JF2327: Turnkey Rentals With Eric Martel

Eric purchased his first apartment building at just 18 years of age while still at university. After graduation, in his position as an actuary, he was dismayed to see hundreds of company pension plans being rolled over into 401(k)s shifting the retirement risk to employees. This made him reconsider traditional beliefs about retirement saving. It also made him question his role as an actuary so he joined the lucrative technology industry. A few years later he lost a fortune during the Dot com crash of 2001 and he started looking for ways to earn passive income and stop trading time for money. He started various businesses, including a gourmet sauce company, but eventually came back to his first love of real estate investing and formed MartelTurnkey with his sons. After just four years of rapid success, he was able to retire from his day job. Now he wants to share what he’s learned so you don’t make the same mistakes he did.

Eric Martel Real Estate Background:

  • Full-time real estate investor for over 4 years
  • Owns a turnkey rental provider; selling 10 properties a month
  • Portfolio consist of 100 units in midtown Memphis
  • Based in Los Angeles, CA
  • Say hi to him at https://martelturnkey.com/

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Just take action, I think people are waiting and hoping for the greatest deal ever.” – Eric Martel


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, Eric Martel. How are you doing, Eric?

Eric Martel: Very good. How are you?

Joe Fairless: Well, I’m glad to hear that, and I’m doing well. A little bit about Eric – he’s a full-time real estate investor, has been for four years. He owns a turnkey rental provider; they sell 10 properties a month. His portfolio consists of 100 units in Midtown Memphis, and he’s currently based in Los Angeles, California. He’s got a book coming out called Stop Trading Your Time For Money. And you can be notified about when that book launches and go check it out at marteleric.com/book. So with that being said, Eric, doyou want to give the Best Ever listeners a little bit more about your background and your current focus?

Eric Martel: My background, I was just a regular upbringing as a child, in a not poor family, but lower middle class, I would say. I purchased my first apartment building when I was 18 years old, while I was still at university. And then after graduating, I was an actuary, and I was dismayed to see so many corporate pension plans basically being converted into 401Ks. And that was really shifting a lot of the risk of retirement to the employees. So that made me reconsider the traditional belief about retirement planning and retirement saving.

Two years later after the .com crash in 2001, so I lost a lot of money, and that was my turning point where I said “Okay, well I have to do something where I am in control of my investment, and start working on passive income.” I did a whole bunch of different businesses to get there. I was trying to get into real estate at the time, but I was in San Francisco and we did the numbers and it didn’t make a lot of sense; the returns were very low. And if you wanted it to cash flow, you had to put a lot of money. So I did other things I did a gourmet sauce company, we did a low-carb grocery store, all kinds of crazy things. And then really four or five years ago we decided to get going on real estate with my two sons, and things are going very well. And now we’re helping other people also build a portfolio of passive income so that they can retire early, achieve financial freedom, and leave a legacy for future generations.

Joe Fairless: You’ve done a decent amount of varying things. A grocery store? You owned a grocery store?

Eric Martel: Yeah, low-carb. You remember Atkins? We did like a low-carb…

Joe Fairless: I do.

Eric Martel: Yeah. A low-carb grocery store. And then Atkins died, out of all things… So it was interesting. So yeah, when Atkins passed away, then the low-carb kind of disappeared, or really was not as prominent. So we moved on, then we did a gourmet sauce company. We worked at it for about five years. That was going very well, we were in Whole Foods across the country, we were in a bunch of other stores as well… And there was no traction; five years of hard work, and it didn’t sell itself. The only time it would sell is if we were there in the stores, doing in-store demos and all of that. So, yeah.

Joe Fairless: And then I heard earlier, which is most relevant to this conversation – 18 years old, you bought your first apartment building?

