JF2100: Start Now With Heath Jones

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Heath is a Neuroscientist for the US Army, helping the soldiers reduce hearing loss through studying and testing. Heath jumped in with both feet when he started into real estate, buying a 4-unit and a 16-unit back to back. Heath mentions that his confidence to jump in came from many free resources available online, including the Best Ever Show.

Heath Jones Real Estate Background:

  • Neuroscientist for the US Army
  • He started investing in February 2019 purchasing a four-plex
  • Now he has 5 properties: 4-unit, 16-unit, and 3 rentals SFRs
  • Located in Enterprise, Alabama
  • Say hi to him at:  www.hsquaredcapital.com 

 

 

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Best Ever Tweet:

“Start now, it’s never too late to start, and there are no real good reasons not to start.” – Heath Jones

JF2093: Bad Decisions To Good Decisions With Will Harvey

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Will is a Principal at CEO Capital Partners and recently left his W2 job to do real estate full time. He shares a great story of how he had a life of making some bad decisions in college related to alcohol and because of a great friend he was able to overcome this and now is a successful investor. 

Will Harvey Real Estate Background:

  • Will Harvey is a Principal at CEO Capital Partners
  • From Ashburn, Virginia
  • He started in real estate in 2016.
  • Personally owns over 1.5MM  in real estate mixed between rentals and Airbnbs
  • Recently left his W2 job to do real estate full time.
  • Say hi to him at : www.wealthjunkies.com  

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Best Ever Tweet:

“Seek advice from qualified people.” – Will Harvey


TRANSCRIPTION

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

Will Harvey: I’m doing well.

Joe Fairless: I’m glad to hear that, and looking forward to our conversation. A little bit about Will – he’s the principal and CEO — he’s a principal at CEO Capital Partners…

Will Harvey: That’s right. Most people mess it up and say it how you originally said it…

Joe Fairless: Yeah, I was like “Wait, there’s a preposition there.” At CEO Capital Partners. He’s based in Ashburn, Virginia, right outside of DC. He personally owns over 1,5 million in real estate in the DC area, which is a mix between rentals and Airbnbs. He’s been investing in real estate since 2016, and recently left his high-paying W-2 job, so congrats on that. With that being said, Will, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Will Harvey: Absolutely. Growing up, I was always on top of my dad. He’s been in business a long time… And he always taught me that — I’d go to a restaurant and I’d be like “I wanna work here one day.” I’d go to Chipotle when I was really young, and I’d be like “I wanna work here. The food is so good.” And he would always teach, “Now, you don’t wanna work here. You wanna own it.” So I was always instilled that whole “Own the ladder, instead of go up the ladder mentality.” So that was good.

I had a bunch of side hustles as a kid. I started out selling golf balls. I would find golf balls, clean them up, and sell them at a nicer course. As I went along with selling stuff  on eBay for people, and cut grass… And getting into high school I started going down the wrong path. I got into drugs and alcohol. Once I got into college, it got ten times worse. I just got real strung out on a bunch of stuff… I was there for three total semesters. My last semester was just a train wreck. I ended up pulling out of school, I came home…

Joe Fairless: What happened in that last semester?

Will Harvey: The main thing was just blacking out all the time.

Joe Fairless: It’s important to be conscious during college.

Will Harvey: Exactly, yes.

Joe Fairless: You’ve gotta be conscious during class time too, right?

Will Harvey: That’s right. So blacking out, and driving, and just doing all kinds of stupid stuff. Anyways, I came home, and I was actually home on winter break, and had just a total God moment. My Christian faith is what got me through everything that I went through. A family friend was in my parents’ driveway; I was living with them at the time. After a real bad blackout, my friend had punched me in the face a couple times, because I was trying to drive, and I was saying stuff about them… So the next day my face was all swollen and messed up, and this guy saw me and he’s like “What happened?” I was like “I don’t really remember.” And he thought about it — at the time he was sober 18 years; he was an alcoholic himself. So a couple days later he reaches out to me and he’s like “Hey, I was thinking about you over the last couple days, and I think this might be a little bit bigger than you think… So I would love to sit down — I’ll just tell you my story  and we’ll just go from there. No pressure.” And again, by the grace of God, I was kind of at the bottom, so to speak, so I agreed to meet with him.

Joe Fairless: And how did you come across this person in the first place?

Will Harvey: He was a family friend, lived in my neighborhood…

Joe Fairless: Okay.

Will Harvey: So I went and met with him. His story was identical to mine. I was sitting, talking to him, and I was like “Well, if he’s alcoholic and his story is exactly like mine, then what does that make me?” Two days later we told my parents; I admitted that I had a problem with alcohol, and ended up making the decision to pull out of school and get sober. I started going to AA meetings, and  all that.

Joe Fairless: Good for you.

Will Harvey: Yeah, I appreciate it. It was very humbling. Most 19-year-olds are not doing that, so it was very humbling, moving back in with your parents when you had the freedom of living at school and doing all that. Anyways, fast-forward–

Joe Fairless: And I’d say that everyone has areas in life that they need to have that sort of awareness and about-face; we’ve gotta do something else. It’s just that certain things, like alcoholism, drugs, other things – it’s more obvious from the outsider standpoint. But we’ve all got that stuff, right? Everyone has that.

Will Harvey: Right. Admittedly, now I’m addicted to work…

Joe Fairless: Well, your website is wealthjunkies.com, which after knowing this story — I was gonna ask you why you called it WealthJunkies.com.

Will Harvey: Exactly, that’s right… So fast-forward, after I was home and living with my parents, about a year and a half later I ended up walking on and playing football at a school in Ohio.

Joe Fairless: Which one?

Will Harvey: It was Ohio Dominican University.

Joe Fairless: Nice.

Will Harvey: It’s in Columbus, overshadowed by the other school in Columbus. [laughter] But I ended up playing there, and that was great, until I had double hip surgery. Then I came home and I kind of started my real estate journey. So I got into the mortgage business; a family friend got me into the mortgage business in 2015. I learned the business for about a year, and at the end of 2016 is when I went off into sales. So 2017 was my first year. I did well, and it was phenomenal; I lived it, breathed it, slept it… And it was actually before I started in sales. I was able to buy my first house.

The way that it all happened was I was in the mortgage business, and I didn’t know a ton about real estate, but I knew that it was a good thing, and I knew that I should buy a house, because I can  start building wealth. But I was making $30,000 at the time, and living in the DC area, you won’t qualify for [unintelligible [00:08:11].16]

So I went to my dad and I said “Hey dad, I have a potential opportunity for you.” And he’s like “Oh, great. Here we go.” So I showed him his house, and I was like “Look, I can’t qualify on my own, but I’ve done my research. This is the rental income that I can get. I’ll live in one room, I’ll rent out the other two. Can I borrow your ability to qualify?” So he agreed, and signed on the loan. I was able to get the house.

In the first month with two tenants – one was my brother and one was another family friend… The first month they paid me the rent, it almost covered the entire mortgage, and I was hooked on real estate. Hook, line and sinker. It was a house-hack before I ever discovered Bigger Pockets or anything like that… And I highly advocate that to anybody that I talk to, especially if they’re single and don’t have kids, or anything. I highly advocate for doing that.

Fast-forward a little bit more, I started originating and I started making good money, and at the end of ’17 I bought another house. Then fast-forward another eleven months from there I bought another house. Again, the houses here are ridiculous in price. One of those rental properties was over $400,000.

Joe Fairless: Dang. And you were putting like 20%  down?

Will Harvey: I put 10% down, because I moved into it. So each property I bought, I bought as a primary residence and moved into it. I had the lender’s consent, used the same lender, and they were cool with it. So that helped. All the rates are in the three’s, which is nice; I wasn’t having to do investment loans.

But after I got to three, I just realized that there was a serious scalability problem with what I was trying to do, and that’s kind of what led me into multifamily. So that’s when I started learning about it and going from there. If you wanna ask some questions based on all that…

Joe Fairless: Sure, yeah.

Will Harvey: Or I can keep going. What do you want me to do?

Joe Fairless: Well, your “personally owns” part – mystery solved  there. Because I introduced you as personally owning 1.5 in real estate in the DC area. Three homes, 400k(ish) a pop. There’s that. Is that all the portfolio, or is there something else?

Will Harvey: I actually have one more, and I had one that we sold; it was a flip. And then there’s another flip I’m doing with a partner right now… That was just a killer deal. I own it, but it’s in a company, and it won’t be owned for long; it’s not a long-term house.

Joe Fairless: Okay. And just to get an idea of cashflow, just pick one of the four homes, please, and tell us what’s the income, what are the expenses, high-level, and what are you making per month?

Will Harvey: Yeah, sure. I’ll pick the second one. It was the most expensive one. The cool thing about this one is that it was bleeding at one point. So I was able to kind of use the knowledge that I learned from multifamily and apply it to this. That’s what helped.

Joe Fairless: Oh, okay… Yeah.

Will Harvey: So I did have one person renting the majority of the house, and then I had Airbnb in the lower level; it was a separate entrance. The house was perfect for that… And I put a lock on the outside of the door, so they couldn’t access the rest of the house. It’s like a separate unit, essentially. And I had someone else renting the rest of the house. But what I did – once their lease was up, it was a three-level townhouse.

Instead of just doing the Airbnb and renting the rest of the house out as one lease, I kept the Airbnb and I did two separate leases for the two bedrooms that were upstairs. And by doing that – it was crazy; it turned it around phenomenally. Now it’s cash-flowing about $400/month… Which doesn’t sound like a lot, but since I’ve bought it, it went up in value $50,000. So it’s a high appreciation area. I know you preach the three rules – not to go for appreciation…

Joe Fairless: Right. Well, my approach is buy for cashflow, and then increase the value through value-add plays… And here you go, a value-add play. You kept the Airbnb, but then you changed it from leasing the other one as a regular rental to leasing it by the bedroom…

Will Harvey: Exactly.

Joe Fairless: …and then you separated that out. Let’s compare the Airbnb income per month, versus one-bedroom per month. What’s the difference there?

Will Harvey: The Airbnb is about $1,100/month. If you average it out, that’s what it comes out to. So it’s about $1,100/month.

Joe Fairless: Income?

Will Harvey: Income, yeah.

Joe Fairless: Okay.

Will Harvey: And then from that $1,100 — there’s not a whole lot of expenses. Let’s say about $60/month in expenses. There’s a cool app I’ve found where you can get a turnkey cleaner; it’s pretty cool. It’s called TurnoverBnb, for anybody listening…

Joe Fairless: Thank you. I wasn’t gonna ask that, but I should have, so thanks for offering that…

Will Harvey: No, absolutely. TurnoverBnb. So that’s about $1,100. But that room is so much smaller than the rooms that I’m doing a lease. So apples to apples, it’s hard to compare them… But it’s still more than what I’m doing for the leases.

Joe Fairless: What’s the bedroom rent?

Will Harvey: The master is $1,000, and then there’s another — there’s like a master two, and that one is a little bit smaller than the true master; that one is $950. So the Airbnb is better. The Airbnb is tiny compared to both of those rooms, and I’m still getting more rent.

Joe Fairless: So the reason why I asked that question was because of the follow-up, which is why not have all three be Airbnbs?

Will Harvey: Because it’s more of a headache to do it that way. I see it as more of a headache. Airbnb is not passive. People are coming… And I have it very passive now; I’ve been doing it for over two years, so I’ve kind of worked out all the glitches and have  it pretty automated… But one of the renters in the house I know very well, and she kind of oversees everything. So I’m giving up a little bit of income by not doing Airbnb for the sake of having peace of mind.

Joe Fairless: What, if anything, does she get compensated for overseeing it unofficially?

Will Harvey: If it’s something where I need her to clean it, she will, and I’ll just knock $50 off a rent. If it’s an emergency cleaning and the TurnoverBnb can’t do it in time, or there’s something that comes up with a guest, and they need something – then she’s there, and I kind of compensate her as I go. It’s a good arrangement that we have.

Joe Fairless: In terms of the process, with the Airbnb over the last couple of years you said you’ve got it down more or less to a smooth system… What are some major changes that have taken place over those two years?

Will Harvey: Getting rid of the stupid keyless entry that was giving me so many problems…

Joe Fairless: Oh, really?

Will Harvey: That’s a huge one, yeah.

Joe Fairless: Getting rid of it?

Will Harvey: Yup. It sounds crazy. That’s the reason I got it, was because I thought that it was gonna be so easy, nobody will lose a key, they [unintelligible [00:15:00].14] but it created so many problems.

Joe Fairless: Which one did you have?

Will Harvey: It was Schlage. They’re a name brand product, and it would always mess up. I’m not trying to dog on them, but…

Joe Fairless: You’re just speaking facts.

Will Harvey: Yeah, exactly.

Joe Fairless: So the battery went down sometimes, or…?

Will Harvey: No, it actually wasn’t the battery. It was really — I know I’m kind of getting in the weeds here, but there was this part inside, and it was like a little disk, and it would slip, and basically it would just spin freely, and it wouldn’t turn it. So I’d have to take it apart…

Joe Fairless: So why not just get a refund and get a different type of keyless entry?

Will Harvey: I don’t know, I bought it a while ago, and everytime I’d go over there I would just wanna fix it and be done with it and move on. So I’d youtube it, try to figure out how to do it… It would work for a little bit, but then a month later it would go bad. So the solution there was get a lockbox and have a key. So far, the good old-fashioned keyed entry has been fine.

Joe Fairless: Okay. What else?

Will Harvey: Another thing is I have a virtual assistant who handles all guest communications. A big thing with Airbnb is being a super-host, so you wanna do that… You wanna become a superhost, and in order to do that you’ve gotta get a bunch of reviews, and you’ve gotta be really good. So I had a virtual assistant – she’s awesome. Her name is April. And I’ve put together a process where as soon as someone books, she sends them a message and says “Hey, here’s the Wi-Fi, here’s this, here’s that.” There’s those frequently asked questions, so we kind of answered all of those questions in this first message.

So she would send that, she would say “If you need anything, let us know.” On the day they arrive, she would message them again, and basically reiterate that and say “If you have any issues with check-in, let us know.” And then while they’re there, for the long-term people, every Thursday she would message them and ask if they need anything. And then when they leave, there was a sequence where she would message them and try to get them to complete the review.

So that’s huge, in automating it… Because I was always too busy to ask for reviews and do all that. So having a system in place where she would do it was very helpful for me.

Joe Fairless: How did  you find the VA?

Will Harvey: UpWork. Neal Bawa motivated me to do that.

Joe Fairless: And how many VAs did you work with until landing with this woman?

Will Harvey: She was the very first one…

Joe Fairless: Wow.

Will Harvey: Yup. There’s a lot of people that have gone through a lot of VAs and not been satisfied, but knock on wood, she’s awesome.

Joe Fairless: Where is she located?

Will Harvey: Philippines.

Joe Fairless: And how much per hour?

Will Harvey: Five dollars and five cents.

Joe Fairless: And any bonus for doing stuff?

Will Harvey: I’d give her a Christmas bonus… If she makes a decision and it’s thinking outside of the box, she does something that’s impressive, I’ll give her a bonus. 10 bucks, 25 bucks, somewhere around there.

Joe Fairless: Had her for how long?

Will Harvey: I’ve had her since July or August of 2019.

Joe Fairless: Wow. Good. I’m glad to hear that.

Will Harvey: Yeah. It’s going great.

Joe Fairless: So now your focus is what?

Will Harvey: Multifamily.

Joe Fairless: Where are you at with that?

Will Harvey: Myself and four partners – we started a group about a year ago… And we got involved as a co-sponsor on a few different deals, and we were able to raise money on our first one. We raised about half a million dollars… And then about three weeks later there was another opportunity that came up, where we were able to co-sponsor… And that’s where we’re at now. We have one that we’re working on, and as this records, it’s under contract in Columbia, South Carolina… Which is pretty cool, because it’s the school that I was at, where I was a colossal screw-up, where I was getting into all the drugs.

Joe Fairless: Is that the Gamecocks?

Will Harvey: Yeah, University of South Carolina.

Joe Fairless: Yeah, nice. Now they’re USC.

Will Harvey: Yeah, exactly. That’s right.

Joe Fairless: I’m sure I’ve just made a lot of South-Caroliners upset when I said that… [laughter]

Will Harvey: Absolutely. That’s what everybody says.

Joe Fairless: Alright. Well, I’ll just join the crowd then and just blend in and run away.

Will Harvey: [laughs] You’re good.

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

Will Harvey: When I was in the mortgage business and I started learning about multifamily, and I knew it was something that I wanted to do, like you said in my bio, I was high-paid, I was making a couple six figures, and I was in my early twenties… But I just wasn’t happy. I wasn’t enjoying it. I felt like a hamster on a wheel. And I would ask people advice. And everybody that I was asking was in a position where they weren’t financially independent, they weren’t financially free or anything like that. They were working. So the advice – what I’m getting at is seek advice from qualified people.

Everybody I was seeking advice from was not in a position where I wanted what they had, so why was I asking them for advice? That’s my advice – try to find people that are actually qualified to give you  advice on what you’re asking about.

Joe Fairless: That’s a good reminder… Because there’s all different areas of life that we need advice on, and we might have a trusted friend that we always go to for advice, but is that trusted friend qualified in that particular area of life to give advice on? That’s interesting…

Will Harvey: You’re not gonna go to somebody and ask them about your marriage if they’ve been divorced five times… You know what I mean?

Joe Fairless: Well, it would be good to hear their advice and then just do the opposite.

Will Harvey: Yeah, that’s a good point. [laughter] That’s right.

Joe Fairless: Alright, we’re gonna do a lightning round. Are you ready for the best ever lightning round?

Will Harvey: I am.

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

Break: [00:20:35].17] to [00:21:20].03]

Joe Fairless: Alright, what’s the best ever resource you currently use in your business, that you couldn’t live without?

Will Harvey: I would say with the personal portfolio I have – I will keep it with that – I would say the TurnoverBnb and the VA. So two.

Joe Fairless: Yeah. We talked about obviously you go over to TurnoverBnb – that’s an easy Google search – and then for the VA you talked about going to UpWork and finding a VA.

Will Harvey: That’s right.

Joe Fairless: What’s a deal that you’ve lost the most amount of money on, if any? I don’t think there is one based on what we’ve talked about. Maybe a flip, or something.

Will Harvey: No, there was no actual deal where I’ve lost money, but I’ve lost money when I first got into multifamily. There was a deal that I was trying to do on my own. It was a 14-unit property in a rural part of Virginia. I had deal goggles on, I wanted to close it so bad, and it was a pain in the butt. The seller was asking for stuff that was unreasonable. Long story short, I had the attorney do the contract over and over and over. The deal ended up dying, and then I got the bill for the attorney, and it was $9,000.

Joe Fairless: [laughs]

Will Harvey: That wasn’t fun.

Joe Fairless: What were some unreasonable deal points that the seller was asking for?

Will Harvey: I was so naive and inexperienced… He wanted to save money on closing costs; instead of doing a traditional purchase, he wanted me to purchase the underlying LLC that owned the property. I was getting advice from everyone saying that’s such a bad idea. You don’t know if he’s in litigation with someone… So it just created a lot of billable hours.

Joe Fairless: Yeah, that’s a pretty hefty attorney fee for a purchase and sale negotiation contract.

Will Harvey: That was my “Welcome to billable hours” moment. I wanted to throw up when I got that bill.

Joe Fairless: It sounds like you  had a very responsive attorney.

Will Harvey: Yes… [laughs]

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

Will Harvey: My mom started a non-profit, and you guys actually featured it on the Best Giving, or Best–

Joe Fairless: Best Ever Causes, yup.

Will Harvey: Best Ever Causes, yeah… Helping Haitian Angels. It’s an orphanage in Haiti.

Joe Fairless: Oh, yeah. That was fairly recently. Best Ever listeners, you can go to BestEverCauses.com. If you click on Recent Causes – I’m on there now – you can see that organization Helping Haitian Angels. Good, I’m glad to hear that.

So how can the Best Ever listeners learn more about what you’re doing?

Will Harvey: They can go listen to our show. We got our motivation from you, Joe, like we were talking before this started. I got roped into doing a daily podcast because of something Joe talked about at the conference… So thank you so much for that, Joe. It’s a lot of work, as you know…

Joe Fairless: Yes… Yes, it is.

Will Harvey: It’s awesome stuff. Our podcast is Wealth Junkies, you can find us there; or you can just shoot me an email, will [at] wealthjunkies.com.

Joe Fairless: Thank you, Will, for sharing your story, some challenges, some ways you overcame it, some lessons learned, like make sure we ask advice from people qualified in the area that we’re looking to get advice on, your Airbnb approach, TurnoverBnb, the VA, adding value to one of the properties that you own; it was losing money – what do you do? Let’s rent out by the bedroom, and let’s make sure we have that Airbnb rockin’ and rollin’. Some really applicable stuff, as well as what you’re focused on now with the multifamily.

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

Will Harvey: Awesome. Thank you, Joe.

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JF2089: House Hacking to Commercial Property With Tiffany Alexy

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Tiffany bought her first property while in college by house hacking and has continued to house hack continuously and is currently in her fourth house hacking property. Tiffany shares a story of bad luck when she decided to venture away from house hacking and into flipping. She talks about a combined strategy of house hacking and BRRRR with her office property

 

Tiffany Alexy Real Estate Background:

  • Began investing in real estate at 21 y/o with a 4 bedroom condo that she lived in and rented the other 3 rooms
  • Today, owns 10 units of commercial and residential properties
  • Started her brokerage firm, Alexy Realty Group in 2017
  • Based in Raleigh, NC
  • Say hi to her at https://www.alexyrealtygroup.com/
  • Best Ever Book: Ninja Selling by Larry Kendell 

 

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Best Ever Tweet:

“Be creative” – Tiffany Alexy


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, Tiffany Alexy. How are you doing, Tiffany?

Tiffany Alexy: I’m doing great, thanks. How are you?

Joe Fairless: I’m glad to hear that, and I am doing great as well. A little bit about Tiffany – she began investing in real estate at 21 years old, with a four-bedroom condo that she lived in and rented the other three rooms. Today owns 10 units of commercial and residential property. Started her brokerage, Alexy Realty Group, in 2017. Based in Raleigh, North Carolina. With that being said, Tifanny, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Tiffany Alexy: Sure. As you mentioned, I started investing in 2011. I purchased my first property as a senior in college, and I ended up house-hacking it… And that’s kind of what got me jump-started into my real estate investing career. I lived there for a couple years, and then I moved out, rented that one out  completely, and just kind of repeated the process, and have been doing so ever since about 2011.

Joe Fairless: What do you mean by “repeated the process”?

Tiffany Alexy: So after I rented that full unit out, I bought another one just across the street. It was a 3-bedroom/2,5-bath, and I lived in one bedroom and I rented out the other two… So I just continued house-hacking. I actually still house-hack today.

Joe Fairless: So the first one was a four-bedroom condo; the one across the street was a 3-bedroom?

Tiffany Alexy: Correct.

Joe Fairless: And you bought the first one, and then you got a loan and bought the second one, correct?

Tiffany Alexy: Correct.

Joe Fairless: And then what did you do after that?

Tiffany Alexy: I just kept doing it again and again, so now I’m in a three-bedroom townhome where I have my own room, and then I rent the other two bedrooms out.

Joe Fairless: Wow. How many properties have you purchased to do it.

Tiffany Alexy: I’m on my fourth.

Joe Fairless: You’re on your fourth – okay, cool. So you got  your first two that we talked about, and then you did it again, which was a – what?

Tiffany Alexy: It was a townhouse.

Joe Fairless: The third one was a townhouse. How many rooms?

Tiffany Alexy: It was a three-bedroom, and I rented one out. The roommates that I had at the time had access to the third room, so we used it kind of as a home office.

Joe Fairless: Okay. And then you’re on your fourth…

Tiffany Alexy: So I had one remaining in that one. Exactly.

Joe Fairless: And how many bedrooms is your fourth one?

Tiffany Alexy: It’s a three-bedroom as well. Same situation – I live in one and I rent out the other two.

Joe Fairless: Okay. And over how many years have you done this?

Tiffany Alexy: I started in 2011.

Joe Fairless: Oh, alright. I can do that math… [laughs]

Tiffany Alexy: So it’s been almost ten years. [laughs] Yeah, and there were some situations in between where I didn’t house-hack, but for the majority of the time I have been house-hacking.

Joe Fairless: Okay… So talk to us about the loans  that you’re getting on each of these four properties.

Tiffany Alexy: They’re conventional, owner-occupied financing. The first one I had to put 25% down, because it was one of those condo situations where there were a lot of investors to own the units, so it didn’t qualify for Fannie/Freddie financing… The Wells Fargo, Bank of America, the larger banks wouldn’t finance them. So I went through BB&T on the first one, and I had to put more down because of the investor concentration, essentially.

Joe Fairless: What about the next one?

Tiffany Alexy: The next one was the same situation – it was another high investor concentration, so I put another 25% down on that.

Joe Fairless: Okay. And when you say “high investor concentration”, will you elaborate on what you mean?

Tiffany Alexy: Sure. It just means the majority of the condo units owned in the neighborhood are investor-owned. So it’s not owner-occupied.

Joe Fairless: Okay. Even though you’re getting an owner-occupied loan.

Tiffany Alexy: Correct. I believe the rule is if it’s over 50% investors in the actual subdivision, then they require some additional steps.

Joe Fairless: Okay… I hadn’t heard of that.

Tiffany Alexy: Yeah, it’s called non-warrantable.

Joe Fairless: Non-warrantable, okay. Cool. So there would be an advantage to not have non-warrantable in the loan, because them you’d be able to have less money into the property, right?

Tiffany Alexy: Yes, and that’s exactly what happened with the second two of the townhomes. So the rules don’t apply with the townhomes. So my third – I was able to put 10% down, instead of the 25%. And then the one that I have now, I’ve put 3% down.

Joe Fairless: Wow. You’re getting better. [laughs]

Tiffany Alexy: Yeah, exactly.

Joe Fairless: How low can you go.

Tiffany Alexy: Exactly.

Joe Fairless: What is the reason why you were able to do 3% on this fourth one?

Tiffany Alexy: I don’t know, it was just a loan program. Conventional was going down as low as 3%.

Joe Fairless: Okay. Same lender on the 3% and the 10%, the last two?

Tiffany Alexy: No, different lenders.

Joe Fairless: Who did you get on the third one, and who did you use on the fourth?

Tiffany Alexy: The third one was First Citizen, and the fourth was Benchmark.

Joe Fairless: How do you find your lenders?

Tiffany Alexy: Honestly, they find me. It’s just word of mouth, networking, pretty much just organically.

Joe Fairless: Okay. So thinking back with benchmark, for example, what is the first time you came in contact with the point person that you ended up going with at Benchmark?

Tiffany Alexy: With Benchmark I actually found out about them through a client. I was helping a client purchase an investment property, and his lender was put in contact with me, because I was his agent… And I really liked the lender, because he was very communicative, always responsive, super on top of it. And my client got a great rate, so I was like “Okay, I’ll keep you in mind for the next one.” And it just kind of worked out that way.

Joe Fairless: Okay. You’ve been doing it for approximately nine years… What are some things that have gone wrong?

Tiffany Alexy: Oh, a lot has gone wrong… So I will tell you about a situation where I got in a little bit over my head as far as a flip. I purchased a 2,600 sqft. duplex in Ayden, North Carolina, which is about 15 minutes South of Greenville, where East Carolina University is. And you see HDTV and you think it can be easy… It’s not the case. I bought it from a wholesaler who had the contract on the property and was selling the contract. For that reason, I got it super-cheap; it was like 28k for this duplex. It needed a lot of work. I actually had FaceTimed my contractor through it, and she gave me an estimate of about $100,000 in work.

At that point I was like “Okay, that’s still not too bad, because I’m in for 128k, and it could rent for about $700/side.” So the numbers on that weren’t too bad. The only thing is the flip took a year. There were a lot of delays, just because it’s 2,5-hours away from me, so I didn’t have a lot of time to drive to the property and check on my contractor and make sure that he was running according to schedule.

Everything was just delayed. Windows took seven months to come in, and then one came in and it was broken, so we had to send it back and get a replacement… It was just a disaster. So after about a year I got a call from the town of Ayden fire department that it had actually caught on fire.

Joe Fairless: Ohhh… After a year, prior to you renting it out, after you’d completed the flip almost?

Tiffany Alexy: Exactly. So the flip was a little more than halfway done, and it just completely torched one side. It didn’t burn down, but the entire interior of the better side was gone. It was just up in flames. So that was kind of a learning experience, and at that point I was like “I don’t wanna put another 100k into this project. It’s never-ending.” We couldn’t even have utility to the property, because it has to pass inspection in order to turn on the utilities.

So it wasn’t an electrical fire. What I found out later was that somebody had broken in and had a party, they lit candles, and just left. They’d broken through that broken window.

Joe Fairless: Dang! They got in through the window that took seven months to arrive, that was broken, that you were waiting on a replacement?

Tiffany Alexy: Correct.

Joe Fairless: And then they burned the house down as a result of it.

Tiffany Alexy: Yeah, so that one was boarded up, and they just took it off.

Joe Fairless: Okay… Insurance?

Tiffany Alexy: So everything that could have gone wrong, went wrong. Yes, I had insurance, thank goodness. So I was able to get that money, and I was done. So I basically broke even, which is a lot better than what could have happened.

Joe Fairless: What was the insurance process like?

Tiffany Alexy: It had to be a vacant policy, because there was nobody living at the property. It was one that I had to renew every couple of months, because it was a vacant policy, and it was more expensive because of the risk associated… Which, obviously, for good reason.

Joe Fairless: Yup. Thank goodness you had that policy.

Tiffany Alexy: Yes, I’m very glad I did that.

Joe Fairless: What was the check amount that they cut you for the fire.

Tiffany Alexy: It was 67k.

Joe Fairless: Okay… So they cut you a check for 67k, and you bought it for 28k… What did you end up doing with the property?

Tiffany Alexy: I actually essentially just gave it to an investor I know, that was in the area. He was my property manager at the time as well, and I just wanted to wash my hands of it. So I sold it to him for $10.

Joe Fairless: Okay. [laughs] So you had put in 28k, and you got a check for 67k… So you had about 42k in profit. However, that doesn’t factor in paying the contractor, and holding costs and all that… So you’re saying essentially the 42k was wiped away? It was about that, it wasn’t anything more…?

Tiffany Alexy: Correct. It was between 40k and 45k.

Joe Fairless: People always ask “Well, why would someone give a house away? What are the circumstances?” Here’s a circumstance. You gave it for ten bucks.

Tiffany Alexy: Oh, absolutely. Yeah, it was just one of those where I didn’t wanna continue dumping money into it. I was busy with my brokerage at the time and I just didn’t have the time… And he was local, 10-15 minutes away from where he was, so it made sense for him, because he could get the property for very little, and essentially his money in would be all the repair costs, and then he could rent it.

Joe Fairless: Okay. And how long ago was that?

Tiffany Alexy: That was last summer. I sold the property to him in July.

Joe Fairless: Well, you “sold” (in air quotes), right? Ten dollars… [laughs]

Tiffany Alexy: Yeah, exactly.

Joe Fairless: And have you kept up with him and the status of the property?

Tiffany Alexy: No, I actually haven’t.

Joe Fairless: Aaagh…

Tiffany Alexy: I need to follow up with him and see what’s going on, see how he’s doing.

Joe Fairless: You haven’t talked to him since you got the $10 bill from him?

Tiffany Alexy: No. He sent me a referral or two, but I haven’t asked him what he’s done with the property.

Joe Fairless: That is a challenge, and thankfully you had insurance. I think that’s a big takeaway, having insurance on the vacant property. If presented a similar opportunity in the future, what choices would you make that are different from the choices you made on this deal?

Tiffany Alexy: First of all, I wouldn’t have bought it…

Joe Fairless: Why? Why wouldn’t you have bought it?

Tiffany Alexy: Well, I bought it sight unseen. That was my first mistake. Not necessarily that buying sight unseen is a mistake, but it was in a market that I didn’t know, and I just thought, “Okay, well, it’s 28k. Even if it goes South, it’s so cheap…” So I put it under contract sight unseen, which typically is not that big of a deal, especially in North Carolina, because you have the due diligence period, so you can still back out… But once I was under contract, I felt kind of obligated to purchase it. And not out of anything that anybody else was doing, it was just kind of my own feelings. So that was the first mistake.

The second mistake – I didn’t get a home inspection. It was primarily because I knew that it would need a lot of work. It was essentially gonna have to go down to the studs and be completely redone… So at that point I was like “Well, I don’t need a home inspection. I know that it’s gonna need a ton of money and a ton of work, so I might as well just save that money.” But what I didn’t know was the joists had been rotted out because of termites, so essentially it was about to go 20k over budget to replace the joists. And that’s what was partially why it took so long as well.

Joe Fairless: Windows and termites.

Tiffany Alexy: Exactly.

Joe Fairless: Thank you for sharing that.

Tiffany Alexy: Of course.

Joe Fairless: Those are takeaways that are applicable to a lot of people, and I’m grateful that you mentioned that. What else has gone wrong?

Tiffany Alexy: With that deal or with other deals?

Joe Fairless: With another deal.

Tiffany Alexy: That one was essentially my one and only flip experience. Everything else that I have has been buy and hold. So on the flipside, I’ll give you an example of one that has worked out really well. I currently have an office – it’s in Cary – and I kind of did a double strategy on this. We talked a little bit about house-hacking… If you’ve heard of the BRRRR method, which is the Buy, Rehab, Rent, Refinance, Repeat – I kind of combined the two on this office that I have, and it’s worked out really well.

Essentially, I bought it similar in a way to my owner-occupied properties. It’s just an owner-occupied office, because I was using it for my business. I’ve found it a couple of years ago, it was listed for 175k, and it needed a lot of work. These buildings were built in the late ’70s, so it was just really old, and hadn’t been touched since then. It still had a wood-burning stove in the main lobby area, that was connected to the chimney.

Joe Fairless: Well, that’s got some character.

Tiffany Alexy: Yeah. For sure, it does have character. Orange [unintelligible [00:16:59].03] carpets…

Joe Fairless: [laughs] Even more character.

Tiffany Alexy: Textured wallpaper… Exactly. So it was kind of an ugly duckling, but there’s not a whole lot of inventory as far as office goes here, so I snapped it up and paid the asking price. I’ve put in about just over 40k in work.

What I did was added the chair molding, the [unintelligible [00:17:23].26] put in luxury vinyl  plank floors, repainted everything… It has a lot of that intricate dental molding, it’s got that thick crown molding, and that was a pain to pay somebody to paint. So it took a lot of paint for that… But I essentially just redid everything, including the bathroom, and I rent out a couple of the other offices. So it’s got technically four office spaces. I use one. One of the other offices I rent for $500/month.

The upstairs is kind of an oversized office. I rent that for $650. And then the last office, that is not my own, is the largest one, so I turned it into a conference room. I use that for my clients, but I also rent it out on a website called LiquidSpace, which is similar to Airbnb, but it’s for office space… And it’s just like an hourly rate.

So between all that, I got it rented, and then I refinanced. So I was able to pull out most of my initial equity, because it got reappraised for 250k.

Joe Fairless: Awesome.

Tiffany Alexy: So it worked out really well for me… And of course, there’s a higher monthly payment, but because it’s tenant-occupied, I’m essentially breaking even on the payments.

Joe Fairless: Bravo! What tenants do you have in there?

Tiffany Alexy: It’s a digital marketing company and a software company.

Joe Fairless: Okay. What’s the square footage of the overall space?

Tiffany Alexy: It’s just under 1,400 sqft.

Joe Fairless: Alright… And how did you find the digital marketing and software company?

Tiffany Alexy: The digital marketing company – funny enough, I used to do property management, and they were one of my property management clients. And the software company – I believe it was just Craigslist, because I had posted a couple different ads online about the office space.

Joe Fairless: Okay. And the 40k in updates that you did – what was your role in those updates? Was it the money person, or were you the one overseeing it, or were you doing it?

Tiffany Alexy: All of the above. So I was the money person–

Joe Fairless: Oh, you did it?

Tiffany Alexy: Yeah. I hired a contractor, so I didn’t do the work myself… But I helped with the design process, picked out everything, I put up the money… So yeah, I was pretty involved.

Joe Fairless: Okay. What’s something that you learned from that experience, overseeing the contractor?

Tiffany Alexy: It’s definitely to have a contingency. I went in knowing that we were gonna go over budget, just because it always happens… But it turns out that there was a bay window in the back, in the conference room, and it was actually sagging, because it didn’t have a foundation… And this was something that my home inspector actually didn’t catch.

I kind of had two options. I could add a foundation to it, or I could just tear the bay window out and make it a regular window… So what I ended up doing was just tearing it out, because it was cheaper that way, and just putting a normal window in. But of course, my contractor had to reframe and tear out the actual bay that was sticking out… So that was another 5k that I was not anticipating…

So it’s definitely to have a contingency fund always over budget, because there’s always gonna be things that you will not know ahead of time.

Joe Fairless: How much should we over-budget when we put together a plan?

Tiffany Alexy: I usually just add 10% to the overall total.

Joe Fairless: Okay. So in this case, those 40k – what did you initially budget? Was it 40k, or was it 35k?

Tiffany Alexy: I initially budgeted 50k.

Joe Fairless: But you said you put in 40k, so–

Tiffany Alexy: Yeah, we still came in under.

Joe Fairless: You were under? Wow…

Tiffany Alexy: Yeah. So initially what I was thinking was 50k.

Joe Fairless: Okay…

Tiffany Alexy: So it worked out. But I always think more.

Joe Fairless: What caused it to be under?

Tiffany Alexy: There were a couple little tradeoffs… Let’s see. Upstairs, I initially was gonna put the LVP flooring, but I decided to go with carpet instead. One, for soundproof, and then also there were stairs that were a little bit narrow, so I didn’t wanna put the hard, slippery flooring, just in case. So I ended up putting carpet upstairs. That saved some money.

I got some quotes for the exterior, and I used a different contractor for the exterior, which saved me some money as well, because he actually was doing the office next door, so he was able to give me a better rate.

Joe Fairless: Okay. And how did you come in contact with that contractor?

Tiffany Alexy: The person who owned the office next to mine actually just sent me an email and said “Hey, I’m actually getting work done on my office. This is the guy that I’m using. He’s willing to help you out”, because he knew that I was doing work to my office as well.

Joe Fairless: Okay, cool. Good timing, and nice people, connecting the dots. Well, taking a step back, based on your experience, what’s your best real estate investing advice ever?

Tiffany Alexy: My best real estate investing advice ever would be to be creative. Situations where the office happens, everybody that hears about what I did with it – they’re kind of astounded that I did it, but it really wasn’t anything groundbreaking or magical; it was just a matter of me moving in and being creative and renting out the extra spaces that I didn’t need. So it’s creativity and efficiency, really.

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

Tiffany Alexy: Sure.

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

Break: [00:22:43].03] to [00:23:26].29]

Joe Fairless: What’s the best ever resource that you use in your business, that you couldn’t live without?

Tiffany Alexy: Oh, gosh… So I would say the book Ninja Selling, by Larry Kendall.

Joe Fairless: Great book.

Tiffany Alexy: I read this book many times. I’m actually re-reading it again. It’s a great resource for those who are in sales, or sort some sort of sales-driven career, but who aren’t necessarily wanting to brand themselves as that salesperson, if that makes sense.

Joe Fairless: I highly recommend that book. One of the big takeaways I got from that book  is – using the example of a real estate agent – a real estate agent could do a very good job with a client, and then five years later, when that client goes to sell the house, they might not be the first person their client calls, because they’re just not top of mind. So it’s important that we have to be top of mind in a relevant way on an ongoing basis with our customers, in order to continue to earn their business.

Tiffany Alexy: Absolutely.

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

Tiffany Alexy: The best ever deal would be one of my rental properties on [unintelligible [00:24:38].18] It was one that I purchased — it was an estate sale. It wasn’t a great deal, but I knew that if I rented the rooms out individually, I could make more money.

I purchased it for 145k a couple of years ago, and I rented it out for $1,800 at the time. Since then, I’ve done renovations to it, and I actually bumped the rent up, so now it rents for $2,300.

Joe Fairless: Wow. And what would it rent if you just rented the house, not the rooms?

Tiffany Alexy: Probably closed to $1,600.

Joe Fairless: Huge difference. How much more work is it from  a management side?

Tiffany Alexy: It’s really not that much more work, and the way that I market it is I calculate how much per bedroom it would be, and then I give a slight discount. These tenants at $2,300 – the last tenants were at $2,100, but with the last tenants I had marketed it at $2,300, but they all came together; so it was four tenants, and I said “Hey, if you all sign a lease right now, then I’ll give it to you for $100 off. So between that, and then they signed a two-year lease, I ended up giving it to them for $2,100. But that’s still a huge difference from the $1,600 it would rent for otherwise.

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

Tiffany Alexy: My first actually hosts monthly get-togethers, and we always do it at local restaurants, or coffee shops, and I like to just support other local businesses with my marketing dollars, because we’re all in it together.

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

Tiffany Alexy: The best way would be Instagram. My Instagram handle is just @Tiffany.Alexy.

Joe Fairless: Thank you so much for being on the show. What a fun show, where I learned a lot, and there’s a lot of helpful information for people who are doing the house-hacking, and the type of financing to get, people who are doing commercial properties, and a case study for the office that you have, lessons on a fix and flip… I mean, you really covered a lot of asset classes today. [laughs]

Tiffany Alexy: Yes, I did.

Joe Fairless: This show has got a little something for everyone, so thank you for that. Again, I enjoyed our conversation, and I hope you have a best ever day, and we’ll talk to  you again soon.

Tiffany Alexy: Thank you for having me.

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JF2079: Money in Low Income Housing With Johnny Andrews

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TTJohnny was an emergency room nurse turned real estate investor. He was able to build his portfolio to 114 single family homes with his brother in 7 years while working full time. He focuses on lower-income housing and shares why property management has been a key part of his success in this niche.

Johnny Andrews Real Estate Background:

  • ER nurse turned real estate investor.
  • Currently owns 114 single-family homes with his brother
  • Was able to create his portfolio in 7 years while working full-time as a nurse
  • Based in Baton Rouge, LA
  • Say hi to him at john@redstickbrothers.com    

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Best Ever Tweet:

“Management, management, management. If you’re not hands-on in management, and you don’t stay on top of your game, it will bite you in the butt in the end.” – Johnny Andrews


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, Johnny Andrews. How you doing Johnny?

Johnny Andrews: I’m living the dream man. Thank you for asking.

Joe Fairless: Well, I’m glad to hear that. A little bit about Johnny – he’s an ER nurse turned real estate investor, currently owns 114 single-family homes with his brother, and was able to create his portfolio in seven years, while working full time as a nurse. Based in Baton Rouge, Louisiana. So with that being said, Johnny, you want to get the Best Ever listeners a little bit more about your background and your current focus?

Johnny Andrews: Yeah, man. I would like to amend that number… Just signed a purchase agreement on another six more this weekend. So we’re going to be at 120, and I’m pretty excited about it… But I just want to do amend that number. Basically, this is my full-time gig now. I was working part-time as a nurse and I got injured in November of last year, so I can’t be a good nurse. I just get to ride around with my cane and crutches at the moment. My main focus is single-family homes in the Baton Rouge area, and the bulk of them all lower-income houses. We’ve got a bunch of Section 8, but we cater to a crowd that’s working class, and it’s done very well for me and my brother.

Joe Fairless: Well, we’ll go with what you’ve acquired so far. So in seven years, you acquired 114. That is 16 a year, which– it’s weird that math, it would seem like it’d be more a year, but 16 homes a year times seven years, 114. So what have you and your brother been doing to acquire so many homes? I heard you when you said they were lower-income, so I believe that means they’re also a lower price point, but can you just talk about your business?

Johnny Andrews: Yeah, man. So I think in 2006, 2007, I was working like a dog in an emergency room, not making too much money, and I knew there would be something different, there’s got to be something else out there. So I was looking at some houses. I was going to buy one for $100,000, put some money into it and flip it. And this might sound a little hyperbolic, but the housing market seemed to crash overnight, and I would have gone bankrupt if I would have bought that house. So I ended up not doing anything, and a couple of years passed, and I just was looking around for houses. I saw houses around me that were selling for $30,000, $40,000 of a rent, and between $700 and $900 a month. So everybody thought I was crazy. Nobody wanted to do anything with me. Everybody tried to talk me out of it. So I went and bought my first one by myself.

Joe Fairless: How much was it?

Johnny Andrews: I think it was 33k. I put a renter in it for $750 a month, and at the end of the year, I had a pile of cash. For me, I was making $45,000 a year. A third of that is a pile of cash to me. So somebody had four more houses. I went to buy these four houses. I told my brother about it. My brother’s like, “Let’s do it.” So we pulled the $25,000 that we saved up our entire lives together and we bought those four, and we’ve just been rolling ever since. It was a struggle at first. What I’ve learned about the low-income housing is that it’s management, management, management. If you’re not hands-on in the management and you don’t stay on top of your game, it will bite you in the butt in the end. So we ended up starting our own little management company, too. Now, we don’t manage anybody else’s properties, but we have an office in the area and we do our own management.

Joe Fairless: Did you ever try to hire that out to a third party?

Johnny Andrews: Oh, yeah. We learned our lesson.

Joe Fairless: [laughs] Crash and burn?

Johnny Andrews: Yes, we did, man. We did. My ability to explain – it sounds smooth, but it didn’t go smooth. We bought them from someone who was turnkey. So we bought from him, he’d managed it for a discounted rate. He would find the properties, fix them up, turnkey, here you go, we’ve got renters in them. Well, we didn’t do our due diligence, and these were nightmares, and they were terrible homes, they were empty. Our collections were in that low 60%. We were barely making the taxes and the mortgages.

So the only way we could avoid bankruptcy was we bought a tax sale house on the main drag in Baton Rouge, put a sign out front and took over our own property. We took them from them. At that time, we had 19 of them, and my mom is coincidentally retired; she used to run hospitals. So she does her books and she’s in the office, and ever since then, it’s been a fantastic move on our part to open up our own office and do our own management.

Joe Fairless: What must you enjoy doing in order to be successful managing these types of properties?

Johnny Andrews: I like the people. I like my tenants. I grew up in Baton Rouge. I like the culture. I like the area. Some of them are my tenants, and not only that, they were also my patients. So I have a relationship with a lot of them. I like helping out. There’s a lot of single moms. We have a lot of Section 8 properties which are my favorite, hands down. I love Section 8 properties. And just being my own boss, working with my brother, working with my mom is fantastic. I couldn’t imagine my life without doing this actually now. I’m glad I stumbled into it.

Joe Fairless: With Section 8, you said you love it. It’s probably because you get the payments on a consistent basis, but then there’s the flip side of that, as I know you’re much more aware than I am, of if you get an inspector who is having a bad day, then that could hold you up for a long period of time, or if there’s a grudge. Have you experienced any of the bad side of Section 8?

Johnny Andrews: I didn’t know inspectors could have good days. [laughter] So I have definitely experienced it, but I have the inspectors’ phone numbers. We talk, we communicate… And it’s hard at first to establish a relationship, because there’s a lot of carpetbaggers and scalawags that go in and out of these neighborhoods, and that are truly skullduggerous landlords. And they’re bitter, probably just like police officers, sometimes; they think everybody’s a criminal. But they finally over the years– I’ve developed a relationship with them, but don’t get me wrong, they will still break me in half when they have to, but I have good properties and I have good tenants. So the last five inspections I had, I didn’t have to do anything. So it hasn’t been terrible the last couple of years.

Joe Fairless: What’s been the biggest challenge that you’ve had within the context of managing lower-income housing?

Johnny Andrews: On our cash clients, collecting rent in a timely manner. I would say, maybe, 25% to 30% of our cash clients pay rent between the 1st and the 5th. Again, not being hyperbolic, it is crazy. We get the bulk of them between the 10th and the 15th, but a lot of that has to do with when the government sends their social security checks or disability checks out. Our cash clients, they make it complicated, but the hardest thing we’ve ever had to deal with was in the 2006, they had a gigantic flood, North Baton Rouge, and it flooded 20 of our properties, and it was awful. Those people were in a bind, and we were in a bind, but we pulled through… But collecting money from the cash clients is very hard. I went to eviction court today, by the way.

Joe Fairless: Okay. What are some tips that you have for solving that?

Johnny Andrews: Oh, you have to stay on top. You abide by the lease and force them to abide by the lease. I think that a lot of the landlords’ take what they can get in the area that I am in, and if you sign the lease, and you say you’re gonna pay between the 1st and the 5th and you don’t, we file evictions. Over the last few months or years or however long we’ll have to work on it, we’ll get the bad ones out and get the good tenants in, and right now, we are doing fantastic. Of all those properties, we have two vacancies. That’s it. I’ve never had anything like that. This has been an amazing year and a half.

Joe Fairless: If someone were to buy homes at that price point and work in similar areas that you’re working in with your properties, what are some tips that you’d give them before they start out?

Johnny Andrews: Subway is hiring. No, I’m joking. You have to stay on it. You’ve got to be hands-on. You got to be willing to knock on doors, and you have to hold people accountable. And finding a decent management company in such a labor-intensive market is really, really hard. I’m under the impression it might be different in other parts of the country, but where I am, you need to be the one knocking on the doors. They need to know who the owner is. That’s just what I’ve experienced.

Joe Fairless: So that’s not a scalable model, or is it?

Johnny Andrews: No, I wouldn’t think so. We have to be geographic, and that’s just where I’m willing to go. The good thing about it is the cashflow will allow me and my brother to diversify, which we’re looking forward to doing. Just right now, we bought a big package in October of last year that we’re trying to get settled in, and once I get settled in, we’re going to start broadening our wings.

Joe Fairless: Why diversify? I know I’m going against what I was just saying, where it’s not that scalable, but on the flip side, I’m going to be devil’s advocate for myself… Why go into other things if you’ve clearly had success with this?

Johnny Andrews: Of course, we’re going to continue to expand to doing exactly what we’re doing, where we’re doing it, but it would also be nice to have other income streams where we don’t really have to worry about too much. If we could put up a pile of money together with me and my buddy or families and maybe buy an apartment complex in a higher-end area, maybe even in another city somewhere in Florida, somewhere in Oklahoma or Kentucky and have a property management company run that bad boy, I’d like that a lot. Plus, I like staying busy, so that’s why I’m gonna keep doing what I have around. I live a mile from my office; it’s fantastic.

Joe Fairless: What’s a typical day look like for you?

Johnny Andrews: I lay in bed at night, wondering how I’m gonna pay all my bills. Then I wake up really early in the morning, and I make my rounds, I check out all the properties that might be vacant or where I sent somebody to go clean, or maybe I set my maintenance man to go patch some holes or hang some doors. I go check out all the stuff that was done the day before, and then I go in the office, check my Dropbox answer my emails, and then I just feel phone calls all day long. As soon as I get off with you, I got to go check out a tree fall on the house last night. So I got a bunch of properties that’s just got to babysit constantly.

Joe Fairless: How do you and your brother divide responsibilities?

Johnny Andrews: Well, my brother is in the oil business and he’s pretty busy. He runs a company. If we have to get financing or if he needs to wrangle emails or– he does office stuff every once in a while, but I’m the hands-on guy. He’s still running a company right now. We’re not to the point where he’s going to come on full time.

Joe Fairless: Okay. How much on average, factoring in expenses and vacancies and your gas to go knock on their door and all that, how much on average does a home of yours make per month?

Johnny Andrews: Cash flowing, between $250 and $275.

Joe Fairless: Okay, got it.

Johnny Andrews: I have a secretary, I have a full-time maintenance man, I’ve got some expenditures… And then these are all C class home, so it’s a lot of maintenance.

Joe Fairless: So that $200 to $275, does that factor in those other expenses, or you’ve also got to factor those in too?

Johnny Andrews: No, no, no, that’s what I put in the savings account.

Joe Fairless: Okay, about $250 a house?

Johnny Andrews: Yeah.

Joe Fairless: Okay.

Johnny Andrews: $250 to $275. Yeah, some really good ones out there do better than that, but across the board, that’s what I’m averaging.

Joe Fairless: Okay, got it. It’s a very profitable business, because 250 times 12 times 114, $342,000 a year. What would you say the homes are worth right now?

Johnny Andrews: On average $38,000 to $42,000.

Joe Fairless: Are you getting financing?

Johnny Andrews: Yes, sir.

Joe Fairless: What kind of financing do you get on it?

Johnny Andrews: Five year balloons, 20 year amortization. We don’t really have to put too much down anymore, because I have an investor that lets me borrow. I buy in cash, do some work to it, go to the bank and finance it, so I don’t have to put money down. And it’s all on a 20-year. We would love to have all this under one big portfolio loan. We’re in a process to try to figure out how to do that. We’re in the infancy stages in knowing what we’re doing. You’ve got to bear with me on that one.

Joe Fairless: Yeah, I get it. So the elephant in the room that probably is keeping you up more so than the bills and stuff, which they are obviously making money, so I know that was tongue-in-cheek a bit… But it would be the five year balloon, because that’s probably the biggest financial focus of yours, I would imagine, is getting these out of the five year balloon payments.

Johnny Andrews: Yes, sir. It’s still really not that bad, because if the banks ever come to it, they don’t want to take over 114 homes, especially where ours are. So we’ve got leverage, and we’ll make it work, I’m sure. We’ve already had to resign on the dotted line. So it’ll be not that stressful, I guess.

Joe Fairless: Okay, and what has been one of your favorite properties and why?

Johnny Andrews: How about favorite package? Because we’re buying packages now.

Joe Fairless: Sure. Yeah, package. Alright, cool. Let’s go with that.

Johnny Andrews: Okay, I guess in October of last year, we came across 38 houses from a couple of guys out of California that just got in over their head, and my brother and I were able to buy these. These are all ten year old houses. It had every appliance, central air and heat, planned houses, only ten years old. We bought all 38 of these for $1.1 million. Out of pocket, $250,000 for the down payment, which my brother and I had to squeeze together, by the grace of God, and some blood banks, we were able to do that.

Joe Fairless: [laughs] Sell your plasma. You get more money for that.

Johnny Andrews: Yeah, it’s good to know man [unintelligible [00:15:51].01].

Joe Fairless: My roommate in college would do that on a weekly basis or as frequently as he could.

Johnny Andrews: We would save money too back when I was in college; we’d go give blood, and then go to the bar. [unintelligible [00:16:00].10] so much to get drunk. Three beers and we were laying out in the grass to cool off. The good old days.

Joe Fairless: [laughs] That’s $29,000 a door. That’s pretty good. $1.1 million– Yeah, 38 homes, right?

Johnny Andrews: Yes, 38. It is absolutely amazing. Our cash on cash return is 70%. I got lucky. I was severely injured in November. We bought the houses in October, and I was working part-time as a nurse to pay the bills, and I guess I lucked out. I picked a good time to get hurt, because me being able to buy those packages, I now can afford to not be a nurse anymore, or work a second job. Not that I couldn’t before, but now I could comfortably do it, keep the lights on and my wife won’t leave me. So it’s been a blessing, this last package, and we’re super proud of it, and we got very lucky. The timing was impeccable.

Joe Fairless: So that one, you and your brother got the down payment out of your own pockets.

Johnny Andrews: The only time we ever did it.

Joe Fairless: The only time you did it. Okay, so now the business model for you, if I heard you correctly, is you borrow from one investor, then you do the work, and then you refinance it with the bank so that you have no money in.

Johnny Andrews: Yes, sir. That’s exactly what we’re doing.

Joe Fairless: Does the money for the rehab come from the initial investor who’s fronting the money to buy?

Johnny Andrews: No, sir. We have cash reserves just from our business, from cashflow, and we don’t take money out. We live very frivolous lives.

Joe Fairless: What are the terms for that one investor who you’re borrowing money to buy the homes?

Johnny Andrews: I don’t want to say it out loud because everybody listening is gonna be jealous, but it’s only 6%.

Joe Fairless: Okay. Any points?

Johnny Andrews: Nothing. 6%.

Joe Fairless: There you go. Yeah, so if the property takes you, say, six months to do a refinance, then it’s six months annualized. So really, you’re paying them 3%?

Johnny Andrews: That’s it. Yes, sir. The longest we’ve ever held any money for him was probably 60 days. We’re so lucky. I embarrassed myself for about six years trying to get him to do it, and finally, he did and I love him for it.

Joe Fairless: What do you mean by that?

Johnny Andrews: I wanted to do it this way. I wanted to be able to buy houses cash, because I know it gets better deals. I just didn’t have access to it. So I kept begging the investor to just lend me. He didn’t want to do it. He didn’t want to do it, he didn’t want to do it, and then finally, he sat me down at breakfast one day, me and my brother, and said, “Okay, I’ll give you $250,000. You can do whatever you want with it,” and then we got the $250,000 and we immediately paid him back within a few weeks and we just kept rolling since then. It’s how we built up to [unintelligible [00:18:33].03] we were able to do that way.

Joe Fairless: Wow.

Johnny Andrews: Yeah, we got really lucky. We’ve got some good people in our lives, that’s for sure; couldn’t have done it without them, or it would have taken a lot longer.

Joe Fairless: Well, based on your experience as a very hands-on real estate investor, which I love talking to hands-on investors, because just completely different perspectives from people who are not, what is your best real estate investing advice ever?

Johnny Andrews: Just stick with it, and the numbers don’t lie. You’ve got to be consistent, have a plan and stick to that plan. Know that sometimes you’re gonna have overages for your remodel and sometimes things will be a lot cheaper than you thought, but you need to stick to your plan and absorb and talk to anybody you can that does this, whether it’s somebody that’s been doing it for 30 years or whether they’ve been doing it for 20 minutes, everybody has something to offer, you just got to listen. Read that book Rich Dad, Poor Dad. It got me started on it. Not so much real estate, but it just gets you in the right mindset. Just stick to a plan and always listen to advice. Just try to get knowledge from investors or builders or whomever.

Joe Fairless: So you mentioned that numbers don’t lie. I do remember you mentioning the turnkey seller that you’re buying from, it ended up being 60% of collections, and I can guarantee that you did not think it would be only 60% of collections. So if a Best Ever listener is considering buying it from turnkey provider, what are some questions that knowing what you know now, you’d make sure you would ask him or her, the turnkey provider?

Johnny Andrews: All the questions I had were all answered concisely and precisely. I didn’t put my eyes on the property. I didn’t crawl under the house and climb in the attic. I just saw the numbers that coincided with a picture. I didn’t get my knees dirty and my fingernails dirty looking around at the product, and I should have, especially in the market that I’m in. I guess I can understand if you’re buying $200,000 homes in Orlando, where snowbirds are moving to, but where I am, in particular, you have to go look at the houses and make sure there weren’t termite damage, make sure that it’s not the 80 year old galvanized pipe. And then when they say they did a roof, they did a roof; just don’t take a man at their word. You’ve got to go check. That’s what I would recommend, in my situation.

Joe Fairless: Noted, and thank you for that. So I’m putting myself in someone’s shoes who is looking at turnkey properties, and they’re likely not the type of person who is going to want to and/or have time to go get under the house that they’re potentially looking at, and that’s why they’re using a current turnkey provider. So perhaps for them, they could pay someone locally to go look at it for them and just give an objective perspective on the area. So we just wouldn’t take the turnkey providers word on face value. Instead, we’d have an objective third party go physically look at it and just give a report on the area itself.

