, beautiful family, new vehicles, new house, lake house, boat, everything you could ever imagine, but I wasn’t happy, and I had to do some soul searching to find out that I was actually caught up in the rat race and I didn’t even know it. So I had financed everything. So every time I got a raise, we went out and bought something nicer for our family… And before you knew it, at the end of my career there. The paycheck would come in on one day and the very next day, all of the direct deposit that I got from my corporate job was gone to pay all these bills, and it was absolutely a miserable feeling that I was going to have to stay in my job for the next 30 years before I could retire and do something that I wanted to enjoy doing.

Joe Fairless: What was the epiphany that took place?

David Ounanian: So I had got my real estate license on the side back in 2013 because I had a miserable experience with buying my first home to live in. I had to learn how to become the agent myself; my realtor was so bad. So then when I started hearing about family and friends buying and selling their houses, I was like, “Well, I might as well get my license to help them on the side.” So that was part of it, but I had my real estate license or four years before I decided to become an investor… And most of that time, I didn’t know I had all these false beliefs about investing; it had never even crossed my mind of the possibility that I could invest in real estate, especially now that I was licensed and now in the industry. The one thing that came to mind was — one of my good friends from college approached me and he wanted to buy his first investment property, and it was this little $35,000 single-family home near the airport here in St. Louis, and I told him he was out of his mind. I told him he was crazy. You’re going to lose money, you’re going to get called to fix the toilet in the middle of the night, and it’s going to be absolutely miserable. I don’t know what you’re doing. And here I am years later thinking, “I was worried about trying to figure out how to fix a toilet, but at my corporate job, I’m debugging thousands of lines of computer code and fixing all these problems.” It’s like that problem seems a lot easier to solve, but I wasn’t in the right frame years and years ago. But I saw him execute this deal. He did the BRRRR method to a T. He put about $5,000 to $7,000 into this property, it appraised for $75,000.

Joe Fairless: $75,000?

David Ounanian: Yeah, this was a grand slam in the terms of a BRRRR deal, and he pulled out a 75% loan to value refinance, so he got all of his money back plus some, and then he had this thing rented. It was a three-bedroom house, he had three girls going to the University here in [unintelligible [00:06:26].24] move into the property, and they wanted to pay the rent six months in advance. So he hears from them twice a year, he gets $1,000 a month, and I think his mortgage payment on that $50,000 loan is something like $250 or $300 a month. I saw that happen, I was like, “Holy cow. I got to get out and do this myself, because this is the way out.”

Joe Fairless: Wow. That is a textbook case study of the BRRRR method. So you had your full-time job as a software engineer and you kept getting the raises, but then the income kept going out the door because of the direct deposits. What was the conversation like with your family members whenever you’re like, “Okay, now I want to pursue real estate”? Was there pushback, and if so, how do you navigate that?

David Ounanian: Oh my gosh, yes. So you’ve got to understand that if you’re not investing in real estate, you’re probably not hanging around anyone that invest in real estate either. So that was a completely foreign topic.

Joe Fairless: That’s an interesting observation. Yeah, yeah it’s true.

David Ounanian: So it’s a completely foreign topic to anybody in my family. None of my friends except for the one friend that I told you about. So everybody that I tell about all these– it took me about, I want to say, eight or nine months before that epiphany happened, and then I bought my first deal. And during this time, I’m telling everybody about my plan. “Oh, I’m gonna start investing in real estate,” and not one person was saying that’s a good idea. They said, “You’re crazy,” just like I told my friend when he bought his first deal.

Joe Fairless: You were just repeating the party line that you’ve been told many times.

David Ounanian: Yep.

Joe Fairless: Okay. Were you married at the time?

David Ounanian: Yeah.

Joe Fairless: Okay, so how did you have that conversation with your significant other?

David Ounanian: That was just by repetition. So during these eight or nine months where I’m gearing up to buy my first investment deal, I am just going crazy with listening to podcasts, I mean, hundreds and hundreds of podcasts were listened to; your show, Bigger Pockets, any other show you could possibly think of. I’m reading all these books because I heard on all the podcasts the investors are saying that Rich Dad Poor Dad was the inspiration; literally, 99% of everybody said that book, and I wasn’t even a reader at the time. I hadn’t read a book since I had been required to in college, and I was like, “Well, I better get this book because everybody said they read it.” And I read that book and then what that did for me was just got me addicted to reading, and so I started reading books and consuming audible books about this and just trying to learn investing, learn personal growth, all that stuff over these eight or nine months… And what happened was every night, I would come home from work and I would spill all this new stuff that I learned about to my significant other, and of course, eight or nine months of this goes by and she’s like, “Will you just go ahead and buy your first investment deal?”

Joe Fairless: You just bored her down. [laughter]

David Ounanian: That’s how it happened.

Joe Fairless: When you look at the deals that you’ve done, your portfolio consists of 12 properties within a three-year span. How do you do 12 properties using the BRRRR method within three years?

David Ounanian: Really, this was done very easily. So I had a full-time job that was at least 40 hours a week. I’ve got young children at home, so there’s not a whole lot of extra time. What was beneficial to me is that I had the ability to work from home, so I could swivel the chair from one laptop to another to do something on the real estate side… And usually when you’re acquiring a rental property, the stuff that you have to do is 5-minute tasks. Unless you’re the one over there rehabbing it and stuff like that, you can outsource pretty much everything and just be the manager of the investment. So it really wasn’t that large of a time commitment to acquire that many units in the time that I did.

Joe Fairless: So let’s talk specifics for some deals. What was your first one?

David Ounanian: First one was the only one I lost money on; it was an absolute nightmare. So you listen to all the podcasts, you read all the books and you know enough to be dangerous. Let’s say that. So I went into this deal. It was a property that I found on Craigslist from a wholesaler. It’s a single-family home here in St. Louis, and the wholesaler was telling me that it was a $20,000 rehab to make it rent-ready. So this was going to be my first deal. I was going to do the BRRRR method. All the numbers checked out. I went to the house. Never had estimated a rehab before, but I read some books, I looked up some stuff online. I thought I knew enough. So I went in and I said, “You know what, I think that’s a little low. I think I’m gonna go with $25,000.”

Joe Fairless: Okay. Yeah, you want to cushion it. You want to be super conservative.