Eric Martel: Yeah, that’s right. At 18 I bought an apartment building. And thing is that when I bought this building, I didn’t have any grand plans of achieving financial freedom. I was 18 years old, I had my whole life in front of me. But I had met through a friend of mine, a mentor, a real estate investor, he was a community college teacher, he was with a modest salary, and he managed to build a 36-unit apartment building 45 minutes outside of Montreal. And then I was really intrigued by that. He agreed to mentor me in, to learn about real estate investment. So that’s what I did. I kind of jumped at the opportunity, and he basically mentored me throughout this whole process. So basically, I kind of bought this building to prove that it can be done. I had no money down. I think I had $150 in the bank, and I had to write a check for the mortgage application; it was like $75, and that really made a dent in my budget. [laughter] You have to give half your money away to the bank for an application. It was crazy.

Joe Fairless: If only they knew…

Eric Martel: Yeah, exactly, right?

Joe Fairless: Which they should have known…

Eric Martel: Yeah.

Joe Fairless: Shame on them.

Eric Martel: We were there in front of the public notary, signing the documents and all of that… And then it  was kind of like “Okay, well does Eric have the money–” because I had to put like 20% down, and then he said, “Well, does Eric have the money down?” And stuff like that. And then the notary, and the realtor, and the seller were looking at each other and they said, “Oh, yeah. He has that. No problem. Moving on…” So the bank was satisfied that everybody was nodding that I had the money, and of course, I didn’t have the money. So that could have gone very badly. The rest of the money came from the seller, so I had like sellers financing for the 25% that was left. And that’s how I was able to buy it without any money down.

Joe Fairless: Oh, so the 20% down that the bank was asking about – that came from the seller?

Eric Martel: The seller. Yeah.

Joe Fairless: Okay, because you got a second loan, like a second mortgage on it?

Eric Martel: Got a second mortgage on the property. But in the order — when you’re signing the document, the first thing that you sign is you sign the sale agreement, then you sign the first mortgage on the first lien on the property. But at that point, the bank is asking, “Oh, yeah, do you have a 20% or 25% down payment?” That’s why everybody’s looking, “Oh, yeah. He has it, yeah.”

Joe Fairless: How many units?

Eric Martel: That was eight units.

Joe Fairless: Eight units. How much was the purchase price?

Eric Martel: It was not in a good part of town, I must say. So I think the purchase price at that time was $80,000. Something like that.

Joe Fairless: And where was it?

Eric Martel: This was in the Trois-Rivières. Three Rivers. About 45 minutes outside of Montreal.

Joe Fairless: Okay. Three Rivers. What did do you do with it?

Eric Martel: Eventually, I sold it… Because after that, when I became an actuary, I found a job in Toronto, which was six hours away from my investment. So I thought “Okay, well I better get rid of it.” So I sold it and made a little bit of profit. I think I made a 15k profit when I sold it.

Joe Fairless: What was it like managing an eight-unit as an 18-year-old?

Eric Martel: That what the problem, this is where I made a mistake… Because I should have had a property management company to handle all of that. It was an exciting project and all of that, I was very happy with it, but yeah, that really left a bitter taste in my mouth, that I had to go there and fix things, and fix the window, I remember, and then do some plumbing. And I hate doing plumbing. There was a leak in a wall or something like that, and I had to fix it. I don’t know what I’m doing. That’s the one thing where I made a mistake there.

Joe Fairless: And now let’s fast-forward to today. You have a portfolio of 100 units in Midtown Memphis.

Eric Martel: Yeah. We started doing single-family. A few years back we just did single-family, we just bid — I don’t know if you’re familiar with the BRRRR…

Joe Fairless: I am, but would you mind just quickly saying what it is?

Eric Martel: Yeah. So the BRRRR is basically you’re buying a distressed property, so this is the B, buy the distressed property. Then you renovate it, then you rent it out, and then you refinance, and then you repeat. So that’s how we got started – we bought our first single-family rental in Memphis. We renovated it, rented it out, and then we refinanced it, then we did it again. We did two more, and then we did three more, and that’s how we got started.