Johnny Andrews: I could never argue with that. Yeah, having a relationship with a broker or a realtor out there… Maybe you can take pictures and you could send them that– and you said objectively can look at something. That would be fantastic actually. I think you talked me into doing it.

Joe Fairless: [laughs] No, no. You keep getting [unintelligible [00:21:49].16]

Johnny Andrews: You’re pretty good, Joe.

Joe Fairless: No, it makes for more entertaining interviews. So you keep being the hands-on. I like it.

Johnny Andrews: I got your back man. Call me. I’ll have tales from the hood every three weeks for you.

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

Johnny Andrews: I am, man.

Joe Fairless: Alright, let’s do it.

Break: [00:22:12]:07] to [00:22:55]:03]

Joe Fairless: Alright. What’s the best ever resource that you use in your business? Something that you couldn’t live without because it really helps you get the job done.

Johnny Andrews: MLS, actually. The MLS that everybody and their brother uses. I find fantastic deals on the MLS.

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

Johnny Andrews: Buying sight unseen. I’m gonna stick with that one, even though we talked about it. That clearly bit me in the butt fairly significantly.

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

Johnny Andrews: I’m not as quick with my ambitions as I should be. No, I’m joking. My brother and I, we give to his church and his school for his son a lot of money. I wish it was less, but it’s a really good school and they take really good care of his two kids. I don’t have any kids, so I live vicariously through him. And then I’ve been a nurse forever. I love people. I’ve been taking care of people for a long time. I guess that’s how I give back. Just being me.

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

Johnny Andrews: They can email john [at] redstickbrothers.com or call me at 225-227-2512, and I’d love to talk shop. I would enjoy it immensely.

Joe Fairless: I enjoyed this conversation. Thank you for talking about your business model, how you are buying packages of homes, the financing from the equity. Well, actually, I guess it’s the double debt. One is you do a loan from a private investor, then you refinance it out and you put a longer-term loan on it once and you cash out the original investor. And the tips that you have for managing lower-income properties, as well as the focus for where you see the financing headed and how you’re looking to get ahead of that with a larger loan that encompasses all the property. So thanks for being on the show. Hope you have a best ever day and talk to you again soon.

Johnny Andrews: Yes, sir. Thank you, Joe.

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JF2075: Part-Time Real Estate Investor Benefits With Erik Schaumann

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Erik is a part-time real estate investor who began in single-family rentals in 2012, and since then he has bought 12 homes and is involved in multiple limited partnership deals and has a portfolio of $1.7M.  Erik has been able to leave his W-2 by being a part-time investor and has continued to be a part-time investor because he has recently traveled the world with his family. He shares with you what you should be asking yourself when it comes to leaving your W-2. 

 

Erik Schaumann Real Estate Background:

  • Part-time real estate investor
  • Began investing in single-family home rentals in 2012 while he was living overseas in Brunei, working for Shell Oil Company
  • Over his investing career, he has bought 12 homes and sold 3
  • Is currently invested in multiple LP syndication deals with over $1.7 million in AUM
  • Because of his REI passive cash flow, he was able to retire from his oil company job after 20 years and travel the world with his wife and 6 children
  • Based in Orem, Utah
  • Say hi at etsenterprisesllcATyahoo.com and www.8suitcases
  • Best Ever Book: 5am Revolution  

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Best Ever Tweet:

“Be realistic in what you are going to need, what’s that final number? Be realistic, don’t overshoot it because if you leave your job there are always ways to make money” – Erik Schaumann


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, Erik Schaumann. How are you doing, Erik?

Erik Schaumann: I am great, thanks.

Joe Fairless: Well, I’m glad to hear that. A little bit about Erik – he’s a part-time real estate investor. He began investing in single-family home rentals in 2012, when he was living overseas, working for Shell. Since then he’s bought 12 homes, sold three, also has multiple limited-partner ownerships in deals, and in total owns 1.7 million in his real estate portfolio, which is a combination of his limited partnership stakes, as well as the single-family homes that he owns.

Based in Orem, Utah. With that being said, Erik, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Erik Schaumann: Yeah, thanks. It’s great to be on your show, Joe, and I appreciate being able to talk to your Best Ever listeners. As you mentioned, I started investing in 2012. I was living overseas… And living overseas, I was working for Shell, so we had some income available to invest; we started investing in single-family homes through a turnkey provider. We invested in one, and then another, and then another, and it just snowballed until we got to 5-6. Then we sold two, and we bought four… So we had some nice equity gains. Those original houses were in Phoenix, and Phoenix in 2012 was the low point, and as it came back up… So we were able to sell two and buy four.

I’ve listened to your podcast for a long time, and you have so many professional investors that started companies… I’m kind of the small fish in the big pond, I’m just  a part-time investor. But those investments, the home investments gave us a passive income such that the company I worked for – I left Shell at the end of 2017, and we were able to travel. So we traveled full-time as a family, we literally went around the world.

Then when we were done traveling, after 18 months, I came back, and now I’m just working in a  small business, helping my mom literally with her business… And I haven’t needed to go back to work for an oil company, because we’re essentially living off of the passive income that our real estate investments provide.

So we’ve been successful in that regard, to give us the income we need to leave the rat race and leave the 9-to-5 and come back and do something that’s helping other people in a way that I wasn’t able to do before.

Joe Fairless: One tricky part with human nature is that when we achieve a goal, then we want to have another goal that we achieve, therefore we’re constantly reaching for something bigger… And the downside to that is when someone has a W-2 job and they’re looking to exit out, and they have a number in mind, and then they hit that number, they might think “Oh, well I don’t know if that’s actually do what I want it to do for my life, so I’m gonna wait, still have this job and make that number larger.” How did you think about that process prior to leaving your W-2 job to be like “Okay, you know what – I’m good, our family’s good. We’re gonna just do this thing.”

Erik Schaumann: It’s a great question, because we really did go through that type of thought process. I was working for Shell, I was overseas, I was making great money, and it was pretty easy money honestly, because it was 9-to-5, and it’s a big company… I did what I did, and I did it well, but they paid me really well to do it. And we got to the point where I literally said to myself “When is enough enough? When is my 401K large enough, is my real estate portfolio large enough? I can always build more, but when is enough enough?” For us, it was a timing issue, because we were at a point where we loved to travel, and my son had graduated from high school and he had taken a gap year, so he was still at home with us…

And my daughter was in college, but she was in a position where she could take a gap semester, and we kind of hit it right at the point where we could all travel as a family together again… And we took the leap. We did some financial planning, we said “This is what our cashflow will be over time”, and we decided that we’re doing it. And I left Shell. I was lucky to leave at the right time.

The other thing that plays into this situation for me was I left Shell at a time when I was offered a nice severance package… So it would have been financially better to stay  with Shell and keep working, of course, but at the time I was able to leave, I was able to leave with a nice severance package. So there was a severance to walk away, our investments had come to the point where we were comfortable, we have six kids, and timing-wise we were able to all continue traveling as a family, with my daughter back with us… And it was the last time that would be able to happen. So a number of things came together to make it such that we were comfortable taking the leap.

Joe Fairless: You have a portfolio of homes, and you also invest in apartment syndications… Why not focus on one, versus the other?

Erik Schaumann: All of my homes have been with investment money that was not retirement dollars… And when I left Shell, I took not just the severance, which was after-tax money, but there was some retirement money I had as well… So I decided to take that retirement money and I realized I could have put it into some homes, but I decided to just kind of take another route and diversify a little bit… So that’s when I found these limited partner/syndication deals. It’s with Ashcroft, actually.

Joe Fairless: I know Ashcroft.

Erik Schaumann: Oh yeah, you’re familiar.

Joe Fairless: [laughs]

Erik Schaumann: So it was just that chunk of retirement money that I decided to put into these other syndications.

Joe Fairless: But the Phoenix home(s) you sold – they did well; they got a chunk of cash, and you were familiar with homes, and you had the teams (I imagine) already in place. So why not just continue to do that?

Erik Schaumann: A couple of reasons… Number one, the houses did do really well, but from a cashflow perspective they haven’t panned out quite as well as I hoped. And I guess when I say that – they haven’t done as well as the paper said they were gonna do. You get the proforma from the turnkey, and they give you a number, and they say “Yeah, cash-on-cash you’re gonna probably do 7%-8%”, and I just never found that to be true. So I was looking for something different. That’s not to say I won’t buy more single-family homes, because I probably will, but I just wanted to try something different.

Joe Fairless: Any deals you lost money on?

Erik Schaumann: I haven’t actually lost money, but the worst deal I did was when I decided “You know what, these turnkey guys – they’re great, but I think I can do a little better.” So I went to Indianapolis and I answered an ad… I don’t know if you’re familiar with the Indianapolis market…

Joe Fairless: Not very.

Erik Schaumann: Okay. There was a guy [unintelligible [00:10:18].22] in Ocean Point, which was a bit of a fiasco. And I turned out much better than many investors. I got some class C properties from him, and I was used to dealing with class A and class B with the turnkey, but the numbers on the class C looked much better. You’re buying for 40k and you’re renting for $650-$700/month. I got the properties, but after a while — it’s kind of when Ocean Point went South, and they stopped communicating, and I just got nothing, so I had to change property managers… And that was major headache. When I finally got the new property manager on, I come to find out the renter that’s in my property is a criminal… He was wearing an ankle bracelet when they rented to him. We finally got him evicted, but he had done $17,000 in damage to the house. He had run it as a drug house, so I had to do all these renovations… And the changes and the rehab that had been communicated to me just wasn’t quite accurate, so I had to spend additional money to rehab it, to put it into a place of actually being able to be rented.

So that took some time to make that back. Those properties are now rented, and they’re cash-flowing pretty well now, but all that costs that I had to put into it and the major headache was not a fun thing

Joe Fairless: How has your thought process evolved when looking at new opportunities from when you first started investing?

Erik Schaumann: Definitely you need to look at other people who are investing with the person you’re thinking of going with. So I did do some due diligence — I didn’t go to Indianapolis, but I sent my mom, actually; I sent her to Indianapolis to meet these guys when I bought the homes… And they put on a pretty good show, but I never really talked to anyone else who was their customer; I didn’t ask for any references, I didn’t do that back-side due diligence, and that’s something I would definitely do again… And I have done in other deals as I’ve tried to do, is get some customers who are already working with them and find out what their opinion is.

And then also, I don’t think I’ll go into the class C market again. The numbers do look really nice, but you are dealing with renters that are in a much different situation, and it can be difficult.

Joe Fairless: For a high-income earner having a W-2 job, who wants to put together a plan to exit out, travel with his/her family, just like you, your wife and your kiddos did together, what are some suggestions you would have to him/her as they’re putting together their plan?

Erik Schaumann: A suggestion would be time travels a lot quicker than you might think. So when you’re starting out, it’s easy to think that you wanna get to the place faster than it really takes, but actually once you finally get to that place, you look back and you think “Oh wow, that seemed faster than it was.”

When we started investing in 2012, we knew it wasn’t gonna be immediate that we’d have a portfolio of nine homes. But little by little, you buy one house, and then you buy another, and then you buy two homes a year, and then you buy three homes a year, and if you have a five-year plan or if you have a ten-year plan, and ten years just feels like it’s gonna take forever to get there, when you start out it does feel like forever… But by the time you actually reach it, you just turn around and say “I can’t believe how fast that passed.”

So be realistic about how long it’s gonna take you, but don’t get discouraged if it seems a little longer than you want in that moment, because it’s always gonna be a little bit farther away than you think when you’re starting… But also recognize “Guess what – time flies, and it’s eventually gonna come.” So don’t get discouraged.

And the other thing is, like we said, be realistic in what you are going to need. What’s that final number and what’s that final amount of cashflow that you think you’re gonna need? Be realistic, don’t overshoot it, because guess what – if you leave your job, there’s always ways to make money. You may not make as much as you were going to, but you don’t necessarily have to be 100%  passive cashflow, able to do everything you wanna do when you leave… Because there’s gonna be opportunities along the way to make some more money and to supplement what you’re doing.

Joe Fairless: That’s a great point. I certainly was guilty of that whenever I had my W-2 job, and I was wanting to transition out. I was making 150k base salary at the time, and I was like “I’m just not going from 150k to zero, and then zero in perpetuity until I create a business.” I didn’t think at the time I could make money doing certain things that related to what my W-2 job was, it just wouldn’t be as much. So you don’t have to go from 100% to 0%; you can go from 100% to 25%, and then go from there.

Erik Schaumann: When we were looking at “When is enough enough?”, when I was working for Shell, we were saving towards our kids’ college, we were saving towards our own retirement… We were trying to be really frugal in what we did, and we were saving  a whole lot of money… And when you leave, you stop saving all that money, but that means you don’t have to earn that money to save it, either.

Joe Fairless: Yeah… [laughs]

Erik Schaumann: So let’s say you’re saving 20%-30% of your salary… When you stop saving 30% of your salary, that income is not necessary anymore.

Joe Fairless: Yup.

Erik Schaumann: So it sure would be nice to keep putting money in our 401K, but that’s the reason we left, is that I wouldn’t have to work to earn that money to put in the 401K. I’m letting the 401K work by itself, and we’re living with less, but our time is what I have instead of money.

I talk [unintelligible [00:16:04].24] all the time, and when we talk about traveling now, we think about  “Well, what do we have more of – time or money?” When you have more money than time, you buy the expensive, direct flight. But when you have more time than money, you can buy a cheaper flight, that takes longer to get there.

Joe Fairless: Any other suggestions for people who are looking to do something similar, or observations about your experience that would be helpful to share?

Erik Schaumann: Yeah, when we started full-time traveling as a family — there’s so many people who are doing it, and there are so many blogs out there that can give you advice and can give you some inspiration. It’s really nice to meet other people who are doing the same thing as you. And it seems like a very exotic thing to do – and I don’t deny that it is – but there’s just a community of people who are there to give you support and to help you out. So while we were traveling, some of our best experiences were just the people we met down in Guatemala, and down in Santiago, Chile, and when we were out in Bali, and Spain… All these people that we get to keep in contact with. There’s just some real joy that comes from that. So that’s one thing to think about.

And then another thing to think about is if you choose to leave your W-2 9-to-5, you just have a lot of time. There’s a lot of time to do other things. You may think like “I just wanna sit on the beach, with a drink in my hand, and the waves at my feet”, and that’s fantastic.

Joe Fairless: For half  a day… [laughs]

Erik Schaumann: For as long as you’re at the beach. But then you come home, [unintelligible [00:17:30].17] home temporarily in Orem, but then we’ve put our kids back in school, so I just have time again to think. You continually need to reinvent yourself. I’ve kind of spent a year doing something, and now I’m gonna need to reinvent myself to do something else… Which is an exciting challenge, but it’s also something that you need to think about. It’s not just once you leave work, and travel and  passive income – that’s not gonna be the rest of your life. There’s other things that you’re gonna need to think about.

Joe Fairless: How do you make sure that you remain sharp from a personal development standpoint?

Erik Schaumann: Well, I listen to a lot of podcasts, I try to educate myself that way. I have taken on something — when I came back and started to work at my mom’s company, that kept me sharp in terms of learning new things. I’d never worked for  a small business, so I had to learn all of these tricks and tips about working in a  small business, and advertising, and all the things that we do for sales.

So I think it’s just making sure that I’m doing things that keep me learning and keep me educating myself, so I’m always doing something new.

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

Erik Schaumann: My best real estate investing advice ever would be if you want to invest in SFRs through a turnkey provider, just find one that you trust. Find one that is gonna do what they say they’re gonna do. Actually, I’m working with Done For You Real Estate in Utah – they over-communicated, they showed me all the books, they showed me exactly what they were making… And it was just something that you could latch onto and say “Okay, these guys are gonna do right by me”, which is not what I got from the bad deals I did. So I didn’t learn at the time, but I have learned since – find someone that you really feel like you can trust.

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

Erik Schaumann: Yeah, let’s go.

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

Break: [00:19:25].03] to [00:20:10].21]

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

Erik Schaumann: The book that has changed my behavior the most was the 5 AM revolution by Dan Luca. I really enjoyed what he had to say, and I started waking up at 5 AM.

Joe Fairless: Okay. That’d be a  huge game-changer. How long ago did you read it?

Erik Schaumann: I’ve read it about  a year and a half ago, maybe  a little more; maybe two years ago. There’s just a lot to get done in the morning, and I’ve really enjoyed the time in the morning.

Joe Fairless: On average, how many days a week do you wake up by 5 AM? And I know your wife is sitting in on this interview, so she can fact-check it.

Erik Schaumann: Definitely Monday through Friday I wake up at 5 AM every morning, and then Saturdays and Sundays I give myself to sleep-in.

Joe Fairless: And what’s sleeping in?

Erik Schaumann: [7:30] or 8.

Joe Fairless: What time do you go to bed during the week?

Erik Schaumann: I try to get to bed by 10, but [10:30] stretches it.

Joe Fairless: What deal have you made the most amount of money on? Probably the Phoenix deals, right?

Erik Schaumann: Yeah. The first home I bought in Phoenix in 2012. I paid 95k for it in 2012. I’m putting it on the market next month for 240k. So that’s been a fantastic house.

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

Erik Schaumann: A mistake on a transaction has been not following up well enough with the property manager to just really understand what’s being done. Often they have a clause in there that says if it’s more than $500, we’re just gonna do it right away. And sometimes you can have a hand in that and say “Wait a minute…” So just kind of letting them too much without checking has been a problem.

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

Erik Schaumann: I love being near my alma mater, BYU. I like to go back and do presentations for the students, telling them about  my career… I work with a church youth group here, so I love to work with the young men… And then while we were traveling, especially in Guatemala, we did some work with some non-profits and built some houses, and did some gardening projects… I really liked working with the locals down in Guatemala.

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

Erik Schaumann: The best way is to email me. I’m at ETSEnterprisesLLC [at] yahoo.com. And if anyone’s interested our travel blog was 8suitcases.com.

Joe Fairless: 8suitcases.com. Erik, thank you so much for being on the show, talking about your and your family’s journey, how you all have got to this point, some investments that did not go well, what you learned, some investments that have gone well, what you’ve learned, and the variables that were in place in order to stop having that W-2 job, and moving forward into travel and spending time with your family, how you wanna spend it, and having more of that… Because it’s pretty much the main question that most people have, is “How can I spend the time how I want to spend it?” That’s ultimately what we wanna do, whether we verbalize that or not; that’s basically what it boils down to.

I’m really glad we had this conversation. I hope you have a best ever day, and we’ll talk to you again soon.

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JF2057: Short Term Rental Funding Long Term With Avery Carl

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Best Real Estate Investing Crash Course Ever!

Avery is the CEO of The Short Term Shop and is in the top 1%  of real estate agents and a short term rental expert. Avery and her husband are focusing on short term rentals to help grow their long term rental properties. Five of their short term rentals funded for 19 other properties. In this episode, she will be sharing their story and how they grow their portfolio with this strategy.

Avery Carl Real Estate Background:

  • CEO of The Short Term Shop brokered by eXp Realty
  • Top 1% real estate agent and short term rental expert
  • Bought her first rental property at 26 and has scaled to 24 doors
  • Has connected investors with over $125 million in cash flow short term rental investments
  • Based in Pigeon Forge, TN
  • Say hi to her at www.theshorttermshop.com  
  • Best Ever Book: Ego is the Enemy by Ryan Holliday 

 

Best Ever Tweet:

“For people looking to bootstrap and cash flow, self-management remotely is a totally doable option and is really the way to go.” – Avery Carl

JF2054: Selling Your Business With Steve Rozenberg

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Steve is the Vice President of Education for Mynd Property Management. Steve owned a property management company managing about 1000 SFR and he is also an airline pilot for United Airlines. In this episode, he shares the challenges and the psychological issues he was facing when it came to selling his successful business. 

The previous episode Steve Rozenberg was on – https://joefairless.com/podcast/jf172-pros-and-cons-of-investing-in-low-income-properties/

 

Steve Rozenberg Real Estate Background:

  • Vice President of Education for Mynd Property Management
  • Educates investors about the benefits of small residential investing with a variety of content, including podcasts, video blogs and more
  • Based in Houston, TX
  • Say hi to him at https://www.mynd.co/

 

Best Ever Tweet:

“Are we doing what’s best for the team and for ourselves by keeping it, or are we doing what’s best by selling it?” – Steve Rozenberg


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 fluffy stuff. With us today, Steve Rozenberg. How are you doing, Steve?

Steve Rozenberg: I’m doing good, Joe. How are you, buddy?

Joe Fairless: I’m doing great and looking forward to our conversation again. And Best Ever listeners, you can hear Steve’s other interviews. Just google his name plus my name, you’ll get a couple other interviews that we’ve done. Today we’re going to be talking about lessons he learned and experiences he had from selling his business that I interviewed him about previously. So now, Steve is the Vice President of Education for Mynd Property Management. They’ve got over 10,000 single-family home properties. He educates investors about the benefits of small residential investing, with a variety of content including podcasts, videos, and other things like that.

So our focus today is going to be on the sale of his property management company and lessons he learned, so that should you come across an opportunity to sell your business or get into a venture, where eventually you want to sell, well, this conversation will be helpful for you. So with that being said, Steve, first, do you want to just give a refresher of your background, and then we’ll go right into it?

Steve Rozenberg: Absolutely. So I’m down in Houston, Texas, and we owned a property management company. We were managing about 1,000 units, single-family homes. I’m also an airline pilot, so I actually have a full-time career, you could say.

Joe Fairless: I didn’t know you still had a full-time career as an airline pilot.

Steve Rozenberg: Yeah, I fly 787s for United Airlines.

Joe Fairless: Huh! Alright.

Steve Rozenberg: I do international stuff. So you can have a career and build a business and sell it; it can be done.

Joe Fairless: Wow. Impressive.

Steve Rozenberg: Yeah. So we were building our business and thinking of taking over the world as everyone does, and we’re going through the trials and tribulations that we all have. We were looking to expand in multiple cities and had been approached about maybe doing some licensing and franchising. Because I do international travel and I speak internationally as well, we were actually looking at maybe doing some stuff in Malaysia as well as in, possibly, Australia, just exploring the ideas with some people. So we were doing very well, our business was built on systems, processes, procedures, a lot of checklists because of my airline background; we implemented a lot of those things. So it was a very optimally-run company that was outsourced about 60% of it with virtual assistants in Mexico.

So we had a lot of leverage, and so we were very, I guess, in hindsight, we really were a prime company to be acquired or merged, however you want to call it, because our costs were low and our efficiency was very high. We were doing that to streamline for scalability and leverage on a growth model, and we had done this in about six years, this whole growth spurt.

So as we kept going, my role in the company was sales and marketing. So I was the one that was the face, tip of the spear if you will, and my business partner was the integrator, and he was the operator of the business. So no one really ever knew who he was. But I was out there, bringing in people interested. A lot of things we did where we’d redirect funds. So I’d go speak in other countries or in another states on the West Coast or other places, and redirect them to invest in Houston or into Texas, where we could manage the properties for a much lower price than what they could acquire something in let’s say the Bay area.

So as this progressed, we got very well known in the industry with systems and processes, and we got approached by a company. We had a couple of people actually approach us, but we really liked the people at Mynd, and when you start looking at this being a possibility – and Joe, I don’t know if you’ve ever gone through this… It’s very interesting because you’re taking something that you’ve built out of an idea, like a thought, you’ve built it up into a structured, scalable model. It truly was a business that was, for the most part running without us, unless we wanted to grow it, and you have employees and you have staff, so there’s a lot of loyalty, and you’re taking that and someone says, “We want what you have. We want to take it,” and there’s a lot of mental torment that goes on in your brain, because there’s loyalty, but there’s also your own loyalty to your family and to your time and what is it worth. My business partner and I, we had a lot of conversations on it, and it’s a tough thing to go through if you’ve never done it.

Now, a lot of people sell because maybe they’re losing their business or having challenges. We were the opposite; we were skyrocketing, and this just happened to come up. Again, I don’t know if you or your listeners have ever gone through this at some variation. There’s a lot of self-checking that goes on internally, a lot of internal dialogue. “Are you making the right decision or the wrong decision?” And there’s a lot of stuff that you’re going to mentally go through. There’s a lot of regret, a lot of emotions in the negotiations, which we all know is not the thing to do, but you’re selling the last seven years of your life, and you’re putting a dollar amount on it, and the acquiring company.

To their credit– when you’re building a business, nobody really knows the battle scars that we all bear when you’re growing a business. We know it and we’re like, “Wait a second. I remember sleepless nights, and trying to fund, and this and that,”, and they’re just like, “Hey, we like the asset, we’re ready to move, let’s sign the contract and go,” and you want a little coddling, you want a little hugging, a little bit. So it was a definitely– I don’t wanna say, over-emotional, but there was a challenge, mentally, to get over it and deal with the situation at hand, of “Are we doing what’s best for the team and for ourselves by keeping it, or are we doing what’s best by selling it?” That’s a tough question to go through, I can tell you that.

Joe Fairless: How do you find an answer to that question?

Steve Rozenberg: I’ll tell you what. We went on facts, we went on data, because the data doesn’t lie, the facts don’t lie. In the property management industry, there’s a lot of consolidation, number one. Number two, there’s a lot of disruptors starting to come in. It starts on the third-party cursory, like the property management software, and the apps, and all those things, and you can see the trend of it. The circle is getting smaller and smaller where they say, “Oh, you can’t outsource that” or “You can’t turn that into an app. This is a personalized business,” and a year later, that’s gone, and then, they say it again. So we were seeing the writing on the wall. We were also seeing that a lot of the larger scale funds, venture capital, private equity, they were looking at the property management industry as an industry that’s almost a– I don’t want to say recession-proof, but in good times, investors are buying properties so property management scales. In bad times, homeowners can’t sell their properties, so they turn them into management properties. So any kind of the equation, you’re always getting business, essentially.

So we knew that the larger venture capital and people were looking at this, and they were starting to gobble up the mom and pops. So what we were seeing is, what’s happening is, the small– I call them mom and pops, but the smaller unit management companies, they were getting eaten up a little bit. A lot of them, the average property manager age was 58 and a half years old. So a lot of them want to sunset; they want to go off and call it. Their kids don’t want it because they’ve seen their parents run themselves into the ground being a property manager, so they’re saying, “I don’t want to do that.” And the larger-scale companies were doing some more syndication, some more mergers. So who is left? The people like our company, the 1000, 1,500, 2,000 units, you’re kind of in no man’s land. We thought to ourselves, “Do we want to join them or do we want to have to fight them in our market?” because that’s what it comes down to. If they don’t buy us, they buy someone else. If they buy someone else, now we’re competing against their dollars.

So again, it’s tough, because you’ve got the emotion side, but you also got the logic side, and the logic was telling us the industry is changing just like any industry, just like Uber and bottled water and XM Radio. So we think that the industry in the next five years will be a complete metamorphosis of what it is today. I also think that Mynd Property Management Company, they are very much a technology company that’s managing assets. So they manage properties and they understand how to do that and they do it very well and efficiently… But again, just like an Uber, they think it can be a lot more streamlined than it is. Because you know as well as I do, in the industry when you talk to someone about a property management company, they’re horrible at communicating, they overcharge you. They do this, they do that. Well, when you think about it, those are all human factors that can be streamlined and possibly computerized in software, if the AI is smart enough. So we get enough money into a sector and things will change, and that’s what we are seeing, and that’s why we decided this is a smart move. Let’s keep going down this path.

Joe Fairless: Was it an unsolicited offer or were you actively looking for buyers?

Steve Rozenberg: No, it was unsolicited.

Joe Fairless: Came out of blue.

Steve Rozenberg: It came out of the blue.

Joe Fairless: You hadn’t considered selling and then you got this offer and you’re like, “Huh. Interesting.”

Steve Rozenberg: Well, what’s even a little more interesting on this whole thing, just our trajectory, we’d  been coached by a business coach for the last six years, and the business coach was part of a franchise. Well, the franchise is in about 85 countries. The founder lives in Las Vegas. As we were growing our company, he started watching us and starts talking to us about maybe scaling this on a national level and talking how we could do that, and next thing you know, we bring him in as 10% partner in our company on a large scaling model. What Mynd is doing is what he was saying that he thinks could happen with us.

The challenge though is, man, you’re grinding a lot of gears and there’s a lot of things when you’re getting money from people and venture capital and other things. If you’ve never done it, it can be a huge mountain to climb if you’ve never climbed that mountain, and when you’re dealing with other people’s money, I’m thinking, “I’m not sure that this is a path I want to take.” So when Mynd came in and approached us, and we started talking to them and saw everything that they were doing, it’s like, “Man, this is what we think we could do,” but seeing what they were doing– they have 40 developers constantly developing their own proprietary software. I’m thinking, “I wouldn’t even know how to begin to even fathom how to do this.”

Joe Fairless: Why so many of those types of roles?

Steve Rozenberg: Well, again, they are very much a software technology company. So they believe– the gentleman that founded Mynd, Doug Brien and Colin Wiel, they actually were two gentlemen that created a company about 10 years ago called Waypoint Homes, and they were purchasing homes at that time, and they collectively got up to 17,000 properties that they owned.

Joe Fairless: Wow.

Steve Rozenberg: So they’ve already done it before. They ended up going public. So they sat around and said, “We think we can do this again, but we think there’s a huge lack in the third party property management industry that has a huge void in customer service and technology, and we think we can fix it.” Because they said that when you get above about 10,000 to 20,000 properties, your biggest challenge is not having control of the software. That is your biggest restrictor, is what they explained to us.

So we realized that they’d already done it once. Now, they know the secret of the software is the key. That’s the nucleus of everything. I mean, everything spawns off of that. So their position was, which I think is very smart, they came out and said, “Listen, we are not the experts in the industry. We want to bring in the experts strategically in the industry like you guys at Empire, and some other people,” and said, “We want to hear how you guys do it, and we want to build a system essentially around that. We know how to do a lot of things, but we don’t know the third party management as well as you guys do, because you guys are in the trenches, dealing with it.” So they were very much like, “Best idea wins, but we’re willing to listen. You tell us and let’s do it.”

Joe Fairless: That’s fascinating, because you think the company that’s buying the other companies would be the expert in industry, but in reality, they are incredibly good at one area that they know is what the long-term success relies upon in order to scale, and that is, as you said, software, which if you give me a multiple-choice test or question and answer, and if software is option D, and expert in property management expert in financing, communication, contract work, I would have picked all of those over software. That’s really interesting.

Steve Rozenberg: I agree. I would have thought it’d be staffing, communications, responsiveness, but when you think about all those things, all of those things could run through a software, technically. It’s like Uber. You could never think that you’d get on your phone, which isn’t really a phone, but you get on that, you push a button, and some stranger pulls up in your driveway and says, “I’m ready to take you to XYZ.” So when you think about it, that’s really a software play. So I have learned, when we were growing our company, we really doubled down on leverage of virtual assistants, and a lot of people said they had challenges; they more had a mental block with it, and I said, “Well, let me ask you this. When you have a app, isn’t an app a form of leverage to do something faster than you were doing before? That’s what the app was created for,” and they agreed. I said, “Well, a virtual assistant is essentially the same concept. It’s an app; it’s a form of leverage.”

So what I have learned — it’s interesting, Joe… This is not something that I have been in, so this is all new to me as well. But what’s emerging in the industry is, if you think about, are things that cause less friction to the client. So when you think of Spotify, and you think of Uber, and you think of all these things, these are less frictionable things that give a better result and a better customer experience, and that’s what all of these things that are coming out, all these apps and all these programs and everything, that’s all they’re trying to do, is decrease the friction between customer and supplier.

It’s very interesting when you get into these conversations with some of these gentlemen. They’re based out of Oakland, so I’m spending some time up there, and I’m really listening and trying to be a student of how this works because, to me, it’s a whole new world. Like you said, you don’t really relate the two together, but when you think about it, it makes perfect sense that, yeah, it could be a software thing if it was smart enough, there was enough money pooled into it.

A lot of people talk about Zillow and how bad Zillow is, and Zillow is dipping their toe into the property management world, and I hear a lot of naysayers tell me they can’t do it, and I’m thinking to myself, “Are you kidding me? You throw enough money at anything and you can fix a problem.” And that’s exactly what they’re doing. They may not get it right in a year or two years. It’s just a matter of time. When you go to McDonald’s and you don’t even need to talk to someone and you push a button and you get all your food, that’s an indication of AI.

Joe Fairless: So switching gears from that to when you were coming up with a valuation with Mynd, what are some things that surprised you, either good or bad, about how they valued your company?

Steve Rozenberg: Sure. And obviously, everybody has their own thoughts and feelings of what is and isn’t included or should be included. As far as they were concerned, they were very, very upfront and very, very fair. Obviously, I can’t say what it was, but they were very fair and realistic, because we were fair and realistic. Now, there were certain things that I wouldn’t have thought it was a big deal, and there’s different ways I had learned to sell a company, in the sense of for a property management company, you can sell the company as a whole entity, or you can sell the contracts of the company. So there’s two different ways that you can sell your business. Now, if they buy the whole entity, that’s a lot more invasive, accounting wise, litigation wise to make sure that you don’t have anything pending, as opposed to a contract which is more streamlined. So that’s something that I didn’t realize.

Then there’s obviously, different payouts of how you can be paid out. Well, obviously it’s like winning the lotto; you want your money right now. It’s not as much as it would be if you stuck it out for a little bit. So I thought that was interesting.

And like I said, they were just very fair, but I will say, with that being said, you do have to remember that it is a business transaction and they have shareholders to protect and so do we. I would say that the one thing that I alluded to in the beginning, you really got to make sure that you remember that everybody’s going towards the same goal. Meaning, if you decide to dance with the company, you really have to understand that there is no emotions involved, it’s nothing personal, and sometimes the emotions will flare up and you almost have to step away and get back into negotiations, maybe a day or two later, because something that you’re hung up on in hindsight is really not; it’s more of your emotions that are dictating the conversation. That’s what I have learned from that.

Joe Fairless: What’s a specific example, in your case of that, when it happened?

Steve Rozenberg: Sure. So when we were talking about staff coming over– so for example, when staff would come over, and it was like, “Okay. Well, who’s coming over?” And there was no guarantees, but I’m like, “This guy is– he was the reason that we got to where we were. I really think we need to bring him over.” And they’re like, “We get it, we understand, but we can’t guarantee it because we don’t know his role in the bigger company.”

So a lot of the staff that comes over isn’t necessarily going to do the same role they were doing at your company. So you have to realize that they are buying the intellectual property, they’re buying everything about your company, but at the end, they really have the choice to do what they want with the team. I can’t say, “Oh, that person needs to be in that role. Wait a second, what are you doing with that?” It’s not my position anymore. You have to be okay that when you sell the company– and also, the one thing that was very tough was letting the team know and putting them at ease. Because once they find out something’s happening, you don’t want people to, all of a sudden, jump ship because now the deal doesn’t happen or even if it does happen, they’re buying the success of all the team and everything that the team has done. But of course, it’s human nature. We always think worst-case scenario. So some people, all of a sudden, start looking for jobs and doing this, and you’re like, “Hold on. Just wait up a second.” So you’re almost having to pacify people as well on that.

Joe Fairless: Any tips for that?

Steve Rozenberg: Yes, I would say definitely, before anything happens or comes out, we were very open with the team; we let them know from the beginning what was going on. We had an inner circle of leadership. We let them know, and we told them everything that we knew as we knew it. We got verification from Mynd that it would be okay, and we just wanted to make sure we kept open dialogue with everybody.

And as soon as we could know that we had a deal, we brought the team in, we said, “Here’s what’s happening. Here’s what we’re working for everyone.” So I guess, boiling that down, I would say, you have to overly communicate with the team, because the people that are working for you, they’ve got families, they’ve got livelihood, they have time invested, sometimes more time than we have invested in the company. There was many employees that were like, “Wow, I can’t believe you guys did that,” but we explained why, and they say, “Look, I understand and I’m glad you guys did, but it wasn’t what we wanted. It wasn’t what I wanted.”

And again, at some point, you have to say– and this is something that, when we were going through the transaction, we would say, “Well, we’re doing good on our own, we don’t need to sell.” And my answer always is, that could always change with a lawsuit, that could change with a law change, anything.

Again, I’m not trying to say worst-case scenario, but at some point, a bird in the hand, like if you have an apartment complex that you’re getting rid of and you go, “What? It’s making a lot of money.” But what can I do with the money that I’m making? I really thought of– and this is what I would tell people is, if you even talk to someone, that tells me mentally, there is a thought and a chance that you are willing to do something. Because if not, you wouldn’t even have taken the conversation. So if you do, think of what the opportunity cost is, of what you can do, not only with the funding that you get from the sale or whatever happens, but your time. Because that’s all you have is time.

So that’s the thing I would say, is really think about if you accept that meeting, don’t think of the worst case, think of what is the opportunity that could open doors. I’ll tell you, coming over to Mynd, for myself, has been a great experience because all of a sudden, it has opened up a lot more doors for me on the speaking panels, speaking circuits, traveling, doing exactly what I like to do, and what I think I do well at, that probably would not have opened up as quickly at Empire.

Joe Fairless: Steve, how can the Best Ever listeners learn more about what you got going at Mynd now?

Steve Rozenberg: Sure. They can find me on Instagram – @rozenbergsteve, or Facebook, Steven Rozenberg. They can also go to our website at Mynd. It’s Mynd.co, so it’s just co. If they google me, they’ll find a lot of stuff. I do a lot of speaking, traveling, and a lot of education. I’m all about educating investors,. Again, if anybody wants to know more, I’m happy to chat with them, but it was a great experience. I’m really glad I did, and I’m glad I’m able to share it with people that it wasn’t a doom and gloom, horrible, they ripped me off kind of story. Really, it was a fair situation that I think is worth anyone exploring if they own a business.

Joe Fairless: I love how you got into, first, be aware of the industry landscape, where it’s headed, what are the industry trends. So first, we need to be aware that. And this is applicable not only to selling a company, but also individual deals too, because you could talk about the market, the sub-market, the job dynamic within that sub-market… So first, just being aware of the business that you’re in and the levers that need to be pulled in order for you to continue to have success, and what happens if they’re no longer being pulled or what happens if they go to the other direction.

And then, if they are going in the right direction, then you’ll be able to negotiate from a position of strength, any opportunities that come your way, and then you can capitalize on those opportunities and then exit out successfully, and then move on to some other things or other deals if it’s a real estate transaction. So I love the thought process, applicable not only to selling your business, but also individual deals. I hope you have a best ever day, Steve, and we’ll talk to you again soon.

Steve Rozenberg: Thanks, Joe. See ya.

JF2051: Real Estate Tribes Approach During The Coronavirus With Travis Smith

Listen to the Episode Below (00:18:42)
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Travis is the CEO of Tribevest and shares the story of how Tribevest came to be and explains how they are being impacted by the coronavirus pandemic. He also shares what he is noticing in other tribes and how they are approaching the market. 

Travis Smith Real Estate Background:

  • Founder and CEO of Tribevest
  • He is a partner in several investment groups that invest in single-family rentals, multifamily, and commercial real estate
  • From Columbus, Ohio
  • Say hi to him at: www.tribevest.com

 

Best Ever Tweet:

“When everyone is panicking and selling, our tribes are pulling capital together, so when the time is right, they will be able to take advantage of great deals.” – Travis Smith


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 Travis Smith. Travis, how are you doing today?

Travis Smith: Good, Theo. Thanks for having me; glad to be here.

Theo Hicks: We’re glad to have you and thanks for being here, looking forward to our conversation. As everyone knows, we are in the middle of the Coronavirus pandemic, so we’re going to be talking about that today with Travis, how it’s impacting his business, his thoughts on it and what he is doing to combat it. But before we get into that, let’s go over Travis’s background.

He is the founder and CEO of TribeVest, which he will talk about here in a little bit. He is a partner in several investment groups that invest in single-family rentals and multifamily and commercial real estate. He is from Columbus, Ohio and his website is tribevest.com. So Travis, do you mind telling us a little bit more about your background and then what you are focused on today?

Travis Smith: Absolutely. TribeVest, first of all, just a little bit about the platform. We’re really a collaboration platform for investor groups. You can think of us as an operating system and a banking platform designed for real estate investors to come together, assemble, form and bank together, and ultimately do more as a result of pooling resources and pooling capital. So I’m really excited to talk about that. A little bit of my background – I come from the FinTech space, so digital banking and payments processing was where I came up, and then in 2017, 2018, came full time being the founder of TribeVest.

Theo Hicks: Okay. So do you mind elaborating a little bit more? Give me an example of what I have — I don’t know, $500,000, and I’m interested in investing in real estate, how would I use TribeVest to use that capital?

Travis Smith: Yeah, let me go back to the beginning, which is very relevant today. TribeVest was born from the last global crisis, the financial crisis, the Great Recession in 2008 and 2009. My brothers and I, we were on a fishing trip, quite frankly one that we couldn’t afford, and we were seeing the world changing around us. In fact, my uncle, who we had all looked up to and admired because he had a great job, worked for HP, was traveling the world, and after the Great Recession kicked in, he was laid off and was unemployable at the age of 55. It made us realize that everything we had been told to go to school, get good grades, get a good job and retire and die gracefully wasn’t going to work for us. We always saw real estate as a way to hack wealth without having to give up our day jobs, but we had that same problem that we all have – to break into private markets, to break into real estate, you need capital, lump sums of money that we just didn’t have.

On that fishing trip over a few beers, we had a breakthrough. We said, “Listen, guys. Let’s quit talking about doing real estate deals and address the problem right in front of us – lack of capital.” And in that moment, we said, “Let’s each agree to a manageable and monthly contribution of $500 each.” That was a stretch for us back then, but it was manageable, and between the four of us that was $2,000 a month, $24,000 a year, and that was how we broke in. One investment led to another led to another and led to another, and we look back and we’ve realized that by forming and funding that investor group, that tribe, we unlocked a future we could have never dreamed of, and over time, we were changing our future.

About three years ago, people started to notice, and they said, “Wait a minute, you’re investing in what type of deals? How are you doing this?” Then they would say, “Well, wait a minute, I have a tribe. We have shared financial goals. Can you help us form an investor group too?” And that’s when we thought about it, and said, “Is there a market here?” And of course, we realized, we looked back and we thought, “Gosh, what would we have done differently?” and we would have done a ton differently. Ultimately, that’s how we came up with our initial product, that now hundreds of investor groups are using to form and fund whatever their venture.

Theo Hicks: Okay. So your website’s like a fishing boat in a sense, where people come together who want to collaborate on some particular venture deal, let’s say, a real estate deal… And so they all just put their money together on that platform and then go off on their own to buy the deal? I’m confused on that aspect.

Travis Smith: No, I’m glad you’re clarifying this. Right now, we are deal-agnostic in that most of our tribes and our customers are coming with a pretty good idea of the deal they want to get done, whether it’s a single-family rental down the road that they’re putting together with their neighbors, or they’re participating in a multifamily syndicate, or a commercial deal syndicate, or whatever, it literally could be anything and that’s a fun thing to get into on what our tribes are investing in. But really, they bring the dream, they bring the deal or what their goals are, and we’re helping them facilitate. I think it’s important to point out here, Theo, and maybe you’re picking up on it – what we’re doing is nothing new. We’ve been surviving and thriving as a tribe since the beginning of time, and certainly in real estate, since the beginning there too, people have been coming together, forming groups to get deals and bigger deals and more deals done.

So we didn’t invent the idea of tribe investing, but what we are providing that was missing out in the marketplace, was a neutral third-party platform that took the burden off the members of the group, especially the initiator. It was always trying to figure out how to market the tribe and the deal and, “Hey, this is my deal” and “Come on in”. And now there’s a platform that takes the burden off of everybody, where the initiator could come in, build a vision and a mission for the group, and then share that out to prospective members and invite them in to collaborate, co-create, “Are we aligned?” Then we’re just as proud of the groups that go on to achieve awesome deals as we are the ones that never get going, because we feel like we’ve done our job.

When we are looking back at our initial tribe, when we said, “Hey, what would we do differently?” one of the big things was, “I wish we would have taken more time to align and qualify and agree on our expectations.” We always say more important than the rules are the rules upfront – the how much, the how long, then what, and what if; all those things you don’t necessarily want to talk about or you feel like you don’t really need to – well, you do, and TribeVest helps you do that in a very fun and systematic way.

Essentially, what we’ve done is we’ve mitigated emotion by making sure that you’re taking care of those things upfront. I think you’re picking up on it. Our main value here is we keep the relationship the main priority – more valuable than any of the deals you’re going to be getting done. It’s more valuable than any of the deals or anything are those relationships. Anybody that’s been around long enough or been in the business long enough would have a hard time arguing that.

So this platform is designed for you to come in, align, assemble, agree, and then all those other things that are out there, but we’ve just streamlined them. We made them super easy, we’ve automated. You can file for your LLC in all 50 states. A really unique thing, at least for business partnerships, is once you have your EIN, your LLC, you can open up an FDI business bank account online with your partners, and have access to this tribe view dashboard with all your documents, all your banking activity, your balance. You can propose deals, you can discuss those deals, vote on those deals. So just a true collaboration platform that happens to have the entity formation and the business banking part of it too.

Theo Hicks: Thanks for sharing that. I understand a lot better now what you guys are doing over there. So your company name is TribeVest, so you obviously have a massive network, a massive tribe. I want to transition now to talking about the Coronavirus. So what are the people in your tribe thinking about this right now and how did things affect their investing, their jobs? You mentioned that a lot of people who do this are also working full-time day jobs? So can you just walk me through where your head’s at and where your tribe’s head is at currently?

Travis Smith: My tribe aside, what are we seeing out there across our network and our community is really interesting. I think one of the things that we’re seeing is, we’ve seen a surge in registrations, just over the last three weeks since this happened, and we’re attributing that to a couple things.

First, I think people are thinking about ways to connect with people they care about, and knowing that we can’t do that physically, we can’t do that or get together and socialize in person, we’re figuring out ways to leverage technology platforms that bring us together, and TribeVest also does that. My brothers and I, our tribe, not only is it the reason why we’ve been able to build wealth and be in the position we are, but it’s also our most favorite thing we do together. We’re spread all over the country and it’s what brings us together. It’s the reason why we’re talking on a weekly basis. So just an interesting thing that we’re seeing is this surge in registrations.

I think the other thing that we also empathize with is there’s this mass consciousness happening right now. It doesn’t happen all the time, and usually, it happens during these moments of crisis, especially global ones, where we’re all in similar situations and observing the same news and have the same fears, and it’s an incredible time to rethink your future. Like my brothers and I, during the last financial crisis, we didn’t want to be a slave to our paycheck, we didn’t want to be dependent on our 401(k) on Wall Street, and everybody we knew that was independently wealthy and had true financial freedom was investing in real estate, but we didn’t know how to start.

That’s one of the main things, Theo, that TribeVest enables people to do. It gives people the ability to start; you can form with people you know, like and trust. So there’s confidence and safety in numbers, and then being able to pull capital in a manageable and monthly way, is super powerful.

So one of the things that we do is, even before you form your LLC, or before you open up a business bank account, before you formalize, we give you the ability to start contributing capital in parallel together. So I’m putting $500 a month or $1,000 a month into my personal FDIC savings account. But, Theo, you’ve agreed to that too, and so has Sue and so has Jeff, and we all log into the same dashboard, and we can see collectively how much capital we’re pooling, so that when opportunity does knock, when a deal does come across our table, we have capital and we can answer the door and the opportunity.

So that’s one way that our tribes are taking advantage of it. While everybody else is panicking and selling, our tribes are pulling capital in a manageable monthly way so that when the time is right, they’ll be in a position to take advantage of great deals and build wealth that way.

Theo Hicks: Is there anything else as it relates to your business, your dealings and the Coronavirus that you want to mention before we sign off that you haven’t talked about already?

Travis Smith: Yeah. I think we touched a little bit about it – from change comes opportunity. And the winners of the next year, two years or three years, whatever this is going to look like, are going to be the ones that have capital and are able to reinvest or invest in different opportunities that come from this change. No doubt, we don’t know what this is going to end up looking like, but things have changed, which again means there’s opportunity. So just keeping that mindset and always looking to grow for that opportunity.

Theo Hicks: Perfect. And then where can people reach you to learn more about TribeVest?

Travis Smith: Tribevest.com. They can follow me at @TribeTrav at Twitter. We’ve also built a landing page for your audience at tribevest.com/bestever, and we’ll have special information for them there.

Theo Hicks: Perfect. Well, Travis, thanks again for joining us today and telling us about your platform TribeVest, as well as your thoughts on the Coronavirus. So just to summarize – and I’m pretty sure I fully understand how TribeVest works now – it’s a collaboration platform for investor groups. You call it the operating system and banking platform designed for real estate investors to pool resources and capital. Basically, I, me and a few friends have an idea of a business idea, or maybe we just have a particular deal that we want to do, we don’t know exactly how to get started, we can come to TribeVest and they can help us with all of the things that we need to do to set ourselves up for success including, it sounds like, strong focus on creating an upfront business plan with the correct rules, the correct expectations and the correct vision, and basically help us facilitate that deal.

You mentioned how the idea was born from the 2008 recession, and that you realized that you needed capital to break into real estate. So rather than focus on finding deals, you focused on ways to get capital, and you and your brothers each agreed to do $500 per month, and that’s how the business started. Then what you also mentioned, that I really liked, is that the one thing that’s more valuable than the deals and really anything else are going to be the relationships. You try to focus on that a lot at TribeVest.

Then more COVID-related, you mentioned that you’re seeing a surge in registrations over the last three weeks and you attribute that to number one, people needing ways to connect virtually because they can’t do it physically in person. And then also, the fact – and this is a very true point – that everyone’s really in the same situation; the news is the exact same for everyone, it’s always about Coronavirus. So everyone has the exact same fears, which means it’s a great time to rethink your future and what you are going to be doing once this eventually ends, and that the winners of the next few years and after this ends are going to be the ones that have capital to invest in the different opportunities that come from this change. Obviously, that starts with, as you mentioned, the most valuable thing, which is your relationships and your network.

So again, Travis, thanks for joining us. Best Ever listeners, as always, thanks for listening. Everyone, stay safe, have a best ever day and we will talk to you tomorrow.

Travis Smith: Thanks, Theo.

JF2050: Managing and Dealing During The Coronavirus With Shannon Robnett

Listen to the Episode Below (00:18:04)
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Shannon has 25+ years of real estate experience owning 500+ properties, experienced builder, and syndicator. His family has always been in real estate where dinner conversations consist of real estate deals. In this episode Shannon shares the ways he is approaching his investors and residents to make sure they are all taken care of and his business stays safe. 

 

Shannon Robnett Real Estate Background:

    • 25+ years of real estate investing experience
    • Developer, builder, and syndicator in multi-family and industrial
    • Currently owns 500+ properties
    • From Meridian, Idaho
    • Say hi to him at: www.shannonrobnett.com  

 

 

Best Ever Tweet:

“Communicate early and often” – Shannon Robnett


TRANSCRIPTION

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

Shannon Robnett: Good, Theo. How are you?

Theo Hicks: I’m doing good, thanks for asking, and thanks for joining us. Today, we’re gonna be talking about the coronavirus, which seems like everyone is talking about today.

Shannon Robnett: That’s for sure.

Theo Hicks: So we’re gonna ask Shannon how the coronavirus is impacting his business and the things that he is implementing in order to combat it. But before we get into that, let’s go over Shannon’s background. So he has 25+ years of real estate investing experience, he’s a developer and builder of all types of real estate, as well as a syndicator; he currently owns 500+ properties, and he’s from Meridian, Idaho, and you can say hi to him at his website, which is shannonrobnett.com. So Shannon, before we start talking about the coronavirus, do you mind telling us a little bit more about your background and what you’re focused on today?

Shannon Robnett: Sure, Theo. So I grew up in a real estate family, so I watched my parents do deals at the kitchen table and talk about if we sold this, we could buy that. My mom is a third-generation realtor, my son is a fifth-generation realtor, and my dad is a general contractor. So I kind of got that growing up. I didn’t really see that there was much option for me with that background. So I’ve always been about doing deals and putting things together, and we’ve just been able to continue to grow a business that meets the needs of our clients, meets the needs of our community. So with that, it’s definitely kept me busy and given me a lifetime’s worth of work.

Theo Hicks: Perfect, thanks for sharing that. As you mentioned before, you’ve started — so you’re a builder and developer. So you build all types of properties – commercial, industrial, multifamily, retail, but then you mentioned that you don’t own those. But you own 500+ properties. What are those? Are those multifamily, or are those something else?

Shannon Robnett: Currently, we just finished 180 doors. We’re in process, right now, of constructing one particular project of 191. We’ve got another project at 36, and then we’ve got two other projects that total another 200 doors that are under construction. So we develop those, we find the ground, we put the deals together. I also own industrial space. We’ve got multi-tenant industrial buildings all over the valley. But the retail business, the office business is just a little bit different business, and is just one that I’ve chosen to stay out of, and we’re seeing a decline in retail, we’re seeing a decline in shop space, and things like that. So that’s just an area that I’ve stayed away from.

Theo Hicks: Okay, and then all of the other multifamily projects you were talking about, will you then own those or manage those afterwards, or do you then sell those?

Shannon Robnett: Our goal is to build them up and then sell them, essentially to another one of our entities that is a syndication entity. I also do have a property management company, so I keep real tight control on what value my tenants are getting, making sure that we’re more concerned about the bottom line, giving the tenant the experience that they’re willing to pay for, because we all know, at the end of the day, that affects the value of the property through the cap rates. So we’re always, always managing our own.

Theo Hicks: So, for your syndication business, are you raising capital from other people to fund those deals?

Shannon Robnett: We are raising capital from other people. We’ve got a pretty good network. Obviously, we’re always willing to have other people join our projects, but we’ve been pretty good with that. Myverticalequity.com is where our capital raise is centered out of, but our investors that are on our syndications are in the mid-20s for their returns, in their IRR.

Theo Hicks: Okay, yup. So the reason why I was asking you all of those questions is I wanted to see what you were all involved in, so I can figure out what type of questions to ask with the coronavirus. But it seems like you’re involved in everything, so can we take this really in any direction. So let’s start with property management. So you said you have your own property management firm. Before we start talking about communicating with tenants, let’s talk about the operational perspective. I know a big thing right now is collecting rent. So we’re recording this on April 8th. So April 1st was the first of the month, when rent was due. So maybe walk us through how that went, what type of things you did to make sure you were able to collect the rent, what types of concessions that you guys came up with for your residents, or really just walk us through what happened.

Shannon Robnett: Okay. So when this whole thing started coming out, we sent out a memo to our people. It was about the 25th of March, and we hand-delivered it, actually put it on everybody’s door, letting them know that we were interested in understanding if they were affected by it and if they could let us know that there had been some change; maybe there was a letter from their boss or their unemployment filings or medical notice, we were willing to work with them.

So our approach was always to reach out to our tenants first, because we want to maximize that experience for them. So contacting them about this early really put us ahead of the curve, because we started hearing rumblings, we started having tenants come to us, and everybody is afraid of the unknown. They don’t really know what’s going to happen next. They don’t know how secure their job is. So just being able to come and talk with us.

Then when it progressed a little further and we started seeing states shut down and things like that, when we closed our amenities, we immediately told the tenants that in April, that we would not be collecting for the RUBS, nor would we be collecting for the cable, and the internet. So the tenants felt like they were being compensated for not having the amenities. So from there, we were able to really build a bridge with them and begin to continue the conversation. Moving forward, we had about five people come forward and most of them were interested in how this month was going to go, but how next month was going to go. So we were able to build a bit of a forbearance where we reduced the rents here, and then extended them by another year in the property, and spread out the discounted rent over that time period. So they were able to feel like we heard them, they had a choice in how that was going to go, we weren’t looking for a raise for next year, but we were able to spread out the discount of this month and next month over that period of time.

Theo Hicks: Okay, so we’ve talked about the residents side of things. What about your investors? So how did you handle communication with the investors? So these are deals where you, obviously, raise money from people, they’re used to getting their returns, they’re used to things just going as normal. From here on out, you really don’t know what’s going to happen by the end of the month, so what types of conversations, emails, phone calls have you had with them?

Shannon Robnett: Well, Theo, we used the same philosophy with our investors as our tenants, and that’s  communicate early and often. So we reached out to them with an email, letting them know that we didn’t know what was going to happen. However, we reminded them that we did have cash reserves that we could pull from, that we weren’t in trouble of not making our payments this month, nobody had issues with any of those things. And really before they ever got concerned, we took the proactive step with them and just let them know there was no reason to be concerned. And then after that, as always, we’ve really tried hard to stay in front of them, and most of our investors aren’t that concerned, because we are always communicating often.

Theo Hicks: So you sent an initial email. After that first email, how often were you sending emails? Every day, every week?

Shannon Robnett: We gave them an update on the fifth, and then we’re starting to do a weekly wrap up. Hey, here’s how many people we had come in looking for some assistance, here’s what we think to do, here’s how we’re going to handle it, here’s how that would potentially affect cash flow. So we’re going to start doing that on a weekly basis as we move on, just so that we over-communicate and don’t run into issues.

Theo Hicks: Okay, and then what about on the opposite side. We talked about deals that you already completed, that you have a property management company, have tenants, have investors. You mentioned that you’re working in a few development deals. Are those being impacted at all or are those still on schedule, everything is going smoothly?

Shannon Robnett: Well, construction is considered an essential service. So our contractors have been on site and moving forward as scheduled. It has given people a time to pause, as far as jumping into our deals, but it’s also been a funny time because we’ve seen a lot of people wanting to get out of the stock market and coming to us and saying, “I decided I want to invest with you guys now.” So we’re seeing both sides of the spectrum there, where we’ve got people coming into our deals faster than we thought, on stuff that we have shovel ready that we’re moving forward on. Some of the stuff that’s in planning that’s out six to nine months I don’t think is going to be bothered, but right now, we don’t know.

Theo Hicks: Okay. As you mentioned earlier about forbearance – are those conversations you’re having with your lenders?

Shannon Robnett: No, we’re not in a position where we need to have a forbearance conversation with our lenders. We’re just doing that with our tenants and we’re structuring it… Because everybody’s hearing that word in the media, and tenants like to get what everybody else is getting. So having them talk about, “I’ll give you half off of April and half off of May, and then we’ll add it on to June and July and spread it out over the next 12 months. And maybe that requires a lease renewal, but we’re great [unintelligible [00:10:32].28].”

Theo Hicks: Alright, and then another question. Obviously, they recently passed– it was last week, I don’t know time is like a time warp right now…

Shannon Robnett: Right. You’re running in quicksand.

Theo Hicks: I saw a funny meme – January is 31 days long, and then February is really short, it’s 28 days long, and then March is 6000 days long. Something like that.

Shannon Robnett: Right, right. Exactly.

Theo Hicks: But anyways– so they passed the CARES Act. I was wondering if you have investigated it or are taking advantage of any of the loan programs – the EIDL, the PPP loans at all?

Shannon Robnett: Yeah, we have applied for both the PPP and the EIDL loan program, and the reason that we’ve done that is because our employees were really excited when we applied for the PPP program, because they knew that there was an opportunity for additional protection for them, and it also puts us just in a stronger position on a balance sheet to have those funds available if we need them. They’re grants that can be paid back, but if you’re not applying for them, you’re definitely not going to be eligible. So having the opportunity to get the cash while it’s available is definitely, I think, prudent business.