David Ounanian: Yeah. So over the next six months, this deal became an absolute nightmare. I ended up putting close to $50,000 into the property. I made the mistake of using all of my own cash to finance this deal. My spouse and I had a savings account with ten years worth of savings in it, and literally, every dollar was into this property, and I remember at the end of this time that we held the property it was like, if anything else goes wrong, I don’t know how we’re going to pay for it; it was getting really scary. Luckily, we were able to get it sold, take a small loss on it and get most of our capital back, but it was one of those things where you, in the moment, you’re like, “What the heck is going on? Why did I do this? How did this happen?” But then looking back on it, I got my Ph.D. in rehabbing a property, because I learned every single thing that could possibly go wrong on this property. So it was well worth the education, I guess.

Joe Fairless: And it’s certainly well worth you sharing that story, because anyone listening doesn’t have to go over their budget, $25,000 or so because you’re telling the story. So I appreciate that. What specifically in the budget was not accurate that you initially projected?

David Ounanian: So one of the big problems with this house was all the utilities were off and it was vacant, and it had been vacant for years; I want to say at least two or three years. So I had the property inspected by a home inspector, and I’ve used this particular home inspector dozens and dozens of times as an agent. He’s awesome, he usually covers everything, but one thing that I didn’t put together was because the utilities were off, there was no water, electric… He really couldn’t test a whole lot of stuff. So when we got all the utilities turned on after closing on this property, all of the plumbing was shot. Every single pipe had to be replaced. Even the sewer lateral underneath the foundation of the house, we had to go end to end, dig up the entire foundation, replace the sewer lateral; that’s an $8,000, $9,000, $10,000 job there. The bathrooms weren’t to code, so that added more expense. None of the outlets were to code, the wiring was off. We needed new electric panels, raised a service wire. He got on the roof… Luckily, we were able to save the roof, but then when somebody was purchasing it, they had an inspection and their inspector said that the roof needed all these repairs, so we ended up putting a couple of thousand dollars into the roof as well.

One of the other big ones was the foundation. So they had a finished basement with paneling in the basement. Little did I know that the foundation behind it was crashing into the house. So that was a big surprise, and I remember the day I was at the property when we figured this out, because my contractor was down there. I think there’s some pipe behind the paneling that they had to get to. So I wouldn’t have never known about this unless they had to get to this particular pipe. So we took down the paneling, and the whole wall was just leaning in and had all these cracks in it… And I decided to call a foundation contractor out to estimate it, and the first guy that got there said it was going to cost $15,000 to fix, and I literally broke down and cried when he left. It was the low point of this rehab, and I’m sitting there in my house and I call my one buddy that bought that first property, and I’m telling him what happened, and he’s like, “Just get two more bids, Dave, get two more bids” and I was like, “Okay.” So I get the next bid, and the next bid is $10,000 to fix the wall.

Joe Fairless: Get five more bids [unintelligible [00:15:18].05].

David Ounanian: Yeah, keep getting them.

Joe Fairless: Eventually, they’ll pay you.

David Ounanian: Yeah. So long story short, the third bid came back at $6,000 and we signed off and gave a warranty to the buyer, and so it was perfect. So I was able to stomach that number a little bit better.

Joe Fairless: Oh, man. Some of the things you mentioned, I totally get. It was vacant, so utilities were off. So when you turn them on, all hell broke loose, and some of the stuff. I’m wondering from your initial inspection– and I get it, this is your first deal, so there’s a Ph.D. as you mentioned, but as far as wiring and it not being to code – and this is where I need to be educated – were you not able to tell, or not you, but your inspector, not able to tell that it wasn’t to code without having the utilities on?

David Ounanian: I think one of the things he was able to tell us was the service wire was too low. So that was one, but what we didn’t know is when we turned on the panel, all of the outlets were not grounded properly. So now we had to pull electrical permits to swap out all the outlets, and I think we put two-prong outlets on there to make sure– so that we didn’t have to run the ground wires to them.

Joe Fairless: Okay, got it. So that was your first deal; the only deal you lost money on. Did I hear that correctly?

David Ounanian: Yes.

Joe Fairless: How much did you lose?

David Ounanian: It was $5,000 or $6,000.

Joe Fairless: $5,000 or $6,000, but yet you did it again.

David Ounanian: Yeah.

Joe Fairless: Or you did another deal, I should say.

David Ounanian: Right, yeah.

Joe Fairless: What was the conversation like with people who are closest to you, after you told them – if you did tell them – that you lost money on this first one but, “You know what? I’m doing it again.”

David Ounanian: You know what? It’s interesting, because before we were actually done with this first deal, we went under contract with the next property, and that one was a home run. Much like–

Joe Fairless: Thank goodness.

David Ounanian: –the example that I gave you from my friend of mine… I really wasn’t public about this back then, because almost–

Joe Fairless: What about your wife, when you talked to her, and you’re like, “Yeah, we just lost money, but you know what? I’m gonna go and put this other property in the contract because I want to double down on this strategy”?

David Ounanian: Yeah. Now, it was a different animal because I really give credit to listening to shows like yours because you hear time after time, investors say that you’ve got to be persistent and you’ve got to learn from failure and fail forward. So even going into this first deal, I had that mindset, and there was a bigger why that was powering us, that one deal, no matter how much I lost on it, was not going to stop me from being successful at this and getting out of my corporate job… Because that was the ultimate goal for this.

Joe Fairless: Okay. So the second deal, quickly, what are the numbers on it? You said it was a home run.

David Ounanian: Yeah. So this was a $60,000 property that we put about $5,000 in to make rent ready; it appraised for $99,000, and then rented for $1,050 a month.

Joe Fairless: Wow. Yeah, and you still have that property?

David Ounanian: Yes.

Joe Fairless: I know when I introduced you, I said – because it was in your bio that you flipped three or four properties a year, so how do you determine which ones you’re going to flip and which ones you’re going to hold?

David Ounanian: Sure, sure. So real quick, what’s nice is when you learn how to rehab a property once, it’s fairly easy to do it over and over again. So after learning on that first deal that was a complete nightmare, now at least we knew how to rehab a property successfully, what could go wrong and what’s going to go into it. But to get to your question here, when you’re looking for these rental deals, a lot of times, the property is too expensive to cash-flow as a rental. So if you’re talking like a nicer area like an A or B neighborhood, sometimes it’s not going to cashflow very well as a rental property, just because the property values are too high. But as you come across these, if you know how to rehab houses, now they can be fix and flips for you, and so that’s where we don’t let anything fall through the cracks just because we can’t add it as a rental; let’s see if we can make this work as a flip.