And we’ve done a lot of interesting things that you pointed out before with the low-carb grocery store and the gourmet sauce company, and a couple of other businesses that we did. So our friends started asking questions, “What are the Martels doing?” [laughter] So they started asking questions about that as well. And then Memphis, like “Why Memphis?” And, “What are you guys doing?” So then they wanted to invest with us, so we started to do joint ventures and all that.

And then we went to Cleveland, we opened that market as well in Cleveland. And at that point, we said about, “We should really do a turnkey rental business. We have so many people that are interested. Let’s do that.” And that’s when basically Martel turnkey was founded. Because we had these friends and close people that we knew in our network that were interested in building the passive income the same way we started.

And then from that, we invested in apartment buildings. We did such a great job in Memphis with their renovations that people noticed it. And then a realtor contacted us and said “Hey, are you interested in buying an apartment building?” And so yeah, so we jumped at the opportunity, and we bought our… That one was a 20-unit apartment building; we renovated it, and when we did that project — it was it was in Midtown, Memphis in a pretty visible area. So they noticed that “Oh yeah, they did a good job.” And actually, the seller of that apartment building kept getting compliments about, “Oh, you did a great job renovating your apartment building,” and stuff like that. So he says “Oh, well actually I sold it.” So, that seller, he had a whole portfolio of apartment buildings, so he contacted us to say, “Well, you did such a great job with that one. Are you interested in…” He showed us a whole portfolio. And he was kind of divesting from that and moving into a different type of investment. So we got our pick of other apartment buildings from that, and then we had more opportunities come our way.

Joe Fairless: So what did you buy from him after that?

Eric Martel: So after that, we bought another apartment building, also in Midtown Memphis as well, in what’s called Overton Square. That’s a very nice area; they have live outdoor concerts, lots of bars and restaurants. So that’s a very dynamic area. And we’re literally half a block away from that location, and that’s booming. Memphis is really booming. In that same area, they’re building a new hotel called The Memphian.

Joe Fairless: How many units was that other one?

Eric Martel: The first one was 20 units, this one is 24 units.

Joe Fairless: And then you’ve got…

Eric Martel: And we bought a bunch of other ones after that too.

Joe Fairless: Anything larger than 24 units?

Eric Martel: No. These are pretty much that size; we have 16 to 24 units. Yeah.

Joe Fairless: Percentage of real estate investors who are focused on multi-family would stay away from 16 units, 20 units, 24 units, especially if they weren’t local, because of the property not being able to pay for staff to oversee it. How do you get around that?

Eric Martel: Well, for us, we have a property management company. It’s actually the same property management company that is managing our single-family rentals, and these apartment buildings. So it is the same professional property management company, they have all the processes.

Joe Fairless: Third-party or you own them?

Eric Martel: It’s a third party.

Joe Fairless: Third-party. Okay.

Eric Martel: So they’re doing a great job, they’re professional, they know what needs to be done. And it’s really the same thing. There’s no difference for us whether it’s a single-family or multi-family. We don’t have anybody on location either, like a superintendent, or — we don’t have an office on site. So it’s just a property management company that handles all of that.

Joe Fairless: What type of learning curve was there for the property management company to manage a 24-unit property, if they weren’t already doing that for other landlords?

Eric Martel: Yeah, they were already doing that for other landlords. But that’s a good point. If you’re dealing with a property management company right now that only handles single-family rentals and now you want to get into the multi-family, you may have to find a different property management company to handle that. It is slightly different in how it is handled.

Joe Fairless: In what ways is it slightly different?