Theo Hicks: Yeah, and then for the EIDL, that $10,000 advance is considered a grant. I don’t think you got to pay that one back, is that right?

Shannon Robnett: That’s my understanding as well.

Theo Hicks: It’s confusing, but it’s my understanding too.

Shannon Robnett: Yeah, and that’s the thing. We’ve applied for this and I’ve stayed in touch with our lenders on this. Everybody’s trying to get to the bottom of it. I know that– typical government, they say, “We’re going to do this,” and then they throw it off onto another agency that’s got to sort out how that actually gets implemented. But from the standpoint that cash flow right now or cash in hand right now is what everybody’s looking for, any opportunity to increase that and have that to work with later is definitely a great option.

Theo Hicks: Okay then the last question, I’ve been asking this to everyone who I’ve talked to this about… Where do you see your industry – let’s just call it, I guess, development – in six months or a year from now or once this is all over? Do you think it’s gonna snap back to normal or do you think there’ll be any changes, and if so, what do you think those changes will be, and then are there gonna be opportunities, just like there were after the 2008 recession that people should be aware of?

Shannon Robnett: I think that we’re going to snap back fairly quickly. The biggest difference between right now and 2008 is that there’s inventory shortages everywhere. So with the inventory shortages, I think we’re going to see it snap back pretty quickly. I don’t think that we’re going to go into an 08′ type recession, because that had a lot of product available. But I do see that there are some people that shouldn’t be in real estate, that are going to get removed fairly quickly… But those of us that have been here for a while that are about staying the course, I think you’re going to be just fine.

That’s the way it is with development. We’re always looking 12 to 24 months down the road anyway. So I see that we’re going to see some positive changes in how the lending market is going to respond to this, because I think that, like most things, lending has been getting a little bit loose and a lot of people that maybe shouldn’t be doing this are getting in the waters which is making it a little muddy.

Theo Hicks: Yeah. I think that’s a common theme that everyone thinks that this is going to, in a sense, weed out the fakers, so to speak, that shouldn’t be investing in real estate. So I guess that’s probably a plus plus, once they do leave and they’re trying to sell their properties. Those are opportunities for people to take advantage of.

Shannon Robnett: Yeah, like Warren Buffett said, “When the tide goes out, you can see who’s swimming naked,” and I think that there are going to be opportunities, but I don’t believe that they’re going to be the opportunities that we saw in ’08, ’09, because most people, if they’re not in a cash flow position right now, they’re not far from it, because they’re not dealing with the vacancy that would require a lot of discount in multifamily. Single-family is still selling very well. In most areas, there’s not enough inventory of that. So if their single-family product comes back on the market, they’ll get snapped up pretty quickly.

Theo Hicks: Alright. Well, Shannon, I really appreciate you coming on the show today and sharing your background, first of all, but also how the coronavirus is impacting your business and some of these solutions you’re putting in place. Just to summarize, from a resident-tenant perspective, you mentioned that you initially sent out a memo, hand-delivered memos – first time I heard about that – to all of your tenants asking them to let you know if they’re going to be affected financially by the coronavirus.

So you reached out to them first and early; it was a theme with communication. You mentioned that once you closed the amenities, you told residents that you would not be collecting for the RUBS or internet or cable. So they felt like they were being compensated for not having the amenities, because as everyone knows, those aren’t a monthly fee or anything. They’re just built into the rent. I thought that was a very solid approach. And then, you mentioned that people who needed help, you extended their lease by a year, and then spread their delayed payments over that timeframe. So that was your repayment strategy.

For the investors, you mentioned that you sent them an email on 5th of April that you don’t really know what’s going to happen, but here’s all the measures we have in place that makes us think we’re going to be okay. We have reserves, we’re not getting any trouble paying any expenses. So just like the tenants, you acted quickly. You mentioned that you’re also doing a weekly wrap up emails. I really like that. So just mentioning, “Hey, here’s what happened this week, here’s who needed help, here’s we’re going to do, here’s how it’s gonna impact the financials, but we were still okay.” So just trying to stay in front of them as much as possible.

You mentioned from a construction perspective — I didn’t know that construction was considered an essential service, so you’ve got your contractors are still there working. You got some people who are not interested in investing, but then you’ve got more new people coming in who want to get out of the stock market because of how poorly that’s been performing.

You mentioned that you applied for both the PPP and the EIDL loans, that your employees were excited about the PPP because of the extra protection that they’ll get, and that it’s good to just to have cash right now, because you have stronger balance sheets.

We talked about your post COVID predictions, that you don’t think it’s gonna be as bad as 2008 because the fact that there are inventory shortages right now, and that you think that once it’s all over, people who shouldn’t be in real estate will have been kicked out, and that there’s gonna be positive changes in lending and lending requirements because it’s been a little loose, which just allowed these people to come in… And again, that you don’t think it’s going to be like 2008 because vacancy was much lower then and inventory was much higher then. So I think that covers everything we’ve talked about.

Shannon Robnett: That’s it.

Theo Hicks: Again, really appreciate you coming on the show and being willing to talk about this stuff.

Shannon Robnett: Thank you, Theo.

Theo Hicks: I’m glad to hear that you’re doing okay. I’m glad to hear that you’re safe. Stay safe. Everyone listening, stay safe. Have a best ever day and we will talk to you tomorrow.

Shannon Robnett: Thanks, Theo.

JF2047: 2008 vs Coronavirus With Chris Clothier

Listen to the Episode Below (00:21:53)
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Chris is a partner of REI Nation and he personally owns $12-15M in residential holdings and commercial real estate. Chris has been on the show before on two other episodes, links are provided below. In this unique episode, Chris shares his thoughts on the differences and similarities in the 2008 crash and the current coronavirus pandemic.

Previous Chris Clothier episodes.

3 common mistakes forming a business partnership

Faith will ruin real estate business

Chris Clothier Real Estate Background:

    • Partner of REI Nation 
    • REI Nation manages an $800 million (M) portfolio consisting of single-family residentials
    • Chris personally owns $12-15M in residential holdings and commercial real estate
    • 18 years of real estate investing experience
    • From Memphis, TN
    • Say hi to him at: www.reination.com   

 

Best Ever Tweet:

“You need to be in planning mode, you have to plan for the 10 things that could happen.” – Chris Clothier


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 the fluffy stuff. We’ve got a special segment for you today. We’ve got Chris Clothier on the show and he’s gonna be talking about the differences between 2008 and the current real estate market with the coronavirus pandemic. So, first off, Chris, welcome and good to talk to you again.

Chris Clothier: Yeah, Joe. Thank you for having me. I appreciate the chance to just jump on here and chat with you a little bit.

Joe Fairless: Well, I always jump at the chance to talk to you. I have a lot of respect for you as a business person and as a human being, so I’m grateful for talking to you as well. A little bit about Chris – he’s a partner of REI Nation. REI Nation manages a $100 million portfolio consisting of single-family homes. He personally owns between $12 to $15 million residential holdings and commercial real estate. He’s got nearly two decades of real estate experience, based in Memphis, Tennessee. So, Chris, can you give a very, very brief refresher of your background, and what you do, just for some context for our conversation? …and then let’s talk about your thoughts on the differences between 2008 and what we’re currently experiencing with the coronavirus pandemic.

Chris Clothier: Absolutely. So for those who don’t recognize the name REI Nation, my family founded the company called Memphis Invest, and Memphis Invest rebranded as REI Nation when we moved into our seventh market for managing single-family homes for passive investors. So we started in Memphis back 2002, 2003 range. Today, as you alluded to a few minutes ago, we’re managing over 6000 single-family homes for passive investors, and really our specialty is what’s become known as the turnkey niche. So we are purchasing, doing high-end renovations, then placing long-term residents into those homes, and then we manage them once they are purchased by a investor that wants to be strictly passive. They just want to own the asset, have someone else manage the day-to-day. That’s what we do today. That’s about an $800 million portfolio spread across seven cities in the southeast Midwest area.

Joe Fairless: What are the cities?

Chris Clothier: We’re in Memphis, of course, where we started, and then we’re now in Dallas and Houston, Texas. We’re in Oklahoma City and Tulsa, Oklahoma. We’re in Little Rock, Arkansas, and St. Louis, Missouri.

Joe Fairless: Okay, got it. Cool.

Chris Clothier: And as you alluded to, we were a growing company in the very, very early days of the boom for passive investments, when it was becoming very popular across forums online and across the ability to use the internet to reach out, connect and due diligence on passive investments around the country. We were right there at the forefront of it before the first recession hit.

Joe Fairless: So how did tenants, how did owners react then versus what you’re seeing now?

Chris Clothier: Well, the interesting dynamic between the two is that back in 2008, there were a lot of people that were talking about a housing bust, that there was a bubble that had been created artificially, and that was through people that were buying property that had no business buying property, people that were highly, and even over-leveraged. You just had this inflation of value that there were a lot of people that were warning at the time that it was unsustainable, and then you had suddenly, this slow drip of bad news. It started, of course, with Bear Stearns crashing, and then – I’ve got my dates pretty close to accurate – about 15 months later, Fannie Mae pulling out of the investment market and dropping investors from, I believe, ten properties down to three properties that they would finance overnight. So from a Tuesday to a Wednesday, you went from having an approved loan and a property under contract, to your loan was canceled. Even if you had a closing set for 8 a.m. in the morning, it was no longer closing. So there was this slow drip of a crisis developing and all sudden, boom, one day you had the drop.

What’s happened here now is really a compression of just bad news and fear. But many of the hardships that are going to face the real estate industry as a whole, they’re still in front of us. They haven’t really hit yet. This is a whole new set of issues, from rent and mortgage abatement and some of these other things that are coming up, and the difference right now is that there’s no room to even take a breath. You’re talking about over a two-week period, we went from full occupancy and business as usual, to the likelihood of collecting percentages of rents rather than full rents. Whereas before, you had a little bit of time to prepare and you could see things down the road. This is one of those things that just smacked us all right in the mouth in a fairly short period of time.

Joe Fairless: So what’s your communication approach when, inevitably, you’ve got your customers reaching out to you personally? I know there’s got to be a chain of command where they’re reaching out to their point person, but they’re also reaching out to you too, saying “Hey Chris, what’s going on with my property?” So with 6,000 individual units– that’s a lot of owners. I understand that many owners buy multiple properties, but I’m sure you’ve got some approach where it’s like, “Okay, here’s my message now to my clients, and then here’s my approach, XYZ.” So can you talk about that?

Chris Clothier: Yes. There are 2,000 owners of those 6,000 properties. So you’re talking about a massive number of people, and all are going to have an individual situation to them. So the first thing that we did was we did not rush to communicate out anything. We took our time to absorb, to bounce a lot of ideas off one another. We spent a lot of time understanding what was happening rather than trying to react and put out multiple messages. And ultimately, the message we went out to our client base with was that we are preparing daily.

We remember what the 2008 crisis looked like, we remember the daily grind, we remember the fact that you had to have a plan A and a plan B and a plan C, you had to be thinking through every possible scenario and each way you could react, because there’s so many things happening. Whether you’re a single landlord or you’re a business owner with a smaller business, none of it matters. You have to be in constant planning mode, and what I mean by that is you can’t plan for what’s going to happen, you have to plan for the ten things that could happen, and then how do you react to those.

Then the bigger thing for us, I’ll tell you, we’re very confident right now. Mostly we’re confident because we feel that we have prepared as best we can. [unintelligible [00:07:38].20] I don’t know of anybody that I’ve spoken with out there that had a plan for it to stop a pandemic in this type of scenario. But all of us planned for if something bad were to occur. So all this was was we spent a lot of time ramping up, discussing, training, changing scripts, and by scripts, I mean, we have to know how to answer questions. Now you’re talking about from an owner and a resident standpoint, and we have to practice and practice and practice and practice what our message is, and make sure that we properly plan for the messages we’re giving, if that makes sense. I mean, you can’t just say something. You have to have a plan behind it. “This is exactly what we’re doing and why we think it’s gonna bring us and you the most success.”

Joe Fairless: What is your resident message?

Chris Clothier: The resident message was simpler than the owner message, I will tell you that. The resident message was that — we did not go out with a big message in advance of telling everybody of any plan. Every single resident in every one of our properties knew that rent was due on April 1st. So we did not communicate any mass message of what we were going to be doing in advance. What we chose instead was on an individual one-on-one basis, as residents are calling us, informing us of hardship, we have a list of resources for them, we have questions we have to go through with them, we have verification steps that we have to take, that are gonna verify that you are truly in a hardship. Then, the reality is that right now, housing is massively important to each of these residents. They don’t want to stress about housing.

So, the message becomes, “While rent is due, not paying anything right now really cannot be an option. You have to make some effort towards paying rent while we verify your hardship so that we’re able to fight for you on your behalf to an owner that they’ve done the best they can, they’re doing everything they can to meet their obligation, this is where they’re at.” We try and keep to a minimum the number of people that do not pay any rent for whatever the reason, valid or not. We’re trying to keep that to a minimum. So our message is one of compassion. We have a lot of steps we’re going to take, but you don’t take those steps until the month goes on. So again, nobody’s late with us until three or five days after rent’s due. So right now, nobody’s late.

Joe Fairless: Note to listeners – we’re recording this on April 2nd.

Chris Clothier: There you go. Sorry about that, Joe.

Joe Fairless: We took a similar approach, by the way, with no formalized communication to residents about rent in particular. We have apartment communities, so it’s a little bit different. Certainly, about amenities and social distancing among the community and staffing hours and all that, but that’s apples and oranges right now, so I won’t mix that up into this conversation.

But we took a similar approach where rent was due April 1st, and we’re going to have those conversations on an individual basis now. What about a different approach? Because I saw a post on Facebook – so it’s definitely true – where someone proactively gave all their residents 15% off rent, and they were getting at least from one resident, very positive feedback. For the record, we did not do this, so I’m not saying you should have. But I’m just asking, why didn’t you do something like that?

Chris Clothier: We discussed it. So here we are again, we’re recording on the morning of the 2nd April, and we already know that over 30% of our residents paid on time in full through the first day, and that percentage will grow through the second day and the third day; payday is Friday. There’s a certain percentage out there that are going to pay on time that are not having any issues right now. Heck, Joe, we had over 12% of our residents paid early, before the 1st. So their rent for April was in March, and most of them are paying the 28th, 29th, 30th, 31st those days. They’re making auto payments in their portal. So had we arbitrarily given a discount across the board, we have a fiduciary responsibility to our owners to make sure that we are doing what’s in their best interest too. There will be cases where we have to work with a resident. There are going to be cases where we’re going to have to do discounts and we’re going to have to implore owners to work with them.

So we chose, and we will continue this message to our residents, that those that can pay, should pay, and those that are in hardship should communicate, and that’s the route we’re taking… Because we don’t know what’s going to happen in May or June. So someone who could pay full in April may need help in May. I wouldn’t be able to give them the help that they need then, not arbitrarily cut it across the board. So we don’t know that we’re right, but we are very confident in our approach. So far, it’s bearing fruit. So far– in fact, we have a great plan for those that cannot pay on time, and we have a great plan for those that can, and we’re executing.

Joe Fairless: If I cannot pay on time, and I verified my hardship through the list of questions that your team asks, but I do make an effort to pay; say I paid 10% of whatever the rent is, what happens to the remaining 90%?

Chris Clothier: It’s gonna be again, on an individual basis, but I can tell you on the front end, we’re not here to make late fees and make life more difficult for anybody, and we’re not here to put anybody out of their home when the eviction proceedings are unfrozen. So there are a lot– I don’t have the exact number, but I know it was a good percentage of owners that proactively reached out to us and said, “Hey, I want to help my resident if they need help. I’m in a good position, so I don’t have to have full rent.” And what we’ve told all of our owners is, there will be a time and a place to make that decision. Let’s not proactively reach out, because there’s 6,000 residents here. Let’s not reach out to them to say, “You don’t have to pay.” Let’s review. It may be 30 or 60 or 90 or 120 days down the road when decisions have to be made.

And if we can communicate that the resident had great communication with us, they applied for all the assistance they could get, they applied as much of that assistance towards rent as they could, then I have a feeling that we’re gonna have a lot of owners that say, “Okay, that’s what I’m going to lose this year. Whereas I anticipated making a higher cash return, this year I may not make that cash return, but I reduced my principal, I’ve got an occupied property with a good tenant, I’ve worked at some goodwill, and we’ll just move forward.” That’s what I think a lot of owners are prepared and understand they’re gonna have to do this year, not all of them, but some. Some will be affected that way.

Joe Fairless: Looking back to 2008 and comparing it to today, you mentioned some of the differences at the beginning. But, what are some similarities that you see?

Chris Clothier: Well, I see the unfortunate effect of this compounding of issues that, if I were to guess, I would say that some markets, some neighborhoods, some areas, some classes of properties, however, you want to designate it, they’re going to be impacted by foreclosures months from now. They’re going to be impacted by an increase in vacancy and maybe a decrease in rent. Now this isn’t across the board and each market’s different, but you’re going to see those things happen. It happens slowly. Back during the crisis of ’08, by 2009, 2010, if your market was going to be affected on the real estate side, it was. It took a solid two years, but by then, there was no escaping. If your market was going to see an increase in foreclosures, a compression of rents, a compression of value, it had happened, and I think that’s going to happen again here. This is a completely different crisis, but now, the financial side is going to start taking its toll on the real estate, and people’s ability to maintain and stay in their homes and avoid foreclosure and eviction. So those things, they’re lagging, and hopefully it’s not massive, hopefully we can get through this… Which is a major difference from back then.

At least with a crisis like this, there’s hope of a cure to come out of it, a flattening of the number of people that are being affected… All these different things that we can see that didn’t exist in a way in ’08 and ’09. Back in ’08, ’09, we had no idea what was going to happen next. At least, now we know that with some degree of certainty that we’re going to get through this, and the faster we can, the less effect it’ll have on the number of foreclosures there are and where they occur, and rent rate compression and value compression. I don’t think it’ll be as widespread, but the longer this goes, you can see where that’s going to come 6, 9, 12 months down the road.

Joe Fairless: One interesting thing that I think will take place is the fire sale like we had, after the ’08 crisis – it won’t be nearly like that at the end of this, for many reasons… One of them being people have been squirreling away money, anticipating some correction. They had no idea, I don’t think anyone had the idea it would be a virus. You’d think that they thought that it’d be something else, but people have been squirreling away money and the distress properties that do come up, it is my belief, there’s going to be a lot of competition for those distressed properties. Whereas in 2009, 2010, there wasn’t nearly as much competition because of what you said, the uncertainty.

Chris Clothier: Oh, I think you’re spot on. You’re exactly right. So there’s not a liquidity crisis, yet. So as long as there’s liquidity in the market and there’s appetite for buying, I agree with you, 100%. We shouldn’t see that anyway. And look, between you and I and all of your listeners here, any investor that came through the ’08 and ’09, many of them that I’m talking to, they’re advising newer investors that this whole idea of “This is what we’ve been waiting for, now we can finally get involved in the market and prices are going to fall and I’m going to send out some great deals”, so many of us remember the destruction that came from ’08, ’09, ’10 to lives, to people individually. Certainly, none of us are hoping for that. Anybody that came through that is hoping for a calm, recovery and exit out of this, not something that’s volatile, with high losses. If you invest properly in real estate and you invest with good fundamentals, you can always find good deals. You don’t have to hope for or wait for some massive crisis to make your windfall.

Joe Fairless: Anything else we should talk about that we haven’t talked about as it relates to what’s going on right now compared to ’08 and just your overall approach?

Chris Clothier: The biggest thing I can implore everybody is that it’s not too late to plan. If you haven’t planned yet, that’s okay. Even by the time that you hear this, you need to be planning for what can come next, and worst-case scenarios and how do you navigate those issues. You need to be overly communicating with your partners, with your lenders, with your clients or residents. If this has shown us anything, it’s that we’re pretty weak when it comes to control, which actually is a very strengthening approach. We don’t know what’s coming next. So we get stronger by planning  for everything, so that we’re not surprised. So no matter what happens, we can look back and say, “I’ve got a plan for this and I’m going to execute that plan.” That’s the way we came through ’08 and ’09, and that’s exactly what we’ve done today. We have just very calmly said, “Let’s get to work.”

Joe Fairless: What you said at the beginning, you did not rush to communicate anything; you had conversations amongst yourselves and figured out the approach. What was your response to the owners, to their clients before you had that formalized communication ready to go? What were you telling them in the meantime?

Chris Clothier: Well, for us, we have for many, many years had a program where we call every one of our clients, every month. So we built up this massive goodwill through relationship. So for us, there was no need to rush out because we were already talking to every client, and the conversations that the clients had with us was, “Hey, I know y’all are planning and preparing. I just want you to know that I’m okay not getting rent or help my client out. Let me know when you know what you’re going to do.” So we didn’t have a clientele that was in the dark. We had a clientele that, because we call them every single month — and that was our message. “Hey, we called you every month for the last 12 years for this day, because this day would come, when there would be uncertainty and fear, and you needed to know that we were on top of it.”

So there was not a need for us necessarily to get something out quick, and when we did get something out, we chose to do it by video, which we posted a message that they could all get to. So we put it on a website page so they could get to the message, and the message again was very clear, that (again) we’re confident.

Joe Fairless: Who was talking in the video? Was it just you?

Chris Clothier: It was just me.

Joe Fairless: Just you. Got it. Well, how can the Best Ever listeners learn more about REI Nation?

Chris Clothier: We have a very active blog at reination.com. We have a video series out there to help investors learn and all of it’s free. There’s nothing behind a paywall, you don’t pay anything for it, that kind of thing. I’m also extremely active on social media sites and even on sites like BiggerPockets. So I think I’m pretty accessible. You can come to reination.com, learn more about our company. You can always reach out to me. You can connect to us through social media or through BiggerPockets, and we’re happy to do what we can to help investors today navigate, get through this.

Joe Fairless: Thanks for talking about the macro-level picture, as well as getting the specifics of how you’re communicating with the owners of the properties, as well as the residents. Enjoyed our conversation, as always. I hope you have a best ever weekend and talk to you again soon, Chris.

Chris Clothier: Thanks, Joe. Take care.

JF2045: How AirBnBs Will Weather The Storm During The Coronavirus With Kyle Stanley

Listen to the Episode Below (00:20:31)
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Kyle is the owner of Fearless Flipping and has a focus on AirBnBs. He is joining us today to talk about how the coronavirus has impacted his business. One thing he mentions that is helping him during this time is that he doesn’t view his business as an AirBnB business, but more of a short term rental business which is helping him develop plans to weather this storm. Kyle shares some advice that has worked throughout time and is showing how important it is during this pandemic.

 

Kyle Stanley  Real Estate Background:

    • Owner of Fearless Flipping
    • 5 years of real estate investing experience
    • Currently has 11 AirBnBs
    • Located in Fresno California
    • Say hi to him at : https://www.fearlessflipping.com/

 

Best Ever Tweet:

“Utilizing the 33% rule when analyzing deals has helped me stay comfortable during this pandemic” – Kyle Stanley


TRANSCRIPTION

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

Kyle Stanley: I’m good, Theo. Thanks for having me on the show, very excited.

Theo Hicks: Oh, yep. Absolutely, and thanks for joining us, and thank you for agreeing to talk about how the coronavirus is impacting your real estate investing business. But before we get into that, a little bit about Kyle’s background – he’s the owner of Fearless Flipping; he has five years of Airbnb experience, currently has 11 Airbnb short-term rentals, is located in Fresno, California, and his website is fearlessflipping.com. Kyle, do you mind telling us a little more information about your background and what you’re focused on today?

Kyle Stanley:  Yeah, well that’s the keyword – today. So as we’re here on April 1st, it’s not an April Fool’s joke, unfortunately, what we’re going through. So we got to take everything serious right now. Leading up to, I would say the beginning of March, the main focus of my business was Airbnb, and then on the side, I was flipping, doing short-term real estate investments, from wholesaling to BRRRRs to flipping, and we had a really solid flow going. We were on pace this year for three different streams of income reaching six figures. The third stream was education in the short-term rentals and Airbnb business. And then all the madness happened and now, really the big thing has been weathering the storm and figuring out what’s next, but I’m excited about what we’ve been able to do to weather the storm, to be able to make this still a very profitable, short-term rental business and sharing that with your audience today.

Theo Hicks: Yeah, so we’re going to talk about how to weather the storm that is the coronavirus. So that’ll be the title of the episode. So what are some of the things that you’re doing? So you got short-term rentals. A lot of times that I’ve talked to said that the short-term rental business is greatly reduced, or in some locations outright banned. So I’m just wondering, are all your properties in Fresno, California? Are they scattered across the country?

Kyle Stanley: They’re all in Fresno and I think – first of all, I want to just lay a precedence here that there’s a lot of people out there that are talking about Airbnb being dead, short-term rentals being dead, and these people are jumping the gun. They are completely in the mindset of whatever’s happening now is going to happen for the rest of eternity, and that’s just not true when it comes to this. There’s also airlines that are being shut down. Does that mean that airlines will be shut down for the rest of eternity? No. As soon as this whole thing recovers, then everything’s recovered.

But I also know there’s a lot of people that are very mad at Airbnb right now, and the message I really want to bring today, Theo, is that I don’t have an Airbnb business, I have a short-term rentals management business. If you have that mindset, you have the mindset of problem-solving. My mindset right away in the beginning was before I even got any of my properties  – yes, I knew the potential of making $1,000 plus of cash flow was there. We have one property that makes us usually right around $2,500 per month in Fresno, California, of all places. But I also said, “Well, are these recession-proof?” and I think we all were talking about it leading up to this whole coronavirus stuff of, hey, there’s gonna be a market crash, there’s gonna be a market correction, there’s going to be some minor recession. We just didn’t see it coming in the form of a zombie apocalypse, for lack of a better term.

We didn’t really see it coming and hitting us literally overnight. And because of that though, I’ve been very, very happy about everything that we’ve been able to do to weather the storm, and to see results still coming in… And just focusing on the Airbnb side and on the short-term rental side, we added two properties this last month, so we went from eight to ten, and we just added an 11th just a couple days ago. But we went from eight to ten, and we still ended up, after expenses, in the month of March, netting more than any other month that we ever had, and grossing more than any other month that we ever had.

I truly believe that’s for a couple reasons. Number one, I did the deals right. I made sure that I was getting into a deal that would be successful, even during a rough time. Again, not knowing when a coronavirus thing would hit, but just a rough time in general… And then the bigger thing and beyond that is that I knew that if something were to be impacted by Airbnb, let’s say, Airbnb shuts down; it’s a third-party site. I’m an entrepreneur, I’m not a Airbnb employee. I need to find other methods to be able to list my properties on, and by doing that, we were able to still find ways to get people in our properties not through the means of Airbnb, and fill those vacancies and still be close to 90% to 93% booked all in the month of March. And moving forward, we can talk about a little bit more, but now just to weather the storm, nine of our 11 listings are month-to-month rentals, and we’re seeing what happens with the other two rentals just to see if Airbnb will continue to pick back up. So without going too much deeper into that — I don’t want to keep on talking, but that’s the overview of what we’ve been doing right now.

Theo Hicks: Okay. So some of the two things you said were to, one, buy right, and then two was to not rely entirely on Airbnb, have a backup plan. So let’s talk about the first one, which is buy the deals right. So what does that mean? What aspects of the deals were you looking at to make sure that you’re buying them right?

Kyle Stanley: Just like anything in real estate, you’ve got to analyze the deal. So with an Airbnb, I use the 33% rule, which is whatever you’re netting needs to be at least 33% of what you’re grossing. And if you can do that, that means that if something like this happened and you have to take a big hit and adjust your method of how you’re filling your properties, there was enough meat on that bone to not hurt you. So because we had expected– again, let’s just take that rule for example. If I’m expecting to gross $3,000 in a property for the month, then the 33% rule means that I need to net at least $1000 of those dollars. So essentially, what that means is my expenses are $2,000. As long as I can cover $2,000 in a property during a coronavirus, then I know I’m at least breaking even. We don’t want to lose money during this time. We just want to weather the storm, get to even, and then pick back up where we were before.

But the great news is that those properties that, let’s say, I was grossing $3,000 and needed $2,000 in order to cover my expenses, I’m actually at some of those getting as much as $2,700 for month-to-month rentals. So that’s been really, really positive to see that I’m not taking this $1,000 hit, I’m only taking a maybe, a $300, $400, $500 hit per property. So instead of netting at $8,500, maybe next month I’m going to net $4,000 which, during weathering a storm, that’s pretty good.

So your audience knows too, buying the deal — I own five of mine and then I manage three and then I do what’s called arbitraging for three of the other ones, where basically I take over the rent, take over the lease, and sublease it out to other people, and I’m still profiting on those despite what a lot of people are saying. A lot of people are saying right now that lease arbitraging is not a thing, it’s not profitable. I am still profitable on all my lease arbitrage properties, because – again, just doing the deal right.

Theo Hicks: So you said that you have 11 properties in your portfolio… You said that eight were month-to-month rentals?

Kyle Stanley: Yeah. Currently, actually, nine are month-to-month rentals, and then we’re keeping two on Airbnb.

Theo Hicks: Perfect. So, for those nine – and I guess this goes into the second thing that you talked about, which is having other ways to list your properties… So obviously, you’re not listing those on Airbnb. So for my first question is, where are you listing those properties, and secondly, how has your wording changed now that they’re month-to-month, as opposed to Airbnb’s for the weekend or something?

Kyle Stanley: Yes. Our main means which we’re doing it is Craigslist – that’s where we’re getting most of our places;  Facebook marketplace would be next, and then just networking with realtors, property managers, loan officers who have people that need that transition. Maybe they’re selling their house or maybe they’re getting kicked out of one of their homes and they’ve got to transition to find the right place.

So we’re very upfront with everyone, we’re not telling them, “Hey, sign a 12-month lease” with the idea that we’re going to kick them out. We’re letting them know this is furnished, it is a month-to-month rental. We are used to a very profitable Airbnb business, but right now, we’re just looking to use this as a way to weather the storm and to help more local people who are going through some transitional issues that need some help. So we’ve got people in our homes right now that are going through divorce, some are buying a house and waiting to be able to get into that next house. We’ve got some nursing students that are coming in that have been from out of town and need to stay for a couple months…

We haven’t had any first responders yet, but we are opening ourselves up to that as well, and we’re really just making sure everyone knows, you might only be here for 30 days, you might be here if you want for three months, maybe even, God forbid, this thing goes on for a long time, you can be here for three years, but they understand that every month, we have a new evaluation that we’re doing to make sure that they are still a good fit for our property.

Theo Hicks: So of those nine, are they all occupied right now, with that month-to-month lease?

Kyle Stanley: Yes, they are occupied. Seven of the nine are either a family or a person taking up the whole house, and then we had to get creative with some of our bigger properties by renting out room by room, which I thought was going to be really difficult; it turns out that that is not as difficult as I thought it would be. In fact, it’s more profitable and more people are open to doing a room by room, not even knowing who else is going to be in the house, because desperate times call for desperate measures, and those people are definitely in those kinds of situations.

Theo Hicks: That’s interesting. Craigslist is a powerful tool right now.

Kyle Stanley: Yeah, and I guess that’s the big thing. “Oh, Craigslist… That sounds super sketchy.” Well, you know, right now we’ve got to do as much as we can to just help as many people as possible. I think I’m a pretty good judge of character, and at the end of the day if I’m doing room by room, then every roommate has to approve of the next incoming guest as well, to make sure personalities will match.

Theo Hicks: Is there anything else that we haven’t talked about that you’re focusing on right now during this coronavirus time?

Kyle Stanley: Yeah, the first thing is, as you can tell, this really is short-term rentals. It’s property management versus just “Hey, let’s throw an Airbnb listing on there.” So I think for those of you that are thinking about getting into Airbnb or maybe thinking about getting out of Airbnb, the biggest thing right now is, to me, this is getting rid of all of the fakers in this game. It’s getting rid of all the people who just wanted the easy route. “Hey, throw your room or home on Airbnb and get paid a ton of money.” Now that there’s actual work and a lot of these people probably even have a full-time job, they’re probably not doing the things that I’m doing. So that creates a unique opportunity for people that are serious about building their short-term rental portfolio or getting into a short-term rental portfolio, because you’re gonna have a lot less competition on the other side.

And when all this starts to dwindle down, I truly believe that travel, especially to places like my market, Fresno, California – people come here because they have to, not because they want to… And that’s really a good place to be, is when you’re hosting mostly families that are coming into town to see family, or business people, and then the occasional traveler. If there’s a major recession that continues to linger beyond all of this, I’m in a really good position to have a lot more people coming in that need to reschedule things that got canceled, and a lot less competition, so that I can actually raise my rates.  It’s simple, just supply and demand. If the supply is a lot lower and the demand is just as high or higher, then my rates are going to go up.

So I think if you’re in that position — I’m not necessarily talking about the destination getaways per se; I think there’s still a lot to be seen there – the Newport beaches, the Hawaii’s, the Florida’s, all those things where people go there because they want to get away… I’m not sure if that’s still gonna be as strong on the other end of this because of the recession. But for places like mine, where it’s Fresno, California, and other places too, like in Midland, Texas, a lot of business people coming in there, you might be in a really good position to lock something down right now, weather the storm, just cover your expenses, and then on the other side of this you’ve got a very profitable business that you can throw right back on the Airbnb, and have a lot less competition in your area.

Theo Hicks: So you think people should be buying right now?

Kyle Stanley: Again, buying is different in the short-term rentals scenario. So if you’re talking about buying a property, then you got to make sure your numbers are right, for sure. But if you’re talking about arbitraging or managing for someone else, then yes, I definitely think it would be just as good of a time to get in, especially with landlords being really, really open to the idea of getting a solid tenant in there like yourself, that’s going to manage the property and take really good care of it.

Theo Hicks: You mentioned that you bought a property a few weeks ago, right?

Kyle Stanley: Yeah, it’s actually the one that I’m doing the podcast in right now. It’s three units on one lot. It’s not multifamily, it’s just a single-family house with a [unintelligible [00:13:55].14], and then we converted the workshop into another unit, and it’s house-hacking at its finest. It’s fun.

Theo Hicks: So obviously, you bought it amid the coronavirus. How was the underwriting different? Did you underwrite different expenses or a different income? And if so, where did you come up with numbers from?

Kyle Stanley: What terms did I do the deal with, or…?

Theo Hicks: No. So usually you underwrite–  and I’m making up numbers here. Usually this house, in a regular time, would make $5,000 a month. How do you determine how much income would be coming in?

Kyle Stanley: That’s a great question. So I knew my expenses at this place were going to be right around $3,500 per month, from mortgages and then paying back my lender on the furniture. So what I did there is I evaluated it as an Airbnb first, and saw that after year one — because the way that we do our terms, we pay back our furnishing in year one, and then that person is now off the loan; it’s a short-term loan. So in year one, I’d be cash-flowing $600 a month with Airbnb, while living on the property. And then, after year one, we would be cash-flowing right around $1,500 to $1,600 per month, because we would have paid off the furnishing. That was as an Airbnb.

Now that we’re doing this as a short-term rental and month-to-month, I’m at least getting all of my mortgage covered, and then I’ve still got my loan back to my lender, and that means that right now if I wanted to– I don’t want to, I’m in a financial position where I could move out of the unit that I’m in and put someone else in and not owe anything, but I’m okay with spending $1,000 to $1,500 dollars a month to still live in a place, and that’s what I’m doing right now, just to stay where I’m at. But to answer your question, if I’m underwriting it though, I know I could rent out this space that I’m in short-term and cover all my expenses and probably cashflow a few hundred dollars. But if it can get back to Airbnb, and I rent out my unit, the third of the three, then I could be more along the lines of $2,500 to $3,000 a month for this entire property.

Theo Hicks: Thanks for sharing that. And then, one last question before we conclude. So you mentioned that you think that this situation is going to get rid of all the fakers who wanted an easy route. So what do you think exactly is gonna happen to them? Do you think they’re gonna get foreclosed on? Do you think they’re just gonna just sell and then that’ll open up an opportunity for people to buy a short-term rental single-family home that’s maybe furnished for cheap? For those people, what do you think’s gonna happen to them in the next six months?

Kyle Stanley: The ones that have bought the vacation rentals with just the idea of it  working as an Airbnb, I think they’re in trouble, at least for a few years. I think that’s really tough. If you have a, let’s just call it $5,000 per month expenses, and you need this thing to make at least $5,000 a month, I think that’s going to be really tough during any recession, because people just aren’t going to be traveling as much.

Then the other side of it is the people who are just using it as “Hey, this is my primary residence, but I leave on the weekends and I Airbnb it” or “Hey, this is my secondary residence. I only use it about three months out of the year.” I think those people will probably not get hit as hard. But I think the ones that are going to be just okay are going to be the ones that are in markets like mine or in deals like mine that you can put a long-term renter in, and you’ll be just fine. I hope that the majority of people did deals like that, where they can put long-term renters in and be okay. Then for the other people that are doing lease arbitrage like myself, it’s just about getting out of a lease and selling the furniture. So it was a risk of what they knew they were getting into, that if something were to ever happen, if Airbnb shut down, hey, they have a lease. But in a lot of people’s ideas and a lot of people’s minds, it’s a lot better to just have a lease than it is to own a piece of real estate that may not work as a long term rental, so they can get out pretty easily.

Theo Hicks: Yeah, definitely. Well, Kyle, I appreciate you coming out today and being willing to talk about the things you’re doing during this coronavirus pandemic. I think a lot of this advice will be very helpful to people who are doing short-term rentals, doing long term rentals… I think this will also be some very timeless advice as well.

So you talked about how you’re weathering the storm with your short-term rental business; you mentioned that you think people who are screaming at the top of their lungs that the short-term rental business is dead are jumping the gun, and then you got more specific and mentioned that the two things that you did is make sure you did the deals right on the front end. So you mentioned the 33% rule, which means that the money you net needs to be 33% of what you are grossing. So if you gross three grand, you need to net $1000, which means your expenses are two grand. That way, you’ll have meat on the bone to take a hit and not lose money. The other one was making sure you’re not relying on Airbnb and having backup options.

So you mentioned that you’re pivoting to month-to-month rentals for nine of the 11 properties and that you’re using Craigslist, Facebook Marketplace, and then networking with property managers and brokers to secure leases, month-to-month leases on those. Focusing on helping local people, people who are going through divorces, buying a house and waiting to get in, nursing students, and you’re opening them up to first-responders now.

You mentioned how you think that this is going to get rid of a lot of these fakers who wanted the easy route and didn’t want to work hard, because now it takes more work. You can’t just throw something up on Airbnb and get a tenant coming in there.

We talked about how to underwrite a deal during the coronavirus which, I think, is very powerful. So how to underwrite a deal during a “recession”. And that expenses are really set, and you evaluated it as a Airbnb first, and then you’re willing to spend money since you’re living there yourself – $1,500 bucks a month – but you know that if you move out, you would be able to at least break even, and weather the storm, and then once things get back to normal, make your profits again.

So Kyle, I really appreciate you coming on the show today again and sharing what you’re going through with us. Stay safe. Best Ever listeners, thanks for listening and stay safe. Have a best every day and we will talk to you tomorrow.

JF2044: Rent Collecting During The Coronavirus With Will Fraser

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Will has been a real estate investor for the past 3 years and has a portfolio of 23 properties all focusing on long term rentals. Will shares how his long term rentals have been impacted by the coronavirus pandemic. He shares the different plans he has in place to collect rent from his tenants and to make sure he helps them out at the same time. 

 

Will Fraser Real Estate Background:

    • A full-time real estate broker
    • 3 years of real estate experience
    • His portfolio consists of 23 properties, 4 he personally owns
    • From Oklahoma City, OK
    • Say hi to him at: will@craftsmanre.com 

 

 

Best Ever Tweet:

“This gives me an opportunity to build a strong and unique relationship with some of my tenants that I wouldn’t have the ability to do otherwise.” – Will Fraser


TRANSCRIPTION

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

Will Fraser: Theo, I’m doing great, man. Enjoying life here, and glad to be on the show. Thanks for the opportunity.

Theo Hicks: Oh, absolutely, and thank you for joining us. Today, we are going to be talking about how the Coronavirus is impacting Will’s business. Before we get into that, let’s hear about Will’s background. He is a full-time real estate broker. He just hit three years of real estate experience.

His portfolio consists of 23 properties, four of which he personally owns. He is from Oklahoma City, Oklahoma, and you can say hi to him at Will@CraftsmanRE.com. Will, do you mind providing us with a little more information about your background and what you are focused on today?

Will Fraser: Yeah, absolutely, man. Well, I took a circuitous path to real estate, like all non-traditional real estate investors did. I studied biochemistry, and that launched into a job overseas, which after I got deported landed me in Oklahoma City. I worked with a startup that was selling things to real estate agents. I realized that most real estate agents, respectively speaking, would not know the difference between a small dark place and a hole in the ground. And what I saw was I’ve got some skills that might mesh well with real estate, so let’s give this a shot.

One of my early clients was a real estate investor. So I saw some of the deals that he was doing, and I was like “Man, that really doesn’t seem that hard.” And I started just kind of emulating what he was doing. Little by little, that grew into what I’m doing today. I’m a residential real estate agent that helps people buy and sell their personal homes. I help investors buy and sell investment homes, and then I also manage my own portfolio that I have… Some personally, like you said earlier, and  some with partners.

Theo Hicks: You said you own four yourself, and then 23 – are those JVs?

Will Fraser: Yeah, what we did is we started out with a JV agreement, and then we started buying in an LLC that we jointly own. But the first batch of 15 properties were purchased with my business in a JV agreement. And then as that relationship grew, we were all going forward more confidently, and then we saw that “Hey, this is something we’d really like to scale together.”

Theo Hicks: Okay, and then are those single-family homes duplexes, triplexes…?

Will Fraser: There are two fourplexes, a triplex, about ten duplexes, and then the balance, our single-family.

Theo Hicks: Okay, and they’re all rentals.

Will Fraser: Yeah, that’s right.

Theo Hicks: Okay, perfect. And those are long-term, not short-term.

Will Fraser: Right. They’re all long-term. One of them – we leased it out to someone who’s Airbnb-ing it. We love getting to partner with other investors and creating win-wins. Somebody came to us and wanted to do an Airbnb in Oklahoma City, and we said “Hey, we’ve got a property that would actually work well for that.” So that’s one of them. So it’s kind of a mixture… It’s a long-term rental for us, but a short-term rental for our tenant.

Theo Hicks: Okay, perfect. So I guess the first question that I’ll lead with, with today being the first of the month that we’re recording this, is are you seeing any issues with rent collections from the Coronavirus on those long-term rentals?

Will Fraser: Definitely. And I think that there’s some of what we could have known is gonna come… Just what I would call the ostrich approach, of tenants burying their heads in the ground and pretending that there’s not a problem, and then you don’t see that rent come in on the first, you don’t see it coming on the second or third… So we’re already seeing some of that. But a lot of what I’ve been seeing that is surprising is tenants reaching out within the last three days to let me know that they’ve been furloughed, their hours have been cut, or they’re struggling… I’ve got a couple tenants that are in the oil and gas field right now, and they’re letting me know in advance “Hey, I’m paying my rent this month, but I just wanted to let you know I don’t know how long I can continue this.” I’ve been more encouraged by those than the people that I know are doing an ostrich right now.

But yeah, I think that everything we’re seeing right now is what we expected to see, but with a little more of the avoidance on the tenant side.

Theo Hicks: Okay. So for people who, as you mentioned, reached out, said that they’ve had some sort of financial hardship, they’re gonna pay rent this month, but they don’t know how long they can keep that  up – do you have any plans on what you are going to do if it gets to the point where they can’t pay the full rent?

Will Fraser: Yeah, that’s a great question. What I’ve discussed is a few different things – one, if they want to pay by credit card, I will eat the credit card fees; so I’ll allow them to put it on a credit card. I don’t encourage that as a Band-Aid, but I do know that credit card companies are offering some forgiveness platforms… That, frankly speaking, they can do because of their size, and I can’t do, because of my size. So I will offer that.

Then another thing that I’m offering is the ability to pay incrementally, and then amortize the balance that’s not paid over the rest of their lease. So with a tenant of mine that’s in oil and gas, I know that if he can skip a month next month, it’s going to put him having more cash on hand to weather a storm… Because he’s looking at Covid-19 and the shutdown – that’s definitely impacting the total economy; and oil and gas is — I have literally just filled up for 99 cents a gallon. That is crazy.

Theo Hicks: Wow…

Will Fraser: Yeah, it was absurd. Like, can we store this stuff, and flip it? [laughs] No, we can’t. But for him, he and I both acknowledged that “Hey, if you can skip next month and I don’t hit you with a late fee, or even a potential eviction”, then he can hold that cash and be a little more resilient in the face of an impending however many months of down… But we can amortize what he didn’t pay over the remainder of his 15 months left on his lease. And he felt like that was a really gracious thing.

He has proven himself as a tenant that communicates honestly and stands by his word, so I wanna be understanding and do the same thing for him.

Theo Hicks: That was a good transition with another question I had… So you’ve got, let’s just say, ten tenants reach out to you and say that “I’ve been furloughed, my hours have been cut, I lost my job, and I’m not gonna be able to pay rent this month.” Do you just take that at face value, or do you ask for some sort of additional documentation to confirm that what they’re saying is true?

The reason why I ask is because I would imagine that with the [unintelligible [00:07:56].10] evictions, people might take advantage of that and just claim that they’ve lost their job when they really haven’t. I was wondering if you’re doing anything extra to confirm, like requiring a financial hardship letter, or anything like that.

Will Fraser: That’s a great question. At this point I’m not, other than just taking note of who their employer is, and then asking some other people… Because Oklahoma City, honestly, is not that big of  a place. So if someone works at Dell and I hear that they’ve been furloughed, that’s  pretty easy to confirm through the grapevine… So just taking note of that.

But at this point I’m not asking for any of those things, and the idea being with tenants that have already proven themselves to be valuable – I hesitate to say valuable or invaluable, but ones that showed the right kind of character and communication tendencies, I wanna come alongside them and extend a trust that should be reciprocated in the months and years to come.

So it’s an opportunity to grab a depth relationally that we’re not gonna get otherwise in a tenant/landlord relationship, that should be great for the years to come. So that’s my idea of extending that trust… But for sure, it’s gonna be manipulated, and I’ve already had tenants reaching out, saying “Hey, I heard you don’t have to pay your mortgage, so are you just trying to play it all close to the chest and get us to  pay, even though you don’t have to pay?”  Like, hey, that was the governor of New Jersey, and the last time I checked, he’s not the governor of Oklahoma.

But there’s a lot of misinformation out there. It gives us a good opportunity to kind of level up and just call a spade a spade. What I told that tenant is “The moment my mortgage is forgiven, I will pay that forward.” Because there’s a reason — if the government froze all principal, interest, taxes, insurance and repairs and maintenance, there’s a real reason. So it would be in keeping with that to say “Hey tenant,  you don’t need to pay this month, because I don’t need to pay.”

But as it is, principal and interest are still due, taxes are still due, insurance is still due, and tenants are calling me more than ever to do repairs and maintenance, because they’re home more than ever. So explaining that to people, “Hey, do you see why all these things are still in play? Which is why we need to collect.” And then a secondary conversation is if for some reason you legitimately can’t pay and we’re prioritizing what we have to pay to make sense, then that’s real, too.

The oil and gas guy – he legitimately is having zero income right now. So yeah, I know no one’s calling you to come do whatever he does in the oil and gas, so that has a real effect… So I wanna live with him in an understanding way, but also communicate very real, so that they can understand the landlord’s side… Because I think a lot of times tenants live in this world as if being a tenant is somehow different than owning a house… Let me flesh that out a little bit. I had a tenant call and go berserk because they didn’t have hot water one night. And at the exact same time I didn’t have hot water at my house, because my hot water heater was out. It took my four days to get my own hot water heater replaced, yet the tenant’s expectation was that it was completely unacceptable for them to not have hot water for two hours. That’s not true if you own the house, so why on earth would you expect it to be true if you are a tenant in a house?

Anyway, so educating tenants on what reality is – we have an opportunity to do that now, that we don’t have day to day.

Theo Hicks: Yeah, and I think a lot of the things you said — I think one of the key advantages people who self-manage will have during this situation, than people who have a third-party company… They can’t have those conversations, because they don’t’ have a relationship with their residents. So I think a lot of the stuff you’re saying right now definitely applies to people who self-manage.

From other conversations I’ve had with people who self-manage – they’re saying that they’re having it much smoother (as smooth as it could possibly be, I guess) than third-parties.

I have  a couple other questions… This is taking a different track, but you have partners on some of your deals – how did those conversations go? At what point did you guys realize that this was something that was gonna have an impact on your business? I’m just curious to see how those conversations went. I’m assuming — was everyone on the same page right away, did everyone come at the realization at the same time? Were there any budding heads? What’s it like being in partnerships during this situation?

Will Fraser: It was kind of an evolving situation, because they came to me as clients, typical real estate clients, looking to buy rental properties… And one of the things that I try to do with everyone is walk through a series of discovery questions, because there’s a lot of different investing philosophies. If you had two different people who say “I wanna invest in real estate”, but one of them means “I wanna make the big bucks in flipping” and the other means “I wanna  buy properties that cash-flow and I wanna hold it for 27.5 years, and then keep swapping until we give our kids a huge gift” – that’s naturally gonna butt heads.

But a lot of people, when they hear about real estate investing and they really just get a hankering to get started, they come full of zeal, but not full of a lot of developed vision… So I try to walk everyone through the process of formulating — if you had a magic wand and you can wave it in ten years, in fifteen, in thirty years, what would be true of your real estate investments, and what role would you play in it?

As I started to do that with these guys, it just became evident that we were all looking at long-term wealth built through wise buy and hold investing. So I thought that was cool, that it had never occurred to us to partner until we started looking at specific deals… And what we’re seeing is the faster you can move on these deals, because the market has just been roaring in Oklahoma City, the better of a shot you have at actually taking it down.

So with them being out of town, with them being otherwise employed, and looking to deploy some of the capital that they generate into real estate… But me being a full-time real estate person, I was able to move a lot faster than they were, so we kept losing deals, because hey, there’s this gap.

So I had the idea – and I remember walking through one deal together, and the idea was “I can buy this and you can basically do hard money lending, or private money lending.” And option two was “You could buy this, and I broker it”, and then option three is “We buy this together.” And then they just kind of looked at me and were like “Huh. What would that one look like?” “I don’t know, let’s flesh it out.” So we just dove into the option of “We buy it together”, and we kicked around a bunch of ideas, and we saw that there was a synergy  there that they were pleased with, and I was pleased with. So we tried it with one deal first, and then we grew that, and then it’s turned into — gosh, I think we said like 30 units off of that one.

Theo Hicks: Okay, thanks for sharing that. But now, more recently, you’ve had these partnerships, and you’re kind of going through a crisis… I’m just curious to see what those conversations are like. Are you guys having weekly calls to figure things out? Was there a couple people who didn’t think it was that big of a deal at first, while other people thought it was a big deal? Were there any issues at all? And if so, how did you get through them, or how are you getting through them?

Will Fraser: Yeah, we’re having about two calls a week – which partially is crisis and partially is we’re all sitting in a very different pace than we have, so we wanna take the opportunity to really lay the groundwork and communicate more… Because most of the time, the partners are all running at a million miles an hour in different directions.

But I think I was the one that was not taking it seriously at first, because I looked  at it as “Hey, this is a coastal thing. We have very few cases in Oklahoma…” I don’t know if you noticed, but it’s not really a tourist destination, or an immigration hot spot… So typically, we’re not hit by the same things that affect New York and L.A.

So that kind of naivety was exposed by the partners, and we’re like “Hey, what are we gonna do when the tenants can’t pay?” I’m like, “Well, I don’t know that that’s gonna happen.” And our partnership – and I think this is in the nature of healthy partnerships, that really drives me to embrace them… Is when I was weak and short-sighted, my partners brought a seriousness that’s challenged me to step up and say “Okay, what are we going to do?” So we started diving deep into the numbers and saying “Okay, do we need to start having conversations with our lenders now?”, to say “Okay, when this happens and we can’t pay, what are we gonna do?” And we got to all get on solid ground with our approach…

And actually, things like that have given us an opportunity to go deeper in unifying our vision, which is going to continue to pay dividends… Because what we decided was “This presents us with an opportunity to grab credibility.” Because one of the things that we run into with the lending side is “Hey, you guys are relatively young and new, so we don’t know if we wanna continue to make [unintelligible [00:16:38].24] loans to you… So let’s weather it a little bit.”

So when you have something like this, where countless people who have been less disciplines are looking at it and they’re saying “Holy crap, we have no money here”, and they’re calling their banks, that creates a panic on the bank, and a stress on the bank. So when the bank calls us and says “Hey, are you gonna be able to make your payments?” and we do every time, on time, then we’re establishing credibility in the fox hole, like the war time, that is going to pay dividends in the peace time… But the partners and I, through these calls and through running stress tests and analyses, we’ve decided “Hey, we’ve got a lot that we can give up before we don’t pay the bank. Hey, we’re gonna give up personal profit.”

So we started going through that priority list of “How do we honor the commitments we’ve made, and establish credibility in this time, that’s gonna pay dividends in the peace time?” So I think it’s been a cool opportunity for that, and I’m thankful for my partners bringing the seriousness that I lacked, because it’s made us a lot more mature as an investing group.

Theo Hicks: Okay. Well, is there anything else that we haven’t talked about already, as it relates to the Coronavirus and your business, that you wanna mention before we sign off?

Will Fraser: I think the importance of communicating ahead of time. And I’m gonna say this as a reminder to myself. When we can see things coming, it does everyone better to communicate up front, as opposed to — I mean, when we ostrich and we stick our heads in the ground, and we’re like “Maybe it will go away”, the problems usually don’t go away without being resolved.

So let’s take these opportunities to have our partnership discussions, to have discussions with our vendors and our tenants, and our landlords if we’re tenants, and call a spade a spade, and talk about reality, and let’s wrestle through those hard things now… Because it’s gonna establish better rapport and better credibility.

Theo Hicks: Alright, Will, we really appreciate you  taking the time to come on the show today, and extra-appreciative for you talking about how you are dealing with the Coronavirus right now… So just to kind of recap what we’ve talked about – we’ve talked about rent collections; you’ve got a mixture of 4, 3, 2-units, and then a single-family home that are long-term rentals. We’ve talked about how you’ve actually had tenants reaching out to you, letting you know that they’ve hit that financial hardship, that they’ll be able to pay rent this month, but weren’t totally sure how long they’d be able to pay rent… So a few plans you have in place is let them pay with their credit card, and eat that credit card fee, although that’s not something that you’re going to encourage. Then allow people to pay their rent incrementally, and then amortize that over the rest of their lease.

You also mentioned that if you live in a smaller areas, it’s much easier to confirm that someone’s telling you the truth. If someone mentions  they worked at Dell, and claim that they’ve been laid off and you know that Dell are laying people off, then you’re able to confirm if they’re telling you the truth.

We also talked about how you approached your partnerships, and how you do two calls a week right now, and that you were proactively planning ahead of time, you and your partners, about what to do if your tenants cannot pay rent. You also mentioned something I thought was really wise, which was that this is a great opportunity to build credibility with your lender if you’re able to make your payments in full and on time. Once things start to come back to normal and you want to buy properties from people who maybe weren’t paying their mortgage payments on time, then you can get financing from your bank, because of all the credibility you’ve built up…

And then lastly, you talked about the importance of communicating ahead of time, as opposed to the ostrich approach that you mentioned, of sticking your head in the ground. That applies to the residents, as well as the investors, too.

Again, I really appreciate you coming on the show, Will. Best Ever listeners, as always, thank you for listening. Everyone stay safe, have a best ever day, and we will talk to you tomorrow.

Will Fraser: Thanks, Theo. Have a good one, man.

JF2043: The Benefits of Tertiary Markets During The Coronavirus With Solomon Floyd

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Solomon is the CEO and founder of Reunion Investments. His business focuses on tertiary real estate markets and they currently are working with the department of defense to provide military housing, which basically guarantees rent for his investors. He explains how he is able to help his passive investors get high returns in uncommon markets.

Solomon Floyd Real Estate Background:

  • CEO & Founder of Reunion Investments
  • Managing Director of the CTX Global Real Estate Fund
  • Served in the US AirForce as an Airman
  • Located in Dallas, Texas
  • Say hi to him at : https://www.reunioninvestmentsllc.com/ 

 

Best Ever Tweet:

“Look at these markets and how they operate now in this crisis, and how they handle these issues to be prepared for the future.”  – Solomon Floyd


TRANSCRIPTION

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

Solomon Floyd: I’m doing great, man. It’s been a beautiful day here in Dallas, Texas, and to be honest, working from home has become a lot more manageable.

Theo Hicks: That’s good to hear. Today we’re talking about the Coronavirus and how it’s impacting Solomon’s business. Before we get started, a little bit about his background. Solomon is the CEO and founder of Reunion Investments. He is the managing director of the CTX Global Real Estate Fund. He has served in the U.S. Air Force as an airman. He’s located in Dallas, Texas, and you can say hi to him at Reunion Investments LLC.

Solomon, before we start talking about the Coronavirus, do you mind telling us a little bit more about your background and what you’re focused on today?

Solomon Floyd: Yeah, absolutely. My background is, as you said – I’m an airman and entrepreneur from Dallas, Texas, who’s focusing primarily in tertiary markets, and utilizing military and municipal housing contracts to essentially get a form of guaranteed rent to my investors.

Theo Hicks: Alright, so tertiary markets… What types of programs are those, that guarantee rent to your investors?

Solomon Floyd: At the moment Reunion’s biggest focus has been our military rental program, where we use our DOD Housing Contract to house military members in exchange for what would be guaranteed rents. So in times like these, where a lot of landlords are scared, and like “Oh my god, what’s gonna happen to my rent?”, my investors aren’t really feeling that, because from the history of time, they’ve never not paid rent for military housing, and they’ve never not paid military members.

So now, my investments have the ability to wait this out and take their money out of the stock market, put it into more real estate that’s gonna house military members, and get them that guaranteed rental income every single month.

Theo Hicks: So the houses that these military members are investing in – people will come to you and say “Hey, I wanna buy a house that’s essentially guaranteed to collect rent”, and then do you help them through the entire process of buying the house, putting in a resident, managing it, and it’s just a complete passive investment for them?

Solomon Floyd: Exactly. We make it as easy as possible. Reunion understands that no one’s going to be able to make it out to these markets as easily as we are. We already have infrastructure there, our boots on the ground are there, our construction company is there, and our property management facilities are also there. So we make it as easy and as passive for most investors to say “Hey, I wanna help the community grow, and I wanna help these people who service every single day, but I also wanna make money.” That’s a very easy thing to do when you just factor in all the amazing possibilities that we can do.

Theo Hicks: So right now there’s been no issues with rent collection from any of these during the Coronavirus, correct?

Solomon Floyd: Exactly. It’s been a matter of we may have a  little issue on how many people are getting stationed and where now, just because some troop movements have halted… But the people who currently have rentals with us, their rental amounts aren’t being affected.