Joe Fairless: Besides the first deal, what’s been the most challenging property?

David Ounanian: The most challenging property. Man, besides the first one, I guess it was another property that I bought that was sight unseen. I bought this one off the MLS. It was listed for $37,000, it was a Section 8 tenant paying $708 a month, I believe, and it was under lease for a year. I think it was a new one-year lease at the time that I bought it. So picked it up and it was like “Easily, I think this property could appraise for higher.” We got it appraised at the six-month mark, because that’s when you can finance using a conventional loan that isn’t going to go off a new appraisal. So I do the new appraisal… I did nothing to this house, but maybe a little bit of landscaping and paint on the outside, some curb appeal, and it appraised for, I think, $59,000. And so instantly I had some equity in it.

The problem that became is when that lease came up– so the lease came up, the tenant decided to vacate the property at that time, and now I’m into the property… And I had been in there once or twice after going under contract, but I knew it was in a little rougher shape, but it wasn’t to the point where I was going to back out and lose my rapport with this agent that I was working with… And we got into the property after she got out, and it was another foundation problem downstairs. It had — the foundation walls were returning to dirt. They were deteriorating, and so we had to do some pretty extensive foundation work on that property. But that all said, the deal still cash-flowed. So it’s still a win and we still have equity in it.

Joe Fairless: How much was the foundation work?

David Ounanian: That was $10,000.

Joe Fairless: Why did you buy it sight unseen?

David Ounanian: I thought the numbers looked good. So $37,000 property in probably a B-, C+ area that’s running at $708. I always look at the 1% rule. So if I can buy it for $37,000, can it rent for more than 1% of that a month, which this is almost double that, so it’s almost at that 2% rule. So that’s what I was looking at.

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

David Ounanian: My best real estate investing advice ever is to not forget the mindset component of this. Before I got started in investing, if somebody were to ask me how much mindset had to do with being a successful investor, I would’ve said maybe 5% of the equation; and today after doing dozens of deals and helping other people as their agent get started in investing, I can say with 100% confidence that 80% of the success is attributed to mindset and the 20% is really the mechanics or the blueprint for how to do the deal.

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

David Ounanian: Yeah, let’s do it.

Break [00:22:30]:04] to [00:23:40]:07]

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

David Ounanian: Best ever book I recently read… I’m gonna have to take this back to the Bible, Joe, because I’ve been consuming so many books, and when you look at the messages and all these different business books and all these different life works, it’s so easy to take that message and say you can find that in the Holy Bible. And so now I really like to– I’ve got an app on my phone where I can search for answers on there, and so that’s something that I’ve gotten into heavily recently.

Joe Fairless: What’s the best ever deal you’ve done that we haven’t talked about already?

David Ounanian: I’d say it’s a four-family that we acquired off market. So this is a property that, on paper, cash-flows about $200 a door, but we were able to take heavy depreciation on it to make all that income essentially tax free. So we did something called a cost segregation study on it, and last year, that alone was responsible for a $33,000 write off on a property that gets $9,000 or $10,000 a month in cash flow. So now that that’s all tax-free cash flow, or deferred cash flow, which long-term the plan is to just 1031 the property into something larger and keep trading up. So ultimately, that’s probably the best ever.

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

David Ounanian: Through Big Brothers Big Sisters. I’m a big brother myself, and I’m super, super passionate. I believe everyone is one mentor away from greatness, and there’s so many kids out there that don’t have it as good as we do who are on here listening to this podcast or talking on this podcast. There’s all these kids on these waiting lists that Big Brothers Big Sisters that have called out for help, and in many communities like my own they’re just waiting because there’s not enough people to step up to be a mentor for them.

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

David Ounanian: Yeah, you can get a hold of me at agentdavido.com or follow me on social media at @agentdavido.

Joe Fairless: David, thanks for talking about the BRRRR method that you did on specific properties, how you got into it or why you got into it, how you thought about it, so the mindset, and then deal-specific stuff and some things to look out for for us when we enter into deals like this. So thanks for being on the show. Hope you have a best ever day. Talk to you again soon.

David Ounanian: Thanks, Joe. It’s been great. Appreciate it.

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JF2159: Creating Software For Landlords With Laurence Jankelow

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

Laurence Jankelow  Real Estate Background:

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

 

 

 

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Best Ever Tweet:

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


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. My name is Theo Hicks and today I’m speaking with Laurence Jankelow. Laurence, how are you doing today?

Laurence Jankelow: I’m doing well. Thanks for having me on. How are things going with you?

Theo Hicks: I’m doing great. Thanks for joining us, looking forward to our conversation. A little bit about Laurence’s background – he is the co-founder of Avail, an all in one software solution designed for do-it-yourself landlords. He’s also a long-term real estate investor with a passion for three-unit multifamily properties; current portfolio consists of two three-units and a carwash. He is based in Chicago, Illinois, and you can say hi to him at his website, which is avail.co. So Laurence, do you mind telling us a little bit more about your background and what you’re focused on today?

Laurence Jankelow: Absolutely. So my background– thanks for mentioning the three-flats. I’ve been a real estate investor for a while; the portfolio, it shifts and changes. Before I got into that, I had started down the finance track after college, now probably 15 or so years ago, and started with business in risk consulting, did that for just under five years, going from company to company, just taking a look at their operations in using data analytics, would try to help them determine where they can improve their business. From there, I went on to Goldman Sachs and did somewhat much the same for their portfolio managers and supported their hedge funds, alternate investments and private equity groups. I did that for so long that at some point, I wanted to try to get out of corporate America. So I tried to do the Rich Dad Poor Dad strategy, which was start building up some passive income through real estate, and almost worked my way through those quadrants; I can visualize it in that book now… I added the real estate and then eventually I thought, “You know what, the recommendation is to become a business owner.” So I started to think about, “Do I want to take my real estate from the six units to 1,000 units, or do I want to do something different?” and at that time, I saw that the way I was managing my rentals was totally ineffective, and I saw an opportunity to leverage software to make it better, and found that the best path for me was to quit my job at Goldman and focus on building a business around providing landlords of my size software that they otherwise didn’t have access to.

So that’s what I focus on now at Avail, is providing the tools and process and education for smaller landlords; those with nine or fewer units, to help do the day to day tasks of being a landlord and including listing syndication, to finding tenants, screening renters by hooking into TransUnion for credit reports, background checks, letting the tenants pay their rent online, drafting and signing leases online, those kinds of things. I spend a lot of my time just evolving that software.