Eric Martel: Well, there’s a lot more traveling around in the single-family rental. If you want to go and visit your 16 tenants and 16 different houses, then your property management company has to travel a little bit more to get things done. You have 16 roofs that you have to deal with, you have 16 times four exterior walls that you have to deal with. So for the property management company it’s different from that perspective, and a different market. If they’re dealing with one apartment building in terms of maintenance and all, that’s a little bit easier, I would say. But they’re also dealing with other problems, because typically it’s in other areas, in other residential areas. For us, we’re in Midtown, so if you’re in Midtown Memphis, there’s a little bit more… It’s not a serious crime, but you have more serious problems, people, vagrants that are walking around, and you have to be careful about that. Also because you have all these people in the apartment building, then there are more potential conflicts, I would say, between tenants. The music is too loud and blah blah blah, and these kinds of things. In single-family rentals you don’t have to deal with that, or the barbecues, or… Especially in Memphis, you do a lot of barbecues.

Joe Fairless: They’ve got good barbecue there. Of course…

Eric Martel: They do, they do.

Joe Fairless: They should be doing barbecues. What deal have you lost the most amount of money on?

Eric Martel: I think it was really a single-family rental. We haven’t lost really that much money. Out of 200 or more properties that we did, we probably lost money on, I would say maybe, five properties.

Joe Fairless: Which one did you lose the most on?

Eric Martel: Less than 10.  And I think the one we lost the most on, going from memory, I think it was $9,000; that’s how much we lost.

Joe Fairless: That’s nothing compared to the good stuff. Do you remember what happened on that deal?

Eric Martel: There was a couple of things. There was a plumbing issue in the wall, and we didn’t know about it, because we didn’t open any of the walls; we just did our thing, and then the main stack had an issue with it, and we needed to fix that. And the one that happened last month was — there was a lot of rain in Cleveland, and then we had seepage in the basement of one of the units. And we had done some seal from the inside and everything seemed fine, but then there was like torrential rain, and now the water started seeping in. So we had to go and spend $6,000 that we were not planning to spend on that renovation. So, yeah, these kinds of things. So this one we didn’t lose money, but every once in a while you do get surprises like that where you actually have to plan for that.

Joe Fairless: On the flip side, what deal have you made the most money on?

Eric Martel: Sorry, there are so many… [laughter] I have to order them. One of them we literally bought a building at a very low price, way below market, and all we had to do was paint the inside, just clean it up, and then we sold it, and we made 30% profit on that property.

Joe Fairless: Wow. What did you buy it for?

Eric Martel: I think we bought it for 60 or something like that. And then we sold it for 90k.

Joe Fairless: And all you did was paint it?

Eric Martel: All we did was paint it.

Joe Fairless: Huh. How can I find one of those?

Eric Martel: Well, we’re still looking… We call those the unicorns. So out of the 200 or more properties that we did, I think we had two or three of these unicorns, where we just didn’t have so much work…

Joe Fairless: Was there any common denominator for how you found those unicorns, compared to other properties that you found?

Eric Martel: No. It’s just to cast a wide net, and then every once in a while you’re going to get something good. It’s really about the numbers, how many properties you need to do, and then that’s when you’re going to find these things. That’s why one of the advice that I give to investors that are getting started too, is that they keep looking for that great deal; they say, “Oh, yeah. This is good, this is a good deal, but I think I can find a better deal.” A good deal is a good deal. Just get it and then move on, and then do another couple of good deals, and eventually, you’re going to find a great deal. But taking action is very important, starting to invest is very important. It’s more important than finding the unicorn and finding these amazing deals. A good deal is a good deal; just take action, invest, and then eventually, you’ll get a great deal.

Joe Fairless:  I’m going to ask you to dig deep, and in addition to that advice, I’m going to ask you for additional advice.. Because of the format of the show, I have to ask the question, because we got some music that leads up to it and everything… So be on your toes, and here we go – what is your best real estate investing advice ever outside, of what you just mentioned?

Eric Martel: I think take action. I think this is critical. I think people are just on the sideline, either waiting for the great deal ever or something like that, or they keep moving around. I think it’s important for people to take action and invest in something. There’s a lot of talk, not a lot of action.