Theo Hicks: Perfect. I guess it’s really not much to talking about the Coronavirus, unless you think that might change in the future… But you expect it to not really have an impact at all, even in the future?

Solomon Floyd: [unintelligible [00:04:03].18] We’ve gone from doing originally maybe 35 deals a month, to now, we’re coming into April, and I’ve got 62 deals on my table. People have panicked, and Reunion offers them the ability to put their money someplace else. So as the Coronavirus goes – it’s not necessarily about Reunion, but when you really think about it, it’s a place about tertiary markets. Tertiary market investing is something that a lot of people overlook, because the distance is scary. There are so few distance investors out there, at least in these markets that are so small. And these tertiary markets provide you a great ability, especially from any investor’s standpoint; they don’t have Uber Eats, they don’t have Favor, like we have in Dallas. They don’t have a form of technology aspirations toward them… Which means now, they’re relying on the system that we are. Who’s gonna go deliver their food?

You see these people wait in line, and this offers people the amazing ability, especially now that we’re mimicking things similar to 2018, to innovate in these tertiary  markets. There’s still innovation that can be done, whether it’s the rentals technology, self-driving cars, whatever it is. That’s the best part about tertiary markets.

Theo Hicks: What types of returns do your investors make on these types of investments?

Solomon Floyd: For us right now, we are showing anywhere from 35% to 60%. That depends wholly on the investment, but we don’t do anything below 35% ROI when it comes to doing any of our real estate that we’re pursuing.

Theo Hicks: And this is for your company or for the investors who are investing?

Solomon Floyd: For the investors who are investing with us.

Theo Hicks: And that’s 35% cash-on-cash every year, or is that including profits from the sale?

Solomon Floyd: Profits from the sale go up a little bit more. Primarily, a lot of people use our housing for rentals. Sales are a little bit different; they’re a little bit higher, depending on who you’re selling to.

Theo Hicks: So you’re saying that if I invested 100k, I’d be making 35k to 60k every year, in cashflow?

Solomon Floyd: Absolutely.

Theo Hicks: So why isn’t everyone doing this?

Solomon Floyd: I think a lot of people, again, have that fear about these tertiary markets. I can take 100 people up to Wichita Falls, and maybe 25 of them are gonna be like “Oh, man. This is it for me.” I think it’s fear-based primarily, and the thing is, they don’t know much about that market. A lot of people are comfortable investing at home, especially in the economy that we had a couple of weeks ago… But not anymore. [laughs] Ideally, people are comfortable investing at home now.

A lot of people are part of Reunion, so I can’t say that no one’s not doing it, but I can say that more people are getting into it now more than ever.

Theo Hicks: And you said you do about 35 deals per month, and now it’s just exploded more? How are you supporting that deal flow? Have you had to change your marketing strategies, or have you always had more deals than you could buy?

Solomon Floyd: I think right now we’ve definitely had to change the marketing strategy. We were able to go to networking events, go to conferences, speak to people, and now we’re having to pivot to doing a lot more online digital marketing, which is odd for real estate companies, in my opinion… Because you can do most of that in-person. That’s where the connection is made. But getting people to do that next step over the internet I think will be kind of challenging. We’ll see what happens… But that’s just how it is.

Theo Hicks: So what types of online marketing are you doing now?

Solomon Floyd: We’re about to start hitting up YouTube and seeing if we can connect with our investor base ther. That’s where a lot of people are looking at  more real estate things as it grows. YouTube’s becoming a pretty popular channel for real estate investors to see what could happen, I suppose… So that’s what we’re gonna start marketing, as well.

We’re also about to do our first LinkedIn advertising, which apparently is very challenging… So we’ll see how my team does, but I’ve got complete confidence that they can make it happen, if they’ve got me this far.

Theo Hicks: And then what about finding investors? Do you have enough investors at the moment to support those number of deals that you’re needing to do, or are you also needing to pivot your investor lead strategies as well to online?

Solomon Floyd: I think we’re gonna have to definitely pivot the investor strategies online, as well. We are always looking for people to come in. Our newest product that we’ve created was in short-term JV deals that anybody could do in these tertiary markets… Because for us, there’s always gonna be a company that wants to buy these back here in the next couple of months, once everything flattens out, and convert them into a REIT. We’ve already had several companies approach us saying “Hey, if you can get us 100 cash-flowing properties, we’ll come by and buy them in July.” And they’ll put them under contract before everything else is really set in stone.

So it’s basically a guaranteed buyer, where all you have to do is go out and build homes, buy homes. Let’s say I need 100 – I’ll just contact a group of investors and say “Hey, I need help getting these 100 homes built/rehabbed/whatever”, knowing that there’s a buyer on the other end, as soon as they’re done. It’s kind of the perfect strategy for most people.

Theo Hicks: Do you focus on a specific market, or is this national?

Solomon Floyd: My DOD contract extends all over the United States, to every single military base, and tertiary markets exist throughout everywhere in the world, so yeah. Right now we’re targeting 18 markets. We’ve done about 12 overall.

Theo Hicks: If someone wants to do what you do, would they need to have previous military experience, or is this something that your average person could do?

Solomon Floyd: It’s something that your average person could do. For example, a buddy of mine – we were seeing what was happening in Flint, and we kind of thought to ourselves “The root problem would primarily be water filtration. How can you filter that water enough to put it in everybody’s home?” And the conclusion we came to was why don’t we just put three serious water filters in everybody’s front year, and run the water through there, so that way it’s clean on the other side?

We got about ten investors together, and we all put our money together, and I think we bought in total 30 homes. We replaced the plumbing all the way to the street, put in a three-series water filtration system, so that way the homes in Flint, Michigan had clean water. And we just rented it back out to the owners, or if the owners wanted the homes back, they’d buy them back from us. So anybody can do it. Tertiary markets exist for everybody.

Theo Hicks: And what about the DOD contract?

Solomon Floyd: The DOD contract – that’s a little bit harder to secure, but that’s a matter of just doing your own research to figure out what each base is in need of. In fact, if you go through the process of becoming a government contractor, it’s really not that difficult. I wish I knew all the logistics behind that, because I didn’t actually do my process. Somebody else did it for me, and that’s what made my life a little bit easier. But definitely research more into that, because the government is looking for housing, whether it’s military, veteran housing, or any sort of housing.

In fact, the best one to do, that doesn’t require you to be a military housing contractor, or any DOD contractor, is VASH. The VASH is essentially Section 8 for veterans, except with way better perks. It’s only a year that the veteran gets the voucher. The rents are substantially higher, and if any damage is caused by the veteran, the VASH program covers that. So that’s a great one for people to get involved in and help out as well.

Theo Hicks: Okay, Solomon, is there anything else we haven’t talked about that you wanna mention as it relates to your business and the Coronavirus?

Solomon Floyd: No, man. I think ideally most people just need to start looking out for these markets, as that’s where the opportunity is gonna be. When this is all over, I don’t imagine that the real estate markets – they’re gonna pick up again. They’re gonna be exactly where they left off, and that’s exactly the case that we felt every single recession. So explore outwards and help these other communities, and  you’ll be able to see now they will become the benchmarks for investing in the future.

Look at them how they operate now, in this crisis, as a tertiary market, and how they handle these issues, and see where the benefit and the value is, for yourselves and for the people that live there.

Theo Hicks: Alright, perfect. Thanks for sharing that, and thanks for sharing all of your advice today. Solomon does DOD housing contracts that houses military members, and he said that military members have never not been paid, and their housing contracts have never not been paid… So his business is going to be — not necessarily unaffected by the Coronavirus, but it’s gonna be affected in a positive way, because it sounds like he’s getting more deals this month than he had in previous months, due to the fact that there has been an explosion of demand for real estate in his tertiary markets due to Coronavirus.

He mentioned that you can get a 35% to 60%  return on your investment. So people who are interested in passive investing should definitely check out his website and the deals he has to offer. Again, that’s ReunionInvestmensLLC.

We talked about how he has to change up his marketing strategies, which most likely we are gonna have to do as well,  due to the Coronavirus… Because you can’t go to meetup groups or in-person events anymore. So he mentioned he’s gonna use YouTube to connect with the investor base, he’s gonna use LinkedIn advertising as well.

Then he also mentioned an interesting investment strategy, which is to pursue VASH, which is essentially Section 8 for housing.

Solomon, thanks for joining us today. Best Ever listeners, as always, thanks for listening. Stay safe, have a best ever day, and we will talk to you tomorrow.

Solomon Floyd: Thank you so much, Theo. I appreciate it.

JF2042 : Short Term Rentals During The Coronavirus With Avery Carl

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Avery is the CEO of The Short Term Shop focusing on short term rentals. She purchased her first property at the age of 26 and became a millionaire at 31. In this episode, she shares how they are approaching the market when it comes to renting out properties during the coronavirus pandemic. She also explains how the different types of short term rentals have been impacted and how she would go about renting properties in cities, rural towns, and vacation areas. 

 

Avery Carl Real Estate Background: 

  • CEO of The Short Term Shop brokered by eXp Realty
  • Top 1% real estate agent and short term rental expert
  • Bought her first rental property at 26 and has scaled to 28 doors
  • Has connected investors with over $125 million in cash flow short term rental investments
  • Based in Pigeon Forge, TN
  • Say hi to her at www.theshorttermshop.com  
  • Best Ever Book: Ego is the Enemy by Ryan Holiday 

 

Best Ever Tweet:

“If you’re a seasoned investor and you have the cash reserve, now may be a good time to find great deals on properties.” – Avery Carl

 

JF2041: Wholesale Fail to Rental Success With Michael Glaspie

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Michael served in the US Army Special Operations and is a commercial real estate broker who also invests in real estate holding over 35 rental properties, with over $1.5M assets under management. He started out house hacking his first property and gradually went into wholesaling where he actually lost money. This lesson helped him grow and pivot into focusing more on rental properties which led to him getting his license and partnering with a realtor.

 

Michael Glaspie Real Estate Background:

 

Best Ever Tweet:

“There are many creative ways to acquire real estate.” – Michael Glaspie


TRANSCRIPT

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, Michael Glaspie. How are you doing, Michael?

Michael Glaspie: I’m doing great, Joe. How about yourself?

Joe Fairless: I’m doing great as well, and looking forward to our conversation. A little bit about Michael – he’s a commercial real estate broker, also served in the U.S. special operations; thank you, sir, for keeping us all safe when you were in the Army, and a thank you to your colleagues as well. He invests in real estate himself too, and in fact, holds over 35 rental properties, with over 1.5 million assets under management. Based in Fayetteville, NC.

First, Michael, how about you give the Best Ever listeners a little bit more about your background and your current focus? Then we’ll go from there.

Michael Glaspie: Absolutely. I am based out here in Fayetteville, NC. I’ve been active duty military for a little over 11 years. When I first started investing, it was in 2014, and I purchased a standard single-family home, 3-bedroom/2-bath, 1,200 sqft. Now, I know many people listening are thinking “That’s not an investment, that’s a liability.” Well, at that time – single soldier, I was young, I rented out each one of the rooms to other people in my unit. And I didn’t know it at the time, but obviously I was house-hacking.

During that period I was looking for many different ways to create revenue, so MLMs, Uber driving, Lyft driving, whatever the case may be… But as I began to do  more research, I saw that real estate was a common denominator in many people’s success stories. So I just dove all in and I started to wholesale during that time, because from all the research, it seemed like just the natural progression. Well, the first two wholesales I completely bombed, lost a lot of money on those. I learned a lot of good lessons…

Joe Fairless: How do you lose money on wholesale?

Michael Glaspie: I’m gonna tell you how. Here in the market, now working with wholesalers – they exchange money upon the signing of the initial contract with the seller. And as long as they put down any type of money, it’s considered a valid contract. Here, they’ll put down a dollar. But me, being so anxious getting started, I’d put down $500, $1,000 on a home that I obviously had under contract for way more than I should have, because I couldn’t pay a buyer to take if off me.

And it actually ended up being pretty bad, because not only did I lose the money during the contract, but I had asked the seller to force her brother who was living in the property out of the property to make it more marketable. So I’ve learned a lot, and I apologized profusely to her back then. Hopefully she’s not still mad at me many years later.

Joe Fairless: So you’ve lost money AND karma points.

Michael Glaspie: And karma points. A lot of karma points. So I stuck with it a little bit longer and I ended up doing (I think) two more successful deals where collectively I made a little over 5k… But ultimately, I realized that the reason that I got into real estate in the first place was to create that passive income, and ultimately I wanted to do that through buy and holds. So I really started to focus on “Okay, the wholesaling thing – that’s fine. But if I’m gonna continue this energy and this focus here, then that needs to be my primary objective”, so I decided to just go ahead and focus on buy and hold.

At that point in time I didn’t have capital, so I started to research more creative ways to acquire real estate. Luckily enough, being here in a military town, we have something where the military forces you to move from location to location. We call it a PCS (permanent change of station), and there was a couple who bought  a house one year, the next year they refinanced it, and the third year the military forced them to move, so they had zero equity on the property. If they were to sell it, they would have to pay somewhere around 10k in closing costs, realtor commissions etc. So I decided to go ahead and approach them with a subject to, or a deed in lieu of… And it worked out in our favor.

Joe Fairless: How did you know about subject-to’s at that time?

Michael Glaspie: Just research. When I started, I read a lot of blogs, read a lot of books, but I went to a lot of local real estate investor meetups… And there was one person who mentioned it at one of the meetups, and he said “Have you ever thought about subject to?” And as soon as he said that, I just deep-dived into it [unintelligible [00:04:50].09] was my best friend then; Bigger Pockets was instrumental in that development as well, and… It kind of worked out.

Now, the way it really worked out was I had an attorney. I knew that I couldn’t really figure this out by myself throughout the whole process, so I found a local attorney who practiced subject to regularly, and I had him actually carry me  and the client (the seller) at the time through the entire process. So it worked out in all of our favors. But once I’d accomplished that, I said “This is a no-brainer. There’s many creative ways to continue to acquire real estate.”

So I continued to go forward. I do multiple – subject to, owner finance deals… I did a VA live-in-flip. Essentially, I used my VA loan to purchase a foreclosure. I fixed it up while I lived in there, and I sold it in less than a year. At that time I made a pretty decent net profit; a little over 20k. But when I looked at the closing disclosure, I noticed that I paid my friend and my realtor at the time very close to $12,000. That was the time that I decided to go ahead and get licensed.

I got licensed as an agent, so I continued to invest myself, but I actually partnered with my current business partner now. She was a dominant real estate agent in the area, that focused primarily on investors. So once we kind of joined forces, we decided to go ahead and build the team as it stands now to cater to not only investors, but to fellow veterans to kind of educate them on the whole mindset of passive income.

Joe Fairless: So you’ve got 1.5 million in assets under management. 35 rental properties. What property is worth the most in that portfolio?

Michael Glaspie: I would say it’s probably an 8-unit that we have. It’s a little over $500,000. Right around $550,000. But when we purchased it, we purchased it collectively in a 21-unit portfolio. It was two 8-units and a 5-unit that we collected all at once, from the same seller. But I would say that that one eight-unit property is probably the most expensive.

Joe Fairless: And how much is that worth?

Michael Glaspie: That’s a little over $500,000. I think last it appraised for $535,000.

Joe Fairless: And will you talk to us about how  you came across that deal and what the business plan is with it?

Michael Glaspie: Yeah, absolutely. We started off cold-calling. We all come from a background of being investors first… So I actually drove by a beautiful little 5-unit in a small subdivision that I constantly drove by throughout my time here in the area… And I decided one day I’m just gonna cold-call them.

I cold-called. Nice, elderly lady, who was just going through a situation where her husband had just passed. She wanted to let go of the property, she didn’t really know how to go about it, she didn’t really trust realtors in the area… So we kind of just — over the course of about six months we continued the negotiations until she was finally ready to accept our offer. Once we got that property under contract–

Joe Fairless: How do you continue the negotiations over that period of time, and not be a pest, but also still be relevant?

Michael Glaspie: Yeah, so I found a good medium of about every 2-3 weeks we’d follow up, but every time I followed up, I tried to provide a solution for her. As I mentioned, her husband had just passed; she was trying to go through some of the tax liabilities involved with that, and getting next to her daughter who lived in California, which is across the country… And there’s so many different things going on that every time I called her, I tried to provide her with a new solution. I gave her contact information for CPAs, I gave her contact information for 1031 specialists. I offered to help her move some of the equipment from one of her properties to another one of her properties… And I just continued to provide as much value as possible.

Over time, I believe that that rapport was built up enough that she just wanted to continue the conversation… And then she became accepting or trusting in me and what my intentions were.

Joe Fairless: That’s a great tip. That’s really good. So I interrupted you… You were negotiating and staying in touch with her in a relevant way by providing a solution every time you talked to her, every 2-3 weeks… And then what happened?

Michael Glaspie: From there, once we got it under contract, I made sure that I took the burden to handle everything – coordinating with the tenants, getting the inspectors in there, getting the attorneys on both sides on board… I coordinated everything, and I ended up making it so easy for her, and so smooth, that she actually came to me and said “Hey, I have more properties that I’d be interested in selling.” And she actually owned quite a few, but we were only interested in a select few of them.

So we identified those other two 8-units, and once we started the process with the first 5-units, we just continued forward and closed them all up. Now, how we financed them – that’s a different story. We did find a commercial lender who was willing to do 25% down, 30-year amortization, so that was good. Interest rates were a little under 6%, so a little higher than normal, but not all too bad… And collectively between me and my partners – there’s four partners – we just raised the money any way we could, because we still didn’t have the money when we were starting to acquire those.

So we took lines of credit, depending on which partner’s approach — some of us took out lines of credit, some of us just had personal money from friends or family… Whatever we needed to do to raise that 25% down payment, and the reserve requirements… And we closed.

Joe Fairless: How did you divide and conquer the responsibilities among four partners?

Michael Glaspie: That’s a really good question. It actually came through some headaches in the beginning. As I’m sure everybody out there knows, once you work with other individuals there’s a lot of opinions that may go around. But what we decided to do was we highlighted everybody’s strengths. Then we just essentially made an organizational chart. And I have to thank the military for that, because that’s how we were groomed, and all four of us are all from the military, so we understood this very well.

Once we divided those tasks based off of our strengths,  we made that organizational chart. We then had monthly follow-ups where that individual was ultimately in charge for that section. For example, when it comes to the accounting and the bookkeeping, that’s my realm. So I talk specifically to the bookkeeper and the accountant about these properties, and I report back to my partners about the results. And so on and so forth.

We have another individual that’s specifically in charge of coordinating with the property management company, and so forth and so on.

Joe Fairless: What do the other two do?

Michael Glaspie: We call that investment relations, and the reason why is because we’re looking at bringing in more investors to invest in that specific LLC. So we currently have 21 properties in that LLC and we’re looking to acquire. I’m sorry, we have 24 properties now in that LLC. It was a 21 acquisition just that time. So he’s constantly bringing in more and more investors to potentially partner with that. And the second one is just capital. He was the only one that was extremely liquid, and we used him. [laughter]

Joe Fairless: Well, did I hear you correct, that you have over 20 properties — I think you said 21 properties owned by one LLC?

Michael Glaspie: Let me rephrase that – it’s 24 doors.

Joe Fairless: Owned by one LLC.

Michael Glaspie: That is correct.

Joe Fairless: Why not have one LLC own one property?

Michael Glaspie: We’ve thought about this long and hard.

Joe Fairless: I bet you have, yeah.

Michael Glaspie: Individually, we have our own portfolios as well, so those are divided up however those individuals chose to divide it up. The reason we wanted to keep it all under one LLC is because our strategy is not to hold these indefinitely. We’re actually looking at repositioning a few of them and then selling them.

We didn’t really see the necessity to do that with such a short turnaround. We’re looking over the next 3-5 years to sell off at least two of the four; because they’re four different locations. So we’re looking at selling off at least two of them. And then from there, we gave the option for some of our partners to actually be bought out as well. That’s built into our operating agreement.

So because we really wanted the flexibility of how we can kind of move around, we wanted to keep it under one roof, because we don’t expect them to stay there that long. We do understand the risk involved in that, and that now all doors are subject to any sort of lawsuit or claims against us or whatever the case may be… But it was a collective decision where we sat down and said “Maybe it won’t be too bad.”

Joe Fairless: What’s been the most profitable property to date?

Michael Glaspie: Actually, for me in my personal portfolio is was one straight off the MLS. It was priced at 60k. I got the seller to pay all the closing costs. It was turnkey, for all intents and purposes. I bought it for 15% down using a regional lender, and I rented it out in less than three weeks at $975/month. That’s been my best cashflow.

Joe Fairless: Do you still own it?

Michael Glaspie: Yeah, I still own that one.

Joe Fairless: Is that in Fayetteville?

Michael Glaspie: Yes, it is.

Joe Fairless: What about the least profitable, other than the two wholesale deals?

Michael Glaspie: The least profitable would still be that first property that I purchased originally. It’s still, to this day, the least profitable. I used a VA loan on it, so there’s still barely any equity in it, back in 2014, and it rents out now for $1,100/month. The mortgage is somewhere around $900, so it’s a very low cashflow margin.

Joe Fairless: What’s a part of your process that you’ve optimized over the last year or so?

Michael Glaspie: For me, I’ve really learned how to optimize the leverage. There’s many different things going on – still active duty currently; I’m on my way out the door, but that’s still an obligation. We do have the business that we’re running as real estate brokers, we have our portfolios that we’re overseeing, and I’m also currently working on my MBA…

Joe Fairless: Dang.

Michael Glaspie: So there’s a lot of different — hands are in the bucket everywhere. So what I’ve learned is you have to leverage and you have to lean on others for support. I would not have been able to accomplish anything up to this point without my partners, without finding key individuals. And yes, that comes at a premium. I do pay for my leverage. But ultimately, when you double down on your strengths and you leverage out your weaknesses, you find that you become ten times more productive and efficient.

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

Michael Glaspie: Best advice ever is that there is no such thing as no. If I would just accept no at face value from somebody who said “No, that’s not possible. We can’t do that. That’s not within the scope of our work” etc. then nothing would ever get accomplished. I’m a firm believer that there’s always a how to anything. So yes, we may not be able to go directly with the standard approach of  a transaction, but there’s always a workaround. And if you’re willing to do the work and the research, there’s always a how. Don’t take no for face value.

Joe Fairless: Will you give an example of how you’ve applied that in your life?

Michael Glaspie: Absolutely. Wholesaling – here’s a great example. We had actually switched firms. As I’d mentioned, we’re investors first, and we work primarily with investors, so we have a lot of internal wholesalers on our team, we have a lot of other attorneys and things like that who specifically know these investing strategies of subject-to’s, owner financing, auction properties, you name it.

The last firm that we were at, they actually  pulled us in the office and they said that we couldn’t do wholesaling, because wholesaling is illegal. Obviously, we know that wholesaling isn’t illegal; it’s just about how you perform it. Especially as a real estate professional, we have to disclose what our current position is.

So that right there was a simple no, and if we had just accepted that no at face value and said “No, we cannot do a wholesale”, or the way specifically they said “As a realtor, you cannot conduct a wholesale” – we know that to be false. But if we had accepted it as a no, then we would have stopped all production in that part of our business and we would have lost a lot of business… Because that’s a large chunk of our revenue.

Instead, what we did was we went to many different attorneys until we found a local attorney who was very well-versed in wholesaling specifically. And he knew all of the documents that were necessary, all of the rules and regulations involved around it in the state of North Carolina, and then we developed and designed that portion of our business based off of his insight. That’s more so what I mean by “Don’t take No’s.”

And then we also switched firms… Because obviously, that broker in charge was just not willing to evolve with the times. So we switched firms to somebody who could understand it, we explained it to them, we partnered up with an excellent real estate attorney, and so forth and so on. That’s just kind of an example.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the best ever lightning round? Let’s do it. First, a quick word from our Best Ever partners.

Break: [00:17:04].29] to [00:17:49].27]

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

Michael Glaspie: The Go-Giver by Bob Burg.

Joe Fairless: What’s the best ever resource that you use in your investing business, that you think might be helpful for others to know about?

Michael Glaspie: Bigger Pockets. The calculators in the forums are paramount.

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

Michael Glaspie: Two ways. We do have a local investor meetup, that we call Pints and Properties. We do that once a month, and that’s really to share and support any of the local real estate professionals. The second way is any time we do a charitable benefit, our charity of choice is the Green Beret Foundation. It’s a military foundation specifically for the special forces operators out there in the world.

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

Michael Glaspie: You can reach me on Instagram at @michael.s.glaspie, or you can go directly to the Five Pillars Website and you can get in contact with me, or anybody else on my team.

Joe Fairless: Michael, thank you for being on the show, thanks for talking about the large deal that you have, as well as how you structure that partnership, where you highlight the strengths, and based on those strengths everyone has certain tasks. Then there’s monthly follow-ups. Such a simple, but effective process. I’m a simple-minded person, so I like simple processes… And especially if they’re effective, even better. So thank you for that, and thank you for talking about how you’ve built a portfolio with partners, as well as your personal portfolio.

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

Michael Glaspie: Thank you very much, Joe.

JF2040: Early Start With Robert Leonard

Listen to the Episode Below (00:22:37)
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Robert is a young investor who started with house hacking a condo right out of college. He initially had the impression that real estate was only for those with money and it wasn’t for him since he was young and couldn’t afford to buy a house. He now has completed 6 deals and is even focusing on long-distance rentals to find a better ROI. 

 

Robert Leonard Real Estate Background:

  • Real estate and stock investor, podcast host of two shows, ‘Real Estate Investing’ and ‘Millennial Investing’, and a full-time Corporate Finance Manager.
  • 24 years old, has completed 6 deals, now focusing on long-distance rentals
  • Based in Boston, MA
  • Say hi to him at https://www.theinvestorspodcast.com/

 

Best Ever Tweet:

“Because of technology, my inspector was on face-time with me as he walked through the property. Showing me the inspections and helping mitigate the risk.” – Robert Leonard


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, Robert Leonard. How are you doing, Robert?

Robert Leonard: Joe, I’m doing really well. Thanks for having me.

Joe Fairless: I’m glad to hear that, and it’s my pleasure. A little bit about Robert – he’s a real estate investor and stock investor. He’s the podcast host of two shows. First one, Real Estate Investing, the second is Millennial Investing. He’s a full-time corporate finance manager. He’s 24 years old, has completed six deals, and is now focusing on long-term rentals. Based in Boston.

With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Robert Leonard: Yeah, absolutely. So I started originally investing in the stock market, and I always thought that that was gonna be my way to wealth. I knew for a long time that after college I wanted to go work in a hedge fund. I was familiar with real estate, I knew it was something that people were doing, but I didn’t think that I could do it. I was only 20 years old, I didn’t think it was something that was possible for me. I thought it was only for the wealthy… Until one day I got more interested in it and I started to study it.

I learned that I was technically already investing in real estate, because I was told by my parents that as soon as I got a full-time job after college, I’d have to pay rent to live in their house… And I knew this even before entering college. And since I didn’t wanna pay rent to them, I worked almost full-time, my entire time throughout school, so that I could save money to buy a house when I graduated. Thankfully, I was able to save enough money to buy a condo before I walked at my college graduation.

So after living there for a  few months I realized that I had a second bedroom that I never went in. So I thought “Well, I should probably just try and rent that out.” So I did, I was able to rent that room out for $700, and my total all-in costs were only $1,100, including the HOA fee…

Joe Fairless: Wonderful.

Robert Leonard: …so my housing costs were only cost me about $400/month.

Joe Fairless: And that’s in Boston?

Robert Leonard: It was just outside of Boston.

Joe Fairless: So that’s pretty cheap for just outside of Boston, I imagine.

Robert Leonard: Yeah. It was a condo, so it was not a full house, but it wasn’t too bad. So my housing costs were only $400/month, and at the time I didn’t know what I was doing, I didn’t know that that was real estate investing… But once I started to study real estate investing more, I realized that I was doing a strategy called house-hacking. So that’s how I initially got started. I continued to learn more about real estate, and I realized that there was a lot of people that were having success investing in real estate, and they really weren’t much different than me… All of the stories I heard with people that were actually just like me. So I said to myself “If they can do it, so can I.” That’s when I started to get more into real estate, and I’ve continued to invest since.

Joe Fairless: So you’ve completed six deals… Let’s talk about those. We know the first one… What was the second one?

Robert Leonard: The second one was a live-in flip. It was a property that I bought that needed a little bit of renovations, and we were doing those while we lived there, and then we’ll eventually turn it into a long-term rental.

Joe Fairless: Who’s “we”?

Robert Leonard: My family and I.

Joe Fairless: Okay. So did your family and you buy the first one?

Robert Leonard: No, the first one was just me by myself.

Joe Fairless: Got it, so the first one was you. How many years or months from one to two?

Robert Leonard: I went pretty much from one to two. The first one ended actually pretty interestingly… So I knew that there was something going on with the condo complex, because they were adding a special assessment to the HOA fee that we paid. We didn’t have any details as to what was going on, but we knew that something was happening.

So I decided to take a chance on it, and it turns out that they put seven million dollars in renovations into the property, but they used six million dollars from their HOA savings fund, which meant that the owners of the units only had to put about $10,000 into each of their own units for $65,000 in renovations. So essentially, I got $55,000 to my unit done for free… That increased the value of the unit itself, as well as the complex. So I decided to sell that property, and then I rolled that into the live-and-flip that I’m in now.

Joe Fairless: Oh, okay. Did you do a 1031 exchange?

Robert Leonard: I did not. I just sold it.

Joe Fairless: Okay. So how much did you buy the first condo for and what did you sell it for?

Robert Leonard: The first condo – I bought it for about $130,000 and I sold it for about $165,000. That was only over about a 7-8 month period.

Joe Fairless: And how did you have the 130k to buy it while you were in college?

Robert Leonard: I didn’t pay cash. I used a conventional — just 5% down, and so I saved 5% down and bought it that way.

Joe Fairless: Okay. When you were getting approved for that loan, what were some challenges that you had to overcome, if any?

Robert Leonard: I really actually didn’t have to overcome any challenges, because the job that I worked at throughout college was at a local bank, as a loan officer… So I knew everything that they needed, I had a great credit score, I knew everything that was going to go on, so that helped me a lot.

Joe Fairless: Okay. Did you get the loan from the bank that you worked at?

Robert Leonard: I did not.

Joe Fairless: How come?

Robert Leonard: I didn’t like their mortgage process. It was a small, local credit union, and they took a long time, and the fees weren’t necessarily as competitive, so I went with the bigger bank.

Joe Fairless: Okay. So you bought it for 130k, you sold it for 165k, over a very short period of time. Congratulations on your first deal;  you went and put that into your second deal, which was a live-in flip,  you and your family. How much did you buy it for?

Robert Leonard: We bought this for about a 145k.

Joe Fairless: 145k, okay. And how much down did you put in?

Robert Leonard: We put another 5% down.

Joe Fairless: 5% down… And what happened to that property?

Robert Leonard: We still live in it to this day. We’ve been in it for about 2,5 years, and we wanted to turn a little quicker and turn it into a rental, but we’ve liked living there, so we haven’t done that yet.

Joe Fairless: Okay. And property number three?

Robert Leonard: Property number three was actually my first real rental, and I went a long distance for this one. As you mentioned, I live in Boston; it’s an expensive market, so I actually went all the way to Texas to buy my first rental.

Joe Fairless: Alright. Well, where in Texas?

Robert Leonard: In a small rural town called Wichita Falls. It’s about an hour and a half, two hours outside of Dallas.

Joe Fairless: Okay. I have some cousins who live there, and I’m from Fort Worth, so I know the area. What did you buy? Purchase price, rents, budget to get it move-in ready, if any – what are those numbers?

Robert Leonard: We bought it for about 65k. I believe they were asking 70k and we were able to get it for about 65k. It was pretty much move-in ready, we really didn’t need to do anything; so there was no renovation costs, no rehab costs. We were able to get a tenant in there within about three weeks or so, for $900/month.

Joe Fairless: Excellent. And you still have that property?

Robert Leonard: Yes, I do.

Joe Fairless: You’re in Boston. That property is not in Boston. It’s a city that is very far away. How did you land on Wichita Falls?

Robert Leonard: So I am a big fan of a gentleman named Neal Bawa. He has great information about demographic data. I studied his strategy. So what I did was I was able to aggregate a ton of census data into an Excel spreadsheet. So I had all of this census data for about 7,000 cities across the U.S. So what I did was I narrowed it down to about a dozen different cities that had a lot of deal flow, a lot of inventory that I could afford, and also had good demographic data. It just so happened that I was making offers in all kinds of different cities, and it just so happened that the first deal that got accepted was in Wichita Falls.

Joe Fairless: How do you define, in this instance, what “good demographic data” is?

Robert Leonard: For good demographic data we’re looking at income growth, population growth, house value growth, a crime level that’s not too excessive, and then also I’m looking for crime levels that are trending down. So I don’t want crime to be trending up.

Joe Fairless: Okay. And trending over what period of time?

Robert Leonard: I usually look over the last decade or so.

Joe Fairless: Oh, that’s a good period of time. Do you look at it over the last decade for those other items as well? Growth, population, income, house value?

Robert Leonard: Yeah, so everything is pretty much over the last decade, except for the current crime level. That’s where we’re at currently.

Joe Fairless: Got it. Okay. Anything else besides those five things that you look at?

Robert Leonard: Those are the  main things. Then once I’ve decided that it’s a good town, then I start to look at if there are real estate professionals there that can help with my business – competent and willing to help real estate agents, property managers, contractors, handymen, things like that. Because even if it’s a good city and you don’t have those people to help you, it’s very difficult to go long-distance.

So I look at those things, and then I’ll start to look at neighborhood data, and try and find the best neighborhoods to invest in. For that, we’re looking at income, poverty level and unemployment data, just to make sure that we’re investing in a good neighborhood.

Joe Fairless: Did you visit the house before you bought it?

Robert Leonard: I have not. I’ve never seen any of my long-distance properties. I still haven’t to this day.

Joe Fairless: I did the same thing, living in New York City, buying in Dallas-Fort Worth. I didn’t visit any of the properties before I purchased them, so I understand your thought process. A lot of people did not understand my thought process when I told them that… So why did you choose not to visit the property, and how did you mitigate the risk?

Robert Leonard: It’s funny, I went through the same thing. A lot of people told me I was kind of crazy, and all kinds of things… But it really didn’t seem that crazy to me. Technology has completely changed how we can invest in real estate. So for me personally, I work in finance, that’s my day job, so I’m not very handy; I don’t know anything about fixing houses. So even if I was buying a house literally next door to where I live, I wouldn’t know how to do anything to fix the property, I wouldn’t know even really what I’m looking at… So I’m relying on real estate professionals no matter where the property is. It’s the same when I’m  investing long-distance. If something goes wrong, I’m gonna call my handyman and he’s gonna go fix it; or my contractors, or somebody on my team is gonna help me solve that issue, regardless of where the property is.

So going back to technology, my inspector that I had going through this property – he was literally on FaceTime with me as he walked through this property. He’s showing me all these different things, we’re having a  conversation, and it was basically like I was standing there with him. So it really wasn’t much different.

And then to really mitigate the risk, since this is my first property, I really did try to mitigate the risk. I always told myself I was never gonna buy a single-family property. I only wanted to do multifamily. But I decided to go with this single-family because the numbers seemed great, and the mortgage was only about $250 or maybe $300/month. So I said to myself “Well, I can cover that myself with my salary if everything goes wrong. I can cover that, and at least not lose the property.” So the risk is relatively small on the downside, and the upside is great. So I knew if I didn’t just do a deal to get started, if I didn’t buy my first rental, I probably never would have. I knew I needed to just take action. The downside was pretty limited, so I just dove in.

Joe Fairless: How long ago was that?

Robert Leonard: That was about a year or a year and a half ago.

Joe Fairless: Okay. And what are your plans for that property?

Robert Leonard: The plans are to just continue to keep it as a rental for the long-term.

Joe Fairless: Property number four.

Robert Leonard: We just basically kept multiplying that process. I brought in a good friend of mine, who was interested in investing in real estate, so I brought him in with me as a business partner. We just continued to buy single-family properties. We buy multifamily too, but we also just buy more affordable, low-cost areas, and we just continue to do the same process.

Joe Fairless: Okay, so let’s talk about it. What was the fourth property?

Robert Leonard: The fourth property was a single family, also in Wichita Falls. Very similar to the first one. It was actually just a couple streets down. All the numbers were pretty similar. I think we got this one for about 72k, and it’s pretty much been the same. I think we rent that one for about $950/month, so it’s a little bit more… But it’s pretty much been the same process. We just try and rinse and repeat.

Joe Fairless: Okay. And you said you brought in a partner for this one?

Robert Leonard: Yes, so we’re 50/50 partners. We just put in 50/50 everything together and we try to keep it simple that way.

Joe Fairless: And I know you’ve got a property manager, so there was probably not any ongoing oversight on you and your partner’s part… But if there is something that needs to be addressed, who addresses it?

Robert Leonard: Actually, we don’t have a property manager. We manage long-distance ourselves… And we tested this with our first property. That first one in Wichita Falls that I did, I tested it. I said “Well, let me see what it’s like without a property manager. If it ends up being too difficult, I can always call X, Y and Z to get that property manager put in place.” I always made sure I had that as a backup, but I wanted to try it myself to see if I could save 10% a  month.

So I did it for a while, I did it for six months, and it was really only an hour or two hours a month, so it really wasn’t taking a lot of my time. We’ve decided to just continue to do it ourselves, and save that 10% per month.

Joe Fairless: When there is something to be addressed, it sounds like you’re the one addresses it…?

Robert Leonard: Yeah, more or less. My business partner does some things as well, but I handle a lot of it.

Joe Fairless: What does he do?

Robert Leonard: More or less the same as me. I do most of the financial reporting, our accounting, and then if we need a maintenance call, or we need to call a handyman, or talk to our agent and set up a showing, he gets the showing set up.

Joe Fairless: Tongue twister.

Robert Leonard: Yeah… [laughs] He’ll do a lot of that.

Joe Fairless: Okay. How did you meet your business partner?

Robert Leonard: We actually just met through mutual friends, and we’d been friends for 4-5 years. We are very similar in mindset. We have characteristics that complement each other, so we’re not similar in that sense. He’s very extroverted, very good at sales, and talking to people; I’m more introverted, accounting, numbers-focused… So we complement each other well that way, but long-term we have a lot of the same goals, we have a lot of the same work ethic… So we sit really well together, and we had a lot of the same interests, so we decided to go together.

Joe Fairless: What type of loan did you get on this property?

Robert Leonard: Just a conventional 20% down.

Joe Fairless: And is it owned by an LLC that you two have ownership in?

Robert Leonard: Yes. So we buy it in our personal names, and then we quitclaimed it to an LLC.

Joe Fairless: Okay. Is that behind the scenes, because it would trigger  a due on sale clause with the lender, or is that something that the lender is fine with?

Robert Leonard: Yes, exactly. It’s more behind the scenes. In general, of course they have the right… It’s not necessarily illegal to do as far as I’m aware, but to your point, the bank does have a clause in their note agreement usually that says they have a due on sale clause, which means they can make the loan due when the property is sold, and transferring it to an LLC is technically selling the property.

So they do have that right, but in general they don’t have an issue with it as long as you’re making monthly payments. So for us it hasn’t been an issue.

Joe Fairless: And what’s the advantage for you to do that?

Robert Leonard: We do it for the liability protection. We could get an insurance policy to do something similar, but in terms of protection, we wanted the LLC in place.

Joe Fairless: Property number five.

Robert Leonard: Property number five was, again, very similar to this one. This one was a duplex in Wichita Falls. We went a little bit outside of a good area for this one. We didn’t stick to our perfect neighborhood. But so far it’s been okay.

We got that one for — I believe it was about 122k. We put 20% down. Each unit rents for $750 a month.

Joe Fairless: And what gave you the confidence to move forward with it if it’s outside of your criteria that you had established previously with the crime?

Robert Leonard: It was still in the same town that we were happy with, and we had built relationships with a lot of people there. We started to get a little bit more comfortable. Our agent was very straightforward with us; he said “Look, it’s not the best neighborhood, it’s not the best area, but it’s also not the worst.” So we figured we would take a little bit of a risk on it. So far it’s been okay.

There were a couple properties that we were very close to buying, that were in some of the worst areas, but we decided not to, and we decided to really just stay focused on the middle or upper-class neighborhoods.

Joe Fairless: Okay. Earlier when we were talking about the current crime level, you wanna make sure it’s acceptable – how do you quantify what acceptable is?

Robert Leonard: So I got the acceptable number from Neal Bawa. There’s a crime index on a website called CityData, so basically we use that. Basically, anything under 500 is pretty good, it’s pretty acceptable. Anything above that, we tend to not look at. And of course, the lower, the better.

Joe Fairless: And the sixth property.

Robert Leonard: The sixth property was a single family… Nope, actually. Sorry. That was a duplex more local to us, where my business partner is house-hacking. We did that together, we bought  it together, but he’s house-hacking in it; he’s living in it and we rent out the second unit.

Joe Fairless: Okay. That’s the most recent purchase, correct?

Robert Leonard: Correct.

Joe Fairless: Okay. So you’ve got the five purchases that you still own. You still own the first one, right?

Robert Leonard: Correct.

Joe Fairless: Okay. You sold the first one… Why not sell some of these other ones, since you were able to sell the first one so quickly and generate some cash?

Robert Leonard: We plan to in the future, but for now — they haven’t appreciated in value like the condo did. The condo – I was planning on holding it for a significant period of time and just renting it out, but because of the renovations that the entire complex went under, I decided to sell it, because of the gain. But for these, we plan on buying some more single-families probably in Wichita Falls, and some other areas that we’re targeting. Eventually, we’ll sell all of those and 1031-exchange them into a larger multifamily property.

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

Robert Leonard: My best real estate investing advice ever is to live where you wanna live, and invest where the numbers make sense… And to also not go big on your first deal.

Joe Fairless: And why is that?

Robert Leonard: The first part isn’t a quote or an idea that I came up with myself. I’ve heard quite a few different people talk about it… But I think it’s so important, because a lot of people don’t invest, because they can’t afford their local area. Like you said, you were in New York City, I’m in Boston… We couldn’t. So technology I think has completely changed how real estate investing can be done, and made it more accessible than ever to invest long-distance.

I also think it’s important for people to not go big on their first deal, because I think that keeps a lot of people from getting started. I love the idea of going big and having massive goals, but when it comes to investing in real estate, especially for new investors, I think it’s important to start with something small. Similar to what I did, start with something that you could cover the mortgage if you had to, so that that risk is really limited and it’s really mitigated that way. I think that’s a great way to learn the ropes and then scale from there.

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

Robert Leonard: Let’s do it!

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

Break: [00:19:51].29] to [00:20:37].22]

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

Robert Leonard: Virtual Freedom, by Chris Ducker.

Joe Fairless: What’s  a resource that you use in your business, that you think would be helpful for others to check it out as well?

Robert Leonard: If you’re interested in long-distance investing, I think a great resource is a software platform that I’ve created. It’s called [unintelligible [00:20:49].06] It allows you to find the demographic data very easily on 6,000 cities across the U.S.

Joe Fairless: And how can someone get access to that or learn more about it?

Robert Leonard: Just go to wiserei.com.

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

Robert Leonard: The best ever way I like to give back is I like to help new investors get started, and I really like helping younger students to learn about personal finance and money, and help fill the gaps that isn’t covered by traditional curriculums.

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

Robert Leonard: The best ever place to reach me is probably on Instagram. My username is Robertattip, or as you mentioned at the beginning of the show, you could check out my two podcasts, Millennial Investing and The Real Estate Investing.

Joe Fairless: Well, Robert, thank you for being on the show, talking about the six purchases that you’ve made in about three years time, and getting into the details of each of those… The financing, the numbers for purchase price, the rents, and how you’ve built your portfolio and how it’s progressed, from the first condo at 5% down, and using your own money and your experience as a loan office while you were in college, working at a local bank, to then doing a live-and-flip, to then researching out a state… And then, once you identified a market, then you bring on a partner, and now you two are buying deals.

It’s interesting to hear how you’ve progressed and the steps that you’ve taken to get to where you’re at, and it certainly could be a roadmap for others… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Robert Leonard: Thanks for having me, Joe.

JF2024 : Starting With a USDA Loan With Chad Duval

Listen to the Episode Below (00:21:39)
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Best Real Estate Investing Crash Course Ever!

Chad started his journey at a bank straight out of college and after 3 months of working there, the crash of 2008 happened and he lost his job. His first house was with a USDA loan where he found a house with a basement where he lived while he rented out the top half of the house. He has recently bought a 15-unit and is now working on a 50-unit +.

Chad Duval Real Estate Background:

  • Worked at a bank out of college, after 3 months of working there, the crash of 2008 happened and he lost his job
  • House hacked his first investment, bought a 9 unit on seller financing, and most recently bought a 15 unit
  • Based in Boston, MA
  • Say hi to him at www.chadduval.com 

 

Best Ever Tweet:

“If you can, continually be looking online or networking with everyone and you might actually get more deals.” – Chad Duval


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, Chad Duvall. How are you doing, Chad?

Chad Duvall: Good! How are you doing, Joe? Thanks for having me.

Joe Fairless: I am doing well, and it’s my pleasure. A little bit about Chad – he worked at a bank out of college, and after three months working there the 2008 crash happened, and he lost his job. He has house-hacked his first investment. He bought a 9-unit on seller-financing. Most recently he bought a 15-unit – congratulations on that. Based in Boston, Massachusetts. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Chad Duvall: Yeah, so you hit all the big highlights in real estate. As you know, ’08 was not the best year to graduate school… But yeah, I got a job at a bank because I had my uncle who was the president over there, and got me started over there… And like you said, three months into it I showed up to the bank and all of us were locked out, and they closed the branch. So after that, I kind of tried to dabble in a lot of different things. I moved to California, I worked anywhere from Kohl’s, at night, stocking shelves, to Sherwin-Williams, stocking shelves there, and just doing anything I could to pay the bills.

I kind of made myself move around. I made it to Miami, and Connecticut, and ultimately I landed back in Boston, where — I’m from  the greater Boston area.

In 2014-2015 I was talking to my dad, who has been hounding me for years to buy a house… So I finally cracked, and went back to that same uncle that had got me the job a couple years prior, and I got approved for a USDA rural development loan, which is 100% financing… Which is an awesome loan product if you’re willing to move to rural areas of the country.

I ended up finding a property that had a full walk-out basement that I converted into an accessory unit and lived in that while I rented out the upstairs, all underneath this USDA rural development loan. And then from there, like you said, I scaled up to a 9-unit, then to a 15-unit, and now I’m looking to slowly get into the 50 to 100-unit properties.

Joe Fairless: So when I think of Boston, I don’t think of USDA rural loan being in Boston… So where was this?

Chad Duvall: This was in a small town called Colchester, CT. At the time I had taken a job in Connecticut in Essex, for an aerospace company, and it was about a 45-minute drive to work. I couldn’t qualify within the same area as the job was, so I had to move outside to Colchester, where there was really not that much around.

Joe Fairless: Yeah, well that’s the reason why they offer those loans, right?

Chad Duvall: Yeah… What I like to say is if you can put in a year of time to do it, to get into the game, then it’s a good product… But yeah, you might pull your hair out if you’re used to living in the city, for sure.

Joe Fairless: Right. It’s a year and then you can rent it out? Is that how it works?

Chad Duvall: Yeah. After a year you can move out of it and rent it out. Usually 12 months. I actually looked at the loan documents to confirm that too, just to make sure that they weren’t gonna call the note if they found out… But it’s very similar to what a lot of people do with the traditional FHA loan.

Joe Fairless: One catch-22 for that with the USDA rural loan is if you have a plan of renting it out  – okay, great, but you’re in the middle of nowhere, so can you rent it out? So how did you get comfort in being able to rent it out prior to purchasing it?

Chad Duvall: I was super-green to it and kind of took a big gamble. I just did a quick scan on Zillow and Craigslist and kind of looked at what the market had… There was enough population that I knew that I could get it rented, I just didn’t know how much I could get it for… So basically, I bought the house because I knew that based on the upstairs where I was gonna rent it – it was like a 3-bed/2-bath – I definitely could make enough money to cover the mortgage and most of the expenses, just by doing a little bit of the Zillows, and that sort of thing.

Joe Fairless: Well, let’s talk about this nine-unit on seller financing. Tell us the story.

Chad Duvall: So after I moved into the basement of that USDA rural development property, I got that first check, and like a lot of people, it’s a weird experience. I was hooked instantly, and was like “Man, I’ve gotta get more of these.” And I was looking at just a couple duplexes, and maybe some fourplexes, but then I ended up stumbling upon this nine-unit, because what I was doing is on Craigslist I was typing in keywords like “seller financing”, “owner financing”, “second mortgages” and keywords like that… And I actually stumbled upon this 9-unit.

So I enquired about it, and they ended up carrying back 85%, and then I had to bring about 15% to the closing table… So it was a really quick transaction, everything was done through them and the title company.

Joe Fairless: Let’s talk more about it. You bought it for how much?

Chad Duvall: I bought it for $420,000.

Joe Fairless: $420,000. Where is it located?

Chad Duvall: In central New Hampshire.

Joe Fairless: What type of area is that?

Chad Duvall: It’s a small city called Laconia. It’s the outskirts of a pretty rural area, but it’s also a very touristy area. There’s a big lake there, so there’s a lot of influx of tourists in the summertime, so that brings in a lot of traffic. And the property is just on the outskirts to a lot of big malls; there’s a Walmart right there, and a few chain stores, too.

Joe Fairless: Why were they selling it via seller financing on Craigslist?

Chad Duvall: I think what they had decided as they talked to their accountant — they had owned the property for 20 years, and they owned it free and clear… And I guess they had listed it before, but then once they had it under contract, they realized that the tax implications are pretty significant on a $420,000 capital gains, pretty much… So they ended up relisting it and tried to do seller financing just to reduce that tax burden.

Joe Fairless: Okay. Your initial offer was how much?

Chad Duvall: I think with that it was actually really low. I think I was down at 380k(ish) and kind of worked the numbers back and forth… I ended on 420k, but it was on 420k because they ended up carrying more of the mortgage. At the original negotiations of the lower price I had to  bring more money to the table, which ultimately I figured “I’ll pay a little bit more than I think it’s worth, but I think that’s a premium for having seller financing, and not have to go through the bank.”

Joe Fairless: What did they list it at?

Chad Duvall: I think they had it listed at 475k. But another little key indicator was that it had been sitting for a while. I think it was on the market for like 180 days when I had come across it.

Joe Fairless: And how did you know it had been on the market for 100-and-some days if you saw it on Craigslist?

Chad Duvall: Oh, I’m sorry. This one wasn’t on Craigslist. I think I was searching for keywords on realtor.com.

Joe Fairless: Oh, okay.

Chad Duvall: Yeah, sorry. I don’t think it was on Craigslist. I do continue to search on Craigslist for stuff, but I think that property was actually on realtor.com. And of course, those always tell you days on market.

Joe Fairless: Did they ask you about “Hey, have you done this before?”

Chad Duvall: They weren’t too interested in the real estate experience, because what we had talked about is they had a resident building manager that had been there for like 8-10 years, and she knew the property inside and out, and I had told them that I planned on keeping her on as a partner. No money invested in it, but keeping her on, because she knows the building. And when I had met her the first time, it was a really good feeling; she seemed like a decent person. So I told them I was gonna keep her on… So that kind of mitigated any of the risk in their mind, I think, as far as having real estate experience…

But I did have a resume, and I had my uncle, again… It’s just a recurring theme in my stories – my uncle; he helped a bunch. He wrote a nice recommendation, because I had worked for him for a couple of months, and he’s known me my whole life… So he really talked me up. The bank that he was working for talked me up, and then all of my other employers that I had been working with had given good references… So I guess they had relied heavily on the references and my secure financial situation at that time.

Joe Fairless: What was the business plan with that 9-unit?

Chad Duvall: At first it was to raise rents immediately, because it was definitely mismanaged. A lot of the rents were 10%-15% below market… So at the time was to raise rents for current tenants that didn’t have any leases in place, and then slowly turn over tenants, and just light-rehab units. Light rehabs meaning paint, carpets, some appliances, a few countertops here and there… But no crazy moving walls or stripping it down, or anything like that. So that was the biggest thing.

And then the second thing is once we started doing that, we also came across the RUBS policy; I don’t know if you’re familiar with that – Ration Utility Billing Service… Where  we hired out a   third-party to come in and evaluate the property, the square footage, and the usage and the occupancy, and then take all of our utilities and then calculate a bill per unit based on the occupancy and the square footage back to the tenants, and get a portion of that expense billed back to them. So those were the two main driving business plans.

Joe Fairless: What was your role in the renovation process?

Chad Duvall: At first it was me and my dad most of the time. My dad owns a construction business, so–

Joe Fairless: You had a very active role. Very hands-on role.

Chad Duvall: Yes, very active.

Joe Fairless: [laughs]

Chad Duvall: And then once I got three or four units into those, I’m like “Man, it’s too much for me.” Of course, I was working a full 9-to-5 and everything like that, and my dad was getting busy too, so we couldn’t put [unintelligible [00:10:01].27] So by the last unit I had fully hired right out.

Joe Fairless: When you closed on the 9-unit — how long ago was that?

Chad Duvall: That was in 2016. March of 2016.

Joe Fairless: Okay. What’s the status of the business plan?

Chad Duvall: Actually, two weeks ago we just actually sold that property. So what had happened is we had finished basically the business plan of it, and then went to go do a cash-out refi with it… And for some odd reason the property actually when we went to do the refi appraised significantly lower than it was valued… So at that time I had this 15-unit under contract, and that’s what I was gonna use for the down payment of it.

So what I ended up having to do was just take out as much as I could for that property, close on the 15-unit, but because I had to put so much of other money and scrounge at the last minute to get that down payment together for the 15-unit, I needed to sell the 9-unit now to recapture all of the equity, so that I can pay off all of that other stuff that I had to club together to close on that 15-unit… Which is so crazy, because that 9-unit, when I did sell it, the selling appraisal came in at 485k, and when I went to go do the cash-out refi a couple months before that, it had come in at 430-something. So it was a huge discrepancy, and I didn’t have enough time to fight it, because I had this other property that was getting ready to close… So it became kind of a cluster, pretty much…

Joe Fairless: Now let’s talk about this 15-unit. What’s the story with that?

Chad Duvall: That was kind of a funny story… It was Christmas time; my girlfriend lives in Chicago and we go back and forth there a couple times a year and at Christmas time. Last year we were flying home, and [unintelligible [00:11:43].14] so I’m always looking for things to do; I’m either working, or browsing real estate is a thing I do all the time… But I ended up coming across this 15-unit and then putting in a really, really low-ball offer on it… And ended up getting some traction on it while I was on this airplane on the way back from Christmas.

Long story short, I ended up getting them to carry a second on that particular purchase, and I got the bank to finance 80% of it. They carried back 75k and then I had to come with the balance of that at closing. So we closed it at 675k; they had originally listed it at 890k (I think it was).

So again, another very similar story – it’s really way over price. I don’t know if people were actually even taking it seriously and putting in offers because it was so over-priced… But I don’t see any downfall in putting in low-ball offers… So we ended up closing for 675k, and it’s been going pretty good. We closed in April, and this is the first property that I actually have full-time property management as well. It’s kind of  a weird transition; I’m a little bored, because I don’t  have to really do anything. All I have to do is manage the manager now once a month, so… It’s kind of a cool transition from duplex all the way to a 15-unit where I’m very hands-off.

Joe Fairless: What have been some challenges that you’ve come across with the deal? …whether it’s the management or something else.

Chad Duvall: Actually, the biggest challenge right now has been the tenant base when we took the property over. Apparently, the number one drug dealer in all of New Hampshire lived in that building and we didn’t know that… So two weeks after we closed on it we had a huge FBI drug raid, and all this stuff… So it’s been quite the hotbed for a lot of drug activity, and not a favorable tenant base. We’re trying to combat that. We’ve kicked out most of them and putting in better tenants. As you upgrade the units, you tend to level up your tenant base, so that’s kind of what we’ve been doing.

Joe Fairless: When you now are managing the manager, versus being the manager, what are some ways you’ve changed your approach? Because I’m sure that the early days you were approaching it one way as managing the manager, but now you’ve gotten into a system with managing the manager.

Chad Duvall: It’s hard for me — I’m still learning, of course, because the first couple of properties I had to do everything; so I took the bull by the horn. Now I had to transition into stopping myself from micro-managing, I guess… I think the pendulum has swung a little bit too far, where I’ve been a little bit too hands-off, because I’m seeing a few things slip, so I might have to reel it in a little bit… But that’s been the hardest transition for me since doing that.

Joe Fairless: And how are you working through that, so that you navigate that transition?

Chad Duvall: Yeah, it’s just more communication and being more honest with the property managers. I’ve planned out every time that I’m up in New Hampshire, because my family still lives up there… So I’m still up there quite a bit. What I’m trying to do is actually meet with them every time I’m up there, just to kind of get more face time and be more transparent about things that I’m seeing, or concerns that I have, or “Oh, you guys are doing really good here”, and that sort of thing.

Joe Fairless: What are some concerns that you’ve had?

Chad Duvall: Well, I drove by the property at Thanksgiving and there was a lot of large items around the dumpster, and I don’t know if that’s been addressed, or if they even know that that’s been going on… But with a lot of turnover, with all these bad tenants, they leave mattresses and beds and couches and they’re just putting it behind the dumpsters. That’s a cost for us, because we have to call a special company to come and take that out… So things like that I need to address and make sure that we’re all on the same page, and find ways to combat that with either cameras or whatever we’re gonna do.

Joe Fairless: You’ve got a 9-unit on seller financing that’s rockin’ and rollin’… How much money does that put in your pocket every month?

Chad Duvall: Full disclosure – I’ve never taken any money out of any of these properties. I’ve kind of just put them back into the properties.

Joe Fairless: What are you living off of?

Chad Duvall: I work a 9-to-5, and aerospace sales job. So that’s my real job. All this real estate is kind of on the side; the podcast, all of this. It’s my passion.

Joe Fairless: Good for you.

Chad Duvall: It’s so fun… But yeah, I do actually work a regular 9-to-5.

Joe Fairless: Okay. My respect for you just increased even more. Nice job.

Chad Duvall: Thanks, man. [laughs] It’s challenging some days. Some days I ask myself why I’m doing it. But again, going back to having full-time property management has freed up so much time that I can really focus on my 9-to-5. Having somebody else try to grow my portfolio while I’m working is a really nice bonus.

Joe Fairless: When were you doing those renovations on the 9-unit?

Chad Duvall: The lucky thing is in sales — I’m super-fortunate to work from home, so I can pretty much work from anywhere… But at that time I was just going up Friday afternoons and working all weekend. So it was a lot of weekend work, for sure.

Joe Fairless: Okay.

Chad Duvall: Because yeah, my job is pretty rigorous travel; I’m traveling a lot, so I couldn’t squeeze it in during the week… But yeah, definitely during weekends.

Joe Fairless: The 15-unit – what’s the anticipated hold period?