Theo Hicks: So you mentioned that this company grew out of your own inefficiencies in management. So do you mind walking us through what those inefficiencies were, and then for each of those, how you were able to use software to solve those problems?

Laurence Jankelow: Yeah, it’s actually almost embarrassing now when I think about what I used to do. The person I started Avail with, Ryan and I used to share Excel files back and forth, and we’d make an Excel file where I’d merge cells together and paint them, and that would be our rental application. We’d print that out, we’d hand that to tenants, and that was how we screened them; we didn’t even realize that we should be pulling a credit report or eviction checks and those kinds of things… And it all evolved from that. At some point, we realized, “Hey, this is not working. Excel doesn’t make sense.”

We went looking online for software that would do what we wanted and we saw stuff like Yardi, which was really powerful, but Yardi’s really designed for a landlord with 1,000 or 10,000 units, which I’ve got six, Ryan had two, and the starting price of Yardi’s something like $10,000 a month. So that’d be more than our combined gross rents; it didn’t make sense. So we felt like if we wanted to solve these problems for ourselves, that there’s probably a business to be had here for others of our size. So that’s what we set out to do, really targeting, helping landlords with nine or fewer units, I’d say.

Theo Hicks: Perfect. So you had all these issues with your property, you went online to see if you could find an existing software, and there were software out there but they were too much, too much money or it’s for these larger buildings, whereas you wanted to find something for smaller. So take me from there to the start of the business. Did you and your business partner just sit down together and say, “Hey, here’s all the pain points of smaller landlords,” and then, “Okay, so here’s the different software that could potentially resolve those. Okay, let’s focus on these [unintelligible [00:07:17].27] ” How does the process of creating this type of company work?

Laurence Jankelow: Well, creating a company is pretty hard, and I think we didn’t realize that going into it. Everyone tells you it’s really hard, and then it’s something you don’t really acknowledge till you do it. But we started this in 2012; that’s when we quit our jobs. We quit with nothing but an idea on a napkin. We felt that we didn’t want to work on it while full-time. It wouldn’t really go anywhere if we had a full-time job elsewhere, and it wouldn’t be fair to our employer or ourselves to let our dream sit on the side. So we quit and we started day one, and then what we tried to do is find an engineer to help us build it, and you can imagine, we couldn’t find an engineer who wanted to build our dream for free or for equity, which was worth nothing at that point.

So Ryan and I decided we were going to have to build it ourselves, and we had no experience in that. So we ended up having to roll up our sleeves, we taught ourselves to code. In 2012 to 2014, I essentially wrote the first 500,000 lines of code that allowed us to syndicate listings to Zillow, or Trulia or hit the TransUnion API to get a credit report or those kinds of things… And we spent that first two years fumbling around, I’d say, trying to figure it out, really took that just do what it takes mentality. End of 2014, we felt like we had a pretty good product and we started getting traction, started getting customers, started hiring our first employees, really started seeing it as a business and starting to grow, and then from 2015 to 2020, we really saw some growth,. We’ve now got 600,000 landlords and tenants who use our system for the everyday purposes of being a landlord.

Theo Hicks: Wow. So what did you do for money in those two years while you were doing all that fumbling around, as you said? Did you have money saved up ready?

Laurence Jankelow: Yeah. Ryan and I consider ourselves to be super privileged in a way. I was at Goldman Sachs and he’s at a different investment bank. So we had some savings, not as much as you would assume you get out of investment banking, particularly because we were just coming out of the financial crisis of 2008. So we didn’t really get bonuses those couple of years, but we had enough where we could each put $20,000 into starting the business, and that $20,000 was essentially, for us to live on for those years. So those two years were very much the ramen noodles years, but we at least had something to feed ourselves. But I don’t look back on it as regret. I feel like we’ve learned a lot. I think learning how to code was probably one of the greatest achievements for me. It completely changed how I think about almost everything I encounter now.

Theo Hicks: Did you self-teach yourself on Google or did you take courses?

Laurence Jankelow: Taught myself. This is probably a popular programming language for anyone who does this, but it might not resonate with some of your listeners. I taught myself Ruby on Rails, I downloaded a tutorial, and essentially that tutorial just walked me through creating my own Twitter from scratch, and replicating that. What was awesome about it is you really start to realize, “Look, I’m getting stuck at this point. There’s no one to help me, and I can either give up or I can spend four weeks trying to solve something that a real engineer could probably do in two minutes,” and you spend those four weeks trying to solve a two-minute problem, you tend to grow by leaps and bounds, I’d say. That’s what happened for me, and I feel like that just fueled my hunger for learning more and attacking harder and harder problems.

Theo Hicks: Wow, that’s awesome. Did your business partner write any code or was it all you?

Laurence Jankelow: I’d say I wrote 95% of it, and Ryan did do 5%, but Ryan also had a really challenging task for him as well. So while I was writing that code, he had to convince a bank to allow us to pull money out of any account in the United States, essentially, to do withdrawals. Tenants want to pay their rent. So yeah, we have to get approvals from those tenants. It has to be super documented. So he had to work on convincing a bank and figuring out that process of what that has to look like, how does it meet regulations, all those things. He had to convince TransUnion to allow us to pull credit reports and sensitive data on people, and we’re not famous, we don’t have a pedigree to go and earn these things just by nature. So he really had a lot of convincing yet to do. So I applaud his efforts on doing that. It sounds impressive for me to go write 500,000 lines of code, but honestly, for him to convince people to take a chance on us for those other pieces – much more impressive.

Theo Hicks: So you said around the end of 2014, some of the code or the software was written, you started getting customers and hiring employees, and then flash forward six years, you’ve got 600,000 landlords. So you got your code written, the banks allowed you to pull money out of anywhere in the US, TransUnion allowed you to pull credit reports. How do you find your customers?

Laurence Jankelow: That’s always been a challenge for us. Our customers are the smaller landlord, nine units or fewer. So they’re not listed in a phone book. It’s not like I can go find them somewhere and oftentimes, they don’t identify as landlords. I didn’t either when I was at Goldman. If I went somewhere and people would ask me what do I do, I’d usually tell him I work at Goldman Sachs or I would not even mention Goldman because at that time, and even now, there’s just a lot of animosity maybe towards some of those investment banks. So I tell them, I work in finance. I would never mention I’m a landlord. So it didn’t resonate with me as that’s who I was as a person. So that’s always been a challenge, and so what we’ve had to do is figure out where are landlords going, looking for help, and I think in some ways, we’re lucky because they go to the internet for that.They’ll go to Google and they’ll search for ‘what should I do if my tenants’ rent is late’ or ‘how do I get a credit report on a tenant?’ or– I’m in Chicago, so this resonates with me, ‘how do I get a Chicago standard lease agreement?’, and we put out so much educational content that they’ll often find us through those Google searches. We tend to think of our product having a sixth arm in a way or sixth major service, which is the educational component, and we spend as much time on our educational piece as we do on any other part of the product. So they’ll typically find us by– it’s commonly called inbound marketing; that way.