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

Eric Martel: Okay, I’ll do my best. I’m not very good at that.

Joe Fairless: Well, just a couple of questions. First though, a quick word from Best Ever partners.

Break: [00:20:13][00:20:53]

Joe Fairless: Alright, best ever way you like to give back to the community?

Eric Martel: I like the food donation thing; I forget what the organization is. But yeah, I like that. I’ve done a few of those and I really like that.

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

Eric Martel: They can go on marteleric.com, that’s my website, and then you can connect with everything else I do. My book, my podcast, everything.

Joe Fairless: Thank you so much for being on the show, Eric, and talking about your portfolio, accumulation and your focus now with the turnkey company. Congrats on the book that’s coming out, Stop Trading Your Time For Money. I enjoyed hearing about some of the lessons learned, as well as the good stuff too. So, I appreciate it. Hope you have a Best Ever day and talk to you again soon.

Eric Martel: Great. Thank you very much.

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JF2299: Out-of-State Turnkey Properties With Axel Meierhoefer

Axel is the founder of AMC and Ideal Wealth Grower. He originally came over from Germany through the Air Force and had a successful executive role for a software company and has founded a consulting company as well. As he grew in his career he started to wonder how he could grow real wealth so his first idea was the stock market until he saw the dot com bubble burst and he quickly pivoted to focus on real estate. Now he focuses on helping others grow their own passive income through real estate consulting.

Axel Meierhoefer Real Estate Background:

  • Founder of AMC and Ideal Wealth Grower
  • 9 years of real estate experience
  • Portfolio consist of 8 turnkey properties in two locations plus his home in San Diego, and a Cocoa investment in Belize
  • Based in San Diego, CA
  • Say hi to him at: www.idealwealthgrower.com/free for mindset manual
  • Best Ever Book: Wealthy Gardener

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Look for the best balance deal” – Axel Meierhoefer


TRANSCRIPTION

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

Axel, how are you doing today?

Axel Meierhoefer: Great, Theo. Thank you for having me. I’ve really been looking forward to being on the show.

Theo Hicks: Well, thank you for joining us, looking forward to our conversation as well. A little bit about Axel, he is the founder of AMC and Ideal Wealth Grower. He has nine years of real estate experience, and his portfolio consists of eight turnkey properties in two locations, plus his home in San Diego, and a cocoa investment in Belize. He’s based in San Diego, his website is idealwealthgrower.com.

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

Axel Meierhoefer: Absolutely. So you can probably still hear the accent a little bit… I came over here 25 years ago from Germany with the Air Force, I was serving in the US Air Force here. coming from Germany. Around 2000, I was getting to retire from the Air Force, and being familiar with the system in Europe, you typically have some kind of government-organized retirement system. When I came here, and shortly after working for a company as an executive, started the consulting company you mentioned, it became very obvious that I needed to do something for my retirement. And initially, I thought that could be maybe in stock investments, because that was what most other people were talking about… But I realized, especially at that time – keep in mind, we had the Dot-com bust around 2003… A lot of people got wiped out, and I was like, “That’s probably not what I really want to be part of.”

I started researching, and really got fascinated with the longevity and all the things that you can do, all the benefits that you get with real estate. So that’s how I got into real estate investing, and in the last few years, more and more as I started creating Ideal Wealth Grower, it became obvious that there are many, many people who would like to do something, but there are sometimes mental and other hurdles in the way, and that’s what we are around for, trying to help people, to take them by the hand, help them to set themselves up and really get a little bit more confident in pretty much anybody can do it; maybe not overnight, but over time, and really get to a point that I call it economic independence. We can talk about that a little more, I hope.

Theo Hicks: Sure. So you would say that right now, your main focus would be the Ideal Wealth Grower education portion and then you use your money that you have saved up to buy turnkey properties, that are completely hands-off and passive?