Chad Duvall: Right now, with the way the economy is going and everything like that, my anticipation is it’s gonna be a long hold. However, if we continue to see things increase and it becomes a point where I’ve got a lot of equity there, I might try to cash in on that and keep going bigger, because that’s the ultimate goal – to get into the 50 and 100-unit buildings, similar to yourself, and start syndicating a little bit… Only because, as you know from your story, you buy one property and you run out of money, and then you have to save and save and save; then you buy another one, and then save, save, save. And as you start getting bigger, it’ll be easier to a) raise money, and b) to manage, for sure.

Joe Fairless: Anything else that we haven’t talked about as it relates to the 9 or 15-unit that you think we should mention?

Chad Duvall: Not really, but I know that the market is a little different now… But if you can just continually be looking online, or networking… I shared this recently – the furnace guy that was at that 9-unit, he did all the furnace work for that, but he actually gave me some leads, because I’d been talking to him about how I’m wanting to buy more buildings, and certain things like that… That’s something I wanna reiterate about that 9-unit, is just talking with everybody – all your contractors, and brokers, and just make sure that everybody knows what you’re doing and you might actually get some more deals that way.

Joe Fairless: As a refresher, the two large deals, the 9 and the 15 – one you’ve found on realtor.com, most likely; and then where did you find the other one, the 15-unit?

Chad Duvall: The exact same way.

Joe Fairless: Okay. Realtor.com.

Chad Duvall: And talking to everybody about it; people are gonna give you leads. I haven’t closed any deals that way, full disclosure, but I know I’ve been getting a lot of options and been in communication with a lot of owners… And as soon as I talk to them, at least in my experience so far, they’re just not quite ready to sell. But the second they are, I know I’ll get a phone call from them.

Joe Fairless: Do you have a follow-up system?

Chad Duvall: Yes. Every six months I’m following up in my calendar. If you saw my calendar, it would cause you to go dizzy, because I have so many things in there… So every time I do it, I just move that notification six months out.

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

Chad Duvall: Start. You’ve gotta start to be in it, man. Gotta start. I know it’s cliché; you’re never ready to have kids, you’re never ready to do all these things, and real estate is the same thing – just start.

Joe Fairless: Now we’re gonna do a lightning round. Are you ready for it?

Chad Duvall: Yes.

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

Break: [00:18:47].15] to [00:19:34].26]

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

Chad Duvall: So the 15-unit that I just closed on in April – I didn’t get a proof of payment from the sellers that they had paid the last water bill, and ended up having to go to court to get that paid by them. So make sure at closing you have receipts and proof of all of the utilities being paid off, up to the closing date.

Joe Fairless: How much did it cost you to go to court?

Chad Duvall: We ended up settling after. $1,500, but we ended up adding that to the amount that they owed us.

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

Chad Duvall: Right now I think the best way that I’m doing it is through my podcast and my Instagram feed. I don’t consider myself an expert in real estate, but I have done a few deals, and I’m trying to give back at least some of the mistakes that I’ve been making, fumbling through to get these properties.

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

Chad Duvall: ChadDuval.com is the hub for everything. Again, my podcast is Start FM; it’s on iTunes, Stitcher, it’s on all the platforms. Those are the two main areas.

Joe Fairless: Fun conversation, talking about those two deals, and the USDA loan, too. That’s interesting. It doesn’t happen often where investors use that program, because a lot of people aren’t willing to move out to rural areas where you can get that type of loan… But you bite the bullet, and it could also be a wonderful thing to be out in the country.

Chad Duvall: Yeah, it’s a good way to test if you like it… Because I thought at the time when I was getting into it, I was like “Oh, this is gonna be awesome. I can cut the lawn, and paint this, and that…” and then I was realizing I was gone a lot, trying to go have fun with my friends, and I was like “Damn, I can’t. I have to go home and cut the lawn.”

Joe Fairless: Yeah, chop wood, and kill your dinner, and all sorts of things.

Chad Duvall: Yeah. So if anything, it will teach you if you like that stuff or not, if you’ve never done it before.

Joe Fairless: I’m glad you experienced it, because it was fun to talk about… And even more fun was the 9-unit and the 15-unit conversation. Thanks for being on the show, congrats on what you’ve done to date. I hope you have a best ever day, talk to you soon.

Chad Duvall: Thanks, Joe. I appreciate it.

JF2016: Sacrificing Short-Term Satisfaction For Long-Term Happiness With Mark Owens

Listen to the Episode Below (00:19:41)
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Mark Owens is from Baltimore and has been an active full-time real estate investor for the past 14 years, owns over 100 units, 200 wholesales, and self manages all of his units. Mark believes his secret to having success and having more options than most investors is all due to the way he views decision making. He shares some great examples of how he has been able to separate himself from the heard of real estate investors when it comes to making decisions. 

Mark Owens Real Estate Background:

  • Active full-time real estate investor for 17 years
  • Owns over 100 units, has done around 200 wholesales, self manages all units
  • Units comprised of single families and 7-18 unit multifamilies
  • Based in Baltimore, MD
  • Say hi to him at https://markowens.com/

Best Ever Tweet:

“Manage your properties like a business, not a hobby. ” – Mark Owens


TRANSCRIPTION

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

Mark Owens: Good, Theo. Thank you for asking. Thank you very much.

Theo Hicks: Absolutely. Before we begin, a little bit about Mark – he is an active real estate investor and has been full-time for 14 years. He owns over 100 units, has done around 200 wholesales, and he self-manages all of his units… So we’ll definitely be talking about strategies on how to self-manage your properties.

His units range from single-family homes, all the way up to 18-units and everywhere in between. He’s based out of Baltimore, Maryland and you can say hi to him at MarkOwens.com.

Mark, before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Mark Owens: Sure. Thank you for the introduction. I was actually in the IT field when I started buying rentals in 2002. I made a bunch of money in that, and I wanted to invest it, and I wasn’t really sure where. I just knew that the stock market wasn’t a good fit for my personality type. It was more like a casino than anything else… And real estate just seemed like a much safer, controllable investment, where worst comes to worst, I’ve always got the house. I can go live in the house if I have to, and you really can’t say that with the stock market or most other investments.

So that was my life before the rental properties. When I first started buying them, I really had no intention of getting to where I’m at now. The original intention was I wanted to make enough money off some rentals so that in the event that something happened to me and I couldn’t work, that I would have enough money coming in to pay my minimum bills – the mortgage on my home, my utilities, put food on the table… Just like the minimal amount. And once I’d hit that point, I realized that “Man, if I just keep doing what I’m doing, in a few more years I’ll be able to quit this job. I’ll be able to get out of the rat race.” That was even before Kiyosaki and Rich Dad, Poor Dad and all that. I knew I was in the rat race, but I didn’t really know that that’s what it was called at the time; I just knew that I depended on other people to put food on my table, and I didn’t like that feeling. And that is kind of how things got started.

The second part to your question was — let me ask you, what was the second part, Theo?

Theo Hicks: The second part is what are you focused on now?

Mark Owens: Yeah, what am I focused on now… Sorry, I get so caught up with the excitement of talking about the business that it’s easy to lose that stuff. What I’m focused on right now – it’s an interesting thing, because at this stage I’m thinking about downsizing some of my stuff, and I just had an opportunity across my desk yesterday, and it’s something that could significantly add to the number of units that I have, and I can’t really say a whole lot about it right now, because I have agreed to a non-disclosure agreement, so I can’t really give any details about it… But right now I’m just enjoying myself. I’m just keeping the guys that work for me busy full-time, managing my tenants… Right now I’m just happy where I’m at.

I’ve realized recently, and I think most people get caught up in this – that you say “I’ll be happy when this happens. I’ll be happy when that happens.” Well, by the time those things happen, you’re always pushing your happiness into the future, thinking that “Once I accomplish some magical, then I’ll be happy.” I’ve realized that just recently, and I try to put a lot more focus on where I’m at today, and it seems like it’s lifted a big weight off my shoulders. Right now I’m just trying to focus my attention on what I have, and how grateful that I am that I have what I have… And that’s it. I know it’s not really a directly real estate related question, but that’s where I’m at right now with my mindset.

Theo Hicks: I think that’s very wise advice, always pushing your happiness to the future… So you said you were thinking about downsizing… I understand that you’re happy where you’re at right now, and you’re gonna continue to manage your properties, manage your employees, and kind of just enjoy your current situation, but what do you mean by downsizing, and why are you considering downsizing? What does that mean? Are you still gonna have your properties, are you selling the business and moving to the beach?

Mark Owens: The thoughts were — my wife and I, we bought a condominium in the Cayman Islands last year. We’ve got like 3-4 more years and our son will be out of school; my wife works, she’s gonna retire from her job, so we’re thinking in a few years possibly buying another house on the Gulf Coast of Florida… And the plan is to spend four months in Cayman, four months in Florida, and the other four months just kind of bumming around the planet, just seeing what also is out there… And part of that would be to sell maybe two-thirds of my portfolio, own a third free and clear, have a bunch of money in the bank, let somebody else manage the ones that I own free and clear… And it’s really just to get stuff off my plate, to give myself more freedom to do everything that I wanna do. So that’s kind of the goal.

Of course, that’s always subject to change. Any time I make a decision about something, I always give myself the option to change my mind at any point in the future, because the decision that I make today is based on the information I have today. I can get an information tomorrow that doesn’t fit into the goals that I’ve laid out for myself, so I always give myself the flexibility to change my mind about anything, at any time.

Theo Hicks: That is interesting. When you first started out back in 2002, did you have the goal set to do this, to sell a portion of the portfolio, to hold the rest free and clear, and kind of just do whatever you wanna do? Or did you plan on just doing it forever? And to give a little context for my question – some people obviously have the plan to eventually quit their job and then do real estate full time… But then what happens after that? It sounds like you’ve got a plan right now that is gonna come to fruition in a little bit, so I was wondering if you could explain a little bit about the thought process of when to know when it’s the right time to step away from your portfolio and have the freedom to do what you wanna do?

Mark Owens: I think the answer to that question is different for everyone. There’s no right or wrong answer. I met a guy for lunch yesterday that’s a pretty well-known local guy that’s 71 years old. I don’t wanna put too much information out there, because I don’t want people to identify him, but he owns a significant portfolio size, and he has no plans of selling anything any time soon. He’s 71 years old… And I’m significantly younger than that, and I just have a different plan.

As far as how long I’ve had these plans, I guess it’s always been — since I became full-time a few years into the business, I always knew that eventually I wasn’t gonna wanna do this; I wasn’t gonna wanna be 80 years old, taking people to rent court. So I always knew that at some point things were gonna change… And I welcome that change, and the thing that I did that was smart was I ran a really good business that gave me a lot of options.

There are some people that could be 50 years old and they have to keep their properties for another 30 years, because they cash-out-refied, spent all the money, and now they’re upside down. I never made those types of mistakes. I always ran my business smart, I always ran it looking towards the long run, instead of the short-term gratification… And as a result of doing that, 17 years into the business I’m lucky to have a lot of options available to me. And again, as I’ve said before, these things are always subject to change. I could have some deals land in my lap where I just say “Man, I love this business. I don’t wanna go anywhere”, and then I’m gonna be fighting with my wife for five years…

This is one of the things in this business that can drive people crazy – it’s kind of like going to Baskin-Robbins. Sometimes you just want chocolate ice cream, and then you’re going to Baskin-Robbins and they’ve got 32 or 33 flavors and you go crazy; you’re sitting there, trying to figure out which one you want. I kind of like those options.

One of the great things about real estate in my mind is that I can look at any deal or any scenario and I can see 15 different ways to do it. That thing drives some people nuts. Some people just wanna go in, they know how it’s gonna happen, and then they walk away. I like to have options.

And when you have a career like I have, with those options, just about every scenario that I can think of, when I reach a point where I have to make a decision on those options, just about all the time I’m looking for what’s in my best interest for the long-run, not the short-run. If you get caught up with the short-run thing, then you’re always chasing the next shiny object, and it’s really difficult to get ahead. If you think more long-term and you do things that are better for you in the long-run, then in the long-run you’re gonna have a lot more options at the end of the day… I’m approaching the end of the day, and it’s good to have those options.

So again, to answer your question, there’s really no concrete black or white answer, because everyone’s situation and goals and dreams are different. For me, mine worked out well, mostly because of the emphasis I’ve placed on making the best decisions for the long run.

Theo Hicks: Can you go into more specifics on what you mean by this long-term thinking versus short-term thinking? Maybe give some specific examples of things that you should do if you wanted to be thinking long-term, and then things you shouldn’t do, which are more short-term thinking… Because I know you’ve mentioned a few, but could you go through a list of examples?

Mark Owens: Sure. A great example would be if you’ve got a bunch of equity in a property, some people will say “Man, you should refi that out, pull $50,000 out and do whatever you wanna do. Go on vacation, buy the watch and the car, and all that stuff.” My philosophy is if I’m gonna pull $50,000 out in a cash-out refi, I’m gonna take that money and invest it in another cash-producing asset. I’m not gonna take it and spend it on consumer goods. So that’s one thing where I think in the long-run I’ve done very well. I’ve done several cash-out refi’s where I’ve literally walked away with several hundred thousand dollars, but I immediately took that money and bought other properties that made me even more money.

Some of my friends don’t have that type of discipline all the time. It’s very easy to fall into the trap of “I’m gonna go on vacation for a month, and I’m gonna buy the new Tesla”, and all that stuff. I think that that’s one example of something that I’ve done that has enabled me to have the success I’ve had.

Another great example would be my friends are shocked when they find out that I still live in a townhouse. My wife and I bought a townhouse 23-24 years ago. I paid it off 15 years ago. A lot of people think “Man, why do you live in there? You could go buy a $700,000 house.” I could, but then that’s gonna put me in a cashflow crunch some months, because I’ve got this fat mortgage… And the happiness that you get from buying that big house or that expensive car – it doesn’t last. Anytime you go buy a consumer good, whether it’s a house or a car or a watch or a pair of shoes, you get that initial happiness from it, but then in the long-run, a few months later, six months later you’re not any happier than you were before you ever bought that thing.

So one of the things that I’ve done that’s enabled me to have this kind of success is by being able to ignore that need for immediate gratification where you say “Man, I want it now, I want it now”, and I’ve been able to look at that and say that that’s my enemy right there. That is my long-term enemy, having to have it right now.

So that’s a discipline issue. A lot of people don’t have it. But if you sit down and you look at the numbers and you look at what’s in your long-term best interest and you make decisions, whether it’s a cash-out refi, or buying the big house, or buying the expensive car, if you look  to see what’s in your best interest in the long-run, then you’ll probably make similar decisions to what I’ve made, that are gonna give you a much better chance of having long-term success and financial independence.

Theo Hicks: Another piece of very wise advice. Alright, so the money question, which is what is your best real estate investing advice ever – but I did wanna ask you about self-managing, so maybe you can answer the question “What is your best real estate investing advice ever for self-managing your own properties?”

Mark Owens: Oh, man… That’s a loaded question there, because I could answer both questions with some good information. My best real estate investing advice for managing your own properties would be to manage your properties like a business, not a hobby. This your livelihood, this is how you make a living, and sometimes that means making tough decisions. That means taking people rent court that you don’t wanna take to rent court, it might mean selling a house that you like, but it’s not in your financial best interest to keep it… So that would probably be it. But there’s a lot more to it than that.

One of the things as far as self-managing that has made it really easy for me is that everybody that knows me trusts me 100%. If I’m in the Cayman Islands on vacation and I have a furnace that breaks in the middle of the winter, and my HVAC guy goes over there and he knows that “Man, I’ve gotta replace this furnace. It’s gonna cost $2,500”, and he knows I’m not gonna be back in town for two weeks, he won’t hesitate to replace that furnace on his dime, knowing that I’m gonna pay him; the day I get back he’s gonna get a check in the mail.

So building these relationships with  your contractors, with your tenants, with everybody in the business, where they know if you’re not in town, the day you get back they’re gonna get paid – that’s one of the things that has really made it easy for me… Because I do like to travel a lot… So having those relationships gives me the peace of mind knowing that if the crap hits the fan when I’m not around, I have a lot of people who are gonna have my back, because they know I’m gonna have their back as soon as I get home.

So there’s a lot of different pieces of advice I can give as far as the best advice ever for self-management… Those are a couple of them that I’d like to touch on.

Theo Hicks: Okay, Mark, are you ready for the Best Ever Lightning Round?

Mark Owens: Man, bring it on!

Theo Hicks: Alrighty. First, a quick word from our Best Ever sponsor.

Break: [00:14:33].22] to [00:15:27].27]

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

Mark Owens: The best ever book I’ve recently read… It would have to be Rocket Fuel.

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

Mark Owens: [laughs] [unintelligible [00:15:35].18]

Theo Hicks: What deal did you lose the most money on?

Mark Owens: This is gonna be hard for people to believe, but it is true. I have only lost money on one deal; I lost $5,000. It was a 15-unit building. 13 apartments, 3 commercial spaces. I partnered up with someone that had no idea what they were doing. They wouldn’t let me buy them out of the deal, and after 9-10 months I told the guy I wanted to auction it. I auctioned the property, absolute auction. We ended up losing $10,000 on it. I lost 5k, he lost 5k. I walked away happy, and he walked away pissed, but… He only saw the building twice; I was doing all the work, and  he wasn’t doing anything. I was getting tired of it. So that’s the only real estate deal that I’ve ever done that I lost money on.

Theo Hicks: What types of things did you implement in your business to make sure that never happened again?

Mark Owens: Great partnerships.

Theo Hicks: Simple. So let’s go on the other side of the coin – what is the best ever deal you’ve done?

Mark Owens: The best ever deal I ever did was I bought a ten-unit vacant building. It was a listed property. I was gonna keep it as a rental… I renovated the property, and this was at the top of the market, around 2007… And I decided that the property was too far from my house, and I just got this gut feeling of like “You know what – I don’t want this property.” I really couldn’t put it into words, but it was just my gut talking to me.

I listened to my gut, I sold the property to a DC investor that was doing a 1031 exchange. I made 195k on it, and I delivered the property vacant. That 195k paid off my house, paid off my car, paid off my credit card… I saved 50k and went on vacation. That was probably the best deal I’ve done.

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

Mark Owens: Helping other people.

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

Mark Owens: Probably my website, because if people go there, then they can find me on Facebook, they can get my email address, all that stuff. It’s kind of like a one-stop-shop. There’s not a lot of information on there, but I think there’s buttons — I’ve got a coaching page… Mark Owens REI  on Facebook. I’m easy to find; I’m on Bigger Pockets, LinkedIn, all the other stuff. My website is probably the easiest way to find me.

Theo Hicks: Perfect. Alright, Mark. I really enjoyed the conversation, lots of wise advice. The two big takeaways for me was when you talked about you’re happy where you’re at now, because you see a lot of people always pushing their happiness in the future and saying “Once I do this, I’ll be happy.”And then when they do that–

Mark Owens: Yeah, I’ve been guilty of that myself.

Theo Hicks: We all are, but just knowing that definitely helps us get over that a lot faster. And then the second thing that I really liked was when you talked about immediate gratification being your biggest enemy… And the reason why – you’re at the point where you could potentially sell a large portion of your portfolio, own the rest free and clear, and then use some money that you have saved up, the cashflow from those properties, and have the freedom to do whatever you want – it’s just because you’ve defeated that enemy more that it’s defeated you throughout your business career.

You gave some specific examples of things you can do to have long-term thinking for your business, versus short-term thinking. The two examples are if you have equity in your property and you decide to pull it out, don’t spend it on personal things like vacations or cars. Instead, invest that into another cash-flowing asset.

The other example was that you live in a townhouse that you bought 20+ years ago, paid off quickly… Sure, you could buy a massive, million-dollar house, but again, going back to that immediate gratification and realizing that happiness is typically not going to last when you’re buying a consumer good.

And then lastly, you gave your best ever advice on self-managing, which is 1) make sure you’re managing your properties like a business and not a hobby, which requires making tough decisions, taking people to rent court, selling a house that you like that’s not cash-flowing… And then also number two was to focus on relationships. In your business everyone trusts you 100%, so if something were to go wrong at your property, for example, the contractor won’t wait for you to get back from vacation to fix a really big leak because they don’t know if you’re gonna pay them or not. Instead, they’ll go ahead and take care of that issue, knowing that once you get back, you will pay them in full.

Again, I really appreciate the conversation. If you guys wanna say hello to Mark, his website again is MarkOwens.com. Have a best ever day, and we’ll talk to  you tomorrow.

Mark Owens: Thanks, Theo!

JF2002: The Benefits of Having a 900 Mile Investment Property with Zach Evanish

Listen to the Episode Below (00:21:58)
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Zach helps investors locate and identify properties that fit their goals; whether that is cash flow or long term appreciation. He explains how diversifying where your investment property is located can be beneficial. On average his clients have investment properties that are 900 miles from their residence. Zach also gives out some great lessons on what to pay attention to when buying properties. 

Zach Evanish Real Estate Background:

Best Ever Tweet:

“He said “No”. Go Buy a single-family home, start with that and then from there we can talk about duplexes and fourplexes. How do you think I got these 10-15,  50 unit apartment buildings? I started with a Single Family Home.” – Zach Evanish


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, Zach Evanish. How you doing, Zach?

Zach Evanish: I’m good, Joe. How are you today?

Joe Fairless: I’m good as well and looking forward to this conversation. A little bit about Zach – he’s the Director of Retail at Roofstock; he’s been with Roofstock since the beginning and has worked in the real estate sector for most of his career. Based in Oakland, California. So with that being said, Zach, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Zach Evanish: Sure, yeah. Like you said, I’ve been in real estate for actually almost two decades now. I got my real estate license in my junior year in college, did my first deal in college, and since then, I’ve done everything from commercial appraisal to multifamily brokerage, to running acquisitions for a real estate fund. Now I’m the Director of Retail Sales at Roofstock, and my team and I are tasked with helping both buyers and sellers achieve their goals through our real estate marketplace.

Joe Fairless: From your previous experience, what experience has helped you best with what you’re doing now at Roofstock?

Zach Evanish: Probably my time running acquisitions for a fund. So this was in 2010, 2011. Just after the crisis, we were buying foreclosures, renovating them and renting them out. We were really the first group to raise private equity with the question of “Can you buy homes in bulk and renovate them at scale?” And then most importantly, can you manage them like a big apartment building?

So I learned a lot of lessons the hard way, but probably the best way just by boots on the ground and buying homes and making the mistakes of maybe buying in the wrong neighborhood or buying a home with small bedrooms and trying to rent it out like a full four-bedroom, two-bath home. So learned a lot of my lessons during that time when I was acquiring all the different foreclosures and short sales, renovating them and then renting them out.

Joe Fairless: Let’s talk about that. So a couple of things you mentioned, buying in the wrong neighborhood. Another is, I think you just said buying small bedrooms. Will you elaborate on that?

Zach Evanish: Yeah, I think sometimes you’ll see, say, a three-bedroom home, and it’s 900 sqft, and you say, “Wow, this looks like a good deal because it’s priced appropriately.” And then when you’re comping it out with the rents, you just need to make sure you’re comping it out with similarly small-sized three-bedroom homes. A bedroom is not necessarily just any room with a closet. A lot of these older 1950s, 1960s homes will have some really small rooms that are basically just big closets, and if your target renter is this family, maybe it’s okay, but tough to fit too many people into those small bedrooms. So just make sure you’re comping it appropriately.

Joe Fairless: Okay, what are some other mistakes or lessons that were learned throughout the process of running acquisitions for the fund?

Zach Evanish: Yeah, some other mistakes – buying near a large industrial facility or buying near railroad tracks or going to a neighborhood at 10:00 a.m. in the morning and thinking, “Wow, this is a great neighborhood. It’s quiet, it’s peaceful,” but without coming back on the weekend or at night to also see what that neighborhood is like. So making sure you’re really getting a full 365 view of a neighborhood you’re buying in. And if you are buying a home near an industrial facility or across the street from a gas station, again, just making sure you’re factoring that in and using other comparables that are in similar situations.

Joe Fairless: When you’re buying in bulk, as I imagine you were buying, what, thousands of homes in certain transactions…?

Zach Evanish: Yeah, I think we bought at least several hundred home tapes from the banks back in 2011, 2012.

Joe Fairless: Right. So when you mention the 10:00 a.m. tour of the neighborhood, I doubt you or team members– and maybe I’m wrong, but I doubt you all were going to tour each of the homes to make sure that the neighborhood was good. Is that accurate?

Zach Evanish: Yeah, it is accurate. We try to do our very best to understand what we were buying. But at that time, it was just difficult when you’re buying that many in scale.

Joe Fairless: So how do you mitigate as much risk as possible knowing that, since you’re buying in so much bulk, it’s just virtually impossible to go do individual tours of neighborhoods on the night and the weekends?

Zach Evanish: Yeah… At Roofstock, we have our data science team that is constantly pulling very granular neighborhood data. I think a lot of that wasn’t around even five or six years ago. So I think using a combination of data to look at school scores, crime ratings, that type of thing, but also having boots on the ground, whether it’s a local real estate agent, contractor, and then in the Roofstock case, most importantly, relying on third-party property managers who can really give you a feel for desirability of that property as a renter.

Joe Fairless: I know this is especially a challenge for investors who are out of state. My first investment properties– actually, every property I’ve purchased as a rental property has been in a city that I wasn’t living in at the time. So that’s even more important for remote investors. Are you seeing more investors buying rentals remotely versus when you first started with Roofstock?

Zach Evanish: At Roofstock, that’s been the theme all around. Really, our goal is to democratize real estate investing, and one of the things that were challenging when building this company is, it doesn’t necessarily make sense for people to only invest in their backyard. One, because if you live in San Francisco or L.A. or Seattle, you’re just not getting any return on your investment if you’re investing locally, but also you want some diversification. I live in San Francisco, but work in Oakland. So my primary residence, my job is all strongly correlated to tech, so it’s nice to invest in places like Cincinnati and Cleveland in Atlanta, which maybe aren’t as strongly correlated, so it’s a nice diversification. So I think throughout we’ve seen people buying homes — on average, I think it’s about 900 miles away from their primary residence.

Joe Fairless: On average?

Zach Evanish: Yes.

Joe Fairless: Okay, that’s interesting. What other trends are you seeing in the real estate market based on your team’s access to the amount of data and the analysis that you all do?

Zach Evanish: Yeah, I see a couple of trends. One, I see a flight to both tertiary markets… So the Austins, Nashvilles, Atlantas of the world, which have been some of the hottest markets over the last five or six years, price appreciation has outpaced rent growth. So you’re not able to get the same type of return cashflow-wise as you were five or six years ago. So there’s definitely a flight towards secondary, tertiary markets, like a Huntsville, Alabama or Augusta, Georgia, places like that.

And then secondly, this is correlated, is just people going more towards the $1,000 to $1,400 home rents, versus either the lower price rents. I think a lot of investors start with lower-priced properties, and then start to see some of the difficulties or management intensiveness of that type of property… Or they’re starting on the higher end properties, either as an accidental landlord or because that’s all they had access to in their higher-priced market. So we’re seeing a lot of people really focus onto those tertiary markets, but also middle of the road, $900 to $1,300 or $1,400 a month rent.

Joe Fairless: What are the pros and cons on each of those three levels that you described – below $1,000, $1,000 to $1,400, and $1,401 and above?

Zach Evanish: Yeah, really good question. So if we start with a lower-priced property, the benefits are the cashflow… You can buy a $60,000, $70,000 home in a Midwest market, say a Cleveland and Milwaukee, and it’s gonna rent for $900 or $1,000. So your cash flow is going to be strong. There’s  generally a high supply of tenants that can afford that type of home.

Some of the downsides are it’s a little tougher to raise rents, because the neighborhood you’re buying in has a higher percentage of renters. So if you want to raise rents, one, your tenant is pretty price-sensitive and maybe can’t afford higher rents, but also they’re going to look around that neighborhood and see seven other vacancies and go to one of those. It’s a little harder to raise rents.

In that mid-tier, say $1,000 to $1,400, these are kind of a total return property, while the prior one was a cash flow property. So total return – I think it’s great because you, again, have a pretty large tenant base. The properties are more in the $80,000 to $120,000, $140,000 range. Some of the downsides are – still a little bit older inventory and you’re probably not going to see a ton of appreciation; obviously, that varies by market.

And then the higher-end homes, when say, we get to $1,400 above– but really when you get to $1,800 or $2,000, there’s fewer renters, so a home can stay vacant a little bit longer. But generally, those tenants are a higher likelihood to go buy their primary residence. So that’s some negatives there, but some positives is you’re going to see generally higher appreciation because these are going to be in more owner-occupied neighborhoods, where you generally see strong school scores, really quality neighborhoods, quality amenities, and generally higher appreciation.

Joe Fairless: What if someone says, “I want cashflow with a good total return, plus I want a property that will appreciate over time”?

Zach Evanish: I want it all.

Joe Fairless:  I want it all, baby.

Zach Evanish: Yes, as we all do… Generally, what we ask is, “What is your primary objective and how long is your time horizon?” My parents have bought some properties through Roofstock using their retirement funds. So cashflow is a big objective for them. They’re looking to replace an income, so they’re focused more on the cash flow properties. Some of our younger investors, we have people who are 23, 24, who make great incomes in San Francisco, who are buying investment properties – they have a very long-term time horizon, so I think they can buy those lower cash flow, higher appreciation properties that generally are just going to barely break even with 20% or 25% down.

Joe Fairless: What’s been some challenges that you’ve had in your position at Roofstock in terms of just either the objectives that you’re looking to accomplish, you came across a couple of challenges. or maybe the type of deals that you all come across, maybe inventories lowered? What are a couple of challenges?

Zach Evanish: Yeah, I think similar to what a lot of investors are experiencing is just a supply-constrained real estate investor market right now. Part of that is just an uptick in owner-occupied market with interest rates being low. It’s just harder and harder to find quality cash-flowing inventory, which is again why we’re starting in to go to some of these secondary and tertiary Sharing markets. So I’d say our biggest pain point is just finding quality supply.

Generally, marketplaces are tough, because you’re always balancing supply and demand, and we want to make sure, as a curated marketplace, investors can buy with confidence, and a big part of that is making sure we have quality supply, that’s been rehabbed professionally, with tenants that have been underwritten correctly… Because again, these investors are buying generally sight unseen from thousands of miles away, and so we really want to make sure they’re buying a quality product.

Joe Fairless: When you’re talking about markets like Huntsville, Alabama, and Augusta, Georgia, what are the metrics that you all look at in order to qualify a market that puts it in that type of category versus a category like Austin, Texas or Nashville?

Zach Evanish: We really try to look at, as you had mentioned earlier, different investor types – someone who’s focused on cash flow, total return or an appreciation investor. We want investors — as soon as they register on our site, we ask them some questions, we hop on a call with them and really help them come up with their hypothesis based on their goals, their time horizon, and hopefully help them fall into one of those buckets. And then once they’ve picked out their strategy, then we can help them connect with a market.

Our data science team looks at things like net move-ins, job growth, overall market appreciation, rent growth, and then we look for pockets of neighborhoods where we say, “Hey, these still have solid crime scores and school scores, but also still offer quality cashflow.” We don’t want to help necessarily Californian investors buy overpriced properties in the Midwest. So we do a lot of diligence on the frontend to make sure people are buying quality properties, that are priced appropriately.

Joe Fairless: When you’re looking at crime and school scores, are they relative to that market or to the US?

Zach Evanish: We have a neighborhood rating, which is a proprietary system at Roofstock. Every property has a rating between one and five stars, and that has five different components, and we get down to the zip code plus two level. So that neighborhood rating will be for a subset of 500 homes. So we get pretty granular with that rating.

Joe Fairless: What do you mean zip code plus two?

Zach Evanish: So generally, a zip code has five digits. But if you get to a zip code plus two level, it’s just a way of looking at the city from a very granular level, and that’s generally every 500 homes will fall into that.

Joe Fairless: Oh, okay. Here’s a little factoid I didn’t know. I always wonder what those extra numbers were after my five number zip code.

Zach Evanish: I asked the same thing. My much smarter data science team was explaining it to the sales guy.

Joe Fairless: Did they roll their eyes?

Zach Evanish: Yes, they did.

Joe Fairless: Oh, damn that. They shouldn’t; that’s a legitimate question. Based on your experience, what’s your best real estate investing advice ever?

Zach Evanish: Wow, great question. The best advice ever – get started sooner. My real estate mentor was actually a client of mine when I was about 27, selling apartment buildings. I was actually selling one of his buildings and he said, “What are you going to do with this commission check?” And I was talking to him about cars and boats and ridiculous things, and he said, “No. Go buy a single-family home. Start with that, and then from there, we can talk about duplexes and fourplexes and– how do you think I got these 10 to 15 different 50-unit apartment buildings? I started with a single-family home.” So him giving me that look and kicking the butt of, “No, you’re not going to go buy those things. You’re going to go buy a single-family home and then we’re going to help you build your real estate portfolio.”

Joe Fairless: Did you?

Zach Evanish: I don’t think I did.

Joe Fairless: You didn’t…? [laughs]

Zach Evanish: No, I did probably—

Joe Fairless: Did you get a boat?

Zach Evanish: No. No boat, but I don’t think I listened to that advice. I think I probably went back to him six months later after more handholding from him and bought my first investment property. It takes me a couple of times hearing something before it sinks in, Joe.

Joe Fairless: Hey, when the student is ready, the teacher will appear.

Zach Evanish: Exactly, right.

Joe Fairless: What was that first property?

Zach Evanish: It was a single-family home in Northern California, in an area called Pittsburgh, just Contra Costa County of Northern California. I think I probably paid $130,000, $140,000. I think it rented for $1,000 or so.

Joe Fairless: Do you still own it?

Zach Evanish:  I do not. I’ve exchanged that one into a 4-plex that I now own in the Bay Area.

Joe Fairless: Nice. What did you sell that one for? Do you remember?

Zach Evanish: I don’t–

Joe Fairless: You don’t remember what you sold your first house for?

Zach Evanish: I don’t remember. I want to say it was $310,000, $350,000, something like that.

Joe Fairless: Okay. And then you exchanged that into a 4-plex?

Zach Evanish: Correct.

Joe Fairless: Cool. And you still own the 4-plex?

Zach Evanish: I do.

Joe Fairless: What are your plans for that?

Zach Evanish: It’s in a really good location in Oakland, so I plan on probably holding that for quite a while. Oakland’s one of those markets that’s just been on fire lately. Potentially even a condo conversion play, I might able to sell those units off individually. The location is just so prime that I feel like the longer I hold it, it’s just getting better and better.

Joe Fairless: You’re going to do a cash-out refi?

Zach Evanish: I don’t think so. I love paying down the mortgage and have very little debt on it right now. Most of my properties, I just continue to pay down.

Joe Fairless: So you touched on your philosophy there, but will you just elaborate a little bit more? I’d love to hear your thoughts, because there’s two schools of thoughts – you cash out, refinance, get the cashback, and then you got little or no money in the property, you don’t cash-flow nearly as much; it’s not as safe, it’s more aggressive, but you can then take that money and go buy more property… Versus your approach, which is opposite. Will you just elaborate more on why you do that?

Zach Evanish: Yeah. I have done the cashout refi, the BRRRR strategy on a couple of properties that I bought at a discount and bought them all cash, and was able to pull that cash out. So if it’s a property I buy with that strategy, I will do that. But what I don’t do is every five or ten years go to the piggy bank and refinance that property.

I do look at my strategy for that particular property and I have cashflow goals that I’m looking to achieve. When I’ve run the numbers for most of my properties, it’s just made more sense to hold on to them long-term.

So yeah, I guess that’s my strategy – if during acquisition I know this is a property that I’m buying at a discount, but in order to get that deal, I need to buy it cash or go hard money or partner with someone, then as part of that acquisition strategy I may do a refi after getting a tenant out or making repairs. But generally, my strategy is to hold on for the long term on the properties.

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

Zach Evanish: Yeah, let’s do it.

 

Break [00:18:48]:03] to [00:19:42]:07]

 

Joe Fairless: Best ever resource you go to to stay up to date with news about your industry or just to stay sharp professionally?

Zach Evanish: John Burns reports for single-family rentals.

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

Zach Evanish: Not getting a second opinion on a foundation issue.

Joe Fairless: Please elaborate.

Zach Evanish: So I bought a property which it looked like there were cracks, and I had two differing opinions. One inspector said, “No, it’s just settling, you’re fine.” Another one said, “I’m not sure. I think there could be a bigger issue here.” I was under a timeline, and it was an earlier purchase and got pressured to remove my contingency and move forward, and 30 to 60 days after owning the property I started to see some additional cracks and it turned out there was a pretty significant foundation issue that ended up costing me, I think, $15,000 or so.

Joe Fairless: Best ever deal you’ve done?

Zach Evanish: A deal I bought two years ago in Cleveland. I bought it directly from a property manager and they had a tenant who was on  Section 8, and very motivated seller because of this tenant who hadn’t paid rent. I was able to meet with the tenant, figure out a payment plan and then work with them, and also get that home rehabbed. I bought it for probably, 55% or so of market value.

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

Zach Evanish: A couple of ways – Habitat for Humanity and also First Tee. I’m a big golfer, so I’m a coach for The First Tee program.

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

Zach Evanish: They can email me directly, zach@roofstock.com. Before that, just go to Roofstock, it’s free to register. You’ll see all our different investment properties. We also have a product for accredited investors, new investors, we have a new real estate academy. So really, no matter where you’re at in the real estate journey, we have something for you.

Joe Fairless: Thanks so much for talking about some trends that you’re seeing, talking about the different types of objectives that investors have, and how you walk investors through the thought process for what makes the most sense based on those objectives and type of property. So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Zach Evanish: Sounds good. Thanks a lot, Joe. I appreciate it.

JF1985 Christopher Stafford

JF1985: How to Overcome Your Fear of Investing Out of State and Internationally with Chris Stafford #SituationSaturday

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Investors in large metropolitan areas know it’s very difficult to invest in real estate with high prices and expect a good cap rate. In this #SituationSaturday episode, Chris Stafford explains how he finds “second-tier” cities around the country to invest in through his research and exploration. He also describes the process for finding and screening a good property management company to give you peace of mind.

Christopher Stafford Real Estate Background:

 

Best Ever Tweet:

“The more information that you get in your arsenal, the more comfortable and confident you’re going to be in investing in other places.” – Chris Stafford


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JF1972: The BRRRR and Turnkey Combo Approach with Ali Boone #SkillsetSunday

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Ali Boone is the founder of Hipster Investments, which focuses on connecting investors to hands-off turnkey investing opportunities. In this episode, Ali talks about the advantages of working with a turkey marketing company who vets out turnkey providers to find the best, non-biased option for you. She also explains how to combine the BRRRR model with a turnkey property so that you are able to keep any forced appreciation.  

Best Ever Tweet:

“If you have the risk tolerance and you really know who you’re working with, [the BRRRR and Turnkey combo approach] can be a fantastic option for the people who want to take advantage of the BRRRR advantages but don’t have the time, energy, or interest in doing the work themselves.” – Ali Boone, Hipster Investing

Ali Boone Real Estate Background:


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Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell. 

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. 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. First off, I hope you’re having the best ever weekend. Because today’s Sunday, we’ve got a special segment called Skillset Sunday. The purpose of today’s episode is to introduce you to a new concept called– well, it’s a BRRRR model plus a turnkey approach. With us today to talk about that is Ali Boone. How are you doing, Ali?

Ali Boone: I’m good. How are you? I was waiting to see what word you came up with for this model. [laughs]

Joe Fairless: A little bit of context, Best Ever listeners, it’s the BRRRR model and turnkey. So Ali said maybe it’s the BRRRR-key model… So we didn’t know exactly what to call it. She’ll describe it in a moment. First, just a refresher about Ali. She’s the founder and owner of Hipster Investments. She’s facilitated over $18 million in real estate investing sales in the first five years of business, author of over 170 articles on BiggerPockets… And not one, not two, not three, not four, not well, five years ago, so five years ago she was on the show, Episode 40, four zero, and it’s called “Love is in the Air”. Wow, that’s a funky title to the episode.

Ali Boone: My suspicions are sky high right now. I’m like, “What did we talk about?”

Joe Fairless: I’m interested in what we were talking about, too.

Ali Boone: Someone go listen to it and report back.

Joe Fairless: Right. I, for some reason, titled it “Love is in the Air”. You can go listen to it. We’re gonna be talking about the turnkey and BRRRR method combo approach. First, Ali, if you can just catch us up to speed, what you’ve been up to, and then let’s roll right into this combo approach.

Ali Boone: Cool. Man, I’m like, “What’s happened in the last five years since we talked?” I’m still wondering what “Love in the air” is. So I started Hipster Investments, I think we’ve just hit our 7th anniversary. For anyone not familiar with the company, we’re basically a matchmaker service, we focused on turnkeys up until now. Over the years, probably even since we last talked, I realized that we actually serve a second role, which is emotional support dog.

So over the years, we’ve probably worked with hundreds of turnkey buyers at this point, and turnkey, they’re a great thing for new investors. But new investors are often a little more scared, fearful of not understanding what the process is going to be… So there’s questions, and if a challenge comes up, we really step in and help support them.

I think my favorite thing about the company and just over the now seven years that we’ve been doing this is, I’ve really tried to make it a point to just seem different, in an otherwise stuffy, intimidating industry sometimes. You’re never going to catch me dressed up or in a suit, I’m probably gonna be the first person to tell you not to buy a turnkey. I just really wanted to keep it real and really build relationships. We’ve totally done that over the last few years and I’m so proud of our team and the company. It’s just it’s been a really cool place. As everybody knows, we’re now 2019 and it’s a very different dynamic real estate-wise than it was five years ago when we talked, and seven years ago when I started the company, as far as where the prices are, where the returns are. So we’ve had to do some innovation, because the turnkeys are typically sold at market value anyways, and market value right now is on the higher end. So everybody has an interest in this BRRRR model, and now we work with this opportunity to combine the two. So it’s been a really cool thing and I’m super stoked to talk about it.

Joe Fairless: Well, before we get into it, just to crystallize in listeners minds’ exactly what you’re company does know, are you a turnkey provider? If not, how do you work with turnkey providers?

Ali Boone: Great question. I’m glad you asked that. We are not a direct turnkey provider. So in the turnkey equation, you have the turnkey investors, obviously. Then you have the turnkey providers, who are the ones that physically produce the property. They’re the ones rehabbing it, they put tenants, you buy the property from them.

My company and myself are essentially a middleman. So some people call it turnkey promoters, turnkey marketers, and typically any company in this category probably works with several different turnkey providers. The advantage to that – and obviously, I’m a little biased because I am one of these companies, but I think there’s a huge advantage to working with a company like ours, because, first of all, we don’t charge you anything to do it. But if you go direct to a turnkey provider, there’s a lot that you may not know. First of all, how do you know they’re a legit turnkey provider? Then second, if you’re looking at your overall portfolio, how do you know where to buy or what to buy. If you’re trying to do some portfolio strategizing, the turnkey providers, if you say, “Hey, where’s the best place that I should buy?” They’re like, “Well, obviously, the city that I sell in.” All of us are holding a little bias in the equation, but they’re holding an extreme amount because they only sell properties in one market. If you say, “Hey, are you a legit turnkey provider?” They’re going to say, “Well, obviously.”

There’s just a lot of unknowns in the equation. So where the middleman comes in, is we are less biased, because we have access to turnkey providers in several markets. We have the experience with turnkeys that we’ve vetted these companies. We know the signs to look for, we’ve seen everything. So we really put a lot of time and effort into a) researching the markets and b) researching the turnkey providers. We can offer that list of people to you, the investor.

Then of course, turnkey providers have never been known for their customer service skills, with a couple of exceptions. For the most part, you’re not getting your hand held by these guys. They are very good at what they do, which is the technical side of finding the properties, rehabbing it. They’re moving fast and they don’t have time to hold your hand, and we do. So we really serve as that customer service buffer. I always joke about– it’s a very common thing that at some point, every turnkey provider goes through a stage of psychosis. So if that happens or any dynamics change, we’re on your side. You’re really coming in as a part of a bigger team versus just going at this alone. So that’s why, again, obviously, I’m biased because I am one of these companies, and it’d be great if you work with me, but you get all this for free from most of the turnkey marketing companies, whether it’s mine or anybody. So that’s where all the players fit into this equation.

Joe Fairless: And how are you compensated in that role?

Ali Boone: We all make money on the seller side in the terms of a referral fee. So if I send you to one of these properties, the seller pays me the referral fee. So that’s why the buyers don’t have to pay anything. I like to be really clear about that, is there’s always thought, “Oh, well, you’re only sending me to this property, because you’re going to make a referral fee on it.” I can’t speak for all the turnkey marketers, but for me, one of the most them important things that I’ve always been huge on is, I’m not going to send you to a company that either I haven’t bought through myself or I’m not somehow so closely tied to that I would send my mother there.

Over the years, especially as my name has gotten bigger in the turnkeys, I’ve had every turnkey provider under the sun offer me referral fees. In most cases, they’ve offered me higher than what I actually make, and I’ve turned them down, because either I don’t trust their company or I don’t know their company, or for whatever reason. So just a little disclaimer on the referral fee side. But yeah, it works out great, because it leaves the investors free to shop around and figure out what they’re doing without having to make a monetary investment into it.

Joe Fairless: I solved the riddle for why I titled the last episode what I did. Should I say it now, or should everyone get to go listen to episode number 40? Your choice.

Ali Boone: Man, that is a toss-up, because I want to go listen to the episode, but I want to know the answer.

Joe Fairless: I described you as “Meet the real estate matchmaker.” So it’s love in the air.

Ali Boone: Oh, fun. I like that.

Joe Fairless: There’s the connection. Once you mentioned your mom, I remember you talked about your mom on that episode, too. You said you wouldn’t send someone to a property or company that you wouldn’t send your mom. Then I asked you, “Well, do you have a good relationship with your mom?”

Ali Boone: Yeah, I remember that actually. [laughs] And you were like, “Wait, let’s clarify. Do you like your mom?”

Joe Fairless: Alright. Let’s talk about the BRRRR turnkey model combo Frankenstein thing. What is that?

Ali Boone: I love that. If anyone listening can ever replace the BRRRR acronym, I don’t care if it’s related to turnkeys… Please, I hate that acronym. It’s so many R’s. As if that wasn’t already bad enough, now we’re adding that to turnkeys, because that’s not super-obnoxious. Okay, so here’s how this works. The regular turnkey model is this – the turnkey provider, they have access to a whole bunch of distressed inventory. They go out, they buy the properties themselves, they fund the rehabs, they complete the rehabs, they put tenants in and they have property managers on standby to manage the property once you’ve bought it. So you as the buyer, you don’t have to put a dime into this investment until closing, which means you have the opportunity to verify that everything has been done correctly, that the property is as it was advertised. It’s a really cool system, aside from your hands off anyways, but you get the chance to verify everything before you put a dime into it.

Essentially, in that equation the turnkey provider is the one holding the risk during that whole time because it’s their money in the pot. So the downside of a standard turnkey model is that you’re going to be paying somewhere around market value for this property, and there’s really not an option to force appreciation. Number one, you’ve already paid market for it anyways, and number two, the property’s already completely improved. So you can’t do that. The only way really at that point is if the market itself improves, but where we are today that that’s not a huge thing.

So the upside is you get to verify everything, you get a fully completed product, your money is not at risk until you verified everything, but the downside is you’re paying market value and you can’t force appreciation. Well as most people in real estate know, one of the greatest tools or vehicles for financial wealth is that ability to force appreciation. So the BRRRR model by itself is you go find a distressed property, you buy it, you rehab it, and suddenly the value of that property is worth more than what you put into it.

So combining those models, where the shift from the BRRRRkey is, is the turnkey provider is still involved and all the same processes are still happening as far as getting the distressed property, rehabbing it, putting tenants and yadda-yadda-yadda. Except this time, you’re the one funding it. So they’ll help you select the property, you buy the distressed property yourself, you close on the property, and then you fund the rehab. It usually happens in phases. You’re not just slapping all your money down right off, but you’re giving them the money to do the rehab. So this is where it combines the BRRRR model and the turnkey. The turnkey side of this is that you’re still mostly hands-off, other than basic due diligence and all that stuff. But now because you’re the one funding it, you’re the one who gets to keep the forced appreciation on the other end.

So let’s say you buy the distressed property for $60,000, and the rehab cost $40,000. So you’re a $100,000 in, and now it’s worth $130,000. Well, that’s your equity. So at the six-month mark, you can do a cash out refi on the $130,000, and you’re actually able to pull out more money than you would have… Oh, I jumped ahead and I’m gonna confuse it… But you’re gonna get more of your money back in your pocket. I mean, I jumped, but on the standard turnkey model, if you put 20% down on the property, which is what’s going to be required for financing, let’s say you want ten turnkey properties; well, you’re going to have to have ten sets of 20% down, because you can’t force anything, or appreciation, and all that stuff. So with this, if now the value is $130,000, but you’re only $100,000 in, you actually get to pull more money out, so you’re not out the entire flat 20%, if that makes any sense. Or if it doesn’t, somebody email me. I’ll clarify.

But the moral of the story is you now get that forced appreciation that you would have, had you done all the BRRRR model yourself, but the turnkey providers were doing that. So that’s the super, major, huge upside.

The downside is now it’s your money at risk, and that’s huge. So the key with all of this is, you have got to know the turnkey provider you’re working with. A lot of them who will offer it, because if you say, “Hey, can I fund this and you guys do the work?” They’re gonna be like, “Yeah, obviously.” But if for some reason something goes wrong, you own that property, and it’s your money in the pot, so there’s a lot at risk. I don’t necessarily recommend this model for brand new investors or people who are just going to get their feet wet because of this. But if you have the risk tolerance for it, and you really know who you’re working with, and I mean really know, it can be a fantastic option for the people who want to take advantage of the BRRRR advantages, but they don’t have time, energy or effort or interest in doing all the work in themselves. So that’s the BRRRR-key model.

Joe Fairless: With the turnkey companies, I thought they made a lot of their upside on how much they originally buy it for, and how much they sell it to investors for, because it’s close to retail. So if an investor goes to them and says, “Can I fund this and you guys/girls do the work” why would they say yes? Because I thought that’s where they’re getting most of their profits.

Ali Boone: Well, it’s situational. A lot of the turnkey providers actually don’t make as high of margins as people think they do on essentially the flip, if you want to call it that. In this model, in particular, they’ve built their profits into the rehab costs and just the general work costs and all that stuff. Because the major advantage to them– while they may not make as much per property, it’s a huge thing to be able to use other people’s money. Because that’s where a lot of turnkey companies really get limited, is they only have their own money to do this, so they can only do so many at a time. So now that they’re working with other people’s money, and they’re not having to pull from their own pot, they can actually crank out a lot more of them, and still come out on the other end with their profits [unintelligible [00:15:22].24] while serving more investors at the same time.

Joe Fairless: Okay. You mentioned, “You must really know the operator.” What are some ways to qualify the operator?

Ali Boone: First, I would absolutely hands down look for people who have already been through with them and had a good experience. We started working with a provider on this model a few years ago, actually, and we had worked with this provider prior to that for years on the standard turnkeys. We probably had more people buying from him than any provider that we work with. Everything had gone really well and he had started getting more into this model, so we watched him do it for a couple of years to really make sure that this was happening as it should. He did really well with it and everything was going great, so we suddenly started advertising these.

Then it didn’t go great. People were cautioned ahead of time that, at the end of the day, we can all vouch for it, we can all say we believe this can be good, but this is your money at risk. So you’ve got to go into it with your own due diligence, with your own confirmation. If you want to go visit the provider, boots on the ground – yes, go do that. But I would say more than anything, look for people who have already done it with them successfully and had a good experience.

I would say, one of the key things I look for– and this is even outside of BRRRR-key or turnkeys, or whatever… Whether it’s property managers, whoever. For me, one of the biggest signs is communication. I can see a huge correlation with the people who have not performed well and their communication levels. I’ve rarely seen it where someone communicates everything really, really well and doesn’t also perform. So that’s a very vague measurement, and not one you can go off by itself, but that’s something, that’s part of what I look for. But really, look for those success stories and look for people saying that this is legit.

Joe Fairless: It was working with that one individual until it wasn’t. Do you know what changed?

Ali Boone: We are all actually still trying to figure that out. [laughs] I mentioned earlier, half joking around, but I’m kind of dead serious, too – this isn’t just turnkey providers. I’ve seen it with property managers, different companies, there’s just a cycle sometimes. This could actually go into your considerations for who to [unintelligible [00:17:35].09]for. The cycle that I’ve seen with property managers, turnkey providers, everybody, is somebody in the beginning is really, really good at what they’re doing. So people start buying into them, like, “Man, this is fantastic.” So they tell everybody they know, and suddenly everyone’s buying through these guys. For the most part, these roles, like I said, they’re really good at what they do, but they’re not necessarily good at business skills or whatever it is. So quite often I’ve seen it where when the company grows too fast, they don’t manage that well. So when they get overwhelmed, they almost start getting into this desperation type of thing and they just start making poor decisions. That’s when the cycle starts. That’s when I say they flip into psychosis at that point. All of these things are very fluid.

So one thing about the BRRRR-key provider we’re working with now, he’s at the beginning stages. He’s been doing it long enough to know what he’s doing and to be very well versed in what’s actually happening, but he hasn’t grown so much that he’s teetering this outgrowth, if you want to call it, outgrowing the capabilities of the company. The guy that we worked with before, he was on the other end of the cycle. In hindsight, really looking back at this, he was past capacity, for sure. So I don’t know what in that mix exactly was the thinking of things, but his communication had really fallen off, and he’s still married… Like, what happened to this guy? [laughs] Sometimes things just kind of happen.

I know this is a sidebar, but there was a Chicago turnkey provider that we worked with – this was years ago – and it was like overnight things stopped performing, and we’re like, “What in the world is happening?” Unfortunately, in his case, he had a brain tumor. It came out of nowhere, it became a thing and he has actually since passed away. But people need to remember that everyone’s a human in this equation. And humans, unfortunately, are not perfect or consistently reliable all the time. With that said, that’s why I encourage people, really don’t go at this by yourself. Because when you have a team of people, it brings on a bigger force to really support you and your investment.

Joe Fairless: Anything else as it relates to this combo approach that we haven’t talked about that you think we should?

Ali Boone: Not that I can think of. Just on the logistics side, like I said, normally you buy the distressed property, you fund the rehab in phases. Once you verify and some percentage is complete, you put more down. Then what they’re gonna do after that – I don’t think I really got into the side – is that once the property is rehabbed, they place tenants, just like a regular turnkey situation. So then you’re actually making the cash flow also. Around the six-month mark is when you have that cash out refi ability. So your money is gonna be in the pot for about six months doing this. But then at that six-month mark, that’s when you can go ahead and start to pull that out.

Of course, I’d say that’s your strategy, make sure ahead of time that you have reason to believe you’re gonna be qualified for a loan… And worst-case, if you don’t pull that money back out, you still own the property, have the equity and have the cash flow coming in, but you don’t get that money back out. So just some random considerations. If anyone has any questions, because it’s a condensed discussion, then they can always reach out for sure.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing and then reach out to you?

Ali Boone: I actually set up a link specifically for your listeners. I did not have this five years ago. I wonder what my website looked like five years ago. So I set up a link, it’s hipsterinvestments.com/bestever. On that page that it takes you to– so a few years ago, I wrote a turnkeys eBook that we still sell. On this page, it’s going to offer you guys this eBook for free. So you can type in your email address, get the eBook for free, whereas everyone else is paying for it. Also on my page, there’s all sorts of links to connect with me and you can reach out anytime.

Joe Fairless: Oh, well, thank you for that. I will make sure that we get that in the show notes. So Best Ever listeners, you can just click the link that’s in the show notes and it will take you directly to the page. Ali, I enjoyed our conversation, as always. We will talk again in five years, of course.

Ali Boone: Hopefully sooner this time. We’ve gotta ramp it up a little more.

Joe Fairless: Yeah, we’ll ramp it up a little bit more. Thanks for talking about this approach – two methods that have proven to be effective for real estate investors in certain situations – turnkey as well as the BRRRR method, and doing the best of both worlds. I love that you looked at it in a very objective standpoint and you talked about commercial downsides and how to mitigate that as much as possible.

There’s risk in investing, there’s risk investing in turnkeys, there’s risk investing in our deals, there’s risk in any type of deal. So there’s always going to be some potential downside, so how do you mitigate that as much as possible. Thanks for being on the show. I hope you have a best ever weekend, and we’ll talk to you again soon.

Ali Boone: Sounds great. Well, thanks for having me. I’ll talk to you soon.

JF1953: 60 Homes, 12 Units, And One Storage Facility In Just Three Years with Angad Guglani

Listen to the Episode Below (00:23:19)
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Angad started in this business as a real estate agent in college. He got that business rolling by helping students find housing. Now with a bunch of single family homes, multifamily units, and a self storage facility, Angad has a ton of knowledge to share with us today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Figure out where you’re going to get the money to buy the deal and where the revenue is coming from” – Angad Guglani

 

Angad Guglani Real Estate Background:

  • Real estate investor for three years
  • Has built a portfolio of 60 single family houses, 12 multifamily units, and a self storage facility
  • Based in NYC, NY
  • Say hi to him at http://cooperacq.com/
  • Best Ever Book: The E-Myth

 


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Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

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TRANSCRIPTION

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

Angad Guglani: Doing well, Joe. How are you?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Angad – he’s a real estate investor for four years, has built a portfolio of 60 single-family homes, 12 multifamily units, and a self-storage facility. In three years. We’re gonna dig into that, I’m very curious how you were able to do that. Congratulations, first off… And secondly, based in New York City, New York. Where you do you live in New York City?

Angad Guglani: I’m actually in Greenwich Village. I went to NYU, so I kind of stayed in the area.

Joe Fairless: Oh, a very nice area of New York City. Alright…

Angad Guglani: Yeah, we have some parks here… It’s nice.

Joe Fairless: Do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Angad Guglani: Sure. I started in real estate about 5,5-6 years ago. I started when I was 19, I got my real estate license. I went to NYU, I went to the business school there (Stern). I know we’re kind of in the headlines the last couple of days…

Joe Fairless: What happened at NYU? I don’t know.

Angad Guglani: Well, the class president of the grade below me just got put away for insider trading at 23…

Joe Fairless: Oh, busted. Okay.

Angad Guglani: Pretty young. I hope I didn’t give it any more PR, but anyways… I was a student there, and I kind of ran into someone who was doing rental brokerage. He told me he was making a lot of money doing it, so I said “Let me get my license and let me see what this is about.” So I got my license and I realized actually I have no business, I have no clients, I have no owners I can represent… But I ended up coming up with the idea that I could basically start a student-run brokerage for college students looking to get apartments… Because at NYU and other colleges in the city about 20,000 students move off-campus every year, so it’s a lot of rental deals that happen. And most of them had a broker involved, and the broker made about a month to two months’ commission, which for their average rents of 3k-4k it was  a pretty good chunk of change.

So anyways, I started a business that kind of tapped in that market. At first it was just me, and then  I hired ten of my friends to go run around and show apartments.

Joe Fairless: When did you have that business? At 19, or 20?

Angad Guglani: At 19 and 20 — I basically ran it all throughout college.

Joe Fairless: What year were you in college when you started the business?

Angad Guglani: I was a sophomore. I think that was back in 2015. Anyhow, so I ran that and we were doing really well. I was making six-figures a summer, three months.