Theo Hicks: So you didn’t pay for any Google Ads. It was all just SEO. You said you figured out what these type of people will be searching for on Google, and then you just wrote those articles, and then eventually, over time, people started finding your blog posts, and in theory, from your blog post, they found your service.

Laurence Jankelow: Yeah, our go-to market strategy has evolved a lot. So it started off with content marketing, which is geared at some of those keywords that they search for organically, and we don’t have to pay for it, but it did evolve. We do pay for high converting keywords now. We can recognize which ones are likely to be profitable for us. So we do pay for those now, and then we continue to pay for those. But by far and large, most of our customers are coming from some of that educational content.

Theo Hicks: Who is writing your content? Is that you and your business partner or is it somebody you hired?

Laurence Jankelow: Well, that’s also evolved. 2012 to 2015, 2016, Ryan and I pretty much wrote most of it. Around 2015 we hired some writers to help us, and you could see a huge improvement in the quality of writing when we hire people. The hard part is oftentimes you’ll find a writer and they don’t know much about landlording and Ryan and I just knew so much about it. So then the challenge is how do you impart a lot of that learning to the writer so that they can write really high-quality, effective content? Because last thing you want to do is put out 2,000 words of dribble. It has to add value, it has to solve a problem for someone.

Theo Hicks: How does your company make money?

Laurence Jankelow: That’s actually interesting. So our software is free. You can have unlimited number of units and use our software for all the features. So tenant screening, listing syndication, the leasing, payments, all that’s free. We do have a premium tier. So if you need a little bit extra, then it’s $5 per unit per month and extra meaning something like you want to set up automatically fees. So if a tenant is more than five days late, it automatically charges 50 bucks. On the free tier, you’d have to log in and manually do it. So there’s a whole bunch of things like that, that push someone into the premium tier or the plus plan as their business evolves, and they need more automation.

Theo Hicks: So the only way you make money is on that premium tier, subscription-based model?

Laurence Jankelow: We have a bunch of ways; that’s our largest way.

Theo Hicks: Okay.

Laurence Jankelow: We also make some money on some of the transactional stuff. So when we pull a credit report, tenants will oftentimes pay $55 for the credit report. Now the benefit to them [unintelligible [00:15:05].09] so it doesn’t hurt their credit report, and then they can also share it with other landlords, so that a tenant isn’t having to pay $55 for this landlord and $55 for another. They can pay it once and share it with any landlord, even though it’s not on our system.

Theo Hicks: Was the premium model the plan from the get-go, and then also, obviously curious, how do you know what’s included in the free plan and what to include in the premium plan?

Laurence Jankelow: That’s evolved a little bit, too. So initially — our pricing has changed a little bit, but we tend to think of breaking the tiers down by landlords who have essentially one unit, and those who have two or more, and tailoring the plans to them. So although the plans are both for unlimited units, we tend to see that landlords with one unit on the free plan or landlords with two or more are on the premium plan, and the reason for that is just how you think about your rentals. For Atlanta with one unit, oftentimes, they’re an accidental landlord or it’s just something they have, and then maybe they’re dabbling, they’re not sure if they want to be real estate investors or not. But folks with two or more units tend to be more deliberate. They didn’t just happen to become a two-unit landlord or more. So they may view themselves as a business a little bit more, and realize that tools and software are part of business, part of how you reduce expenses and maybe push up income. So for that reason, those folks tend to want a little bit more out of the software, a few more features and are also willing to pay. So we bifurcate it that way.

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

Laurence Jankelow: So many things to choose from here… I guess, I would start with– because we tend to focus on novice landlords or new landlords… Best real estate investing advice is when you buy the property. So one obviously, if one of your life goals is financial independence, then getting a rental property is great to do that, but you make all your money essentially, on buying the right properties. And if you’re looking into getting into it, you should really buy properties that are going to be cashflow-positive for you. There’s a tendency if you’re a first-time rental property purchaser to purchase in a manner where it’s akin to if you were buying a single-family home or something that you’re going to live in, and oftentimes those are emotion-driven. Here, you really want to focus on the numbers. So buy a rental property where the gross rent covers all of the operating expenses and the debt payments and has enough of a return where that’s your best usage of the cash, I would say. And if that property isn’t that, you put the cash somewhere else or in another property,

Theo Hicks: Okay, Laurence. Are you ready for the Best Ever lighting round?

Laurence Jankelow: Yeah, let’s do it.

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

Break [17:31:04] to [00:18:29]:06]

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

Laurence Jankelow: Well, I mentioned Rich Dad, Poor Dad, but that’s from a long time ago. So recently, the best one for us is Measure What Matters, and that’s essentially about a goal-setting framework that was developed maybe 30, 40, 50 years ago at Intel, and it’s essentially a structure that you can use to set up goals and how you measure the success towards that goals. And just for me at Avail, that was a pivotal moment for us adopting that framework and setting goals. And even if it’s not Avail, if it’s with your rental properties, you should set goals for the rental properties and how you want to measure them. So the key takeaway from that book is the measurement of those goals and making sure you have something that has a strict KPI in that measurement.

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

Laurence Jankelow: Great question. Well, I’ll probably start another one. Once you get bitten by the startup mosquito, you tend to want to get bitten more. So if Avail fail today, man, you’d have to take a hard look at why I failed, because I think we’re doing all the right things. But I would start the next one. I don’t know if it would be real estate, but I’ve got some ideas around investing in stocks that are similar to what we do for real estate, but for a stock investor. I think you’d have to keep going and keep building. Once you’re a builder, always a builder.

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

Laurence Jankelow: I’ve got two kids, a six-year-old and a four-year-old, both little girls, and for me, I try to teach them some things. One of the things that we try to do now that’s really small is we take the little red wagon and we go around our neighborhood and we use one of those little claws to pick up trash. We walk around the neighborhood and we pick up trash and we try to fill up a trash bag every so often just to clean up the area.

As far as real estate, I try to participate in online communities. I feel like there’s a lot I’ve learned just from the six units, but then also, from seeing how our 200,000 landlords manage their properties there’s a lot that we’ve learned, and I try to take the knowledge we’ve gotten there and I try to push comments out. We have our own community on our website that I try to get it to some of those Facebook communities where you see a lot of landlords trying to interact and figure out what to do.

Theo Hicks: What’s the best ever place to reach you?

Laurence Jankelow: You can learn anything and everything you want about what we do at our main website avail.co, but I also like people reaching out to me directly. I’m always happy to have a conversation. So if anyone wants to do that, they can reach me at my email laurence [at] avail.co. I encourage anybody to do it. I’ve done a couple of podcasts now and not one person has reached out to me and that’s disappointing.

Theo Hicks: Best Ever listeners, make sure that you reach out. I might have to email him just to make sure someone reaches out, but I think one of our Best Ever listeners will reach out especially after listening to this episode; very powerful. I really enjoyed the conversation.

I stopped taking notes in the middle of it, and was just asking questions. It was so fascinating to me how you’ve been able to build this business and learn how to code and go from really having no idea how to write software, how to run your own company to having 600,000 customers; that’s great to hear. So definitely worth re-listening, just to hear his process from quitting with an idea on a napkin, to learning to code, to his business partner working with banks to figure out how to let them pull money from any bank, and working with TransUnion to pull credit reports, to finally 2014 when you started getting customers.

We talked about how you were able to get customers through content, so through your thought leadership. It was always great to hear because we talked about that on this show a lot. Then you mentioned eventually you ended up evolving to paying for stuff, but that’s like a theme, where you start off doing everything yourself and eventually it evolves into being able to outsource some things. And then your best ever advice was if you’re gonna buy real estate, realize that you make money on the front end and that needs to be cashflow positive.

So Laurence again, I really appreciate you coming on the show, I learned a ton, and I’m sure the Best Ever listeners will as well, and if they have more questions, take advantage of him giving you his email address. It’s not every day that our guests do that. So Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you soon.

Laurence Jankelow: Thank you so much.

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JF2153: Canadian Market With Natalie Cloutier

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

 

Natalie Cloutier Real Estate Background:

 

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Best Ever Tweet:

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


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’ll be speaking with Natalie Cloutier. Natalie, how you doing today, and how did I do with the pronunciation?

Natalie Cloutier: You actually did it perfectly except for my [unintelligible [00:03:15].22] you know. It’s fine…

Theo Hicks: How do I pronounce your first name?

Natalie Cloutier: It’s Natalie; it’s fine.

Theo Hicks: Okay, perfect. So how are you doing today?

Natalie Cloutier: Good, how are you?

Theo Hicks: I am doing great. Thanks for asking. So before we dive into our conversation, a little bit about her background – she started investing in 2014, building her first home from ground up with no money down. She currently works for Transport Canada full-time, currently holds 13 doors, most being new builds with one BRRRR, based in Ottawa, Canada. You can say hi to her at a robnatbuildingwealth.ca. So before we get any further, do you mind telling us a bit more about your background and what you’re focused on today?

Natalie Cloutier: Sure. So my background is I come from a family that did a lot of these new builds, and that’s where I learned most of what I do today. My husband and I both met in college while we were studying Architectural Technology, and that’s how we got started. We bought a condo, decided it wasn’t for us, and then we decided to build our own house using no money down, which is a special kind of loan that we can talk about later, and then we house hacked that and we kept going with that same special recipe. Over time, we’ve acquired a total of 16 units, but we sold three last year, and right now, there’s not much going on. We’ve just finished our first BRRRR and we are getting ready to build a fourplex in the next few months. So that’s where we are today.

Theo Hicks: Well, thanks for sharing that. So let’s talk about that no money down new build loan. Can you tell us about what that loan program is?

Natalie Cloutier: Sure. It’s funny because it’s a loan that not a lot of people know about, but my parents got us into it because they were doing that type of loan about 30 years ago when they first started. They built four houses in four years. It really is called an auto construction loan. So what it allows you to do is to use your labor as your downpayment. So instead of putting the traditional 20% down payment, you can do a lot of the work yourself in order to save that money, and the bank will consider that your down payment.

So just to give a quick example with easy numbers, let’s say, the blueprint of the house you want to build was valued at $100,000. The bank will say, “Okay, well, we’ll loan you 80% of that value, and it’s up to you to build it for that amount.” So they give you progressive draws as you progress in the construction, and you build it with that amount. If you go over budget, well, it’s up to you to cover that cost, and if not, if you actually come in under budget, well, you can just pocket the difference. So it really allows you to get started with a house that’s at 80% of the market value with no money down, and then by house hacking it, you can add value and refinance and do the traditional financing that other investors do, but that’s the gist of an auto construction loan.

Theo Hicks: Is this something that just Canada does or is this in the US as well?

Natalie Cloutier: You know what? That’s a great question. I’ve been trying to figure out if that happens in the US. This is something that’s typical to a local credit union that we have here. I haven’t found them in other banks. They do do it, but it’s usually comes with a lot more strings attached. It’s a little more complicated than that, but this credit union is really great. You can do it in the States, but I usually tell people the best way to achieve it is through a private lender and treat it as you would a BRRRR. Instead, just build with a private lender and you even get a private lender that will give it to you in progressive draws. So you only pay interest on what you borrow as the construction progresses, and then when the construction is over, then you can refinance and get your money back and get your mortgage in place. The only thing I would say about investing with new builds is that you need a specific market that really works. So it has to be a market where the cost to build will be less than the cost to buy. So if you’re in a market where you can get a house for 150k, chances are it’s going to cost you more to build it. So then it’s not really worth it. Here in Ottawa, the values, especially lately in the past few years, values have been going up a lot, so it’s been really advantageous to build a property because you know that the market value to buy the same house or building will definitely cost you more than it does to build it because the building costs are always about the same. No matter the market, a house will always cost you about the same amount. So yeah, you need a typical market to make it work, but it’s a great way to do it, especially in a high market when it’s very hard to find deals. This is our way to take control of our investments and create our own deals.

Theo Hicks: How do you find out if you’re in a market where the cost to build is lower than the cost to buy? I guess you need to find those two metrics. So how do I find those two metrics?