Joe Fairless: Wow.

Angad Guglani: The numbers were pretty good. We would do 100 deals a summer, because most of the kids would move during the summer, and the average commission was between 3k and 6k. And because I kind of ran the team, I would get splits off of all the friends that were working for me… So I would make money on my own deals, and their deals.

Joe Fairless: How many friends did you have working for you as a sophomore in college?

Angad Guglani: The biggest we ever got was ten or eleven. And they were all licensed. You have to be licensed by the state of New York to represent someone in a real estate transaction. So it’s pretty easy to get a license; I’d kind of coach them through, I’d get them on the online class, and that’s how we were doing it.

Joe Fairless: And how did you advertise?

Angad Guglani: Actually, I created a website called OffCampusApartments.nyc. It’s still up there. If you ever google “student housing new york city” our website still comes up on number one or two. And then I also made a partnership with NYU directly, so if you were to call them at the time and ask for a broker, they would send you to my company.

Joe Fairless: Did you get the majority of your leads through that?

Angad Guglani: About 50/50. In the beginning the majority, then the referrals from the school, and then as our website got SEO, as it got web presence, we got a lot from the web page, and then we did Facebook ads… It was  a good time, because brokers were doing really well back then. Now margins have compressed a lot, because most of the listings are available online, through different websites [unintelligible [00:05:02].05]

Joe Fairless: What did you have to do in order to get that partnership with the school? I know you were a student at the time, but did you have to do anything else?

Angad Guglani: It just came down to going to the guy’s office and just sitting there for a couple hours, until he took with the meeting, and… He was a nice guy. I think it was the guy who ran the student affairs at the time… So it wasn’t as hard as you would think.

Joe Fairless: Had someone else approached him about this idea before?

Angad Guglani: A few people had, but most of them were not students; they were older people. It’s pretty frustrating, running around with college kids and showing them apartments, so a lot of people start businesses like this and then quit after a year… But being that I was 19 or 20, and just very ambitious, I took it in stride, so I kind of enjoyed it.

Joe Fairless: And what aspects would some people find frustrating, working with college students trying to find apartments?

Angad Guglani: Oh, New York renting is crazy; it was crazy then, and it’s still crazy now. You have to get a whole dossier of documents, like tax returns, bank statements, photo ID, employment letters, pay stubs… You have to assemble that. And because kids aren’t working themselves, you have to ask their parents for this information. And kids are pretty disorganized, so you basically end up having — if you’re doing a two-bedroom or three-bedroom deal, you have three kids, three sets of parents, you have to assemble all these documents, and they’re kind of running around like a chicken who had their head cut off… It’s a lot of coordination, and a lot of times these deals don’t even go through. So unless you’re really passionate about it, it can get pretty frustrating.

Joe Fairless: Alright, so that’s this business. Then what happened?

Angad Guglani: Like I said, I was doing pretty well. I was making some money and I was living very inexpensively, because I was 19 or 20. I wasn’t spending any money, so I was saving it… And I realized the money in real estate is not on the brokerage side. I’m not saying — I mean, there’s certainly brokers who make a lot of money, but I’ve always wanted to be on the ownership side. And through a mutual friend I met someone who lived in Philadelphia and he turned me on to Camden, New Jersey. He said this area is getting about 2,5 billion dollars of government money put in in the next 5-10 years. It used to be the highest crime area in the country, but there’s real signs of change…

When it started, it was me and two best friends; we went there for a day, saw some property, and realized the numbers really do work.

Joe Fairless: Okay. So what did you do?

Angad Guglani: So we bought our first house — like I said, it was me and two partners; not because I needed the money from them, I just wanted to share the experience with–

Joe Fairless: How much did you have in your bank account after the brokerage stuff, before you bought your first house?

Angad Guglani: Between 200k and 350k.

Joe Fairless: Good for you. Isn’t that incredible? Do you think that’s incredible? It’s tough to look at it from your own perspective, I know…

Angad Guglani: Living in New York you see people that spend that much money on one week vacation, the people in hedge funds..

Joe Fairless: [laughs]

Angad Guglani: Especially the startup guys. I read stories about guys that are 24-25, raising a hundred million bucks, and I’m like “What am I doing?”

Joe Fairless: Well, that’s different. They’re raising that much money; you earned this money yourself. There’s a difference there.

Angad Guglani: No, I’m very appreciative–

Joe Fairless: I’d say it’s more impressive what you did than raising a hundred million dollars.

Angad Guglani: Thanks for that, Joe.

Joe Fairless: Alright, so Camden, New Jersey, you bought your first house, two partners… What information should we talk about regarding that transaction?

Angad Guglani: Sure, I can run you through it. So we bought it on an auction website, totally blind; we had no idea what we were doing. We ended up getting a pretty darn good deal. We bought it for 33k, put about 12k into it, so we’re in for 45k… And we had the property management company running it, and they were kind of wrong company, so it sat vacant for 4-5 months, and my partners got frustrated… So I ended up buying them out.

So I bought them out, and eventually it was just me in a single-family house… And we ended up getting a tenant – or I ended up getting a tenant – and I think I rented it for $1,450 a month. We were all in 45k at this point… So that was the first deal. The rents came in every month, and it was great.

Joe Fairless: How did you and your partners structure that deal?

Angad Guglani: When I had the partners, it was basically a third, a third, a third. We each put in about 15k. It was into an LLC.

Joe Fairless: So that was the first deal. You have 60 single family homes, 12 multifamily units and a self-storage facility… So what happened?

Angad Guglani: Yeah, that was in 2016 when I bought it; 2017 was when I bought the partners our. In 2017 I bought about five houses, because I had the equity, the couple hundred grand… So I was able to buy these houses in cash, fix them up and rent them out.

After I built a portfolio of about five I realized I really can go to a lender; that was the hardest part, was finding a lender… Because lenders don’t wanna lend to LLCs when you’re buying houses for 50k. I mean, it’s very hard to get the financing. But I found a lender that would do a blanket refi, so they basically tied the five properties into one loan and fully cashed me out at 75% LTV.

Joe Fairless: Okay. And then what did you do with it?

Angad Guglani: I basically got the money I started with, plus a little bit more back out after the cash-out refi at the end of 2017. And then in 2018 I kind of got my feet wet; I learned the different players in the market, I aligned myself with a really good property management company, I trusted and aligned myself with some good brokers that were kind of the guys who were doing the most deals in that market… So I was able to pick up 30 single-family houses. Actually, not 30; probably 25, and then I bought a five-unit building in 2018.

Joe Fairless: So how are you running the numbers and evaluating if  these homes are worthy of purchase and not something that you’re just gonna sink money into?

Angad Guglani: Sure. My business is buying distressed real estate, as a lot of people are. So you basically need to figure out what this thing is gonna be worth once you fix it up, what the bank is gonna appraise it at… The numbers work. This is a high-yield market. You can go on the MLS and buy 10%, 11% caps all day long. But I like to buy deals where I get unlevered returns of 16%, 17%, and the only way to do that is to buy them distressed… So we’re talking REOs, estate sales, people that need to sell them quickly, off-market deals… Those are the types of deals I buy. And on those deals, as long as you know [unintelligible [00:10:58].08] on the back-end,  you know what you can buy it for, and you can guesstimate what you can fix it for, and you have a pretty good formula.

Joe Fairless: So you’re renting them out though, right?

Angad Guglani: I rent all of them out, yeah. I sold a handful for strategic reasons, but the majority of my business is BRRR method – buy, rehab it, rent it, and then refi on the back with a commercial blanket loan, tying all the assets together, pulling it out.

Joe Fairless: What are some strategic reasons why you sold some of them?

Angad Guglani: I realized that I don’t want to do construction jobs more than 25k, reason being I live about two hours away from the market… And you’re not gonna get an ace contractor that’s willing to work in Camden. Most of the contractors in that area wanna work in the suburbs, where they can do retail jobs. They don’t really wanna work for investors.

So if I’m gonna be hiring sub-optimal contractors, they’re gonna overcharge me, because I have a New York cell phone number. They think everyone in New York has a bunch of money. I’m just gonna get eaten alive.

So I would rather sell that deal off and make a little bit of money because I bought it well, to some guy who’s gonna do the work himself, [unintelligible [00:11:58].17]

Joe Fairless: And how do you manage that process? Even if it’s less than a $25,000 construction job.

Angad Guglani: Less than $25,000 my property manager has a handful of handymen that do a lot of work for us, that can take those jobs on. We’re talking patch and paint. New flooring, new kitchens, some painting and a little bit of drywalling. It’s not major structural or mechanical stuff.

Joe Fairless: So right now you have 60 single-family homes?

Angad Guglani: Correct.

Joe Fairless: What do you think the 60 single-family homes are worth?

Angad Guglani: They’re worth probably around 80k a door, so about f.8 million…

Joe Fairless: That’s great. And about how much cashflow do you receive on a monthly basis as a result of having them?

Angad Guglani: Right now I’ve kind of grown pretty quickly… Which has been good, but it hurts you in the beginning as far as cashflow. So I’m buying properties — I buy about five a month, so I have a backlog of about 18 houses that aren’t rented right now, that are undergoing minor construction, that are gonna be on the market… But as far as my underwriting goes, I make about $300/door in cashflow after it’s fully financed.

Joe Fairless: Okay.

Angad Guglani: So the 60 would be about $18,000/month in free cashflow, and you’re amortizing your loan, so that’s another kicker to it.

Joe Fairless: What lender do you use?

Angad Guglani: I use two local community banks, but I’m kind of now in the process where I’m speaking to some of the national commercial mortgage lenders. There’s a few that have entered the space in the single-family rental aggregation space, and I’m speaking to them.

Joe Fairless: And who are they? The rental aggregation lenders.

Angad Guglani: You have CoreVest… CoreVest was spun out of Colony Capital, and that’s owned by a bank. They’re pretty big. Blackstone has one called Finance of America. There’s another one called Rock Capital. Goldman Sachs has one called Genesis Capital… There’s 3-4 of them. I’m sure there’s more that I’m missing, but…

Joe Fairless: What type of terms are you looking for with a group like that?

Angad Guglani: Rates have gone down a little bit, which is nice, but we’re looking at 5.5% to 6.5% on a 7/1 ARM loan, that seven years fixed rate and then adjust every year after that, on a 10-year or 30-year term, that amortizes over 30 years.

Joe Fairless: Cool. And you have a self-storage facility.

Angad Guglani: Correct.

Joe Fairless: Tell us about that.

Angad Guglani: It sounds a little glamorous, like self-storage facilities are these big facilities… [laughs] To be honest with you, this one is about 20 garages. Each of these garages is 20×10, so it’s about 4,000 sqft. of storage, and then there’s about a 1,000 office that’s leased to a single tenant, on the other side of the lot.

Joe Fairless: And how much did you buy that for?

Angad Guglani: I got a really good deal, I bought it for 120k.

Joe Fairless: What’s it worth today?

Angad Guglani: It’s tough to say. There’s no real comps… But I’m projecting a net operating income on that facility of about 40k… Plus we have a lot that we can build some more units on. So once we finish building them out, we have to go to the zoning board to get approval to build out some more units… But I wanna get the net operating income up to about 50k. So if you wanna back that into like–

Joe Fairless: Yeah, I just did… So that’s the cap rate, you’d say, about 10%-12%?

Angad Guglani: 10%-12% cap, because it’s not a core buy for anyone, so they’re gonna want a real nice yield if they were to buy it. So you’re talking about – what, 400k?

Joe Fairless: Yeah, 50k in NOI, 12% cap, 416k valuation.

Angad Guglani: Yeah. And I didn’t even spend any money on it. To build the units it’s probably gonna cost 70k-80k.

Joe Fairless: How did you find that deal?

Angad Guglani: That deal was actually on the MLS.

Joe Fairless: Huh.

Angad Guglani: But it was on the MLS for like a day… My whole strategy is buying deals directly from the listing broker, especially on stuff that they don’t wanna sell. Most of the listing brokers don’t wanna sell properties in Camden because they’re low on the nominal value amount, where they’re not gonna make much commission off it. If you go directly to them and they’re getting the full 6%, they’re gonna put your deal first, and they’re gonna get your deal done.

Joe Fairless: So are most of your deals marketed deals, and then you just reach out directly to the listing broker and make offers?

Angad Guglani: I would say 15% of the stuff I buy is MLS-listed… I have relationships with some REO companies, asset managers, so I get a lot of deal flow through that… And then I have a direct to consumer line called Cash for Camden, where we do direct marketing, and we’re getting deal flow through that…

Joe Fairless: Right. What percent of your deals do you get through the REO companies?

Angad Guglani: About 50%.

Joe Fairless: That’s a lot. Okay. And I won’t ask you specifics about them, because —

Angad Guglani: Yeah, it’s pretty paramount in the business, so…

Joe Fairless: Yeah, yeah, so I won’t. But I wanna ask you about it conceptually. How did you get introduced to them, or how did you choose to introduce yourself to them?

Angad Guglani: I  got kind of lucky… An attorney that I had been introduced to to help me on another matter – they were a client of his. So he put us in touch. That’s how I got that direct relationship.

Joe Fairless: Let’s say that relationship went away; if you would try to replicate this, how would you got about replicating this?

Angad Guglani: Something I’m trying to do now – I’m really trying to build systems and processes. That’s my goal for 2020, is really get a lot of this stuff automated. But what I would do is look at the deeds. I’m obsessed with the county clerk’s office. I look at all the deeds and all the mortgages; that’s how I get all my data. So I look at the deeds and I look at who’s selling a lot of stuff. If there’s one entity that’s selling a lot of stuff, they probably are an REO entity. Figure out who’s behind it, look at the addresses on the deeds and work  your hardest to try and get in touch with them.

Joe Fairless: Love it. What’s a deal you lost money on?

Angad Guglani: There’s one deal I lost money on, and that was because I got scammed by a contractor. That’s when I put that rule in place that I’m not gonna do jobs over 25k. It was pretty terrible.

Joe Fairless: [laughs] He really did a number on you, where you made it  a policy moving forward not to ever work with [unintelligible [00:17:33].20]

Angad Guglani: [laughs] Yeah, it was a tough one. This was in 2017-2018 I think it was… But  did my job right. My job is buying distressed real estate cheap. I bought the house for 20k. I could have sold it the day of closing for probably 30k-35k, but I didn’t. I wanted to fix it up. So I hired a contractor who had grey hair, who really talked the big game, said “Stanley’s been doing construction for three generations”, and I really trusted him.

So we had a really trusting relationship, and speak every day, and he started trying to add value to me. He’d drive around and say “Hey, did you see this house?” So I really trusted this guy. And I would give him his draws by bank wire whenever he asked for them. It started out good. He did some good work, he would send me pictures and I’d wire the money right away.

And all of a sudden, coming around Christmas time he started saying “You know what – this job is costing me way more. You need to frontload some of the draws”, because the roof needed way more than he needed… And I know nothing about construction. And by this time I had a really good relationship with this guy… So I basically paid him the entire draws for the project, 45k, and the project was only about 40% done. That’s when things really got wrong. He basically walked off the job. And if you were to google him, you’d figure out this guy’s been sued a bunch of times, he went to jail… I had actually done that, I had actually read that, and he explained it away. He’s like “You know what, don’t trust what you see… There was a lot more to that story. I’m a good guy.” And I trusted him… But I learned my lesson.

So I bought it for 20k, I spent 45k with this contractor, then I had to hire another contractor. It turned out all the work he did, he never pulled permits for. The 20k worth of work he did, we had to rip it all out. It cost me another 40k-45k.

Joe Fairless: Aw…

Angad Guglani: So I bought it for 20k, I’m in 90k for the rehab, so we’re in about 110k, and I listed it at 115k or 117k, something like that… So I think I lost about 10k between holding costs, commissions, and all that stuff.

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

Angad Guglani: Have a business plan, figure out what your niche is, what your strategy is, and figure out where you’re gonna get the money to buy the deal and where the revenue is gonna come. Are you just buying it for yield, are you buying it because you’re trying to refi it out, or are you buying it to flip it? Really figure out the sources and uses.

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

Angad Guglani: Yeah, sure.

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

Break: [00:19:58].28] to [00:20:40].03]

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

Angad Guglani: I read it about two years ago, The E-Myth. It really changed the way I think.

Joe Fairless: What’s something from that book that you’ve incorporated into your business?

Angad Guglani: Really focusing on trying to build the business, and systems and processes. It’s really hard for me; I’m not a systems thinker, but I think that’s really the only way to build a lasting organization, is to have processes and employees [unintelligible [00:20:58].16]

Joe Fairless: Best ever deal you’ve done?

Angad Guglani: Most of the best deals have been this year, but I’m superstitious. I don’t like to talk about things until I’m done with them… So I’d have to say probably the first deal, I think I did pretty well on that one.

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

Angad Guglani: My goal is once the portfolio is fully stabilized, it’s to give 10% back to local charities; 10% of the net operating income. I haven’t started that, because I’m cash-strapped as we’re growing this… But eventually, that’s my goal, is to really give 10% back to the community.

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

Angad Guglani: Sure, you could check us out online. The company is Cooper Square Acquisitions, cooperacq.com, or you can reach out to me directly at ag@cooperacq.com.

Joe Fairless: There are a lot of impressive things about what you’ve done, and I won’t summarize all of them, but I will say what you did as a college student, and what you built, where you saw the need and then — I mean, six figures, a third of  a million dollars earned as a result of the brokerage business as a college student – it’s just inspirational for anyone… And then what you’ve done to build the portfolio, and the smart ways you’ve gone about finding deals, and getting deal flow, and then obviously executing… Because anyone can be a spreadsheet millionaire, but it’s all about the execution. So just very impressive… I really appreciate you being on the show.

I hope you have a best ever day, and I’m looking forward to talking to you again soon.

Angad Guglani: Thanks, Joe. I really appreciate your time, and I hope to speak to you soon as well.

JF1948: Submarine Lieutenant Obtains 8 Units In Three Months with Anthony Pinto

Listen to the Episode Below (00:23:48)
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Anthony is still in the service, while also building his real estate portfolio. We’ll hear how he was able to get those 8 units so quickly, and of course we’ll get to some of the details of a couple of his deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“There’s so many opportunities to learn, you have to constantly be learning” – Anthony Pinto

 

Anthony Pinto Real Estate Background:

  • Submarine Lieutenant currently stationed in Norfolk, VA
  • Since acquiring 8 units in three months, Anthony has expanded into apartment building investments
  • Based in Norfolk, VA
  • Say hi to him at pinto.capital@gmail.com
  • Best Ever Book: Miracle Morning

 


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TRANSCRIPTION

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

Anthony Pinto: I’m great, Joe. How are you doing?

Joe Fairless: I’m glad that you’re glad to be here, and I’m doing well, and looking forward to our conversation. Anthony is a submarine lieutenant, currently stationed in Norfolk, Virginia. Thank you, sir, for keeping us all safe. Since he’s started real estate investing he’s acquired eight units in three months, and has expanded into apartment building investing.

With that being said, Anthony, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Anthony Pinto: Sure. Again, my name is lieutenant Anthony Pinto, submarine officer, stationed in Norfolk. I’ve been here for about three years, and I bought my first house in 2016 as a primary residence, when I first moved here. I used my VA loan.

Then at the end of last year I got off of my [unintelligible [00:02:14].09] again in Norfolk… And I really got thinking about how I didn’t wanna spend the next 20 years of my life going under way, being on a submarine… So I just started looking for other means to generate cash, and to generate wealth… And I looked to real estate investing as a way to do that.

In December I started going to the local meetups, I found a realtor… By the end of January I had a quad that we currently are house-hacking closed, and by the end of the next month, end of February,  we had a triplex closed, that I bought with a joint venture with a couple other Navy partners.

Since then we moved into larger apartment buildings, mainly in the Kansas City and the North Carolina areas. We had a 34-unit under contract about a  month ago, which we unfortunately had to release due to the property condition. It was pretty bad, I’ll just say that…

Since then, we continued to build my local team in the area, in Kansas City, both in terms of boots on the ground and on property management, and actually tomorrow we’re submitting an offer for a call for offers for a set of quads in the Grain Valley area on the Missouri side, which we’re really excited about.

Joe Fairless: Well, we have a lot to talk about. Let’s first talk about how quickly you jumped in… I believe, if I heard you correctly, you started studying real estate and going to real estate meetups in December, and you closed in January. How did you find and close so quickly?

Anthony Pinto: First off, I had an awesome real estate agent. She was a veteran herself, and she focuses a lot on specifically military investors. She’s got a mastermind herself that she does in the area, and there’s probably about 30 of us in that.

So it started off with her, she had a lot of great connections. I like to call her the Great Connector. Every time I have an issue, she can point me in the right direction, whether it’s insurance, or flooring, tree guy – you name it, she’s got somebody on call for that. So having a great real estate agent honestly really helped.

Secondly, looking through the weeds and seeing opportunities on deals that were already on the market. This quad that we’re house-hacking right now was about $60,000 overpriced, and it had been on the market for a few months already. No one had really taken a bite at it because it was so overpriced… So we kind of looked at it and we offered a price we thought was reasonable, and they countered, and we went back and forth for a while. It got to the point where, running my numbers on it, it just didn’t make sense, so we ended up walking away from that.

A week later they came back and said “Hey, we wanna go with your original offer.” We were like “Okay.” So we went through the whole contract and due diligence process, and got to about three days before we were supposed to close and we hadn’t heard anything from the appraiser… We had to delay the closing another week, and finally the appraiser came back at about $25,000 cheaper than the asking price. I don’t know if your listeners are familiar, but with the VA loan, it’s 0% down, 100% loan-to-value, and the VA will pretty much pay up to the appraisal price. Anything higher than that has to come out of pocket.

So here we were, stuck with about $25,000 cheaper than what the asking price was, I was trying to rack my brain about how to figure this issue out… And we came out to the agreement that we would just pay for closing costs.

So for about $7,000 out of pocket we got about $25,000 off the price, and the final price was actually cheaper than what we had originally gone with, which was a pretty awesome deal.

Joe Fairless: Wow. How did you meet the real estate agent?

Anthony Pinto: She was the only real estate agent that I saw that was holding meetups on Bigger Pockets in my area. So I went to a meetup of hers, and I was impressed, and I took her out to coffee the next day, and the rest is history, I guess.

Joe Fairless: What did you end up buying the property for?

Anthony Pinto: We bought it for 287k. Our original offer was 290k, and the listed asking price was 350k.

Joe Fairless: It’s a quad… Do you have it rented out?

Anthony Pinto: We do. We live in one of the units, two of the units are long-term rentals, and then we airbnb the fourth unit.

Joe Fairless: How much do you bring in per month on average for the Airbnb?

Anthony Pinto: We get about $900 to $950, depending on the summer or weekend timeframe… Which is about $100-$150 more than we could get if we just did a long-term rental on it.

Joe Fairless: Okay. Are the other two $750?

Anthony Pinto: The one-bedroom is $800, and the two-bedroom is $1,000.

Joe Fairless: Oh, okay. Great.

Anthony Pinto: Yeah. It more than covers the mortgage, and then some.

Joe Fairless: Yeah, $2,700 in rent… So on the 1% rule it’s a little bit less than 1%, I imagine?

Anthony Pinto: Right. And that’s including the fact that we’re living here as well. So when we move out, you can add probably another $800-$900 on top of that.

Joe Fairless: And then it’s 1.1%, 1.2%. Okay. Great. And that was no money out of pocket?

Anthony Pinto: Except for the closing costs we had to bring at the very end – yeah, 0% down.

Joe Fairless: So how much in total did you have to bring?

Anthony Pinto: I think it came out to around 7k.

Joe Fairless: And what about the triplex that you had partners on?

Anthony Pinto: Actually, I have Redfin alerts/emails to me for multifamily deals in the area, and I would occasionally look through it and I got this deal sent over to me at like 6 o’clock in the morning, when I was getting ready for work… So that morning I kind of looked through and I was like “Wow, this seems like a really great price”, just based off of what I thought we could get for rent. It was going for 215k, and we could rent it for about $2,800 in total.

So that morning, on my way to work, I went to go take a look at it. I was like “Oh, this doesn’t look like a bad property.” Basically, it was a turnkey flip that the owner wanted to get rid of, to reinvest his capital elsewhere. So that afternoon I put an offer in, and my realtor submitted it, and by the next morning we had it under contract.

Joe Fairless: What were they asking and what did you offer?

Anthony Pinto: The asking was 209k, and we put in 215k.

Joe Fairless: That’s right. I’m sorry, you mentioned 215k earlier. Okay, so you offered more than what they were asking.

Anthony Pinto: Right. And my realtor was trying to text… So I can’t have my phone in the shipyard where I am, so  my realtor was texting me, he was like “Hey, we have a deadline at 1. I need an offer.” And I didn’t get that until [1:30]. At this point we had to be competitive, because there were already 2-3 offers in. The only way we could do it is just offer a higher than asking price, especially since the numbers still worked for that.

Joe Fairless: What are the numbers on that one?

Anthony Pinto: We are currently renting it for $2,750, bought it for 215k, mortgage comes out to be about $1,100, about 33% expenses on that… So we’re cash-flowing about $600 total off of that property.

Joe Fairless: You mentioned you had partners… How do you structure that partnership?

Anthony Pinto: Actually, this was a great learning experience for me, because I knew I wanted to bring in outside money, but I really didn’t know how to do that. This was my first time using a commercial loan that I got through a credit union… So after we got that property under contract, I was like “Oh, man… Now I need to figure out how to find this money.” So I started scouring Bigger Pockets and trying to research as much as possible, raising private capital. I stumbled upon a couple books, but I eventually made a list of all the people that I knew – family, friends, people I went to college with, people I work with, and just started calling a whole bunch of people. I probably called 60 or so people, trying to explain what I was doing and see if they would be interested in this great opportunity.

So my first partner I found is an active duty intelligence officer, also in Norfolk. I found him on Bigger Pockets. It turns out we had a ton of similarities. He was two years behind me at the Naval Academy, and we knew a lot of the same people. I had him over for dinner, and we talked and talked, and ended up investing about 12k with me.

So the total raise for this was about 48k, I’ll just start off with that. He brought a quarter of that. And then the second guy I found was also a submarine, senior chief, active duty guy. He had done investing before and he had a lot of money tied up int he stock market, that he wanted to take out. So we got talking and he brought the rest of it, 36k. So in about three weeks after getting it under contract we had the full amount raised, to be able to close on the property.

Joe Fairless: And how do you structure the ownership percentages?

Anthony Pinto: I had a big conversation with my lawyer on how to [unintelligible [00:10:20].04] LLC for this. Basically, what we did is we formed an LLC in the form of a partnership, with a president, vice-president and treasurer. And the three of us sat down and we just talked through the different terms, we talked through how we were gonna do the equity split, how we were gonna do the cashflow splits, who was gonna take what role and responsibility, what  we were gonna do for the long-term business plan, what the different exit strategies were… So we basically got together with our lawyer and we talked through all these different things, and our lawyer drafted up our operating agreement, which was the legal solidification of our partnership.

From there, we closed on the property, and we were operating as an LLC, and we were getting the cashflow and equity and the percentages outlined within the operating agreement itself.

Joe Fairless: And what are some highlights of how that operating agreement reads in terms of cash distribution priority and ownership percentages?

Anthony Pinto: For me, since I was not bringing money to the table, I had to offer something else… It’s pretty similar to a syndication we’re working on right now. Those not bringing capital to the table have to be a little more creative in what they’re actually bringing, and the advantages they’re bringing. So what I brought was obviously finding the deal, and I also personally guaranteed the loan. Since we were able to go through a credit union and do a commercial loan, it was recourse, so I had to personally guarantee that, which I was fine with doing. $215,000 wasn’t a lot of money to really be worried about. So I personally guaranteed the loan. So that, and finding the deal, and securing the financing got me 35% of the equity and of the cashflow.

The partner that brought the most money got 50% of the cashflow and 35% of the equity, and then the last partner got 15% and 15%. So we just kind of worked it out to make sure that the returns that the investors were looking for made sense. Based on that equity split and the cashflow, the larger partner wanted 11% return, and so we were able to get that to him based off of the conservative proforma that we were operating off of.

Joe Fairless: Let’s talk about that 34-unit. Tell us the story about that.

Anthony Pinto: Sure. This property was on LoopNet, that’s how I originally found it. It had been on there for about two years; it had been under contract a year before that with another buyer, and it was not very well maintained. There were a lot of bad tenants in there, there were really high delinquencies, there were evictions left and right… The property just wasn’t being taken care of. And the biggest issue with the previous buyer is that the property was made up of two multifamily buildings and a single-family home on the same lot, which was very unusual collateral. The Fannie and Freddie representative at the bank that the buyer was talking to was like “Yeah, this is unusual. We’re not comfortable with how this is laid out.” So he wasn’t able to secure financing for that based off of that, and just how the property was operating at the time.

So after that release about a year ago, the owner went in and got rid of a whole bunch of bad tenants, put a lot of money into replacing the roofs and renovating the units, and basically trying to turn the property around as much as they could.

So the property almost did like a 180 between summer 2018 to 2019, which is when we were taking a look at it. So I looked at the property and it was being advertised to a local brokerage in the area, and actually the broker for this deal I had met on Bigger Pockets earlier, when I was visiting home in Kansas City over the Christmas break, and we never had had a chance to meet.

Long story short, I looked at this property and I was like “Oh, those numbers work.” We negotiated out the contract for it and came to a price that was a little more than I would have been comfortable with, but the numbers still worked out, even as conservative as they were… So we got under contract at the beginning of July.

It was mainly me taking down this property, so I  got a little ahead of myself on having the right experience and the right people on the team. I had been building my team in that area for a while, but I didn’t have the right players yet as it turned out, going through with this property.

So I set the contract up, got it under contract, started going through the due diligence. A lot of things just didn’t start adding up; there was a lot of confrontation between the seller and us trying to get due diligence documents and trying to get answers for things that were happening/had happened with the property.

So August rolls around, which was about three weeks after we had the property under contract, and I went to visit the property and do the property inspection… And I had had a boots on the ground partner go and take a look at the property initially, and he had just done a walkthrough of the outside and they had seen one of the only vacant units, which had been recently renovated. Based off of those pictures, I kind of had a sense of what I was walking into.

So I started to do the property inspection, started looking at the rest of the units, that hadn’t been renovated, and I was just appalled at the condition that this property had been maintained at, and the condition that people were living in.

I got told that 32 of the 34 units had been renovated, which was definitely not true. There were at least ten of the units that had significant renovations needed to be done. One of them probably needed to be gutted based off of water damage that was ongoing, that current management hadn’t taken care of.

So basically, for the two days we did the inspection, I kind of just realized, got with the partners and we’re like “We’re pretty much buying a lemon right off the bat.” I’ll go back a little bit – so that triplex that we bought, I had a lot of red flags going off in my head, just kind of walking around and talking with my realtor… And a lot of those same red flags were going off in my head with this property. I ignored them on the triplex, and I wasn’t gonna ignore them on this property.

So I got with the partners, we talked through it, and based on the property inspection, which had some pretty significant issues… Significant mold inside units that people were living in, there was ongoing water damage, and a lot of the units had foundation issues. We had, like I said, ongoing leaks, and some of the units should have been gutted. There were electrical breakers that were next to showers and next to sinks, that didn’t have any [unintelligible [00:16:14].02] or any protections like that… Just a lot of things were wrong with this property.

So we got together, and long story short, we ended up releasing from the contract, and was able to get the EMD back on that… But $5,000 for the property inspection was well worth realizing that this property would have been pretty much buying a lemon right off the bat.

Joe Fairless: Did the submarket meet your expectations?

Anthony Pinto: This property – I don’t know if I mentioned… I’m from Kansas City originally, so I knew where this property was, and it was actually about four blocks or so away from where my grandparents used to live… So I was pretty well familiar with the area.

The area was what I expected it to be. The submarket and type of clientele was what I expected it to be… But there’s always extremes of a certain type of clientele. I understand what a class C type of tenant is gonna look like, but there’s always gonna be extremes to that… Just the level of comfortableness that people are able to live in.

So I was a little taken aback by some of the conditions that people were living in in this property, but overall I kind of realized that this area probably needs a little more up and coming before it makes it worthwhile.

Joe Fairless: Okay. And that’s why I asked the question, because a lot of people will say “There’s nothing about a property I can’t fix if I buy it the right way… But if a market or submarket don’t cooperate, then that’s where I can get into some trouble. Because I can throw a lot of dollars at a property, and you could make Taj Mahal in the middle of a D class area.” That wouldn’t make sense to do, but you could… But you can’t make a Manhattan type of environment in an area that’s D class.

So when you got the inspection report back, what did you say to the seller? Did you try to negotiate, or were you just pulling out, you were like “Forget this”? How did that go?

Anthony Pinto: I knew that we were pretty much at the limit for where the seller was willing to go down… So I kind of realized that the level of negotiation that would make us comfortable with purchasing this property was much lower than what the seller was willing to go for. And just based on the amount of issues that were wrong with this property, it probably should have been torn down and built back up. There were so many issues that I kind of realized – this property was 60 years old; so if I’m seeing issues now, what are the issues that I’m not seeing? What are the issues and the repairs that have been done over the years that I’m not seeing, that may or may not have been [unintelligible [00:18:37].02]?

So I kind of realized that we can negotiate this all day, but at the end of the day this is not the type of property that I want to put my name and my investors’ name on. So we didn’t negotiate on it, we just pulled it based off of the property inspection; we basically pulled a contingency for due diligence.

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

Anthony Pinto: I think the best advice is you’ve gotta learn as much as you can. Be the expert in what you’re doing. People will flock to you when they realize that you are the expert in what they are trying to do, and you’re continuously learning… And that’s the other thing, continuously learn. There are so many opportunities to learn, so many podcasts, so many Bigger Pockets articles and forums… There’s so much out there. You have to continuously learn, because this market is constantly changing, whether it’s single-family homes or commercial. So learning and continuously learning.

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

Anthony Pinto: Ready for it.

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

Break: [00:19:40].11] to [00:20:16].03]

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

Anthony Pinto: Best ever book is The Miracle Morning by Hal Elrod.

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

Anthony Pinto: Oh, man… A mistake [unintelligible [00:20:20].17] triplex and not going with my spidey senses about the property. I didn’t really talk about it, but we had a significant amount of issues with this supposedly turnkey property. So I took those same spidey senses and I applied them to this 34-unit and I turned away, and it worked out for the best.

Joe Fairless: What are the issues on the triplex?

Anthony Pinto: Let’s see… When we first bought it, within two weeks it got broken into and all the appliances and air conditioners got stolen. That was a pretty hefty insurance bill. We had A/C problems after that, we’ve had ceilings needing to be replaced because of leaking air handlers. We had significant termite damage that had been covered up with insulation in the crawl space, that we found afterwards. We had pest issues, we’ve had issues with tenants, there’s been some roof issues… Just a lot of different issues.

Joe Fairless: And how do you communicate that back to your two partners?

Anthony Pinto: A lot of the investors I talked to in the area had asked me about this property; the property is on a street called Carver Circle, so they would ask me “What’s up at Carver?” So I would tell them all these issues we’re having, and it kind of dawned on me – I can talk to people individually, or I can write about my experiences. I can talk about my experiences and put it online. So what we started was a blog called Rookie Real Estate, which is basically a testimony to my start from a rookie real estate investor at the end of last year to where we are now.

I talked a lot about how I got started, the mistakes that we’ve made, the different issues that we’ve had, and some lessons learned along the way. It’s geared towards the first-time investor.

For me, starting off, it was almost like a fire hose of information, and it was hard for me to focus on one thing and get started… So I wanted to start this blog as a way for first-time investors to get their bearing and guide them towards all these different resources we have available. And to also give them that things are gonna happen, and that problems exist, and not to have this spiritual view that everything with real estate is gonna work out for the best.

Joe Fairless: How can the Best Ever listeners get in touch with you and learn more about what you’re doing?

Anthony Pinto: Yeah, of course. I am on Facebook, Anthony Pinto. We also have a Facebook for our business, Pinto Capital Investments. We have a website, PintoCapitalInvestments.com, and then you can also find us on Instagram, I have LinkedIn, and then finally, our blog RookieRealEstateBlog.com. There’s also links to our website on there as well.

Joe Fairless: Anthony, thank you for talking about your first couple purchases, as well as the deal that didn’t work out, how you used some lessons from the second purchase to influence you backing out of the third purchase. Much better to learn on the triplex than on ten triplexes combined. And the specific examples of some of the red flags too, so thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Anthony Pinto: Alright, thanks, Joe. It was an honor to be here.

JF1945: Doing 16,000 Transactions, Acquiring $0 In Debt with Jack Butala and Jill DeWit

Listen to the Episode Below (00:21:03)
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Our two guests today have been building a real estate investing business as partners for around 10 years. We’ll hear how they have divided up their roles and get any tips they have for forming a successful partnership. They will also tell us about some of their typical deals, and Joe will dig in to bring us some of the specifics. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“You got to get a feel for what kind of property sells more there” – Steven Jack Butala

 

Steven Jack Butala and Jill DeWit Real Estate Backgrounds:

  • They have been investing in real estate since 1999
  • Built a $24 million land resale empire, completing close to 16,000 transactions without incurring any debt or leverage
  • Based in LA, CA
  • Say hi to them at https://landacademy.com/ or www.buwit.com
  • Best Ever Book: Showing Up for Life

 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

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TRANSCRIPTION

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

With us today – Steven Jack Butala and Jill DeWit. How are you two doing?

Jack Butala: Excellent, Joe.

Jill DeWit: Great!

Joe Fairless: Good, I’m glad to hear that, and looking forward to our conversation. A little bit about their company – they’ve been investing in real estate since 1999, built a 24-million dollar land resale empire, completing close to 16,000 transactions without incurring any debt or leverage. Based in Los Angeles, California. With that being said, do you two wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jack Butala: Yeah, Joe, it’d be great. I cut my teeth probably 25-30 years ago as a commercial real estate broker, and quickly learned that I couldn’t stand to cold-call. So I devised this system to collect data for commercial real estate property owners, and back then – this is before the internet – I put together a system where I would fax them overnight blind offers for their property, with a pretty substantial degree of immediate success.

Fast-forward now to 2019, I got sick of doing those complicated transactions back then, and decided that buying land, and specifically unwanted land, for much lower than I could resell it for on the internet was the way to go… And here we are.

Joe Fairless: Got it, okay. And what were you doing when you started to collect data on property owners and fax them blind offers? How were you getting that information?

Jack Butala: It’s a great question. I’ve learned of my own interests – and I guess I would say now obsession – with data… And back then, the highest quality data that you could find (again, before the internet) was about healthcare-related office complexes, and nursing homes, and assisted living type facilities. For whatever reason, there was a tremendous amount of data collected on that, and with associated fax numbers.

So I literally took a phonebook-size book and input it in Excel and through some programming – I call it a form fax, but it’s really like a mail merge fax situation… So right around 2003 I learned about RealQuest Pro, which was back then the first American Title’s data arm. Since then, we’ve become license providers of that and several other data sources… But for us, it’s all about manipulating sending offers to owners, and getting the responses, and having all that traffic come back to you, and deciding what properties you wanna buy.

Joe Fairless: So how do you two divvy up responsibilities?

Jill DeWit: Good questions. I always say it’s “Make my phone ring”, whether it’s on the buy side or the sell side. When I came into this I had a very heavy sales background, and I am not afraid to pick up the phone, answer the phone, talk to people… Jack and his data – he’s not really into talking on the phone; he’s more about just getting it going, getting a response. So that’s what he does – he gets the offers out, he prices them, he makes sure it’s perfect, and then my team and I come in on the buy side, carry them all the way to completion, and then same thing on the sell side. That’s what my forte is.

Joe Fairless: Got it, okay. How long have you two been partnered up?

Jill DeWit: Gosh, going on — it’s a little over ten years now.

Joe Fairless: Tell us about a typical transaction.

Jack Butala: By the way, we buy land, we buy houses, small apartment buildings… So it’s not just limited to land any longer. But a typical land transaction for us – I have the spreadsheet  now of what we have on the table… I’ll send out (I don’t know) 10,000 offers ballpark… We own a company called Offers to Owners, which is a bulk mail printing company, and we obviously provide a huge discount to ourselves, and to our Land Academy and House Academy members.

So I’ll send out 10,000 offers, it costs probably $3,000 to $5,000. For every 300-400 mailers we send out, we end up buying a property. So a typical deal for us would be — I’ve just reviewed one right before this call… It was a 40-acre property in South-Eastern New Mexico, just on the outskirts of town, surrounded by structures and stuff like that, for about 4k-5k. In that particular case we’ll resell the property through the MLS, probably, for about 20k, maybe 22k.

Joe Fairless: 22 an acre?

Jack Butala: No, it’s 40 acres, we’re buying it for about $5,000…

Joe Fairless: Total.

Jack Butala: …and we wholesale it for about $22,000.

Joe Fairless: Got it. I need to shift my gear into New Mexico prices. [laughter] You two are in L.A. so I’m sure you had to do the same thing.

Jill DeWit: Exactly.

Joe Fairless: Alright, $22,000 for 40 acres. So how are you finding these leads? What’s that process?

Jack Butala: I very simply take the entire universe of properties in a given county… If you can imagine, there’s houses, land, all kinds of stuff that you can dream up in there, and I scrub out everything that I’m not interested in for that particular mailer. In this case it would be houses, strip malls, any commercial property, any property owned by a municipality, cemeteries, hospitals, on and on and on. There’s a massive list. We actually have built algorithms to do this for us.

So what I end up with is a good, clean scrub of property that are owned by individuals, or let’s say LLCs, and they get an offer from us. It’s kind of more art than science at  a point, where you have to price that. Our whole goal is to get them to sign the offer and send it back, or to call back and say “$5,000 doesn’t work, but $6,000 might work.” And then we go from there.

Joe Fairless: What are you scrubbing for exactly, in order to get from the initial list to the scrubbed down list?

Jack Butala: Likely sellers.

Joe Fairless: Okay.

Jack Butala: John and Sally Smith are very likely sellers. If they have a 40-acre property or a 20-acre property in the county that I’ve chosen, they are a very likely seller.

Joe Fairless: Why?

Jill DeWit: [unintelligible [00:06:56].17] We’re not trying to seek out any particular thing, it’s just that they’ve owned it… We don’t even look for how long they’ve owned it. And the whole goal here – the best part of my job is that people are calling back because our offer is in their ballpark. He takes all the work out of it. I’m not sitting here going down and cold-calling everyone in a county, saying “Do you wanna sell? Do you wanna sell? Do you wanna sell?”, or do I send out a generic offer that says “If you wanna sell, call me”, because then again, everybody will call back and they’ll all want top dollar. That’s not what we do.

We send out real strategic, professional, respectable offers to these sellers. They get them, and they open them, and they read them, and they say “You know what, Sally, I even forgot we owned this. Aren’t we still paying the taxes on it? We’re not gonna retire there. The kids don’t want it. I’m calling.” And then I get nothing but quality people. Again, he liked my price, it’s in their range, and we’re just gonna buy it and solve a problem for them, usually.

Joe Fairless: And what makes them likely sellers?

Jill DeWit: Usually because it’s paid for. That’s really what we look for. And most of the thing is rural, vacant land. It’s very hard to get a mortgage on. Most of it is paid for.

Joe Fairless: But you said that you don’t look to see how long they’ve owned it, so you don’t necessarily know if it’s paid for or not, right?

Jack Butala: What makes them a likely seller is this… Imagine this – if every single person who owns a piece of rural, vacant land that’s not developed, in a given county, with the exception of government entities, and any individuals and LLCs, let’s say, everybody gets an offer from us; every single person. And the likely sellers choose themselves. So we just blanket the whole thing with an actual offer.

So instead of us waking up in the morning to go find all these likely sellers, they find us. Jill wakes up, sits down at her desk, and there’s many envelopes literally to open that have signed offers in them, or her mailbox is full [unintelligible [00:08:51].20] to return the calls. So they find us. I blanket it.

Joe Fairless: And how do you determine how much to offer to make that a fair offer, as Jill mentioned?

Jack Butala: That’s an excellent question. It’s very different for specific product types. Three major product types that we deal in now are rural vacant land, infill lots, which are properties in an urban setting, and then houses. We buy tons of all  three.

Rural, vacant land is a little bit more tricky to price, because you have to do a lot of research about what’s on the MLS, what’s on LandAndFarm.com, what’s on LandWatch.com… We own a site called LandPin.com… You’ve gotta get a feel for what properties sell for there. We try to come in at 20% or 30% of the actual retail price, and sell it for maybe 50% of its worth.

Joe Fairless: Okay. So that is with rural and vacant land. What about infill lots and [unintelligible [00:09:42].29]

Jack Butala: Infill lots is a function of what house values are in the very immediate area. Infill lots and houses are really exciting from a data perspective, because there’s so much data available in this internet age we’re in. So if a house sells for $200,000, if you asked any homebuilder, they’ll tell you they’re very will to pay 20% to 25% for the land on a house that they build. So if it’s $200,000, 20% of that is about 40k. I try to get in at 10k or 15k and mark it up about 10k and really quickly sell it to a homebuilder.

Joe Fairless: Okay.

Jack Butala: For houses it’s even easier.

Joe Fairless: So 20% to 25% of the value of homes equals the land value, as a rule of thumb.

Jack Butala: That’s right.

Joe Fairless: Oh, interesting. Okay. How does that fluctuate, if at all, from where you live to where it sounds like Jill is originally from?

Jack Butala: Ha-ha! Well, Jill and I started the company in Arizona, and we lived in a house that was about —  I don’t know, we don’t live in very logical areas to do this in. [laughter] We live right on the Pacific Ocean, and I’m not sure that this whole model would work there. [laughter]

Joe Fairless: Right, right. But as far as that percentage though, just to estimate, would you say L.A. is still within 20% to 25% of home prices (the land equals) compared to Des Moines, Iowa, or something like that?

Jack Butala: I don’t wanna complicate this for your listeners, but…

Joe Fairless: Please, try. That’s fine.

Jack Butala: Okay. [laughter] There’s a construction cost component. In my mind, the rock bottom new construction cost is gonna be about $100/foot. If you’re really pulling out the stops, it goes to maybe $250, even $300/foot. So if you take our neighborhood, rural, vacant land goes for about 4 million bucks a lot. And when you pull out the stops and build a 3,000 sqft. house for $300/foot, that’s a million bucks. So now you’re sitting at a theoretical completed asset at 5 million dollars, that’s probably worth 7.

So you have to go in — there’s a lot of analysis upfront that I do when transactions happen in different markets. But I’ll tell you, we do really well in Phoenix, Las Vegas, Tampa… Those are the markets that are really high growth, in-bound population increase  environments, and the real estate component of cost of living is very low.

Joe Fairless: What are some markets that you have been in, but you’re not longer in?

Jack Butala: I’m from Michigan. In all of Michigan I can’t get to work with any [unintelligible [00:12:21].14] and it baffles me. I’m not sure why.

Joe Fairless: Well, I was gonna ask you that, but you don’t have any answer to it [laughter] Okay…

Jack Butala: I’m not alone. I’ve really tried to figure this out.

Joe Fairless: Yeah… Because you find some land, and then you just can’t find the buyer, or you can’t find the land, or what?

Jack Butala: The yield – I micro-manage our mailer yield, and for whatever reason our yield is just atrocious in Michigan. I can send out thousands of letters and just not really get any real responses.

Joe Fairless: Even Grand Rapids area?

Jack Butala: Yeah. Seth Williams is in our space. I don’t know if you’ve interviewed him or know him…

Joe Fairless: Yeah, of course.

Jack Butala: Seth is really a hands-on — he’s got a 616 area code phone number, and he does okay there… But we do more of a shotgun approach to all of this than a rifle approach.

Joe Fairless: Got it. And what’s a market that you weren’t in, but you have now had a lot of success in? …if there is one.

Jack Butala: Northern and Central California are on fire for us.

Jill DeWit: Yeah.

Joe Fairless: Okay. And so what’s a typical deal there look like? Or maybe a specific example would be even better…

Jack Butala: I can give you a couple of examples. We’re doing several transactions in Lassen County right now. There seems to be a lot of subdivided 20-acre properties there. We buy them for 2k-4k each, and wholesale them for 10k-12k, maybe 15k, that week.

Jill DeWit: Easy and fast. They love them. Modoc is good… And we have some other great areas up there.

Jack Butala: Yeah.

Jill DeWit: It’s [unintelligible [00:13:44].08] and it’s pretty, and people love it.

Joe Fairless: And Jill, switching gears a little bit to your area of focus – what are some typical objections that a seller has, and how do you resolve them?

Jill DeWit: Usually, it just comes down to the situation… Like, the kids will find it, and our only issues are sometimes undoing trust issues, and just kind of finding people sometimes. And then we can undo that. I have access to everything, and a lot of our deals [unintelligible [00:14:15].03] two titles, so they take care of them right there. But even before I get a two-title, I wanna make sure everybody’s alive and able to sign…

Jack Butala: There’s a huge misconception out there, Joe, about willing property to your heirs. If I own a piece of property and I pass away, and I have a will that says “I’m gonna give all my stuff to my kids” and the property remains in my name, and I pass away and the kids say “Great, I own the property”, they actually don’t. Depending on the state, there’s a huge legal component to this.

The kids learn this eventually, because maybe a potential buyer before us gets in there and they say “You know what – there’s nothing we can do on this without legal action.” So we get a lot of calls like that… And we can undo and solve a lot of those problems. Over the years we’ve become experts at that.

Joe Fairless: And how do you solve that?

Jack Butala: It’s very, very, very geographically specific. In California it tends to be a lot easier than certain states. You need a death certificate and an affidavit and you can go through it. And most title agents can do it – or will do it – for you.

In Arizona it takes a probate action. It’s almost prohibitive. You have to almost do a quiet title action to undo it. So consequently, if you go to Arizona, there’s a lot of back-tax property there, which is a whole different animal, because people just aren’t willing to go spend 2k-3k to get an asset that’s worth 2k-3k in their name. So it’s really geographically specific.

Joe Fairless: Got it. Taking a step back, based on y’all’s experience, what is your best real estate investing advice ever for investors?

Jack Butala: Go ahead, Jill.

Jill DeWit: I have to think about it… My best real estate investing advice? Learn how to use data to do the heavy-lifting, which is everything that Steven has taught me… And then everything works out. We joke about “Money solves all problems.” Man, when you buy an asset, use data, so you don’t have to do a lot of work. Smoke out the great deals, buy something really cheap. You can market it all wrong, and do very well.

Jack Butala: We just did a podcast with this title, and I answered this exact question… I like to say it like this – good acquisitions solve all problems.

Jill DeWit: Yup.

Joe Fairless: Right. It makes sense.

Jill DeWit: [unintelligible [00:16:15].29] Even though I’m the sales part of the team and I really love being in charge of all that, I get excited on the buy side. And now one of the roles that I’ve taken on is we do deal-funding for our Land Academy and House Academy members, and it kind of rolls through me… And I approve the transactions and fund the deals. And I just get excited on the buy side, because we know how it’s gonna go; you know when you bought it, “Wow, this is  a home run. Quickly, let’s close this deal. We’ve gotta own this” kind of thing, and it’s the greatest.

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

Jill DeWit: Yes!

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

Break: [00:17:02].26] to [00:17:37].14]

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

Jack Butala: The best book I’ve ever read is not a real estate book at all, it’s called Showing Up For Life. It was written by Bill Gates Sr. The Bill Gates that we know – his father.

Joe Fairless: Got it.

Jill DeWit: Wayne Dyer.

Joe Fairless: Oh, yes.

Jill DeWit: Everything Wayne Dyer. I have him around the house all the time.

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

Jack Butala: The biggest mistake I’ve made – and this isn’t transaction-specific – is not believing in marketing, specifically internet marketing, and I got my butt handed to me around 2009 because of that. It had almost sunk the ship, but luckily we cured our ways.

Joe Fairless: And will you elaborate a little bit more on that?

Jack Butala: I had a single marketing channel. We were selling a tremendous amount of property on eBay. We were doing about 30 transactions a day on eBay, and the bottom fell out of that market and it was a classic example of a single point of failure/all your eggs in one basket… And all we had to do was just plan for a downturn and have a bunch of — now we probably have 20-30 channels of marketing through social media, on our websites, and a network of buyers, and a massive email list, and all of that.

My advice to somebody who’s brand new is to really develop those networks and start now.

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

Jack Butala: The best deal I ever did was a deal early on where I purchased a ton of property right at the Grand Canyon, for a very small amount of money, and resold it about six months later, and we netted over – this was really early in my career – almost $900,000.

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

Jill DeWit: Land Academy.

Jack Butala: Yeah, we started a whole company… Jill, go ahead.

Jill DeWit: We’ve spent the last couple of years really growing, and even put our own acquisitions and things on hold a bit, to really give back and help the planet. We have hundreds of members now, several that we know, that are making more money than us every month, and that’s the greatest feeling ever. We have taught them everything that we do, and they are killing it.

Joe Fairless: And how can the Best Ever listeners learn more about what you all are doing?

Jill DeWit: Buwit.com shows all of our companies – Land Academy, House Academy, the direct mail company, how to get data, our online communities… Tons of free stuff. Or just go to LandAcademy or HouseAcademy, our podcast, and videos on YouTube, and all kinds of good stuff.

Joe Fairless: Awesome. Well, you two, thank you so much for being on the show, talking about your business model, what works, what doesn’t work, what you have in place now to make sure you’re set up, so that if one marketing channel does not go according to plan, then you’ve got many others that can pick up the slack… And also, just the overall approach for how you’re finding sellers and how you think about making offers and the type of offers that you make.

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

Jack Butala: Thanks, Joe. A pleasure.

Jill DeWit: Thanks.

JF1941: Growing A Real Estate Investing Business With Family & Friends with Rome Lingenfelter

Listen to the Episode Below (00:18:05)
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We’ll hear Rome’s investing story today, he has been  a full time real estate investor for the last year. His wife is also full time investing with him and they are growing the business together. We’ll also hear what Rome is doing with his 12 year old son to teach him some of the business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“We follow a checklist when we got to purchase something” – Rome Lingenfelter

 

Rome Lingenfelter Real Estate Background:

  • Real estate investor, growing business with family and friends
  • Has a passion for educating others and helping them reach financial freedom
  • Is involved in a 147 unit syndication, currently negotiating her first mobile home park
  • Has flipped over 24 houses
  • Based in Portland, Oregon
  • Say hi to him at romeling2007ATgmail.com
  • Best Ever Book: The Creature From Jekyll Island

 


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Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPT

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, Rome Lingenfelter. How are you doing, Rome?

Rome Lingenfelter: I am excellent today, thank you for having me on.

Joe Fairless: My pleasure, and glad to hear it. A little bit about Rome – he is a real estate investor, has been growing his business with family and friends, has a passion for educating others and also helping reach financial freedom. Based in Portland, Oregon, and his wife has been on the show as well… So they have a 12-unit building, also have been involved as a limited partner on a 147-unit syndication, and they’re negotiating their first mobile home park, as well as they flipped over 24 houses. With that being said, Rome, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Rome Lingenfelter: Sure, absolutely. Originally, my wife and I started our business about seven years ago. We have made the majority of our growth in both the size of our business and our profits mostly because we’re in an equity market… So in fixing, flipping and wholesaling. But I would say that we’re repositioning now into more multifamily, and as you’ve mentioned, the mobile home park. And we’re looking more and more into the multifamily markets.

Joe Fairless: Okay, got it. Are you full-time in real estate? And if so, what were you doing prior?

Rome Lingenfelter: I am full-time in real estate now. I stepped away from a corporate position. I was a manager with a national grocery store chain for about 16 years, and my wife and I started our real estate business and just built it up over time. She stepped away about three years ago, and I stepped away about a year ago… And this will be our best year so far.

Joe Fairless: How did you determine when it was time to leave the corporate world?

Rome Lingenfelter: I didn’t have enough bandwidth to do both. The corporate world was easy compared to this, but just balancing time — I was scrambling on every break and every lunch to field calls… And we are not the traditional pair; my wife tends to be the contractor and negotiates the deals, and I tend to be the numbers and kind of contracts, back-office type stuff… And I was spending way too much time trying to catch up, and not enough time with my family. I have a great son, Max, that we just all enjoy doing stuff together as a family… From working in our business, to camping, hiking, and all that great stuff.

Joe Fairless: How old is your son?

Rome Lingenfelter: He’s 12 now.

Joe Fairless: What are some things you’ve done to teach him  the business?

Rome Lingenfelter: It’s a really good question. I’ve really gone to his strengths. Because he’s an only child, he’s always been around adults, so he relates to adults as well or better than he does with kids his age. So we did lots of door-to-door sales with him, so he’s very confident in those circles. I’ve had him help me on some rehabs… Things that are adequate for his age. But he started getting into social media, so he’s started to do some work on our social media, which is still growing, still pretty rough…

I would say one of the things that was kind of a sea change event for me was not just reading Kiyosaki’s stuff, but playing his Cashflow 101 game. I’m a hands-on guy, so I started Max at a very young age – probably about 4 or 5 – on Cashflow. And even tonight we’re gonna go to one of the local REIAs and play Cashflow. It’s something he really enjoys doing. And he sent out his own  mailings this last year, and got some good responses. We haven’t bought any properties from it, but he had really good responses from it.

Joe Fairless: So you mentioned among a lot of things door-to-door sales, and that to me – holy cow; adults have a hard time — I would have a hard time with that. Tell me about that process with him. So in our neck of the woods the way the Cub Scouts (before they go to Boy Scouts) raise money is through Christmas reeds sales. When I was a kid I think they had us sell candy. But I’ve just gone around with him, and he’s incredibly courageous. He loves people, so just going up, knocking on the door, practicing his little script, getting it wrong, getting it right… And it’s hard to say no to a Boy Scout who’s in a uniform and whatnot…

I think the second year in he had one of the highest sales of anybody in his troop, and his last year that he was in, he won. He was the top salesman for selling Christmas reeds. And he’s actually taking on his own. So now, being a Boys Scout, they grind up Christmas trees, but he has still continued on, because he has so many faithful clients who are like “Please come around.” So even now he raises money that way.

Joe Fairless: Taking a look at the properties that you’ve worked on, what has been the most challenging one for you?

Rome Lingenfelter: Boy, we’ve had lots of challenging ones. I would say probably the one that we learned a lot from was my wife and I – and we had a third partner – went in on a property that was almost a million dollars. It’s in one of the hottest areas in the Portland market, and our third partner just raved about this, and it looked like the numbers were gonna pencil out. So we borrowed some money to put a down payment on it, which we never recommend that you do… And not only did we have to pay interest on the borrowed money, but the person who was selling it to us – even though we said “Hey, we went through the inspection period” and we [unintelligible [00:06:33].18] money back – the doctor who owned the property decided to sue for the earnest money; he thought he deserved it. So of the 25k that we put down, I think we got 10k back. And then we had to pay interest on the rest of it, so… That was ugly.

Joe Fairless: Given a scenario where you’re in that situation or about to be in that situation again, what are some things you’d do differently?