Natalie Cloutier: That’s a great question. You can probably just talk to an appraiser in the area and you can get their take on it, but usually, you know there are some parts– let’s say you’re in an older market. I don’t know, I’m just– I’m gonna stay Canadian here… But let’s say you’re in Saskatchewan in a rural part, where houses are going for really, really cheap. Well then if you can buy a single family home for $100,000 or less, it’s going to cost you way more to to build it, so then you know it’s not worth it. But if you’re somewhere in Vancouver, where houses are like a million and you go somewhere you can find a piece of land for like $100,000, the price to build a house is probably going to be about $350,000. So you know that then that’s worth it. These are extreme examples. If you’re in a market where you’re not too sure, then just have a set of plans done, get it valued by an appraiser and then you’ll know if it’s worth it for you or not.

Theo Hicks: Perfect. Thanks for sharing that. So after you build these properties, what do you use them for? Have you been consistently house packing every property, or are they used as rentals? Are you flipping them?

Natalie Cloutier: They are all rentals. Our strategy, we call it build and hold. So we’ve done one house hack, where we still live in today, but all the rest, we have just done build and hold. There’s three that we sold last year just because the market was really high, and these were underperforming properties, so we decided to get rid of them and use the money towards better cash-flowing properties. But most of our units are small multi-families, maybe duplexes, fourplexes and we’re holding them for as much as we can. We’re trying to build up our cash flow so that I can join my husband full-time in the business. He’s full time since 2018. He’s building, he’s doing a lot of the work himself, so it’s not like he’s not working or retired. He just replaced a job with another job I guess, but I would like to get there with him as well one day. So our main focus right now is long term, build and hold and cashflow.

Theo Hicks: Perfect. Do you mind walking us through on one of those deal that you sold, the numbers? So how do you found the land or the house that you knocked down to build, the cost of building, why you built that specific type of property, what you rented it out for, and then what you sold it for?

Natalie Cloutier: Sure. Gotta find one… So this one, we found a lot — we were just driving around and  there was a sign on the street; so it was an MLS listing. We were interested in it because it was a smaller lot on a little busy road, and I think a lot of people weren’t interested in it because we’re outside of Ottawa, so we’re about 20 to 30, 40 depending on where we’re building exactly; we’re in the outskirts of Ottawa, so usually when people move outside of the city, and they’re looking for a vacant lot it’s because they’re looking to build that dream home on a quarter-acre property or more. So we’ve had a lot of success finding these smaller lots that nobody really wants that are maybe awkward, that could have an issue building on. So they’ve been really great for us.

This specific lot, there was a small garage on it that needed to be torn down, and there was also an old well, and it was between older homes that weren’t really nice to look at. So we bought the property. I think the land was– we bought it for $45,000, which is really good because in our area, everything goes for over $80,000 for a vacant property. So we bought that and we built a single family home, two-story. I don’t have the numbers for construction in front of me; this is back in 2017. I believe we built it for about $220,000 give or take – don’t quote me on that – and that includes the land, and… It might have been more than that. But anyways, somewhere around that and we rented it for $1,700 a month, but it wasn’t a good cash-flowing property. I think we cashflowed maybe $100 a month, but we ended up selling it last year. We sold it for– what did we sell it for? We sold it for $308,000. Yeah, it’s $308,000. So it was a good flip property if you look at it that way. It wasn’t our intention to do it, to sell it within a year or so, but we made a good profit on that one.

Theo Hicks: Thanks for sharing those numbers. Switching gears a little bit here, I guess a lot of it… So your husband works in the business full-time, and then you are working full-time, so what are some tips you have for other investors who are just starting out, and they are working a full-time job while also trying to grow a business that is big enough to replace their full-time income? What advice would you give that person?

Natalie Cloutier: Well, you know what, we’re still figuring that part out too. So it’s a lot of work. Real estate investing is not easy. You’ve got to be willing to put in the work to hustle. The best thing I would do is just make sure that you have a business plan in place. One thing that we’re actually struggling with ourselves is separating the roles and responsibilities of who does what, and it’s something that it’s really important to do, because you can find yourself fighting over the little details that is a waste of time. You’re fighting because he’s doing that, when typically it’s my job or whatnot…

So I think it’s really important to separate the roles and responsibilities so you can avoid conflict and so that you can be on the same path together. But mostly, I would probably say too– the hustle is good, but take the time to relax and celebrate the small victories, because if you work yourself to the bone like we have… We’ve done this in the past, we’ve worked crazy, busy hours, and at a certain point, it does affect your health, both physically or mentally, and it’s really important to take the time to celebrate and relax, and make sure to give yourself some business hours, too. After a certain time, you’ve got to shut off the computer, shut off the emails or shut off the rehab, or else you’re just going to slow yourself down. It’s going to be harder for you to achieve your goals. So I think finding that balance is a real challenge that honestly, I’m still figuring out myself, but I think that’s a few things that we’ve learned along the path, so hopefully that can help some people.

Theo Hicks: Oh, yeah, I think it definitely well. Okay, what is your best real estate investing advice ever?

Natalie Cloutier: I would say, write down a mission statement for your business; it’s different from a goal. A goal can usually change and probably will change as an investor, but if you have a mission statement for your business, that mission statement should bring you back to your core every time you’re faced with a tough decision.

Just an example of that, recently, we were shopping for our first BRRRR. We almost bought a fiveplex that probably would have cashflowed about the same as the duplex BRRRR we ended up buying instead… And the only reason we were looking at is because we wanted to be able to say that we added five extra units in our portfolio in one shot, when really that wasn’t the important thing.

What’s important is not the number of units you have, but the cashflow they generate. So our business mission was really just to provide a great service to our tenants and a great quality product, too… So we ended up going back to our CMA and realizing that that fiveplex, there wasn’t much — it was a lot of [unintelligible [00:14:56].17] units; it was a lot of value add to it. So we went back to “If we can’t give a good quality product and good quality service, then the duplex was a better choice”, and in the end, I think it was, because the numbers made a lot more sense with the duplex than the fiveplex did. So have a mission statement and think about cashflow and not number of units.

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

Natalie Cloutier: I think so.

Break [00:15:20]:07] to [00:15:58]:04]

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

Natalie Cloutier: So this is a Canadian book, but I think there’s a lot of value to it, even if you’re in the States, and it’s called The Secrets of the Canadian Real Estate Cycle by Don Campbell. This book was really helpful because it helps us get into the mindset of preparing for market downturns. It talks about how to think about as a strategic investor, and think of stuff that’s going on in the market and how to predict how the next cycle is going to come up or when it’s going to come up, and we’ve got a lot of value from it, and I think I’m actually going to read it again, because I think the second time I’ll read it, I’ll get a little bit more out of it… But I definitely recommend that book.