Rome Lingenfelter: I’d make sure that the numbers were more correct going in. I would make sure that things were tighter. If I didn’t have the money to put down on it, I would put  a lot less down, and if they weren’t interested, I would walk away. I think everybody says it’s not the deals that you don’t get that [unintelligible [00:07:13].16] it’s the ones that you get and shouldn’t have. And this was definitely one of those. So I would just walk away from it. If you’re not willing to take 5k or 10k down, then we’re not willing to continue forward. That was my big lesson there.

Joe Fairless: What’s been a challenge growing the company, now that you two are full-time and have been full-time for a little while?

Rome Lingenfelter: I would say our biggest challenge has been marketing, and just getting our systems up and running. I think that’s what we still struggle with. We know where to get deals and we know how to work through it, but I think our plate gets so full… I think right now we have about five projects going on right now, and when we’re neck-deep in projects and getting things out to market, which is where you realize the money that’s coming in, that our marketing wheel kind of grinds to a halt. For this winter, if things kind of quiet down, that’s really where I’m gonna put a lot of time and energy – just getting the systems so it’s just that smooth-running wheel, which I don’t have at the moment.

Joe Fairless: What are some things you plan on doing?

Rome Lingenfelter: I’m going to break my processes up so no one person has access to all of it. I’m going to hire a VA, or maybe two. I really think that because of how busy my wife Amy is, I think we’re gonna get an assistant for her. And mostly, just breaking it up into pieces and just being clear of every step, and then assigning those, and then revisiting. I have good experience managing, but designing systems is not something I’ve ever done before.

Joe Fairless: And you mentioned you have good experience managing that… I imagine it comes from your corporate experience prior to doing this full-time.

Rome Lingenfelter: Yes, correct.

Joe Fairless: What are some tips you have? Or better maybe, what are some things you implement that you learned in the corporate world, that you do now?

Rome Lingenfelter: I think clarity is super-important. Making sure that everybody knows what their role is. In the beginning Amy and I used to bump up with each other, like “Hey, stay out of my lane.” She is a much better contractor; she has really good vision, so making sure that I let her do what she’s incredible at, and stay focused on my parts.

I’m a hands-on person. I tend to like to swing a hammer, I tend to like to do physical work, and I have to step back from that and really look at jobs that would be better for us to hire out. So that’s one thing – let people do what they’re good at, so putting the right people in the right positions I think is definitely someplace that that’s been helpful.

And again, customer service. Always taking care of people, whether you’re buying houses, or selling houses… Communication followthrough – I think that’s huge. I think a lot of people miss out on that. They get so caught up in the numbers that they miss out that it’s a people business.

Joe Fairless: From a management side, what are some ways you bring the people business component to life?

Rome Lingenfelter: I always do my best to [unintelligible [00:10:09].00] somebody, regardless of — if I’m selling a house, I usually give a basket, or some thank you gift. I think the last impression — I think somebody a lot smarter than I said “The last impression is a lasting impression.” Making sure that there’s just a pop of “Hey, that was a really good experience.” Even if the rest of the experience was bad, if your last contact was really positive, I think that’s good. And then just follow through and follow up.

I think there’s so many deals that we’ve landed that have come years after initial contact. Just that follow up, follow up, follow up. And I think Amy is really brilliant at that. That’s something I’ve learned and gotten better at from a management, but — just those systems in place, of making sure that those things we do do well are done on every project.

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

Rome Lingenfelter: Making money when you buy. I would say in the beginning if you can find somebody who wants to lend you money or be a part of it, you probably have a deal. If you can’t find somebody, it’s probably not a deal… And there have been so many times that we’ve been learning new aspects of our business, that we were able to fall down and make some big mistakes because we got such a good deal on the front side.

So I would say make your money when you buy; just always be aware of what you get it for, and don’t be willing to walk away from something that you want to be a deal, but may not be a deal.

Joe Fairless: And what are some of those big things that happen that you could recover from because of how you purchased it?

Rome Lingenfelter: We bought a property out in the middle of the country. It was an old 1930’s cabin. We picked it up for 40k, and we initially thought we were going to owner carry finance it, and that didn’t work… And it ended up that we needed to sell it for cash, but there were so many things wrong with the property we didn’t know about. It needed a septic system, and everything that was involved with that… It was pier and post construction, rather than on a foundation… And because we had bought it for such a screaming deal, when we turned around and sold it for 140k, because of all of the money we had dumped into it, we were still able to walk away with about 40k in profit on it. Whereas if we would have bought it for a “reasonable” price of 100k, we would have lost our shirts.

Joe Fairless: And what part of your due diligence process now will attempt to uncover that? Or maybe what have you done to enhance your due diligence process, to try and mitigate some of those things from creeping up again?

Rome Lingenfelter: Sure. Just making a checklist. If you’re gonna buy in an area that you don’t know, figuring out the right questions to ask… I had never bought a property with a septic tank before, and the person who sold it to us said “Oh, the septic tank was new in 2000”, and we didn’t go back and check. So just having a due diligence checklist. When somebody tells  you – it’s not new advice, but it’s meaningful advice – listen to everything that people say, but just follow up and do your due diligence.

So just having a checklist and checking the septic system; pier and post – other houses in that area, do they have pier and post? Because then it’s not as big a deal. But definitely following a checklist when we go to purchase something.

Joe Fairless: What’s the most recent thing you’ve put on that checklist?

Rome Lingenfelter: The most recent thing… Let’s see. Making sure that I am insulated from lawsuits. So setting up either a good relationship with a lawyer, or an accountant, and making sure that every way that I can protect myself, I am. Because much like California [unintelligible [00:13:48].18] becoming more and more of a litigious environment, and even when you do the right things and you take care of people, people will sometimes wanna come after you, so… That due diligence list is make sure you have a good lawyer in place.

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

Rome Lingenfelter: Absolutely.

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

Break: [00:14:11].13] to [00:14:49].01]

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

Rome Lingenfelter: Recently read… I really liked the Creature From Jekyll Island. I thought that was an incredibly well done book.

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

Rome Lingenfelter: We wholesales a duplex and made about $160,000. So that was pretty incredible.

Joe Fairless: Yes, that is. Tell us how you found it and how that went down.

Rome Lingenfelter: Sure. We found somebody who was way behind on their taxes, and they also owed money to the local municipality. And just through [unintelligible [00:15:16].01] and the only contact information for this person was — I believe it was in New Mexico. So we had mailed to them, and the mail had bounced back to us… And I would say any of those things that bounce back – those are gold. So I dug into it, I did some skip tracing, I followed relatives, I finally tracked this guy down…

He lives in California and he hadn’t seen the property in over ten years. He had had a lady who lived there most of that time. Seriously a cat lady – she had over 30 cats. She had poked a hole from one side into the other side, and the cats lived in the other side. And for him – he had left his old life behind, ex-wife and all that… But my wife was able to negotiate a deal with him, and he was happy with it, and then we negotiated down with the city on the liens, and it penciled out. It worked out incredibly well.

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

Rome Lingenfelter: I really love to educate, so I started with my son, and we’re doing more and more stuff with Cashflow. I think the future for people to be wealthy is to think bigger, think that they can, and think like an entrepreneur, rather than an employee. So I think Cashflow is a great way to adjust people’s brain, especially at a younger age. So definitely financial education.

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

Rome Lingenfelter: You can visit our website, we’re at www.rmrealestatesolutions.com, or you can reach out to me at romeling2007@gmail.com. We always have new and interesting projects coming up, and we absolutely love to help people learn more about real estate. We’re passionate about it.

Joe Fairless: Well, thank you so much for being on this show and talking about – from a management side of things – how you take your corporate experience and how that translates into now you being a full-time real estate investor. Some challenging projects along the way, and things that you do to mitigate the risk moving forward, as you build that due diligence list, some things that you’ve added recently.

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

Rome Lingenfelter: Thank you  so much.

JF1936: Lost After College, Entrepreneur Turns To Real Estate Investing with DJ Scruggs

Listen to the Episode Below (00:27:27)
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Today we have the privilege of hearing about DJ’s real estate investing story. He had no clue what to do after graduating college, started and ran multiple businesses, before discovering his love of real estate. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“You don’t have to be a jerk, but you can always ask why” – DJ Scruggs

 

DJ Scruggs Real Estate Background:

  • Has owned and operated multiple businesses for over twenty years
  • CEO of Blue Spruce Holdings
  • He has filled many roles in business and as a real estate investor including raising capital, marketing, sales, and software development
  • Based in Denver, CO
  • Say hi to him at http://realbluespruce.com/
  • Best Ever Book: The Book of Why

 


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TRANSCRIPTION

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

DJ Scruggs: I am great. How about you, Joe?

Joe Fairless: I am great as well, and looking forward to our conversation. DJ is the CEO of Blue Spruce Holdings. He’s owned and operated multiple businesses over 20 years, filled many roles as a real estate investor… That includes raising capital, marketing, sales and software development. Based in Denver, Colorado. With that being said, DJ, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

DJ Scruggs: Happy to. And thanks again, it’s an honor and a privilege to be on this show. My background was — if we wanna go all the way back to college, I was a classic literal arts major, I had no idea what I was doing when I got out. I was a music major. I realized by my senior year that that was not gonna be a good career for me, just because financially it’s not always the best, and the people who really are good at it – to them it’s like crack; they can’t not do it. And I wasn’t one of those people.

So I got out of college and really did not know the first thing about business. I’ll fast-forward to say I started reading a lot. I read The Wall Street Journal, Inc. Magazine, lots of books… This was in the early ’90s, before blogs and even websites really. And around ’95, I remember very specifically it was Thanksgiving of ’95, I got on the internet — I had been on the internet before, but it had been through America Online, and stuff like that, so it was a very degraded experience… But this was the first time I was on the internet, in the wild, and I thought “Oh my god, this is the biggest thing ever. This is gonna be enormous. I’ve just gotta figure out a way to start a business.” And I would say the takeaway from that — a lot of people say “Well, how do you start a business?” or “Am I smart enough to start a business?” It doesn’t matter. Just start.

What really motivated me is I read this — it was actually in Inc. Magazine, they did an article about the early beginnings of great companies. And back then, great companies meant Apple – it was still a great company – Hewlett Packard, Motorola, Microsoft… And almost to a T, every single one of them when they started it was just one or two people with an idea. They had no idea what they were gonna do, they had no idea they were gonna build billion-dollar companies, but they just sort of said “We’re gonna do something different.” And it hit me like  a ton of bricks – everything you see around you, literally everything, except maybe for hiking in the mountains, is because someone had an idea. Someone said “I’m gonna build a desk for you to sit at. I’m gonna design a computer that you’ll like to use. I’m gonna create software that allows people to do interviews over the internet.” It’s all about having an idea and then just getting started.

Joe Fairless: Yup.

DJ Scruggs: And that’s what I did.

Joe Fairless: So what was it?

DJ Scruggs: This was back when Java was a new thing. Java, the programming language. It was actually still in beta then. Java now is considered a dinosaur; it’s ancient. But the basic business plan was “Do something with Java.” That was enough to get me excited, pretty much. And what it turned into was to create customer service software for email.

I used to go pitch investors — this was in Chicago, and this is like ’96(ish). I would pitch investors, some of them very sophisticated, who just did not think email was gonna be that important. They thought it was just a toy, they all had AOL accounts and that was fine for them, they didn’t need anything more… So it took a lot of convincing to say “Online customer service is gonna be more important than call centers.” But that was the basic idea.

Joe Fairless: Okay. Congrats on that. Do you still have the business?

DJ Scruggs: No. I ended up selling it, and this was probably another lesson for people… It never hurts to ask. We were pretty hard-pressed for money, partly because we were in Chicago. Chicago is not a great — I don’t know about now; I think now it’s probably a lot different. But back then, starting a software company in Chicago was not optimal. Lots of consultants, because of the banking/financial sector, but starting just a pure-play software company – that was not very common, so it was hard to find talent, it was hard to get investors interested… But I’d gone out to Silicon Valley, and of course, they’re biased towards Silicon Valley, right? They want a company that’s within 20 minutes Sand Hill Road, where all the venture capital firms were.

So we were running out of money, and I was like “I’ve gotta find some money.” I ended up making a bunch of cold calls to venture capitalists, and the one who returned my calls, a guy named Brad Feld, who’s now considered one of the top 50 venture capitalists in the world – he’s based in Boulder, Colorado… And one thing led to another, and I ended up selling my company to a roll-up that Brad was running. This was closed in 1999.

Joe Fairless: Nice! What did you sell it for?

DJ Scruggs: Well, it was an all-stock deal, which – there was a hard lesson learned around that, too… But it ended up being about 20 million dollars. My investors did really well, they made about eight times their money in a year and a half.

Joe Fairless: That’s a good deal for them. [laughs]

DJ Scruggs: Oh yeah, it was great for them. For me, it ended up not being quite as exciting.

Joe Fairless: And why was it an all-stock deal? Can you elaborate?

DJ Scruggs: Yeah. Basically, I got shares instead of cash, and I didn’t get them all at once. I had to earn them out over a two-year period… And I couldn’t touch any of them for the first year. So during that first year, the stock price ran up really high, so I was loving life. In that second year, it went really low, so I wasn’t loving life… And they were dragging their heels about – I don’t think it was malice; I think it was just incompetence – actually getting the [unintelligible [00:06:49].23] They were locked up in some kind of escrow, or trust, or something I don’t quite understand… And it’s one of those things where I didn’t realize my own power.

At that point, I was the largest single shareholder who was an employee of the company. I should have just raised absolute hell, and I didn’t. I was a little too nice about it. But hard lesson learned.

Joe Fairless: Well, on the raising hell versus being too nice, have you come across that situation in real estate, where you’ve since raised hell because you’ve learned that hard lesson early on?

DJ Scruggs: Yeah, I would say so… It’s not so much raising hell, it’s just figuring out when someone’s bullshitting you. I don’t know if I’m allowed to say that on your show…

Joe Fairless: That’s fine, yeah.

DJ Scruggs: Because here’s the thing… So I sold the company — like I said, I was a music major. There weren’t blogs or anything to learn from. I’d read a few books and kind of knew a little bit about business, but not a lot. There weren’t online courses I could take, or mastermind groups I could join, or anything like that. So when I sold the company, I remember thinking “Thank goodness. Now the experts are gonna run things.” Because it was all — a senior vice-president with an MBA from Stanford and ten years running traditional tech companies, and stuff like that. So I deferred a lot to them.

But after a while I just started noticing… Like, I remember when he hired this one person – I don’t wanna name names; she was a good person, I like her, and she had a pretty senior role. Everyone liked her. But I noticed pretty quickly that her solution to everything was to throw money at it. And my company — we had raised a little bit of money; we raised about 1,5 million, but it was all in drips and drops. So it’s not like I ever had 1,5 million in the bank to start with. It was always just trying to make payroll… So I would always stay at the crappy airport hotel, I would rent the economy car, I would take the overnight flight to save money. So I get there and these guys have a lot more money; they’re not making money, but they’ve got a lot more money…

Joe Fairless: They have access to more money.

DJ Scruggs: They have a lot of capital, yeah. So suddenly, we’re staying at the nicer hotels, and we’re renting the nice cars, and I remember thinking “Well, I’m not sure that’s how I would do it, but maybe that’s the way you do it when you’re big.” And this woman I mentioned – everyone loved her, and I noticed that her problem was she threw money at everything. “Let’s hire more people, let’s buy more software, let’s buy more equipment…”, and I thought “Someday the money train is gonna stop, and what’s that gonna look like?”

Well, it was about a year later that the money train stopped, and what it looked like was she stopped returning people’s calls. She stopped coming to the office, because her go-to solution was no longer available. And it went from everyone loved her to everyone hated her.

To circle back to the question of when to raise hell – I just have a better sense of when someone really knows what they’re talking about, or if they’re just trying to snow me. I remember early on in this business we talked with a potential partner about working on a deal together, and the questions he was asking just from the very first phone call – I realized he didn’t know what he was talking about. He wanted to see our operating agreement. Like, that’s not material. You don’t need to see that. The deal was a separate entity.

And there was another guy who was supposed to be on the call who didn’t make it. He’d blown us off two times in a row. So Brad, our underwriter, asked “What do we do? Do we send the operating agreement?” I said “Absolutely not. This guy is trying to big-time us, show us how important he is, and he’s not.” Anyone who knows what they’re doing is not gonna ask stupid questions like that.

Joe Fairless: Yeah. And then if you don’t pick up on that, then you might get into a deal with that individual, and then you lose money.

DJ Scruggs: Yeah. It’s not fun to lose money, but also, if you don’t pick up on it, the temptation especially if you’re new to this is to defer to their judgment… And like I said, just because they have an MBA, or a track record with some other business, doesn’t mean they actually now what they’re doing. It just means they’re good at talking about knowing what they’re doing. You don’t have to be a jerk, but you can always ask why. “Why are we doing this? What’s the point of this? How are you making this decision?” And oftentimes they don’t really have a good answer. And if you do it in a non-threatening way, maybe you can reach a better solution.

Joe Fairless: I like that. You don’t have to be a jerk, but you can always ask why. I like that a lot. What’s your role as CEO of Blue Spruce Holdings?

DJ Scruggs: A few different ones. I would say what I spend most of my time on is raising capital. I talk with investors, and I do a lot of (I guess you could call it) content marketing, email, newsletters to keep people informed of the business, introduce the company… We’re relatively new to this; we’ve only been doing it a couple of years. And what I tell people is – in any business –  the best answer to the question why you should do business with us is “Well, I’ve been doing it for 20 years, and  we returned X% every year.” That’s the idea.

Joe Fairless: [unintelligible [00:11:32].04]

DJ Scruggs: Yeah. If you don’t have that, then you need to demonstrate competency some other way. So act professional, be respectful, and be respectable. Show up a lot. That was basically [unintelligible [00:11:46].21] strategy. He started doing meetups, and he was just everywhere; he was all over Facebook, he’s always at different events, and just by showing that he cared and that he was serious about this… And by the way, he’s a fun guy to hang out with, and get advice from. Those are the ways that you can demonstrate competence.

So a lot of what I do is around talking to investors, writing our newsletter, writing for the blog, and then just some technology support around the way we automate a lot of our systems. And then I guess the other thing is just more broadly — the best description I’ve heard of a CEO… I can’t remember who it was; this was probably 20 years ago [unintelligible [00:12:22].15] You’ve got three roles. One is to make sure that you have a viable strategy. The other is to make sure that you’re operating as efficiently as possible, and the third is to make sure you have the capital in place to manage your growth or any challenges you might have. I sort of dip and out of those roles pretty much on a weekly basis, in different ways.

Joe Fairless: You talked about tech support for automating the systems… Can you elaborate?

DJ Scruggs: Yeah. Ironically, that first company I mentioned — I didn’t write any code for that company. Well, I wrote a little bit, but it was for reporting, it wasn’t the core software. It wasn’t until later that I started writing software seriously, and then I wrote a lot of software over about 15 years.

So I got really good at that, but also, when I joined with Blue Spruce it was really tempting to get sucked into it, because it’s fun; it was like solving a puzzle, but it was not the best use of my time. So I look for tools that are more or less plug and play, if you have a little bit of tech  skills. Active Campaign we use for email system, I think it’s a great CRM; it’s got a great price/performance ratio. And if you know a little bit about integration, you know how APIs work, you can use it along with a product called Zapier, which allows you to connect different APIs together.

For example, we use Zoom, as you do, for our webinars, and when you register for a webinar on Zoom, that data gets pushed through Zapier into Active Campaign. That way we have you in our CRM, we don’t have to download from one system and upload into another. Once you really dive into Zapier, you realize “Man, there’s a lot of things you can do.”

One of the companies I used to be with – I was one of the early partners at a company called SurveyGizmo. As you can imagine, they did surveys; they were like a Survey Monkey, basically. They were a little geared toward more professional uses of surveys. So I got really good at using that software. We have a whole system of — when you first go to our website and sign up, you receive an email that says “Hey, thanks for signing up. We need to know more about you to be SEC-compliant, so please fill out this profile form.” And if you take that form, it looks kind of like the investor questionnaire section of a PPM. They ask you “Are you accredited or not?” And then we ask a few extra question. We ask them what their birthday is, so we can send people birthday cards…

Joe Fairless: What other questions do you ask besides birthday?

DJ Scruggs: We ask about their investing priorities. We have four options: safety of principal, total return, cashflow, or tax benefits, and then we ask you to rank those in order. We make sure to get their mailing address at that point, because — we haven’t really done much besides the birthdays, but we intend to do that… And we do an annual letter that we send out every December, so that gets mailed.

Joe Fairless: What do you have in the annual letter?

DJ Scruggs: Well, it was our first one. The first part was just saying “Here’s what this thing is you’re gonna be getting from me every year”, and I just kind of talk about some highs and lows of the business. The real model was Warren Buffett.

Joe Fairless: Right.

DJ Scruggs: So I say “Here’s what we were good at this year, here’s what we were not so good at, here’s something we tried that didn’t work, here’s something we tried that did work, and we’re gonna double down on…”

Joe Fairless: What was the thing you mentioned that you weren’t good at?

DJ Scruggs: I would say our acquisitions was really haphazard last year. They always say – and it’s true – pick a market and really get to know that market, and we were still just kind of trying to figure out what our business even was, in terms of who was gonna do what… So we were just very — we like to say “opportunistic”, but a better word is “scattered.” We would just look anywhere that it looked like a good deal.

So after that, at the end of last year we decided we were gonna focus this year on Oklahoma City. So that was  a good opportunity — we did a series of webinars in December… Some of them were just pure value-add, things you should know as an investor, and then there was one that was just about the different markets we looked at and why we like them, and in particular why we were focusing on Oklahoma City. We’re about to announce three more markets we’re focused on, but we’re not quite ready to do that.

Joe Fairless: What’s one thing that you all have done that didn’t work out, separate from not having a particular market to focus on? Just tactically speaking.

DJ Scruggs: Our very first deal was a very small deal, it was 16 doors, and we made the mistake of using the existing property manager…

Joe Fairless: Because they knew the property, right? [laughs]

DJ Scruggs: Right, exactly. And it turned out that person was fine at just sort of the basics of leasing and dealing with tenants, but was just awful at communications. Awful. I would literally ask 3-4 times for the same thing. It’s not like I was a jerk who would blow up her phone three times a day. First I would email, I’d wait a couple days, then I’d send another email saying “Hey, have you had a chance to look at this?” I’d wait a couple more days, then I would text… It was outrageous.

So I had no visibility into what was going on with the property, and it turned out that there were a lot of things not going well. So we had to replace that person at the end of last year. We have a new one, and it was a little bit of a tough cookie to swallow, because it was more expensive… But it’s night and day, the new firm. They do what they say they’re gonna do, when they’re gonna do it, they proactively communicate… We still do weekly phone calls, but it’s pretty much just sort of checking a few items that we talked about last week to see if they got done.

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

DJ Scruggs: Get started. You’re never gonna know everything you need to know. I’ve been doing this for a while and I still don’t know 20% of what I wish I knew. But I remember hearing an interview – I think it was the Farrelly brothers, the guys who made Dumb and Dumber… And they were shopping that idea for a while. And they had one agent who wasn’t doing a very good job, so they met with another agent; they would go into meetings and say “We’re trying to make this movie”, and the agent said “Stop saying that. From now on you’re saying ‘We’re making this movie.’ Here’s the plan, here’s what we’re gonna do, and here’s the people involved.” And it just changed the perspective in the meeting. It wasn’t a couple of guys who maybe had a pretty good idea, but maybe not… It was a couple of guys who were gonna do something.

So I would say just however you can get started, if it means just going to a meetup and committing to going to that meetup every week or every month, or spending an hour every day listening to your show… Make it a habit of moving forward, as opposed to thinking about moving forward.

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

DJ Scruggs: Sure!

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

Break: [00:19:15].04] to [00:19:50].17]

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

DJ Scruggs: Right now I’m reading a book called “The Book of Why: The New Science of Cause and Effect.” It’s not about real estate at all, but it’s about how we think about — you know the saying “Correlation is not causation.” It’s sort of the history of that idea. Because for a long time, correlation was causation in the minds of — “If we sacrifice this virgin, the gods are gonna be nice to us, and bring rain.” That was what cause and effect used to be. So that’s one that I really like, that I’m reading right now.

Joe Fairless: How could you see that helping you as a real estate entrepreneur?

DJ Scruggs: Well, I guess I’ll bring up another book that I really like, that I’ve read recently, which is Ray Dalio’s Principles.

Joe Fairless: Well yeah, that’s an obvious one how that can help  you.

DJ Scruggs: Yeah…

Joe Fairless: But the other book though – because I see parallels; I’m just curious how you’re thinking about it.

DJ Scruggs: Well, one leads to the other, because his whole thing was he made a horrible call on national TV back in 1980 about the economy, and was really wrong, and lost millions of dollars. And it wouldn’t surprise me if he’s also read this book I’m reading, “The Book of Why.” Because his whole thing is instead of asking “How am I right?”, you ask “How am I wrong?” So you look for “Am I assuming causation with something that’s not really there? Is it just a correlation?” So that’s where I think that book helps.

For example, I think – I’m sure you know, everyone’s talking about a  recession may be coming, or maybe not… What I have noticed is a lot of people, especially if you go online to Bigger Pockets and stuff, people say “I’m wondering if I should wait till a recession to buy.” And I think in their mind a lot of them think recession is what happened in 2008. That was not a recession, that was a borderline major depression. We really dodged a bullet there, and still a lot of people got crushed. In places like Las Vegas they were losing 30%, 40% of home value there. And I think some people think it’s like that. “Oh, I’m just gonna wait till prices drop 30% or 40%, and then I’ll get in.” You’re probably gonna wait 70 or 80 years for that to happen.

Now, I could be wrong. Maybe we will have a big crash like that. It’s like with the military. Generals tend to fight the last war. I think a lot of new investors think “Well, the next recession is gonna be like the last recession”, and I just think that’s a spurious correlation there.

Joe Fairless: I hadn’t thought of it the way that you described, and 1) it’s refreshing, as a real estate investor and entrepreneur; it’s refreshing to think of it that way. And 2) it’s logical, as I’m considering what you’ve just said… Because I’ll put myself in that category of — when I think of a correction or a recession that we think about as real estate investors, or I think about, I think about 2008. [laughs] That’s the one I’m thinking about. I don’t think about a bump, I think about a crash.

DJ Scruggs: Right. Well, it could be a crash. The thing is, the nature of a crash — or let’s call it even something broader, an economic shock… The reason it’s a shock is because no one was expecting it. So the odds are if there’s a big economic shock, it’s not gonna be in something that everyone’s looking at and wondering if there’s gonna be a shock. It’s gonna be something totally unrelated, like a war in the Middle East that drives up oil prices, or a currency crisis in Asia. Something like that, that no one is thinking about. That’s what makes it a shock. If it’s something that everyone’s looking at, then there’s lots of hedging that goes on, banks are a lot more risk-averse than they were then, both in fact, and also they’re constrained by law. So it just seems less likely to me.

Joe Fairless: Best ever deal you’ve done?

DJ Scruggs: Buying my house in Boulder. [laughs]

Joe Fairless: What year was that?

DJ Scruggs: That was 2003. That’s an example of good market, but it’s also — at that time, Boulder [unintelligible [00:23:39].25] or sometimes the People’s Republic of Boulder. They limit growth there. They’ve been limiting growth there since the ’70s. So no matter when you are there, whether you bought in 1985 or you bought in 2005, you were like “Holy cow, this is expensive!” And that’s how I felt. I bought a townhouse for about 250k in 2003, and I remember thinking “This is crazy. Why am I spending so much money on a townhouse?” And this goes to the point of a good market.

During the financial crisis, Boulder did not crash. It went sideways for about three years… But prices held value, and then I sold it a few years later for about 500k. So I doubled my money. I did some modest upgrades to the place… You know, hardwood floors, and stuff.

But the best ever deal I’ve done as a professional investor is probably a flip I did here. When I first got into this, I started out with flipping, but I knew I wanted to get into multifamily. I just wanted to kind of get my hands dirty and learn about real estate… And it was my first full rehab project, and I made tons of mistakes, but I was in the right market, so I ended up making good money on it… And that sort of taught me the power of being in a  good market, but it also taught me — I don’t like building my business based on that. I’m a lot more conservative in underwriting now.

Joe Fairless: Real quick, what’s a tactical mistake you’ve made on a deal?

DJ Scruggs: Well, the one I mentioned, the 16 doors. We really botched the due diligence on that… Again, because we weren’t sure who was doing what. And it wasn’t until after the due diligence period was over that we got the insurance quote, and it ended up being way more than the T-12, because it turned out the seller was under-insured. And the insurance we had to get – it wasn’t an option because the lender was demanding it. So that cost us several thousand dollars a year.

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

DJ Scruggs: You know what I like to do? Honestly, I just like to help the homeless. I did this last Christmas, and I still do this, but in a different way. You can go to Walmart or Costco and buy these boxes of cashews; kind of like airline size, but bigger, full of cashews… And I just give them out to homeless people when I see them.

And what I did over the holidays is I stapled five-dollar bills to them and put little Christmas stickers on them. I used to be sort of against that, because the thinking is “Oh, well, they’re just gonna go out and do drugs, or buy alcohol.” I’m kind of like “So what?” They’re having a really hard time; the least I can do is help them out somehow.

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

DJ Scruggs: Probably the best place is just RealBlueSpruce.com. There you can see our portfolio, learn about how we invest, learn about me and the rest of the team.

Joe Fairless: Lots  of valuable lessons for entrepreneurs, real estate investors and apartment investors in particular. I’ve mentioned this already during our conversation, but I love the thought process of when something’s not jiving with you, then you don’t have to be a jerk about it, but you can always ask the question why. And then separately, when anyone is starting in a business, because they are starting out, they don’t have that long track record; so as you said, if you don’t have that, then you have to demonstrate competency in other ways… So be respectful and respectable, and demonstrate the competency in all the ways that you know how, other than having that track record. And everyone who ever starts something will come across that challenge. I think that’s a very valuable reminder. And then many other lessons along the way, too many to recap now.

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

DJ Scruggs: Thanks, Joe.

 

JF1923: From 0 to 82 Units In Just 3 Years with Jens Nielsen

Listen to the Episode Below (00:19:47)
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Jens is focusing on building his rental portfolio via value add deals. While he’s building his portfolio, he’s also still working full time. There are a lot of people in the same situation – wanting to or currently building a portfolio while working full time, with hopes of being a real estate investor full time in the long run. Hear how he’s going about scaling his business, the deals he’s finding, how he’s finding them, how his business is structured with his partners, and a couple of deal specific case studies. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“We don’t have any investors, we’re just a group of people that are long term buy and hold investors” – Jens Nielsen

 

Jens Nielsen Real Estate Background:

  • Denmark native, been in the US since 1996, investing in multi family real estate since 2016
  • Owns 82 units in New Mexico and Colorado, all value add deals
  • Based in Durango, Colorado
  • Say hi to him at https://opendoorscapital.com/
  • Best Ever Book: Begin With Why

 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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

Jens Nielsen: I’m doing quite well. How are you, Joe?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Jens – he is a Denmark native, been in the U.S. since 1996, investing in multifamily since 2016, owns 82 units in New Mexico and Colorado. They’re all value-add deals. Based in Durango, Colorado. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jens Nielsen: Absolutely. I should just mention – I grew up in Denmark, been here since 1996, and I actually moved to London in the early ’90s, and then to the East Coast of the United States in Maryland, and then on to the West Coast through Albuquerque, New Mexico, and now Colorado.

I followed the traditional path – go to school, get a good education, get a job, saving in a 401K… That’s what I was supposed to do, until I got the wake-up call a few years ago and realized that probably was not the path for sustainable wealth and income… So I kind of had a mindset shift a few years ago.

Joe Fairless: What takes your focus now? What are you doing?

Jens Nielsen: I still have a W-2 job, but my focus really is a couple of things… When I had that realization a few years ago, I started out buying some smaller properties just because “Hey, let me put my own money at risk and see how this goes.” So I did that, and that’s worked out pretty well. I connected with some local investors, and then they told me to reach out to this broker, and he helped me a lot; an older gentleman who wants to help newer investors. He helped me a lot with sourcing deals, and rehabbing, and everything.

So I did that, I started with those smaller properties, and then since that it has kind of moved into some joint ventures, bought some larger properties with some friends and family, and then actually doing some syndications in the last year. It’s kind of progressing… Once you get that real estate bug, you can’t really stop, right?

Joe Fairless: Yeah, that is very true. Let’s talk about the 82 units you have in New Mexico and Colorado. What’s the largest deal of those 82?

Jens Nielsen: 38 units. That’s the one we bought about a year and a half ago.

Joe Fairless: Let’s talk about that one. Where was it, purchase price, business plan, all that stuff.

Jens Nielsen: So that’s in Albuquerque, NM. It’s a ’70s vintage, classy property, probably in a B- area. We bought that for 1.2 million dollars. “We” – that’s my broker/property manager, and a couple of friends, a group of five of us that brought capital to the deal.

Joe Fairless: So you, the broker plus three friends?

Jens Nielsen: Yeah.

Joe Fairless: Okay, got it.

Jens Nielsen: That thing was listed at 1.55, and we ended up getting it for 1.2 million. It was one of these situations where the owner was out of state, they hadn’t really put any money back into the deal, so it was just deteriorating. Plumbing issues, and delinquencies, and just kind of falling apart. We were able to get it at a reasonable price, but also with the realization it needed a lot of work. I think we only got a 50% loan-to-cost at that time, and then we brought another 600k to the deal. Then we got a construction loan from the bank, so we’ve been using that  600k to really fix up the property… Which is new roofs, because for some reason every roof in New Mexico is flat, which is a pain. They always tend to leak.

Joe Fairless: They have some mansard roof, too?

Jens Nielsen: What kind?

Joe Fairless: Mansard, where the shingles are on the front of the building, not just on the top… It looks hideous.

Jens Nielsen: No, it’s typically parapets, where you have built-up stucco, and then you have the roof a foot below that, with canales (as they call them) where the water runs off… But back in the day they all tended to be flat, and it’s hard to have any slope on this; a lot of issues with standing water, and so forth. We ended up putting a whole new membrane roof on there, and replaced all the windows, did new stucco, new — it’s a two-story, so new exterior decking, new parking lot… And then we’ve just been tearing up the units and pretty much gutting them to the studs. So a lot of work, a slow process… Not your typical slight value-add, where you’re trying to invest in a couple years. This is a longer-term hold, for sure.

Joe Fairless: Yeah, let’s talk about that. How do you make the decision to gut the units to the studs, versus just spruce it up some?

Jens Nielsen: Just because the cabinets were in poor shape, we had some plumbing issues, so we had to go into the walls to fix the plumbing… Flowing was — sub-floor in the upper stories were not very solid, so we had to put some backer down, and then put those vinyl plank flooring in… We didn’t tear the drywall out on every wall; if it was in good shape, we left that… But there were a lot of places we were in the studs, especially for the plumbing issues.

The decision was really —  we don’t have any investors, we were just a group of people that are long-term buying and hold… So if it takes us a few years to start seeing a return, that’s totally fine, because we know the long-term value is there, and we just wanna keep it as a long-term cashflow type thing.

Joe Fairless: How do you define long-term?

Jens Nielsen: 10+ years.

Joe Fairless: Is that how the rest of the four are defining it as well?

Jens Nielsen: Yeah, that was how we entered into it. It was basically “Hey, this is gonna be ten years at least in order for it to be worthwhile putting all that money into it.”

Joe Fairless: Okay. And how much money do you have in the deal?

Jens Nielsen: Personally, or…?

Joe Fairless: Yeah, personally.

Jens Nielsen: About 100k.

Joe Fairless: Okay. And does everyone have about 100k?

Jens Nielsen: It varies a little bit. Some have slightly less, some have slightly more… But I own about 20% of that deal personally.

Joe Fairless: And how did you all determine who brings what amount of money?

Jens Nielsen: We just sat down and negotiated. “Here’s what we need to raise”, and what people were interested in bringing to the deal. It was kind of an organic discussion; we just said “Hey, this is what I can bring, this is what I can bring”, and we just came up with the money. We needed the 600k, and that’s how we got to it.

Joe Fairless: Any challenges in putting together a partnership with five people that you’ve come across?

Jens Nielsen: I think some people want to be more active and have a more hands-on — but really, the rehab is being run by a property manager; he has a construction company… And he calls the shots. At times we’re questioning some of the decisions, like “Hey, why did you do this? What was the rationale behind it?” [unintelligible [00:07:35].01] and then try to understand that. I think that’s the major thing.

Joe Fairless: And what are the roles of everyone on the project? Because you talked about the broker/ property manager; that’s clear. What about you and the other three?

Jens Nielsen: I’m actually heading there this afternoon. I do the site visits, and see how the rehab is going. We have some of the other guys who look over the monthly expenses and summarize those, and tax returns, and other things. Some are more active than others for sure, but everybody takes an active role in what’s going on.

Joe Fairless: So that is the largest unit size, 38 units. What’s the next-largest?

Jens Nielsen: That’s a 16-unit that we’ve just closed on in May, and “we” are now in this case my wife and myself. We just bought that outright. I mean, not outright; we had the down payment and got a loan on it. It was interesting, because that was one that I found through direct mail, I sent out some letters?

Joe Fairless: Really?!

Jens Nielsen: Yeah.

Joe Fairless: Good for you.

Jens Nielsen: Everybody talks about it, but this actually worked out. It was a gentleman that had owned it for about ten years, and he was just — typical mom and pop type of managing it and dealing with his tenants… We negotiated for like eight months before we finally had enough relationship that he was willing to sell it to me, I guess… So that was interesting.

Joe Fairless: Oh, man… Let’s talk about this. Direct mail – where did you buy the list?

Jens Nielsen: Well, people are gonna think that this is crazy… I actually created my own list, me and my wife, a  few years ago. We just sat down and started looking at Apartments.com and just started looking “Where are the apartment buildings? The area we liked? What are the sizes?” and we started creating our own list from scratch, essentially. We figured out who the owners were… This was time-consuming, but also, New Mexico is a non-disclosure state, so it’s not super-easy to find that information… So we  just did it the hard way, created the list and started writing Mail Merge letters, and handwrote the envelopes, and that was the process.

Joe Fairless: So how did you find the information if it’s a non-disclosure state?

Jens Nielsen: Well, we could see somebody’s rental site, we could see what the unit size was, and then we could go to the assessor’s office and figure out who the owner was, and if it was an LLC we could go to the state’s business registration to figure that out and try to google a bunch of stuff. We didn’t have any information about when it was last sold, or what it was sold for… So I’m sure we sent letters to people who had just sold it, or had owned it for a short period of time. It wasn’t a lot of letters; probably 200-300 at a few different intervals.

Joe Fairless: What was your interval?

Jens Nielsen: Every 2-3 months we would target them.

Joe Fairless: Okay, every 2-3 months. How many intervals did you do before you got your first deal?

Jens Nielsen: This gentleman said “I’ve had your letter for a while, and I wasn’t ready to sell, but now I’m ready.” So I don’t know if we only sent one or two to him, but he didn’t get a whole bunch. [unintelligible [00:10:21].23]

Joe Fairless: That’s great.

Jens Nielsen: Yeah, absolutely.

Joe Fairless: So how many intervals have you done to date?

Jens Nielsen: I stopped again when I got more involved in syndications, because I realized — a 16-unit is great if you’re one or two people buying it, but you can’t syndicate it, and I kind of didn’t have a whole lot of capital left, so I stopped doing it… But I may start it up again if I wanna buy some smaller properties again, which is not really on my radar at this point.

Joe Fairless: Okay. So about how many intervals have you done then?

Jens Nielsen: Probably 3-4. It was about a year where we were sending them out every 2-3 months. It wasn’t a ton. I have a few other people that reached out to me, that I still have kind of in my backpocket, that maybe at some point I can reach back out to them and see if they’re willing to sell.

Joe Fairless: What did the letter say?

Jens Nielsen: It said something like “Dear Mr. John, we saw your property at 123 Main Street. We’re real estate investors in your state and we’re looking to buy your property if you’re interested in selling” and then a picture of me and my wife, and an email, and a phone number… So just very simple, clearly something that was hand-made, if you will… So it didn’t look like the postcards you may get dozens and dozens of.

Joe Fairless: Right. Do you have any children?

Jens Nielsen: No children.

Joe Fairless: Okay, and what type of attire were you and your wife wearing in the picture?

Jens Nielsen: I think it was a picture of us on vacation somewhere, very casual.

Joe Fairless: Okay. And did you address the person by name?

Jens Nielsen: Yeah, “Dear John”, and then the address of the property.

Joe Fairless: Okay. Eight months of negotiation… How did the first call go?

Jens Nielsen: He called me and said “Hey, I’ve had your letter for a while. I wasn’t ready to sell, but now I’m looking to sell…” And I think I made some mistakes there. I’m an analytical guy, so I wanted to go straight to “Hey, what do you want for your property? Let’s see if we can make a deal.”

Joe Fairless: Right. [laughs]

Jens Nielsen: So it was a mistake, and I’ve learned that since… Because I said “Well, that sounds interesting. Send me some info.” He shared his P&L and stuff like that. It was handwritten by him, but it was still pretty accurate, and I could see “Well, that actually kind of makes sense.” I went down there and he showed me the property… And then I think I probably offended him by trying to lowball him a little bit.

Joe Fairless: You couldn’t even get that out. You felt embarrassed almost. You’re like “I was trying to, um… Well, I lowballed him.” [laughs]

Jens Nielsen: Because I realized it needed some work. It really was a little bit tired, and stuff…

Joe Fairless: Did he have a number initially?

Jens Nielsen: He wanted somewhere close to $800,000 for it.

Joe Fairless: That’s what he told you initially?

Jens Nielsen: He said he had gotten a broker’s opinion on it, which was $780,000 or $800,000 or something.

Joe Fairless: Okay, and what was your offer?

Jens Nielsen: I think it was in the low 700k, because–

Joe Fairless: Your first one?

Jens Nielsen: Yeah.

Joe Fairless: That’s not an embarrassing low offer…

Jens Nielsen: People get very emotionally attached to something, because I know he paid — when I saw his loan pay-off, he had paid over 800k for it in 2008, or something like that. I said “Okay, well you’ve also had your 10+ years of rent income, and payoff of your mortgage, and everything else…” He said to me “Well, I guess we have nothing else to talk about…” [laughter]

Joe Fairless: How do you respond to that?

Jens Nielsen: I said, “Well, I’m sorry”, and then I just left him alone for  a bit, and then I was like “Okay, let me maybe be more realistic about my numbers.” I came back and I said “Okay, I’m thinking around 740k, I can probably do…” Because I had talked to the bank and they were willing to roll some rehab costs into the loan, and so forth. That’s what we ended up buying it for, it was 740k.

Joe Fairless: How long did it take for you to follow up with him on your revised offer?

Jens Nielsen: It was probably a month, or something. I thought the deal was dead, and– I just couldn’t get it out of my head, because I liked the property. So it was a while, I can’t remember exactly… But he cooled off, I cooled off, and we were back on speaking terms, you know… [laughs]

Joe Fairless: Was that a phone call, or was that an email, where you had the revised offer?

Jens Nielsen: I think it was an email and then following up with a phone call. Then he started kind of like “Yeah, I think that works out…” And I went back and I took my property manager and we toured the units… Because we wanted to make sure we weren’t overpaying for it in terms of the amount of work it needed. It was kind of a conversation that — I continued to develop that relationship I should have developed earlier, I guess.

Joe Fairless: So eight months timeframe… How long once you had it under contract did it take to close?

Jens Nielsen: Well, that actually took a while too, because he’s an attorney and he was off traveling, doing some work out of state… So from the LOI to actually closing was probably about four months, or five months, or something… So just because he was dragging his feet, and then the bank was kind of taking it slowly. But it actually worked out, because interest rates were kind of high late last year, so the interest rate actually ended up dropping by the time we closed on it in May, so that helped a lot.

Joe Fairless: Oh, wonderful.

Jens Nielsen: Yeah, right?!

Joe Fairless: Yeah. And with that 16-unit — was that when you made the decision,  “Okay, I don’t have much capital left to invest, so now I want to turn my focus to syndication”?

Jens Nielsen: Yeah, I think I have a kind of two-pronged approach. I like to have some properties that are just mine/ours; we don’t have to answer to our investors, and we can just keep them to give us some cashflow that will just continue to come in. I like that. And then syndications, investing – I’ve been investing in that passively for years, and some people reached out to me and said “Hey, we’ve seen the work you’ve done. Are you interested in being on the GP on one of our deals?” That was super-interesting, going from 38 to 205 units; it was pretty exciting, and it’s a whole different ball game.

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

Jens Nielsen: I think it’s basically creating — if you’re trying to work with individual investors, to create a relationship with them before you try to get to the bottom line.

Joe Fairless: Yeah, that was something that came true on that 16-unit, right?

Jens Nielsen: Exactly. I think if you’re buying a very large property, it may not make that much of a difference, because it’s strictly a business transaction, but if you’re trying to buy a smaller property, creating a relationship with the seller is hugely important, if it’s a direct to seller type thing.

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

Jens Nielsen: Absolutely.

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

Break: [00:16:38].12] to [00:17:36].17]

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

Jens Nielsen: Start With Why, Simon Sinek.

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

Jens Nielsen: I think the 16-unit is turning out to be a really good deal.

Joe Fairless: In what way?

Jens Nielsen: We’re actually 10% above our projected rents in the units we’ve rehabbed already, and we’ve gotten it painted and everything else, and it just looks really awesome. And it’s in a great area, so I think it’s gonna be a long-term, great cashflowing asset.

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

Jens Nielsen: I think initially I was buying properties in areas that weren’t that great, because “Oh, they’re cheap, so what could possibly go wrong?” Well, in reality, just because  it’s inexpensive and it looks good on paper doesn’t necessarily mean it’s gonna make money in the long-term.

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

Jens Nielsen: I do some coaching. I have some students that I help coach, new investors, and stuff like that. That’s a great way to share some of my knowledge and help them grow.

Joe Fairless: And the best way the Best Ever listeners can get in touch with you and learn more about what you’re doing?

Jens Nielsen: My email is jens@opendoorscapital.com. I like to offer people — if they wanna schedule a call, go to my website, OpenDoorsCapital.com/call and schedule a call with me if you wanna chat about real estate.

Joe Fairless: Jens, thank you so much for being on the show and talking about your advice. The 16-unit – holy cow, I love hearing about the direct mail approach, and how that worked out for you, and the specifics for how you did direct mail… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Jens Nielsen: Okay. Thanks, Joe. I appreciate your time.

 

JF1917: How To Leverage House Hacking To Get Your Start In Real Estate with Josh Mitchell

Listen to the Episode Below (00:21:08)
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Best Real Estate Investing Crash Course Ever!

Josh and his wife used the house hacking method to purchase their first investment property. They were able to leverage that strategy to grow to over 5 units. We’ll hear some challenges they faced along the way, and more importantly, how they overcame the challenges. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“You start to realize that with small sacrifices, you can build generational wealth” – Josh Mitchell

 

Josh Mitchell Real Estate Background:

  • Real estate investor with his wife
  • They own 5 units with another unit under contract, used house hacking and cash out refinance to get started
  • Based in Chicago, IL
  • Say hi to him at josh.mitchell525ATgmail.com
  • Best Ever Book: Rich Dad, Poor Dad

 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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

Josh Mitchell: I’m good, Joe. How are you today?

Joe Fairless: I am doing well, and I’m glad to hear that. A little bit about Josh – he is a real estate investor and invests alongside his wife. They own five units, with another unit under contract. They used house-hacking and cash-out refinances to get started. Based in Chicago, Illinois. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Josh Mitchell: Yeah, absolutely. As you mentioned, my wife Sarah and I have used many different techniques and styles to get us started. We bought a condo out of school, and moved into that, and with the focus of eventually renting that condo out, as we kind of got into that condo, we got married and used our wedding funds to actually purchase our first investment condo in the same building that we had our first condo in. The association then kind of switched the rules on us and allowed for rentals all throughout that complex, so that’s when we moved into the next phase and started our investing journey there.

Joe Fairless: Was that a decision that you both wanted to do, where you invest the wedding funds into your first investment property?

Josh Mitchell: It took a little convincing on my end from just a numbers’ perspective and getting my wife on board. She’s always the more analytical one of the both of us, so she definitely needed to see the numbers… And it was a  blessing in disguise, because it really made me jump in and dive deep into every little thing and explain to her what I envisioned and what these funds could do for us moving forward.

Joe Fairless: So for someone who has a significant other and is in a similar position where they have funds that they’ve either received or just saved, what would you say would be some specific things that you did that would be helpful for them?

Josh Mitchell: My wife and I both are along the same mindset of joining finances; it really helped us stay on track and really focus and dive deep into our finances and see where we were spending money, where we could maybe cut back… And then falling into the money that we got from the wedding, which really obviously was a blessing from our family and friends, that they were generous enough to do that… Really just kind of focusing on where that lump sum of money could be best used. We didn’t want to use it on cars or things that would depreciate. We both were in the same mindset of putting this money to use and really using it to the best of our ability to create generational wealth and get us started on that journey towards financial freedom. Our goal has always been to retire by the age of 40, so that’s kind of what pushed us to jump in and get started.

Joe Fairless: What are the numbers on that first investment property?

Josh Mitchell: The numbers on that one – we bought that one for 85k and rented it for $1,400, again, in a suburb of Chicago here. That is pretty much the going rate on a 2-bed/2-bath condo in this area… But we got in on that one in 2013-2014 range, and since it’s probably doubled in appreciation, so it was a good time to get into that complex.

Joe Fairless: Yeah, that sounds amazing. Now that it’s doubled in value, have you done anything to capture some of that?

Josh Mitchell: Yeah, we actually financed both of those condos that we had. We’ve moved out of the one we were living in and sacrificed for a year; we moved into a 500 sqft. one-bedroom/one-bath apartment, with the dog… So newlyweds in that small of a space, you can imagine how that year went… But we did a cash-out refinance on both of those and we were able to purchase our first single-family home in the same city, and go to the next step with some of those funds that were available in those condos.

Joe Fairless: When you take a look at the purchasing condos versus single-family homes, what are some of the pros and cons that you see?

Josh Mitchell: The biggest con was any townhouse condo is gonna be the association deuce. They can really eat into that monthly profit that you might see on a single-family home… But I always kind of hesitated that as well, because you do have that management company in place, you have people that are at a drop of the fat gonna be there to fix certain things and be able to repair things that the HOA covers. You’re not gonna have the roof expenditures, for instance, that you would have at a single-family house.

So the accounting on the single-family side might a little bit more involved from your individual perspective, but the condos – some people shy away from them just because of those HOA dues, and kind of having someone else maybe control or change those rules at any given time.

Joe Fairless: So what gives you comfort, given those potential disadvantages for condos?

Josh Mitchell: We’ve really kind of gotten to know a lot of the board members on the condo association, being that they’ve just changed the rules to allow rentals. It was in 2014… They’re very new to doing that, so I think that that kind of gave us a little bit more comfort that they were gonna at least give this a go for the foreseeable future. They capped the complex at 15% rentals, so we actually got in at a great time, with allowing those rentals up to two units that we had. But most of those are owner-occupied, and we’ve actually built good rapport with some of the neighbors as well, to allow them to have a little bit of say; or not say, but a little feedback on “The renters are good” and maybe keeping an extra eye on them, and just kind of helping us, be our eyes when we’re not there all the time.

Joe Fairless: On the first two properties – and I know you’ve got more than that, so we’ll get into that… But on the first two, what was a challenge that you came across, and how did you overcome it?

Josh Mitchell: Well, the first investment condo we bought there, the tenant was moving their stuff in and we had a sewer back up on day one after closing.

Joe Fairless: Oh, goodness gracious…

Josh Mitchell: So that was… [laughs] Yeah, that was lovely; I had to go through insurance, getting a claim filed, they tore out all the carpets, cut the drywall two feet up from the floor, replaced all of that… So we were in a little bit of a difficult position from day one on that one. But we got it all resolved, and got the tenant comfortably living in there now. She’s been in there since we’ve had it, so we’ve had no turnover in that unit, which helps a lot with [unintelligible [00:07:47].25] some of those costs and not having any vacancies as well to go along with that.

Joe Fairless: When you say “sewer back up”, it’s one thing to say that, but can you describe exactly what happened?

Josh Mitchell: Yeah. A sewer back up — and again, I don’t exactly know what drain it came back-filled into, but… It was either the shower, or the toilet… The sewer line was backed up, and a lot of nasty stuff was in that unit that had to be mediated and taken out by SERVPRO, who came in and did all that work for us. It was just kind of a nasty week or two to get all that resolved. And it doesn’t smell very good, it’s not very fun to be in and to be  a part of, that’s for sure.

Joe Fairless: So this is your very first investment property that you and your wife put your wedding funds into… And you finally get a tenant, and day one of them moving in, there’s sewage running through the unit. What did your wife say about that?

Josh Mitchell: “Are we idiots for doing this?” [laughter] That’s pretty much what she said. I had to do a lot of more convincing and tell her “Insurance is gonna cover it. We’ll be fine.” Just kind of give her that comfort. But it was definitely something that we had a little apprehension and hesitation on going forward… But we’ve seen the benefits of it, getting it fixed and making sure that we stay with the course there.

Joe Fairless: And what was it like for you navigating the conversation with the resident as they were moving in day one and this is happening?

Josh Mitchell: Yeah, we really just tried to go above and beyond to them, to give them everything they needed. Luckily, their lease on the apartment that they were at and currently living at wasn’t up yet, so they had a place to go, just for those couple days while we were getting things fixed… But we tried to go above and beyond and help them. We offered to help move anything that they needed for the time being back into the apartment for them. We tried to make sure that they were comfortable, and if they needed anything, it was pretty much all hands on deck; anything we could do to keep them happy and just assure them everything was gonna get fixed correctly, and make it a happy place for them to live.

Joe Fairless: Those were the first two units… Now let’s talk about the next one.

Josh Mitchell: So then we jumped into our first single-family, and – wouldn’t you know it – week one we had a little water back up in that one as well. So we had no sump pump at that single-family, which – that’s one of those learning things that we look for now at our places that we purchase… But this one did not have a sump pump, and of course we got torrential downpour and had a little water back up into that specific residence… But again, had to get it removed, and dried out… We actually did install a sump pump at that residence to never have that problem (hopefully, knock on wood) ever happen again to us… But again, had to go through pretty much the same thing on that one as well, which is coincidental, I’d have to guess, if you wanna call it…

Joe Fairless: Let’s hope so. [laughs]

Josh Mitchell: Yeah, yeah.

Joe Fairless: We won’t say you’re cursed quite yet. We’ll wait to hear what happens with future properties…

Josh Mitchell: Yeah, yeah… Those are our two horror stories. But we pushed through, and like I said, stayed on the course and kept going here.

Joe Fairless: And what are the numbers on that third property?

Josh Mitchell: We bought that one for 230k, and it rents for $2,100-$2,500 right now a month… So cash-flowing roughly just over $500/month after expenses and everything are paid. So that one has been a very good one for us, and has appreciated as well to roughly about 315k-320k in value.

Joe Fairless: What about the next deal?

Josh Mitchell: The next one we jumped into we went back to the same condo building, if you believe it or not… [laughs] We bought another condo in that same building, this time on the second floor. We were trying to forward-think and think about any water down-flowing to the first floor; the first unit had some sewer back-up problem… But we went back to that condo and got one on the second floor this time, and it’s been just as good, if not better than the other ones, with no problems, to this day at least.

Joe Fairless: And you have five, right? So we’ve got one more?

Josh Mitchell: Yeah, we’ve got one more. It’s a townhouse a little bit further away; it’s still in the same town, on the South side of the town, I have that one as well. Just bought that one for — 150k I think is what we paid on that one, and got that rented at that 1% rule, with $1,550.

Joe Fairless: How are you finding these properties? I’ll be specific – how did you find the fifth one?

Josh Mitchell: Actually, all of these properties have come off the MLS. We actually have a  great realtor that we work with. She’s done all of our purchases here for us, but she’s awesome at sending us usually leads that are about to come on the MLS, to kind of give us that first glance, which has actually helped us build rapport with other realtors in the area as well. They send our realtor some leads and ask if we wanna go look at the properties before they even put it on the listings… And it’s been awesome to have that, and maybe have a first crack at making that offer to a seller. The seller always feels  good when they can get their properties sold before it even is listed for anybody to come look at… So it gives us a little bit of negotiating power and helps us get that started and get the ball rolling on making an offer.

Joe Fairless: With any of the deals – pick any of the five – was there any major negotiating between purchase price or terms?

Josh Mitchell: I’m trying to think if there was any real negotiation… We did have on the first single-family we bought – it was listed a little bit higher than what we were able to purchase it for. The only thing that gave us that leverage was, again, getting in before it went on the market… But this property in itself had a converted garage, they had an in-law suite that they weren’t going to convert back for us… So we kind of gave them a little bit lower offer, and just kind of justified it in the sense that it was the only house on the block, and within a five-mile radius — actually, our appraiser had a little bit difficult time finding comps, just because it didn’t have the garage, like the rest of the houses did. So again, we kind of took that into account and gave them a little bit lower offer than maybe what they had it listed for.

Joe Fairless: And do you remember the numbers?

Josh Mitchell: I think they had it listed for 249,9k. And again, I know that it’s a big difference there, but it did need a little bit of updating; nothing huge, all cosmetic stuff… But we got it, like I said, for 230k. I feel like that was a good negotiation and we got it at a good price for what they had it listed at.

Joe Fairless: Did you have anything under contract that didn’t happen?

Josh Mitchell: We have not, actually. We’ve been lucky that everything we’ve offered on has happened. I have actually just started sending letters to multifamily owners, and just kind of researching them through the tax portals and through a title rep… I’ve just started sending letters, and actually just got my first rejection letter; I’m kind of proud of that, actually…

Joe Fairless: Oh, congratulations. [laughter]

Josh Mitchell: Yeah, I know that that’s kind of the next step, right?

Joe Fairless: What did they say?

Josh Mitchell: “Hey, we got your letter. We’re not interested in selling. Please don’t contact us ever again.” So a little slap in the face, but nothing we can’t bounce back from. I plan on maybe trying again in a year or two and seeing where they’re at, and trying to overcome any objections… Maybe their circumstances change.

Joe Fairless: What’s been something that you thought would be easier than what it actually is?

Josh Mitchell: I think that I thought it would probably be easier to find good, reliable tenants. Luckily, we’re in an area that tenants are usually very good. It’s very competitive in our area though; there are  a couple complexes that allow people to get in for maybe a little bit cheaper prices than what we have… But we feel like our unit — we shoot for the B+ to A property, so we’re willing to pay a little bit more premium for those properties, and it kind of comes with the territory of trying to find better tenants as well, though. So it kind of works hand-in-hand, and we wanna make sure that we get the best people in our properties. We’re always willing to maybe wait another month or two to find that right person. I guess that’s been one of the bigger challenges that we’ve faced.

Joe Fairless: What’s been something that’s easier, that you thought it would be a little bit harder?

Josh Mitchell: I think that the managing of it — I do all the managing myself of the properties, so I’ve found that that’s been very smooth. Obviously, there’s things that come up, there’s things that happen – for instance, all the things we’ve discussed previously… But other than that, the renters pay on time. As long as you keep your properties and things organized, well-documented with everything, that process has been very smooth, and we’re more than happy that we’ve kind of chosen this road to go down.

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

Josh Mitchell: My advice would be just to make that first sacrifice to get the first property. We sacrificed living in a nice condo down to a 500 sqft. apartment, we sacrificed our wedding funds to get started… I think once you start and get that first property, as you probably know, Joe, you get the bug; you get the real estate bug and you start looking for the next property, and the next property, and you start to see the benefits from a cashflow standpoint versus tax advantages, and you really start to realize that with the small sacrifice that you can make, you can really envision your future and see the generational wealth that real estate can bring, and help provide for you and your family.

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

Josh Mitchell: Let’s do it!

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

Break: [00:17:16].23] to [00:18:14].11]

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

Josh Mitchell: I’ve gotta go with the cop-out answer. Rich Dad, Poor Dad has been the life-changer for me. That’s what got me started and going here.

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

Josh Mitchell: I’d have to say that it’s gonna be our single-family. Regardless of the water back-up and stuff…

Joe Fairless: Was it really a water back-up?

Josh Mitchell: It was really a water back-up, yeah…

Joe Fairless: Oh, that was water — yeah, I’m getting them mixed up with the condo.

Josh Mitchell: Yeah, so that single-family one – $500/month in our pocket, and we’ve had no issues, and it’s been a great property for us to this point.

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

Josh Mitchell: Well, the only mistake I feel we’ve made on the transaction side of things is my  wife travels for work a lot throughout the year, and we’ve had to do a couple of power of attorneys, and didn’t get that signed one day before closing… So we had to scramble, because the title company needed the original, and they needed a  bunch of different things, so we actually had to push back closing a day or two on one of the properties… But that was pretty much the only hang-up that we’ve had to this point.

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

Josh Mitchell: I’m a huge athletics freak. I played in college, in the suburbs here in Chicago, but I’ve coached at the college level, and I’m actually coaching at the high school football level this coming season… So I’m all about working with that age group. Any friends and family that wanna talk real estate – I’m always pushing them to try to get involved and try to get their feet wet, and I love just discussing the advantages of doing that.

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

Josh Mitchell: I’m on any social media that you wanna reach out to me. Josh Mitchell is pretty much my Facebook, Instagram, Twitter etc. I’m on Bigger Pockets; everywhere that you can be found in real estate, I’m probably a member in that group. So if you can find me, I’m sure I’m there somewhere.

Joe Fairless: Josh, thanks for being on the show, talking about each of your five properties, talking about some challenges on day one of your first investment property, thought process, how you handled it, how you overcame it, and now you’re much farther along and have bought many more properties after that. The thought process you have when you’re buying a property and the numbers that you look at. So thanks for being on the show, Josh; I hope you have a best ever day. We’ll talk to you again soon.

Josh Mitchell: Absolutely. I appreciate it, Joe. Thanks so much.

JF1916: How This Investor Grew His Portfolio to over 125,000 Units with Jeff Klotz

Listen to the Episode Below (00:24:08)
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Jeff is not only an investor, but also a broker who helps others grow their own portfolio. He struggled in the beginning to grow his business, so he focused on that until he was having some success. Now Jeff shares his knowledge with his clients and with us on today’s episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“If you buy right and you have the right business plan and business strategy, you should be able to survive another 2008 crisis” – Jeff Klotz”

 

Jeff Klotz Real Estate Background:

  • Serial entrepreneur, real estate investor and developer
  • Klotz’s investments have included 125,000 apartment units, 42 developments, and numerous other real estate projects
  • Founder of over 100 companies
  • Based in Jacksonville, FL
  • Say hi to him at http://theklotzcompanies.com/
  • Best Ever Book: 10X Rule

 


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TRANSCRIPTION

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

Jeff Klotz: I’m doing great.

Joe Fairless: Well, I’m glad to hear that, and looking forward to our talk and our conversation. A little bit about Jeff – he’s a serial entrepreneur real estate investor and developer. Klotz investments have included 125,000 apartment units, 42 developments and a bunch of other real estate projects. He’s the founder of over 100 companies; based in Jacksonville, Florida. With that being said, Jeff, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jeff Klotz: Okay. Well, my background is interesting – I started out in real estate, literally straight out of high school. I actually bought my first investment property while still in high school. I fell in love with the multifamily business, and I guess the rest is history. For 24 years we’ve been intimately focused on the multifamily industry, and have built a platform called the Klotz Group, which is basically a group of wholly-owned subsidiaries that provide pretty much everything from concept through completion, along the way of both a multifamily value-add strategy, renovation, rehab, modernization, to a ground-up development strategy.

Like you said, that body of work over the last 24 years has been a little over 125,000 units of multifamily throughout the South-East, and just over 40 projects completely full-circle… And then of course the platform itself provides a whole series of services, including brokerage, property management, mortgage banking, construction, development, investment banking, and a handful of other (what we call) ancillary service providers that have probably racked up transaction volume into the billions.

So it’s been an interesting track record and an interesting 24-year stretch in the industry, and I still love it today as much as I loved it when I joined.

Joe Fairless: So you own companies like a mortgage brokerage within your portfolio? Did I hear that right?

Jeff Klotz: That is correct, yes. We are in the mortgage banking business, which is predominantly a commercial mortgage brokerage; I’d say 90% of that body of work is strictly multifamily.

Joe Fairless: So what made you want to be vertically integrated, versus just being focused on development?

Jeff Klotz: Well, for me, early stage I really struggled to grow. As a teenage entrepreneur, my challenge for business and business growth was probably the same as almost everyone else starting out – access to capital, capital constraints. I think experts will tell you the number one reason why most small businesses fail is a lack of capital… So I certainly battled that. As a kid, it’s hard to access capital. I didn’t grow up rich, I didn’t know any rich folks. I was kind of knocking on doors the hard way.

Early on, I really wanted to perfect my portfolio, and I needed to grow my business, and the best way to grow the business was to produce what I’ll call “ancillary revenue” from all these different services. But I started to become more successful, and then later on I began to really understand capital markets, and started to really solve my access to capital problems, it was almost the exact opposite.

We perfected the platform and really broadened the reach and the scope of all the different platform services to really serve our own needs, because that was the best way we found to control the results and to deliver superior results and returns by really controlling your own destiny. We learned along the way that it was next to impossible to rely on third-parties and get the same type of results if you were relying on yourself.

So long story short, I probably don’t desire to be in all these different businesses, but to some extent it’s a necessary evil.

Joe Fairless: Yeah, I get that. So how many companies do you actively oversee right now?

Jeff Klotz: The Klotz Group has as many as 12 subsidiaries that are in the real estate business. I’ve got some other investments, and we’ve got a family office that focuses on some philanthropic efforts and things like that, but probably for the focus of this call there’s 12 wholly-owned subsidiaries under the Klotz Group umbrella that provide all different types of services, pretty much a soup to nuts or an A-to-Z, or a concept through completion strategy in what we’ll call multifamily real estate investment.

Joe Fairless: And the purpose of those businesses is twofold, it sounds like. One is to help you and your team do your deals, but then also you might as well have other customers and clients outside of your company if you’re gonna have a business anyway. Is that the thought process?

Jeff Klotz: That’s exactly correct. The strategy is really a 50/50 strategy. I think that a healthy business is one where you’ve got diversification. About half of our business comes from what we call captive work, which is our own investments, and then the other half comes from the third-party marketplace. So that does a lot for both the industry and the organization. It allows us to have a lot of different touchpoints to the entire industry, and it really helps us grow the business. We meet a lot of really great people, and can help a lot of really great people…

You kind of hinged on the mortgage banking business – a lot of our clients come to us looking for debt, and for whatever reason they’re staking 75% leverage and we might only be able to get them 70%, because that’s what the deal qualifies for, so they might be 5% short on a deal, and we end up stepping in and becoming their partner, owning a piece of the deal and helping them get it across the finish line… And then of course, by that time they’ve figured out they can leverage a lot of our other services and really add value to the deal.

Joe Fairless: What’s the most and what’s the least profitable of those 12?

Jeff Klotz: Oh, boy… I’d say property management is probably the least profitable… And included in those 12 is the investment subsidiary, which is by far — the gain on sale, or the gain on real estate investments is by far the most profitable.

Joe Fairless: Okay.

Jeff Klotz: Many of those businesses are loss-leaders. They really contribute to the overall investment result. I might make X in the construction business, but I’m creating 10x at the property level because of my efforts on the construction side.

Joe Fairless: Yeah, it makes sense. And I imagine over the years you’ve created a business as a result of [unintelligible [00:07:15].09] loss-leader, but even — it wasn’t something that you wanted to be in the  business anymore. So you created one, then shut it down because you thought you needed it, or thought you wanted to be in it, but you didn’t… What’s an example of that? If there is an example of that.

Jeff Klotz: Okay. Well, there’s a couple of times… In 2001 we sold the construction business. We were able to stay out of that for a couple of years. In 2006, if you remember, the market was on fire. You couldn’t help but trip and fall and make money in the real estate business… So we thought we didn’t really need to be in the property management business, so I sold the property management company, only to really be forced back into the business a couple years later by my partners and investors, who said “Look, Jeff, this isn’t working. We’re not seeing the same results or returns from the properties and from the projects like we were when you were running it, so… Get back in the business”, basically. He who has to go makes the rules, right?

Joe Fairless: And with where you see your group of companies headed, do you see a new business coming up that you are gonna be creating, or maybe putting more emphasis in a current area that you have?

Jeff Klotz: Well, our business – we really hit a reset button back in 2015 after building a portfolio of (we’ll call it) C-class housing. We were one of the most active operators and groups focused on (what we’ll call) middle market C-class housing throughout the South-East. We’d built a portfolio close to 40,000 units, and that was the goal; so we accomplished our goal, but we really couldn’t celebrate the accomplishment because it was just a really tough struggle. That’s a tough business to scale, and it’s a really tough portfolio to operate… So we really kind of hit the reset button, spent the next couple years exiting that business, and really focused on a cleaner, more quality body of work. So for us it was testing and proving the concept in a much newer, higher-quality asset class [unintelligible [00:09:00].06] create the same type of results and returns.

Over the last couple of years we spent proving that concept out, so today the real focus is just growing that strategy. So we find ourselves doing a lot more luxury ground-up development today. It’s a different type of development than we’ve done previously. Previously we were just looking to get something built, and it was more workforce housing, and what have you. Today we’re able to develop some of what I’ll call best in class in several different markets.

The strategy today is not necessarily get into new business, but it’s just continue to grow the business both vertically and horizontally, so that we can once again — we were once upon a time the largest residential landlord in about 13-15 cities throughout the South-East, and that’s our goal, to do that again, just with a little different quality of assets.

Joe Fairless: And I’m sure you get this question a lot, but I’m gonna ask it anyway… When a correction takes place, what’s your thought about being in ground-up development luxury?

Jeff Klotz: Well, you’ve probably heard this, and I’m sure every one of your listeners have heard that – you make your money on the buy. That can mean a lot of different things, but it’s kind of an old cliché in real estate. It took me a long time to even really figure out what that meant… But being well-protected by your bases on the way in, so that you have what I’ll call “a lot of screw-up room” or a lot of mistake room, is really one of the founding principles that we operate by. So if you buy right and you have the right business plan and the right business strategy, you should be able to withstand another catastrophic event like in 2008.

Joe Fairless: What’s a quantifiable example of buying right? How do you stress-test that?

Jeff Klotz: Well, I think today this concept of value-add – that’s probably one of the bigger buzzwords in the multifamily industry, and a lot of times it’s a lot more complex than just buying a piece of real estate and raising rents. You’ve really gotta understand the asset, the asset class, the market… And I think you’ve gotta buy right. You’ve gotta buy at — I’ll still call it a discount. I’ll tell you what is not lining up through an internationally-marketed brokerage effort and participating in first, second, third round, best and final, and winning an option – the concept of who pays the most wins, I have always had a hard time understanding that. So almost all of the deals that we do are privately negotiated, they’re off-market, they’re situational acquisitions and they’ve got a good story.

Even in today’s very frothy real estate market, you look at the last 12 acquisitions that we’ve made  – they’ve all been what I consider below market value. I think there’s good deals out there, you’ve just gotta really know where to find them and where to look. Our platform, which has many touchpoints to the industry, helps to contribute to putting us at the right place, at the right time, and being able to have access to those deals that otherwise might not be available to us.

Joe Fairless: And just maybe one or two more follow-up questions on this, and then I’d love to learn more about the 40,000 units and the scaling challenges with the C-class housing. A lot of people will say when a correction takes place, class A is gonna get hit first, because they’re the ones who are gonna lose their jobs, so those residents are gonna then go down to class B… So you don’t wanna be in class A. And then the people will also say that ground-up development is riskier because there’s no income that’s being generated until you get out of the construction loan and you’re completely leased up in your long-term financing. What are your thoughts on those two points?

Jeff Klotz: Well, I agree with those two points, to some extent. In fact, that was the thesis of some of our early real estate funds, and that was the pitch. And again, we were focused on C-class… And I think, for the most part, that’s  a real concern, right? But we always like to shoot for a much shorter strategy. A long-term strategy – you have a greater chance of getting stuck holding the ball, or whenever the music stops, without a seat… So I think the merits of a project are strong. Again, if you buy or build the project plan with a lot of screw-up room, or mistake room, or whatever you wanna call it, it should pass the stress test for a softening in the market, or what have you.

The bottom line is people will always need a place to eat and sleep and call home… But there’s always gonna be a cyclical nature to our business and almost every other business, so I think you have to be afraid of that. You have to plan for that. When we underwrite a deal, when we go to acquire a deal, when we go to build a deal, there’s always a sense of urgency, and we always plan for the worst, but work for the best. So it’s always a concern of ours, which is one of the reasons why we have a short-term strategy.

We were a large multifamily owner going into 2008 in the recession/downturn/crash, and our strategy then was to really just protect the asset; if we were the best operator, with the best service and the best performance in the market, then we were well-protected… So we were fortunate enough to survive the downturn without losing any assets. In fact, we were quickly able to start a growth process.

I think it’s just a quality operator, with a quality project, in a quality location, with a quality credit risk. So the stronger your residents are, the more protected they are from a recession, and things like that. So I think there’s a whole series of merits that you really have to pay close attention to.

Joe Fairless: Let’s talk about the 40,000 units. What were some specific challenges that you had in scaling and executing on that level of collection of units, with that type of classification of property and resident base?

Jeff Klotz: Well, first of all it wasn’t so much the class of asset, but  it was. And what I mean by that is to succeed at C-class multifamily operations – it’s a lot more staff, or manpower, or people-intense. You’ve really gotta check the boxes and  dot the i’s and cross the t’s. You need a lot more people to succeed in that effort. We built a team of over 1,000 employees, and we went from 100 to over 1,000 really quick. So just that type of scale was really difficult. We were consistently chasing the growth.

And then to top it all off, the business strategy that we had – we were buying and selling quite quickly… For about five years in a row we were buying over 8,000 units/year on average. So to have that type of portfolio churn, you’re always moving. It’s hard to build a team, it’s hard to build consistency… And then of course, the assets themselves – yes, they’re challenging. They were in rougher neighborhoods… So it’s harder to find good people, it requires more training, it’s harder to find good residents, it requires a lot better screening and tenant evaluation or qualification. Even the municipalities started to neglect those types of neighborhoods, where there’s lower income. So it’s a tougher, longer, harder grind or battle or fight, and you almost had to fight for every bit of success, every good resident, and what have you. So all in all, the entire effort is more difficult.

On a personal level, I really underestimated or probably was naive in how difficult it really is to build and scale a business. I’ve found building a real estate portfolio easy. In fact, growing is easy. But actually building a business around all that growth, and building the right type of team, and the right types of policies and procedures and structure – that was probably the most challenging part of it all.

Joe Fairless: Thank you for that. I appreciate that insight. That’s very, very helpful. And one thing that I’d love to learn more about is if you were to have a 300-unit class C apartment building, in a class C area, and a 300-unit new development – picture whatever you’re building now, that 300 units – how many people would it take to staff each of those?

Jeff Klotz: There’s an old rule of thumb in the industry – 2 per 100. So in theory you’d need 6 people. Three in the office, and three in the field, on the maintenance team. I think that in a C-class operating property… Was the A-class a new build, new construction?

Joe Fairless: Yeah, it’s one you’ve just completed. We’ll just say one you just completed.

Jeff Klotz: I think on the property itself there’s probably only a slight difference in the amount of manpower needed. But we’ll call it the corporate oversight, or the regional/district oversight – you definitely need a whole heck of a lot more oversight on the C-class asset than you do the A-class asset.

Joe Fairless: Got it. Taking a giant step back, based on your experience in the industry – you’ve bought your first place while you were in high school; that is pretty close to a record, I think, from the 1,800 guests I’ve interviewed… What is your best real estate investing advice ever?

Jeff Klotz: Oh, boy… That’s a hard one. I think the real estate business is not a get-rich-quick plan/strategy. All these late-night advertisements for “You too can be rich like me” – it doesn’t work that way. I’ve been doing this for 24 years, and it took a long time to create success. It is a get-rich-slow business, by the way. It’s a lot of hard work, it’s a long late-night grind…It’s difficult, and it’s tough to think that yo can create success as a hobby or a part-time business. It’s a lot like the gym – there’s no shortcuts. Nothing takes the place of hard work and effort if you wanna get in shape. You can try all the latest, fad this or fad that, but you’ve gotta do the work.

I see way too many people enter this business thinking that they can do it part-time, or in-between a day job, or after a day job… And I think if you’re gonna be a passive investor – sure, that works. There’s a whole other topic of how do you make good passive investments; probably the least successful deals I’ve ever done were called passive investments… But  I think just preparing somebody for the time it takes to learn the business and what have you – it sounds pretty basic, but that’s where I see most people making a mistake; it’s the inability to really truly commit to the time, effort, energy and hard work it takes to be successful in this business.

Joe Fairless: And over the period of time that you’ve done it.

Jeff Klotz: Right.

Joe Fairless: Yeah, it’s a shiny object for some people, and then they find something else… Whereas put in decades – then you can see some results if you do things consistently that are the right thing, right?

Jeff Klotz: Right. And I think whether we’re talking real estate or we’re talking anything else in business, I think that part of our culture today is that of things happening quickly, and there’s almost a sense of lack of patience, and I can go on and on… But I just really think that you’ve gotta really be realistic with the goals, and the time it takes, and of course the effort it takes. There’s an old saying, “If it were easy, everybody would be doing it”, right?

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

Jeff Klotz: I’ll give it my best.

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

Break: [00:19:15].10] to [00:20:13].09]

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

Jeff Klotz: Oh, boy… I’m not a big book reader. There’s an interesting story behind it… But I’ve just recently read some of Grant Cardone’s stuff, and I was amazingly shocked with just how relatable it was, and just how great the content was. That was kind of an interesting experience for me.

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

Jeff Klotz: That would have been a passive investment. Once upon a time, prior to really committing to grow the entire platform vertically and horizontally, I thought I could leverage some other operators and other sponsors. I wasn’t in a good pick of a couple different guys. I had no control, and so therefore the outcomes weren’t that good.

Joe Fairless: And knowing what you know now, if you were to passively invest and you were to interview them again about the opportunity, what are some questions you would ask now that you didn’t ask before?

Jeff Klotz: Well, I’d really wanna understand the track record, their true experience in actually controlling outcomes… There’s a lot of sponsors out there that have worked for other folks, or have been alongside other sponsors, or have been on teams with sponsors, but I  really wanna see someone who has a solid track record of doing it themselves, signing on the debt, having real skin in the game, and really a solid commitment to the business.

I think nowadays there’s a lot of folks that think it looks a lot easier than it really is, so I think that might be the tone of what I’m saying here… I’d spent a lot more time getting to know the individual and the organization and understanding what their theories and philosophies and their ideas are for how they operate real estate.

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

Jeff Klotz: Well, the next deal, right? In this business you’re always as good as your last deal, so we continue to get better and better. I think that really my next deal will be the best deal I’ve ever done.

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

Jeff Klotz: Years ago I’ve formed a family office called the Klotz Family Office. We have three main philanthropic efforts, including a faith-based not-for-profit named Save Your Communities, which is focused on creating and preserving, as well as providing sustainable [unintelligible [00:22:10].08] affordable multifamily housing. That’s a big part of our mission. I also have a Central-American-based foundation called [unintelligible [00:22:16].17] which basically serves the needs of those living in poverty, most likely as a result of natural disaster.

Then we have a third effort, which is basically an entrepreneurial scholarship. So once a year we pick a young individual who I think might possess some real serial entrepreneurial traits, and we try to partner with them and mentor with them, and help them get themselves in the door [unintelligible [00:22:35].20]

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

Jeff Klotz: Well, they can visit our website, TheKlotzCompanies.com. They can email me at jklotz@theklotzcompanies.com.

Joe Fairless: Cool. Well, Jeff, thank you so much for being on the show, talking about your experience, talking about your approach, what your focus is now, and the challenges that you came across on the passive investment, as well as when you achieved the goal of 40,000 units… Not really having time to celebrate, and then reconfiguring the structure of your focus. And what you’re doing now, building the luxury ground-up development.

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

Jeff Klotz: Thanks, Joe. I enjoyed it.

 

JF1910: Residential Real Estate Expert’s Take On Short Term Rentals with Brian Page

Listen to the Episode Below (00:21:29)
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Having become a millionaire in his twenties through residential real estate investing, Brain was on the fast track to being on top of the real estate game. That changed a little when he got into building homes, it didn’t work out as well. Brian got into short term rentals to turn things back around and now has the #1 selling Airbnb training out. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Partner with the owner of a property and list their house on Airbnb” – Brian Page

 

Brian Page Real Estate Background:

  • Became a millionaire in his 20’s as a residential real estate investor, only to lose it all in the historic crash of 2008
  • Created a training called the BNB Formula, which is now the world’s best selling Airbnb training
  • Based in Charleston, SC
  • Say hi to him at https://www.bnbformula.com/
  • Best Ever Book: Outwitting The Devil

 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

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TRANSCRIPTION

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

Brian Page: I am great. Good to be here, buddy.

Joe Fairless: Well, I’m looking forward to our conversation. A little bit about Brian – he became a millionaire in his 20’s as a residential real estate investor, lost it all in 2008, and then created a training called BNB Formula, which is now the best-selling Airbnb training out there. Based in Charleston, South Carolina. With that being said, Brian, do you wanna give the best ever listeners a little bit more about your background and your current focus?

Brian Page: Sure. I have been a real estate investor for many years; ever since I graduated from college, I started flipping homes. That was the first thing that I did. I flipped a little over 100 properties, and did some wholesale deals, and multifamily, and you name it, I’ve probably done it. That was my main business for many years, up until the big crash around ’07-’08. That was where everything kind of came to a grinding halt. I had a huge portfolio of properties that I lost and were foreclosed on, and I had to find a way to start over… So somehow I backed into this idea of using other people’s properties and putting them on Airbnb. That led me down this road, and that’s what I do in addition to getting back into real estate investing.

Joe Fairless: A couple takeaways from losing it all are what…?

Brian Page: A couple takeaways… Well, don’t over-leverage. It’s not a good idea to leverage yourself, and it’s also —

Joe Fairless: How do you quantify that?

Brian Page: Well, for me – I had very little equity in my properties. I had a big portfolio of properties, but very little equity.

Joe Fairless: About how many properties did you have?

Brian Page: At the time I had 23 units, I believe it was…

Joe Fairless: Okay.

Brian Page: But that wasn’t the problem. It wasn’t the rentals. It was — I got into speculative real estate construction, and high-end residential construction. That’s something that’s high risk. I built a multi-million dollar home on the beach in North Carolina, and I had condos being built, and all these things… And when the market turned, of course, the first part of the market that got crushed was vacation properties.

So I would say that had I just stayed with my rentals and flipping business, I probably would have been okay… But I got too big for my britches and got into development and construction. So I would say be very careful if you’re getting into speculative real estate.

Joe Fairless: Okay. Noted on that front. It’s interesting that the high-end spec homes that you described – you mentioned they were more vacation homes… And now here we are with Airbnb, and your BNB Formula. You’re still focusing on the vacation customer, but you’re taking a different approach. Do you own the properties that you’re doing the Airbnbs with?

Brian Page: I don’t, but let me go back to the first thing you said – actually, vacation rentals and Airbnb are not the same thing. It’s a very small minority of people on Airbnb that are traveling for vacation.

Joe Fairless: Okay.

Brian Page: That’s more VRBO, Vacation Rental By Owner. Airbnb is a whole other subset, and we can get into that. But what I did is I started leasing properties, and I got written permission from the owners to list them on Airbnb. I did that over and over and over again, across a whole bunch of units, and that’s how I started making a whole bunch of money with Airbnb. Now I’m back into acquiring. I am buying properties and renovating them, and turning them into Airbnbs… But my primary business and what I teach is how to use someone else’s properties to do this.

A lot of your listeners, of course, are real estate investors, a lot of people listening right now… And that’s great; if you own property, you can do this. But the vast majority of people that go through my training have no real estate background whatsoever, so I encourage them to lease.

Joe Fairless: Okay. And will you educate me a little bit more on Airbnb most of them not being vacation people?

Brian Page: Well, Airbnb is similar to the hospitality industry as a whole, if you look at hotels, motels in the hospitality industry, most people that are staying at hotels are not staying there because they’re on vacation, they’re staying just because they need a short-term place to stay. They might be traveling, they might be coming into an area, but not necessarily on vacation.

There’s all kinds of reasons people travel. They could travel because they’re relocating and they need a place to live for a few weeks, they could be going to an event in a particular city, for example in cities with big convention centers… That’s actually how Airbnb started in San Francisco – it was near a convention center. People travel to go to visit colleges, they travel because they’re on business, they’re going to a town for a couple days… There’s all kinds of reasons people travel, and it’s generally not vacations.

We’ve seen it time and time again, that people are successful doing what I teach in the most random places that are not at all tourist destinations… And I know that for a fact, because some of my students are in towns of under 10,000 people I’ve never even heard of, and they’re doing really well.

Joe Fairless: So the primary model is getting permission from landlords to use their property as an Airbnb, so you’re basically subletting it on a short-term basis, right?

Brian Page: Well, there’s two models. The first model is leasing it, where you control the property for (let’s say) 12 months, and then you relist it on Airbnb. And let’s say it’s a $1,000 rental. You’re gonna make somewhere between 2k and 3k on average on that unit. After you pay for utilities and your rent…

Joe Fairless: Per month.

Brian Page: Yeah, per month, you could be making 1k, 1,5k, or even more. Now, that’s on a cheaper 1k rental. So that’s one model. The other model is where you partner with the owner. So you approach and owner and say “Hey, you’re asking 1k for your unit. What if I get you $1,300 for your unit, or even more? I propose that you let me list it on Airbnb, and we will split everything we make, all the profit, and I’ll guarantee you your first $1,000, so at least you make that… And we’ll do month-to-month. And if you don’t like the arrangement, at any point I’ll take a hike and you can go back to running it long-term.”

I basically teach people how to pitch these owners… Because I was an owner for many years; I had a lot of properties, and I had to think about what the objections are and how to overcome those objections, and why people might wanna consider doing this versus long-term rentals.

Joe Fairless: And I’ve interviewed some people who do this on the show, and one thing I’ve found surprising, but it made sense once they explained it, is the property is actually taken care of better with short-term rentals than long-term…

Brian Page: Yes, that shocks people.

Joe Fairless: Yeah, it shocked me whenever I heard it. Then this person explained it and I was like “Yeah, it does make sense.” Can you just elaborate quickly on that point?

Brian Page: Yeah. Well, one of the biggest objections I got meeting with dozens of not over 100 owners face-to-face was “Hey, Brian, it’s a cool idea, but it’s too much wear and tear on the property. And I don’t know who’s coming and going, all these people dragging their luggage in and out of the property… I just don’t like the idea.”

So I used to play this little game with the owners; I said, “Okay, I wanna play a quick game with you… It’s called Tenants vs. Guests.” I’m gonna make a statement. I just want you to think of whether this is more likely to happen with a tenant, or with a guest.” And I said “Okay, I’m gonna speak from personal experience here (I’m talking to the owner). Somebody paints the bedroom pink without permission. Is that gonna happen with a tenant or guest? Somebody leaves their car on blocks in the driveway. Somebody’s dog digs holes all over the yard and destroys it over the course of a year. Is that gonna happen with a guest? Well, no, because my guests don’t have pets, for example. Somebody’s ex-boyfriend or ex-girlfriend shows up at 2 in the morning and kicks the front door in. Somebody puts a satellite dish on the roof.” You can go on and on and on.

So all these nightmares that happen are with tenants, and I’ve had a lot of nightmare tenants. But with guests, it’s a different mentality, it’s a different psychology. Guests don’t treat the property like it’s theirs. They don’t say “This is my property. You can’t come in here and–” They look at it like they’re a guest; they’re there for 2 nights, one night, 3 nights, and then they’re gone. So the respect level is completely different than it is with tenants. You don’t see the wear and tear. And then additionally, the cleaning company is coming in every couple days and cleaning that place to be immaculate; because if my place is not immaculate, I’m gonna get bad reviews, nobody’s gonna book the place on Airbnb…

So my owners are always really shocked when they come in in month 4 or 5 and they look at the property, and they’re like “This thing is in the best shape I’ve ever seen it. This thing is immaculate.” I’m like “Yeah, that’s what I do.” So they’re very, very happy… And then owners all the time are like “Hey dude, I’ve got some other units that are becoming vacant soon. Do you wanna take those, too?” So that’s kind of how it works.

Joe Fairless: Yeah, it makes sense after it’s explained… But I imagine 90% of those conversations that question is asked and you have to change the perception of the owner…

Brian Page: Yeah, you’ve gotta educate them, you really do. And one of the biggest objections is “What about liability? What if somebody slips and falls, and sues me, and all this stuff?” The cool thing is there’s an entire insurance industry that sprung up around short-term rentals. For very little money you can get not only a liability policy to cover you if anybody gets sued, but you can also get a policy that’s specifically designed for short-term rentals… And I like to just pay for the policy myself. So I tell the owner “Look, not only am I gonna take excellent care of your property, I’m going to insure it. And on top of that, Airbnb has a one million dollar guarantee.

So you’ve got that, you’ve got the insurance that I’m paying for, you’ve got your own insurance… So your property is insured three different ways. When was the last time a tenant offered to insure your property?” So they’re like “Okay, I get what you’re saying here.”  So I overcome all those objections with reasonable arguments.

Joe Fairless: Would you say you make more money relative to the risk when you work with a landlord, versus when you own your own property and do it?

Brian Page: Well, that all depends on how you quantify risk. Somebody that’s brand new to real estate, has never been a real estate investor, I strongly recommend they don’t rush out and buy a property and put it on Airbnb, because they don’t really know the right locations to purchase in, and all that kind of stuff. An experienced real estate investor – of course, buy property, because you’re gonna build wealth, you’re gonna build equity; why not own the property. But the ROI on the small investment you’re gonna get doing a lease is just unbelievable… Because you’re talking first month’s rent, and deposit, and maybe some furnishings if it’s not already furnished. So for $5,000 you can get a property.

It’s like, if I said to you “How many properties would you buy if they only cost 5k/piece?” Because once you get into it, the cashflow is yours. And the cashflow is way more than if you just do a  long-term tenant and you own the property. So I look at it like, hey, every 5k I pop down, or even if it’s 10k, I know that that’s gonna generate 10k, 20k, 30k/year in net cashflow. And I don’t know any other thing in real estate where you can have that kind of ROI on a very small investment.

Joe Fairless: Let’s talk about an Airbnb that’s gone wrong.

Brian Page: [laughs] Hey, actually that’s a good question. I’ve never been asked that, strangely enough… Because you do hear about horror stories. I’ve  never had a horror story. I’ve had some very messy guests… Luckily, I’m not cleaning the property, so that really just — the cleaning company is like “Oh, boy.” And they charged me a little  extra to clean those. And I’ve never really heard any real horror stories from my students, other than messy guests.

Occasionally there’s small things that are damaged, but what I tell people do to is you can charge people a deposit – so Airbnb will do a hold on their credit card. It could be $100, it could be $500, whatever amount you want. That money is not taken off the card unless you make a claim. But the cool thing is you can make a claim up to a couple weeks after they leave. So if somebody breaks something, I can make a claim, saying “Hey look, I need 50 bucks”, and Airbnb will then ask me for proof and then they’ll release that money.

So you can do a deposit to cover that kind of stuff. And like I said, you wanna be insured for these kinds of things. You wanna do the business properly.

So does it happen? Yeah, I’m sure it happens. Does it happen at the rate that tenants destroy properties? I don’t think it’s anywhere even close in that neighborhood. And you’ve gotta remember, every guest that comes through Airbnb has already uploaded their identification… So I have a license or a passport of every individual. Their credit card has already been uploaded, they’ve already paid in advance for their stay, before they even show up at your property, because that’s what Airbnb does… So all these things – it’s not like you’re just taking a stranger off the street. And not only that, you can see the reviews. So I can say no to anybody that doesn’t have good reviews on Airbnb.

There’s a lot of safeguards there, which prevents a lot of the riff-raff and people that are gonna disrespect the property  from getting in there. So I’m not saying it can’t happen, I’m just saying it’s extremely, extremely rare.

Joe Fairless: When you take a look at the political climate in certain areas being against Airbnb, especially in the North-East and on the West Coast, what do you do as an investor who relies on Airbnb for your cashflow?

Brian Page: Okay, that’s a great question, and I’ve been asked this many times… So there were a couple years there where I was teaching this where I didn’t really know what to tell people, because they would say “Well, I don’t think it’s allowed where I live” or “I don’t know what the regulations are here” or “It’s definitely not allowed.” So I didn’t know how to really handle that, because I don’t know of every city and every town… So what I decided to do was I hired a research firm, and we paid a lot of money to do a study over the course of several months… And what we did is we essentially looked at every single town and city in the U.S. over 30k in population. And just so you know, that’s 2,000 cities. And we put them in a spreadsheet and we basically categorized then. We quantified whether short-term rentals were allowed, banned or not. And what we’ve found is really interesting. We’ve found that 92% of towns and cities do allow home sharing, and 8% don’t. So 9 out of 10 places you can do this.

Now, the ones that say no are usually the bigger cities, usually cities where the hotel industry is very powerful. We’re talking San Francisco, New York, Atlanta proper… These kinds of places. But what was interesting was as I started researching these cities, I found out that I had many students in all of those cities that were doing well, that have results, and I was like “How are you guys doing this?” So I reached out, “Are you guys breaking the rules, or what are you doing?” And some of them were; some of them were doing it despite the rules… But most of them were just “Hey Brian, I just drive to the next town over, where it’s not regulated, not restricted, and that’s where I do my Airbnbs.” And I was like “Ohh, okay.”

So I started looking into this and I found people in Atlanta for example wouldn’t do Airbnbs downtown, but they would do it in any of the ten other towns that make up that metro area. So I just tell people “Look, any kind of real estate is location-specific. So if you’re gonna open a Laundromat, you can’t do that in a residential neighborhood. You’ve gotta go where it’s zoned. And you can’t live in a Laundromat, you’ve gotta go to the residential.” So it’s the same thing – you’ve gotta go where it’s allowed. And for most people, that’s within a 20-30 minute drive of where they live, or it could be in their backyard if it’s an unrestricted town. Essentially, anywhere that you live in the U.S. you could do it, especially if you’re willing to just go where the opportunity is.

Joe Fairless: What’s something that we haven’t talked about, that we should?

Brian Page: Hm. Well, one of the questions that I get a lot from people is they doubt that owners would be willing to do this… And they say “Why in the world would an owner not just do this themselves?” And it’s a good question. There’s many reasons why they wouldn’t do it themselves, but I can just tell you over all the years of doing this I’ve never had an owner that said “Hey Brian, that’s a great idea. I’m gonna go do that right now myself.” They just don’t do that… Because you’ve gotta put yourself in the shoes of the owners.

I am an owner of properties, and many people listening are probably landlords… Most of us just want the least amount of hassle possible. We wanna get our rent, and we wanna make sure our property is gonna be maintained and taken care of. That’s all we care about. We do not wanna get in, start another business, or handle guests coming and going… And it sounds like a lot of work, and it can be a lot of work if you don’t have a system. So I’ve never really had that be an issue. I’ve never had owners just say they’re gonna do it.

So it’s really just a matter of “Hey, do you wanna rent to me, or do you wanna rent to some other random long-term person?” And if I can convince them that I’m the best choice, they’re going to lease it to me. That’s a huge opportunity, to be able to set up those properties. So that’s one of the questions I get a lot…

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

Brian Page: Let’s do it!

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

Break: [00:16:41].08] to [00:17:17].23]

Joe Fairless: Alright, best ever book you’ve recently read.

Brian Page: Oh, man… I’ve just finished a book yesterday, and I read a lot of books. It was amazing; it’s by Napoleon Hill… It’s not the one you’re thinking of probably top of mind; it’s called Outwitting the Devil.

Joe Fairless: Really… With Sharon?

Brian Page: Unbelievable. Sharon Lechter… It was unpublished for 70 years. I didn’t know it came out in 2011, but that book rocked my world, and I shared it with other people and they said it’s changed their lives… So I can’t recommend that strongly enough.

Joe Fairless: It’s crazy… I love Three Feet From Gold; I think Sharon participated in that one. I can’t remember… I did not like Outwitting the Devil at all; it came highly recommended to me by someone, and… I just didn’t — I just wasn’t feeling it. But so many people said they love it, so Best Ever listeners, don’t listen to me…

Brian Page: Okay, there’s parts of the book that are slow. The first 2-3 chapters – you’ve gotta burrow through those. But once you get into the meat of it, it is so good.

Joe Fairless: Huh. Well, agree to disagree on that.

Brian Page: [laughs]

Joe Fairless: What’s the Best Ever deal you’ve done?

Brian Page: Best Ever deal I’ve done… In  real estate?

Joe Fairless: Yup.

Brian Page: Okay. So in real estate I would say I bought a fourplex that was fire-damaged. It was pretty huge… It was like a 3,500 sqft. building. There was a little tiny sign out front, and I approached the guy who I saw coming out the front door… I said “Hey, how much for this thing?” and he said “Thirty grand.” I said “Holy crap.” Thirty grand for four units; big, big building. And I knew that I could get $800/unit.

I bought it for thirty grand, I ended up fixing up those units… I don’t remember what I put into it. It was quite a bit of money to fix everything up. But I ended up flipping it and I think I made 130k on that deal. So that was really one of my most profitable deals ever. I probably should have kept it… I now like to acquire and not flip/sell… But that was probably my best deal.

Joe Fairless: What’s a mistake you’ve made in real estate that we haven’t talked about already?

Brian Page: A mistake that I’ve made in real estate… Huh.

Joe Fairless: Or maybe thinking about a particular transaction, just something that “Hey, I missed this, but I won’t miss it again”, something like that.

Brian Page: Yeah. I sometimes will pull the trigger really quick on junk properties, and not do a thorough inspection… But I’ve had a couple of those times where it’s backfired on me. But not enough to make it unprofitable deal.

For example, I just got a house a few weeks ago, and I drove up — I was the first person to respond. It was a wholesaler – I’m on his email list –  he’d sent out this deal… I dropped everything I was doing, rushed over to the house… I was the first person to arrive. And when I got there, there must have been five other pick-up trucks that pulled up right after me…

So I got on the phone with the guy, couldn’t get in the house, I was peeking through the windows… I just said “Look, I’m gonna pay you exactly what you are asking on this house, but you have to promise me you’re gonna sell it to me right now. I don’t wanna get in a bidding war with all the people that are about to look at this house.” And he said “Deal.” So I just bought it.

Today I went over there and looked at it… It needs some work, but nothing too major… So I sometimes roll the dice like that and it works out, but I knew that my numbers were good enough that even if there was something majorly wrong with it, it was still gonna be a good deal.

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

Brian Page: Sure. Well, if they wanna learn my strategies of how I’m doing this and how I’m making money with other people’s properties, and how I do Airbnb, and most importantly how to scale it to 6-7 figures a year, then you’re gonna wanna check out my free training. Just go to thefreetraining.com.

Joe Fairless: Brian, thanks so much for being on the show, talking about how to pitch owners about these opportunities to partner up or lease out their properties and make the spread above whatever you’re paying them with that partnership or that lease, as well as talking about some things to keep in mind if we are gonna do this liability insurance, then clarifying some Airbnb stuff  that perhaps they’re amiss about certain perceptions, like what I was mentioning with the short-term rentals being much cleaner and more well taken care of than longer term…

So thanks for being on the show. I hope you have a Best Ever day, and we’ll talk to you again soon.

Brian Page: Thanks, Joe. I appreciate it.

JF1903: How This Investor Scaled To 15 Units In 2.5 Years with Melchor V. Domantay

Listen to the Episode Below (00:21:15)
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For many newer investors, the goal is to create enough real estate income to have the option to leave their job if they choose. Melchor is well on his way as he has grown his portfolio from zero to 15 units in 2.5 years. Great episode for newer investors, but we also dive into some deal specifics for a little higher level insight. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“If you know your why, then educating yourself become easy” – Melchor V. Domantay

 

Melchor V. Domantay Jr. Real Estate Background:

 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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

Melchor Domantay:  Hey, how are you doing, Joe? Thanks for having me.

Joe Fairless:  Well, it’s my pleasure, and looking forward to our conversation. A little bit about Melchor… He is a controller of a non-profit company in Chicago, a CPA who a couple days ago got his CPA license – congrats on that – and a real estate investor. In just 2,5 years he has built up a portfolio of 15 units. Based in Chicago, Illinois. With that being said, Melchor, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Melchor Domantay:  Yeah, thanks Joe. I was born  in the Philippines and came here when I was 17. I’m 29 now, so – regular American dream, just trying to go to college, have a full-time job… But I had a great mentor, who was actually my boss… And he told me to buy real estate. I didn’t listen to him for five years, and after that I bought my first house. It was a two-flat house-hack, and I had a great tenant. I got that first check, and then just the light bulb — you know, that investor/landlording light bulb came off. Then from there I started researching everything, educating myself, looking for the right people in my team, and then with their help I acquired 15 units in the last 2,5 years.

Joe Fairless:  Well, I don’t wanna fast-forward too much… So you went from a two-flat house-hack, and in 2,5 years you have 15 units. The two-flat house-hack – how much did you buy it for, what did you have into it as a down payment, and improvement costs?

Melchor Domantay:  The first house was really kind of like a training wheel. I bought it fully rehabbed, $280,000. I put 3,5% down… I had a good realtor at the time, and she taught me about doing a credit. I had a 3% credit, so really, to be honest, I probably brought all-in $7,500.

Joe Fairless:  What’s the 3% credit you’re referring to?

Melchor Domantay:  It’s a seller’s credit that they gave me. It was a probate, and [unintelligible [00:03:32].22] just wanted to get rid of it, so they gave the 3% credit to me… So it was a cool structure.

Joe Fairless:  Okay. And is that 3% credit something that’s typical on a transaction, or how did you go about asking for it?

Melchor Domantay:  To be honest, most of my deals I always ask for a credit. The reason I do is because it’s an advantage for a person to not bring a lot of money to the closing table. For example, easy math, $100,000, if you’re putting down 5%, that’s $5,000, plus any closing costs. And if you ask for 3% credit, which most lenders I think will allow – that’s the cap – then that’s $3,000 off that you don’t have to bring to the closing table… So I try to do that structure as much as possible.

Joe Fairless:  Okay, so that was the two-flat. That was about 2,5 years ago. And then what did you do?

Melchor Domantay:  Then after that I found a realtor from Bigger Pockets that’s also an investor, so that helps a lot.

Joe Fairless:  Who?

Melchor Domantay:  John Warren. I’m not sure if you’re familiar with him. He helped me a lot, he added a lot of value… And seven months after I bought a foreclosure property, a two-flat in the West suburbs of Chicago. But the cool thing about it is there’s people living in there, so it was livable. But it was a foreclosure. I bought that for $80,000. Great deal. Then I put about $15,000 of work, and that kind of like propelled me and gave me a lot of confidence to do more real estate… Because I think my mortgage at the time was $750, and I was bringing in about $2,100, so it was great.

Joe Fairless:  It is. That is a great ratio there… The property was a foreclosure, but it had people living in it. Were those the people that were being foreclosed on?

Melchor Domantay:  Yeah, I think they were the owner, and they just couldn’t pay the mortgage. I asked them to stay, actually… So they can just stay there, and not worrying about moving, but I think a week before I closed they left already.

Joe Fairless:  Okay. So you made it a point to say it was a good thing that people were living in it… But if they moved out before you closed, what was the benefit of them living in it?

Melchor Domantay:  For me, the benefit of living in it — usually, a foreclosure property, an REO, usually they have been left behind for a long time… So when people are living in it, the advantage of it is there are still some people who live in it, and that means it’s livable. Most foreclosure properties have a leaky roof, or leaky pipes, and grass is five feet tall… So that’s the advantage of me saying that it’s great that there’s people living in it.

Joe Fairless:  Did they trash the place on their way out?

Melchor Domantay:  No, it was a Hispanic family and they were really nice. I got to talk to them when I was under contract. I had a conversation with them and they were really nice. I asked them, “Okay, why is that you’re getting foreclosed?” and they shared with me that something happened in the family and they just couldn’t pay the mortgage.

Joe Fairless:  And you put $15,000 into it… Did you do the work yourself and pay for supplies, or did you hire contractors?

Melchor Domantay:  I tried, but I’m just not a handyman. That’s not my strength.

Joe Fairless:  Me neither, by the way.

Melchor Domantay:  I hired a lot of people. It was – keep in mind – seven months after I bought my first property, and I think I was making $35,000, so I wasn’t making a lot of money. I was still a staff accountant at the time, and… I just hustled, man. I came up with the $25,000 to close, and another $15,000 to repair it… I hustled. I was driving Lyft before work, driving Lyft after work. It’s a good thing I worked in downtown Chicago. The parking here is hard, but I was fortunate that I can park right at my office. So it was a lot of hustle, a lot of driving Lyft… Because that’s not my skill. My skill is I can drive Lyft. So if I was making $20/hour driving Lyft, and in turn I can just pay a contractor to do the same job $30/hour, I feel like that’s okay, because I don’t have to do all the learning process, being skilled about it; that’s a lot of time. So I feel the right decision for me at the time was to just drive as much Lyft as possible, and pay the contractor to do the work.

My model was always get the property as fast ready as possible, because every time the property is vacant, you’re losing money.

Joe Fairless:  Did you have a general contractor who then hired subcontractors?

Melchor Domantay:  No, there was a lot of handymen at the time. I couldn’t hire a GC because there’s a margin the GC charges. So it was a lot of building relationships with all my handymen, and a lot of it came from my realtor. So having a great realtor, who’s an investor as well – they would know a lot of other people.

Joe Fairless:  Yes. Very important, especially with construction workers, to go through references, and good thing that you had that person. Okay, so that was the next two-flat, so at this point you have four.

Melchor Domantay:  Yeah.

Joe Fairless:  What did you do after that?

Melchor Domantay:  After that – I think November of 2017 – I bought a three-flat, another foreclosure, again, around the same area.

Joe Fairless:  And you’re making $35,000/year, you said, at the time.

Melchor Domantay:  Yes, at the time. I was still focused on my full-time job too, while doing this.

Joe Fairless:  Oh, of course.

Melchor Domantay:  So I was getting promoted… At the time when I started I was staff accountant, and now I’m a controller. So as I go, the last 2,5 years, I was still focused on my full-time job, and not forgetting that I have that responsibility. And I have great mentors. My boss at my full-time job knows everything that I’m doing, so with the support from them and from all the team members I have…

Joe Fairless:  I bring that up because, relatively speaking, it could be considered a low amount of money, but you’re buying all these properties; that’s my point. So you were getting this extra income from (I imagine) keeping your living expenses pretty low, and then also doing the side hustle of driving for Lyft?

Melchor Domantay:  Yeah, the key for me to buy the next property, the three-flat, my third property, is I refinanced the foreclosure, because at the time — it was considerably low when I bought it, so I bought it right… It was [unintelligible [00:09:44].12] I think about $130,000 after, so I basically got most of my money back.

Joe Fairless:  The one you bought for $88,000?

Melchor Domantay:  Yes, correct. And then I used that, and then some of my 401K to buy the three-flat that I bought. It was $240,000. And I learned how to paint. I think painting is the only one I can do. [laughs]

Joe Fairless:  The 401K money – did you pay a penalty? I guess you can probably do self-directed, because it’s your own deal…

Melchor Domantay:  It’s a loan. You can do a loan in your 401K. Basically, you pay a minimal interest. At the time I think it was 4.5%… And [unintelligible [00:10:22].02] That’s basically what happens.

Joe Fairless:  Alright. So you bought one for 240k, that’s the three-flat, so at this point you’ve got seven. What did you do next?

Melchor Domantay:  So that one was a foreclosure as well. I knew coming in it’s gonna be worth $300,000 when I bought it. So right away when I bought it I just created $60,000.

Joe Fairless:  Which one, the three-flat?

Melchor Domantay:  The three-flat, correct.

Joe Fairless:  Okay, alright.

Melchor Domantay:  So I think the key for me growing really was buying it right in the beginning. Most of these properties — the two-flat was a little distressed, but not too distressed. But the three-flat was really distressed. We’re talking about carpets that animals feed on… So I had to do a lot of work for it, but right now I think it’s worth $360,000.

Joe Fairless:  Good for you.

Melchor Domantay:  Again, that was about 3,300 sqft. I spent mornings and evenings after driving Lyft painting, just to get it ready. It was in the middle of winter, too… But it’s a lot of hard work. I think that’s what most beginning investors lack. Because I did excited listening to your 1,700 podcasts. I’ve listened to Bigger Pockets 300 podcasts while driving Lyft… So I like to think of myself like a taxi driver; all of them have a Ph.D. in something, because I’m sure they’re listening to everything.

So it’s a lot of hard work, man… Waking up at [4:30] in the morning, not coming home till 8 PM… I think at the time I was still single. I don’t know if I can get away with that now.

Joe Fairless:  [laughs] You were waking up at [4:30] in the morning, then what would you do? Just high-level, from [4:30] to 8 PM.

Melchor Domantay:  At the time I would wake up at [4:30] in the morning, go paint for like an hour, and hour and a half, and then drive Lyft. Go to the gym, then go to work, and then again drive Lyft. Around probably [7:30] I’d stop and then come home and paint till 11. That was really my day.

Joe Fairless:  [4:30] AM to 11 PM… For what period of time did you do that?

Melchor Domantay:  I was doing that for about two, two and  a half months. I got sick a couple times doing that. [laughter]

Joe Fairless:  Your immune system was not enjoying the lack of sleep, plus the paint fumes, plus everything else that you were doing.

Melchor Domantay:  Yeah…

Joe Fairless:  Well, thank you for sharing that schedule. That is important and necessary to note, so thank you for that. Real quick, let’s go faster on the next properties. You had a three-flat, then what was the next one?

Melchor Domantay:  The next one was a five-unit, so that was nice…

Joe Fairless:  Alright…

Melchor Domantay:  It was totally distressed… At this point I’ve been talking to a lot of people and building a lot of relationships, and then after that, that actual seller of the five-unit got me the last property, the three-unit, which is a seller finance.

Joe Fairless:  Okay. Let’s talk about that five-unit – how did you hear about it?

Melchor Domantay:  I found it on the MLS, put an offer that day… Just the regular MLS; all of my properties are MLS, besides the last one.

Joe Fairless:  When you say “distressed”, will you describe the circumstance of the distress?

Melchor Domantay:  Sure. Floors are broken, tuck-pointing needed, it smells like pee… The problem with that too is there were people in there. So there were people in there paying rent. The seller was just your typical old, mom-and-pop, and doesn’t wanna basically deal with it.

Joe Fairless:  How much did you purchase it for?

Melchor Domantay:  I purchased this for 280k.

Joe Fairless:  280k. So for someone who’s not in Chicago or doesn’t know the market, that sounds like a  lot of money for  a property that is distressed, and smells like pee, and people not paying rent.

Melchor Domantay:  Yeah. I think I’d pay for it probably higher right now. That was probably around 56k per unit, if I’m not mistaken. So right now in the same area it’s probably exchanging at around 75k/unit. So there was a lot of meat on the bone, however I think all this stuff that I have to do – it’s probably just gonna even out.

But a thing that I wanna point out – because especially right now that’s how I’m looking at deals – is when you acquire it… Because I look at it long-term. Let’s say that property, for example, will net income, after I pay it off, let’s say it’ll give me $30,000/year. So if I acquire four of those, regardless of if they become a dollar — let’s say just the rent stays, and everything else stays… Which if the expense goes up, more likely than not the rent will go up. But if it stays just $30,000 after I paid it off, that’s $30,000 that I can earn without me basically doing anything. Just passing it to the management company. So that’s really how I look at deals now, and especially if the seller of the property has more properties.

It doesn’t hurt to buy it and build rapport that you can actually perform — because that’s the reason why I received the award for the seller finance, because the seller, after three months I kind of change the look of the property. They’ve been in the block, they saw how windows changed… They saw that I’m actually doing something with the property, instead of just staying like an eyesore. The seller saw that too, so — as a young guy especially, most people will say “Look, you don’t have a lot of experience”, but even if you don’t have a lot of experience, a lot of hustle, a lot of people that you know that you can leverage, it will kind of even the gap.

Joe Fairless:  Thank you for sharing that. The five-unit led to an opportunity with the three-unit and seller financing. Based on your experience, what’s your best real estate investing advice ever?

Melchor Domantay:  I was thinking about this, and it’s very generic, but I think the foundation of any business you can go to is knowing the purpose, what’s your Why. Because I think if you know your Why, then educating yourself becomes easier. There’s always a Why… And hustling becomes easier. Waking up at [4:30] in the morning becomes easier. Driving Lyft…

Joe Fairless:  What time do you wake up now?

Melchor Domantay:  Right now I still wake up at [4:30], but I do the Miracle Morning by Hal Elrod. I do that in the morning. I still drive Lyft, even though I’m a controller… But I’m more into just building relationships. The reason I wanna be a realtor is I wanna just exchange dollar-per-hour from Lyft, becoming a realtor… And I just love seeing houses, and helping people.

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

Melchor Domantay:  Yes, sir!

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

Break: [00:17:08].11] to [00:17:42].20]

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

Melchor Domantay:  Recently… Millionaire Success Habits, Dean Graziosi.

Joe Fairless:  Best ever deal you’ve done?

Melchor Domantay:  I think the second two-flat I bought, the foreclosure. The 80k one. That gave me a lot of confidence to do more real estate, definitely.

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

Melchor Domantay:  Trusting contractors. I think a lot of us have done that before. I think if I have one skill, it’s to delegate… But the problem I had on that transaction is I didn’t put systems and processes in place to have a checks and balance. I asked the contractor to do something, thought it was done, but I didn’t check on the tenant, I didn’t ask for pictures, and I paid the contractor… And I’ve basically just not used that contractor again.

Joe Fairless:  Yeah. How much did you pay him?

Melchor Domantay:  Man, I paid him $700.

Joe Fairless:  And did they do any of the work?

Melchor Domantay:  Nope.

Joe Fairless:  [laughs] They did none of the work…

Melchor Domantay:  Nope, none of it. I learned from that. That was when I was dreaming still.

Joe Fairless:  Hey, it happens to everyone.

Melchor Domantay:  Yes. At least it was only $700.

Joe Fairless:  Right. Enough to remember, but not enough to side-track things majorly.

Melchor Domantay:  Yeah.

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

Melchor Domantay:  I do go to meetups, and I talk to other investors. I just started doing a video content every week, that I wanna share with everybody, because I think  a lot of the stuff that’s popular – they don’t really go through steps on how they got there. They just say “Okay, I have 100 units…”, and all that. I think sharing my experiences will help a lot of investors, especially new investors, with how to think about it. I was making $35,000… There’s a lot of people making more than that now, that I think can buy properties. I think there’s a little trigger that if they can see themselves, it would give them the trigger to pull it.

Joe Fairless:  That’s why we do this show, to share your story, so it will inspire others and help others. How can the Best Ever listeners learn more about what you’re doing?

Melchor Domantay:  Can I give my number?

Joe Fairless:  Give your number.

Melchor Domantay:  They can call me at 708-979-0852. If they’re around [unintelligible [00:19:49].24] or even Chicago area. They can also email me at mvdarental@gmail.com.

Joe Fairless:  Call, text, anytime, day or night.

Melchor Domantay:  Yes, yes, yes…! I don’t sleep.

Joe Fairless:  [laughs] Well, Melchor, thank you for being on the show. Thank you for talking about your habits and how you got to where you’re at. The [4:30] AM to 11 PM typical day that you had for 2,5 months whenever you were repositioning one of your properties, the business plan that you take with each of your properties, which is basically you find a distressed property and you fix it up, and then you take the proceeds from that and you parlay it to something else… And in some cases, you parlay the relationship into other deals, for example that 5-unit, into the 3-unit, which you got seller financing with that 3-unit.

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

Melchor Domantay:  Thanks, Joe.

 

JF1890: From Military Life To Civilian Work & Real Estate Investing with Eric Upchurch

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Eric is a veteran who is now living the civilian life, and read Rich Dad Poor Dad years ago. Like many real estate investors, reading Rich Dad Poor Dad sparked a fire for real estate investing. He started with the seminars that other investors have paid for as well. Unlike many people, who complain about the price of the seminars and getting no value from them, Eric was able to leverage the relationships and network within the program to more than make his money back. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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“Learn, network, add value, and take action. If you do that everyday, success will find you” – Eric Upchurch

 

Eric Upchurch Real Estate Background:

 


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Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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

Eric Upchurch: I’m doing really well, how are you doing?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Erich – he’s the COO and co-founder of Active Duty Passive Income, and is a senior managing partner at API Capital. He’s been investing in real estate throughout the country for 13 years. Based in Northern California. With that being said, Eric, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Eric Upchurch: Sure. I joined the military after college. I chose to be enlisted because I like to influence people and I like to do good things for junior enlisted soldiers. I got a lot out of that as well. I transitioned from the military in early 2011…

Joe Fairless: What branch?

Eric Upchurch: Army Special Operations.

Joe Fairless: Nice. Well, thank you sir for what you did.

Eric Upchurch: Absolutely, a pleasure. The Army  used me, but I used the Army right back. I was able to have all my college debt paid for through the loan repayment program, and then they paid for all of my master’s degree as well while I was in, so… I definitely got my money’s worth there.

Joe Fairless: I’m going to my brother’s promotional ceremony later this month. He’s gonna be promoted to a colonel in the army.

Eric Upchurch: Wow, that’s pretty incredible.

Joe Fairless: He loves it.

Eric Upchurch: Congratulations, that’s really cool. Tell him I said hi.

Joe Fairless: I will.

Eric Upchurch: And thanks for his service. My wife and I moved back to the Bay Area where she is from. We met in college in Santa Barbara, and after I got out, we transitioned to Northern California, where we still reside. So we’ve been here about eight years, and I still have that W-2 that I care for as well, so… We could talk about that if you wanted to… And balancing both the real estate and W-2 job on the side as well.

I got started in real estate very similarly to many people in the military; we use the VA loan and get in on a property that we’re going to be living in. At the time, when I transitioned out of the service, I could not sell the property, so I moved back to the Bay Area and rented it out, and I eventually said “You know, I’m making money on that pr