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

Natalie Cloutier: Oh, God. I think that I would repeat the same steps we’ve been doing, focus as a passive investor and try to– I’m a big believer of lowering your personal expenses and FIRE movement and trying to get your financial independence. So I would do the same thing all over again, because I think that it truly is the best way to get back on track. I would make sure that I learned whatever mistake I did make to get my business to collapse. I will write down notes, I will make sure that I’ve learned from it and I won’t repeat it. But definitely just keep focusing as a passive investor. I think that’s just the best route to take.

Theo Hicks: If you don’t mind, tell us about a deal that you lost the most money on. How much you lost, and then the lesson you learned?

Natalie Cloutier: There’s not really anything that we’ve lost a lot of money on, but I can say that the deal where it was the least lucrative, I guess, is the first property we ever bought, which was a condo. We bought it right out of college, and we learned that a condo outside of a big city does not appreciate very fast; however condo fees do. So condo fees kept going up and we learned that there’s a lot of back-story to that property, but we rented it where the cashflow was negative $300 a month, and then when we did sell it this year – we sold it on February 1st – it sold for maybe 20 grand more than when we bought it six years before. So yes, we had paid down our capital and we did end up walking away with some money, but definitely wasn’t worth the time and effort we had put into those six years. So that’s one property that we’ll try to never repeat again.

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

Natalie Cloutier: Sure. I love that question. So there’s two ways we love to give back. We love to encourage local businesses, and we do have this one charity where we donate to regularly. One way that we encourage local businesses is by hiring just all the local trades. We don’t go outside the big city. We stay in the local trades in the town and we order all our lumber and materials from the local lumberyard.

I also give these welcome baskets to our tenants when they first move in and I try to incorporate little baggies or gift cards or business cards from local businesses, especially if it’s for tenants who are outside of town and they come in and they get this basket with all of local businesses. It’s a nice welcome community feel.

The charity that we like to donate to is an animal rescue charity. So again, a local couple about my age, they rescue and rehabilitate domestic and exotic animals, and they go across country and telling people about  responsible pet ownership. And we’ve helped– we’ve donated their flooring when they moved into their new facility, we’ve helped paint, we’ve helped to raise money for them on certain occasions, and it’s a great charity that really holds true to us. So that’s one charity that we absolutely love to donate to.

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

Natalie Cloutier: The place I’m the most active on is Instagram. My handle is @rn.properties. I also just started a blog recently and that’s robnatbuildingwealth.ca.

Theo Hicks: Perfect. Well, thank you for joining us today and walking us through your journey and providing some of your best ever advice. A few of the big takeaways for me is this no money down new build loan. I never heard of that before. It’s called the auto construction loan that you get through a local credit union, and essentially you are able to use your labor as the down payment instead of putting 20% down. So the bank will loan 80% of the cost, and then as long as you can build it for 80% of the cost, then you don’t have to put any money down. If you go over budget, you had to pay it, but if you go under budget, you get to keep the money. You talked about your advice for new builds, which is to find a market where the cost to build is lower than the cost to buy, and so you can get that through talking with local appraisers in the area. You also walked us through an example deal that you bought, and then you gave us some advice on working full-time while also trying to become a real estate investor, and that was to make sure you have a business plan in place, make sure you are separating the roles and the labor that needs to be done so you know who does what, and then making sure you take the time to relax and celebrate the small victories.

And then lastly, your best ever advice, which was to make sure you write down a mission statement for your business, which is not the same as a goal; a goal will change year over year, month over month, maybe even day over day, but a mission statement will always stay the same, and it’s the thing that you go back to whenever you are in a sticky situation. So again, thank you for joining us today. Best Ever listeners, as always, thank you for listening. Have a best ever day and we will talk to you tomorrow.

Natalie Cloutier: Thank you so much for having me.

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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JF2149: Mistakenly Making It With Cameron Lam

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

 

Cameron Lam Real Estate Background:

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

 

 

 

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Best Ever Tweet:

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


TRANSCRIPTION

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

Cameron Lam: Good. How are you, Joe?

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

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

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

Joe Fairless: Sticker shock.

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

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

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

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

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

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

Cameron Lam: They did.

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

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

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

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

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

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

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

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

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

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

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

Cameron Lam: Yeah, 230k purchase price.

Joe Fairless: 230k.

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

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

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

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

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

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

Cameron Lam: Yeah.

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

Cameron Lam: A year and a half.

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

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

Joe Fairless: Which made it five beds?

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

Joe Fairless: Why?

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

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

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

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

Joe Fairless: Any interest?

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

Joe Fairless: Okay. Have you started?

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

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

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

Joe Fairless: What’s the typical resident profile?

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

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

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

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

Cameron Lam: Facebook groups, yeah.

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

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

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

Cameron Lam: Exactly.

Joe Fairless: Okay. That’s helpful.

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

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

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

Joe Fairless: How did you find it?

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

Joe Fairless: Okay.

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

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

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

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

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

Cameron Lam: A tiny home.

Joe Fairless: Tell us about it.

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

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

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

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

Joe Fairless: A month?

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

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

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

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

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

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

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

Cameron Lam: Yup.

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

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

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

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

Joe Fairless: Best ever deal you’ve done?

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

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

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

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

Cameron Lam: SixFigurePassiveIncome.com.

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

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

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

Cameron Lam: Yeah, thanks a lot, Joe.

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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JF2141: Short Term Rental App With Jon Crosby

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

 Jon Crosby Real Estate Background:

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

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

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


TRANSCRIPTION

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

Jon Crosby: Good. How you doing?

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

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

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

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

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

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

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

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

Joe Fairless: Okay, monthly rent.

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

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

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

Joe Fairless: Really?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joe Fairless: Wow.

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

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

Jon Crosby: It also has an address lookup.

Joe Fairless: Just punch in the address.

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

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

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

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

Joe Fairless: Wonderful.

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

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

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

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

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

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

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

Joe Fairless: Okay. So it’s delayed.

Jon Crosby: It’s delayed.

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

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

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

Jon Crosby: I am.

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

 

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

 

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

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

Joe Fairless: Best ever deal you’ve done?

Jon Crosby: My first short term rental.

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

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

Joe Fairless: What happened?

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

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

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

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

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

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

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

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

Jon Crosby: Thanks, Joe. Appreciate it.

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