Axel Meierhoefer: Yeah, we’re doing the Ideal Wealth Grower as a mentoring program, an educational program to help people, but we’re also getting paid for it, so there’s income from that, and some other sources. I’m still doing some consulting work from which there’s income… So I’m constantly growing the portfolio.

And what I’m priding myself is that I want to help mentor and support people based on what I have done myself. It’s one thing to say, “Okay, you can read a book, you can go on TV, you can do all kinds of things”, but I hope there is a different level of trust, a different level of expertise that I can bring to the table with my team by basically showing people what has worked, and helping them. And this is my definition of mentoring – to avoid to have to do the same mistakes, right? I did plenty of mistakes that I know now, and I know how to avoid them, and that’s what I basically see as a main value, is to say, “Okay, how can you actually become a residential real estate investor without having to do the same mistakes everyday?”

Theo Hicks: Can you maybe walk us through the first real estate deal that you’ve done so we can get an idea of what your strategy is?

Axel Meierhoefer: Well, there’s a little bit of a difference. The first deal that we did was basically for ourselves. We had occupied a home and we were told by the military that we’re going to move to a different location, and then the question was, “Okay, should we sell it? What should we do?” At the time, I started dabbling into real estate and what could be done with it, and decided it wasn’t really a good time, the economy wasn’t really in a good place… So we decided to rent it and basically, in that process became landlords.

From all of that, and over the years, what we’re doing now – to answer your question about the strategy – I call it “the out of state turnkey strategy.” And the reason is, as you said, we live right now in San Diego, we lived in the Santa Barbara area before that, and both of those areas, as well as other areas in the country, are pretty expensive. A lot of people around where we live, say, “Well, I can’t really become an investor, because any of the properties are way too expensive and I don’t have enough money for a down payment”, and so forth.

So “the out of state turnkey strategy” is really combining, number one, to look for well-performing properties in locations where the balance between the price and the rental income is still good. So most of those, admittedly, are somewhere in the Midwest. I have looked into the South, but I haven’t really found anything that worked there.

And then the turnkey component is basically a shifting of the risk… Because as you know, Theo, a lot of people talk about, “I want to do passive stuff.” I’ve seen you have recently done a couple of shows about what does it really mean to have financial independence, or what I call economic independence, and I’m really looking at how can we be still working still in the ramp-up phase of our careers oftentimes, and get into some form of a passive investment scheme.

I believe turnkey providers are great if you get the right ones, because you’re shifting a lot of the risks in their direction; they find the property, they put the money in for the renovation, they make sure that it actually goes to the inspection, they have to make sure that appraises before we even ever come in.

So the out of state turnkey strategy is basically looking at places where you have a good balance between price and rental income, and have it managed and started in a very, I call it a virtuous triangle, turnkey relationship. So there’s plenty of turnkey providers, as you probably know, but not all of them are made of the same, and we in our strategy focus on a very small subset, that meets very specific criteria, that I’m happy to describe it to you.

Theo Hicks: Yeah, so my next question – let’s say I live in this expensive area, I’ve identified a market in the Midwest somewhere, and the next step would be to obviously find this provider… What are my next steps? How am I finding them, and then what am I doing to qualify them? What is the specific criteria?

Axel Meierhoefer: Well, the easiest way is you just work with me and my team and we help you, because I’ll personally introduce you to the ones I’m working with it. So that’s what I meant earlier, to have this benefit of not only not having to make the mistakes, but also I’m opening up my existing relationship with personal introductions to the organizations that I work with.

But even in the scenario where you say you want to do it yourself, what I basically say is number one, you want to look at a good balance – and you will hear me say balance over and over and over again. It’s the balance, for example, between the economic environment of a location… Let’s say you’re looking in the state of Ohio, because you deem that to be an interesting place. So you look at the state and you say, “Where are the locations with economic stability, with good schools, with good environments, with good jobs that people have? They don’t have to be super high-paying, but good jobs”, so they can qualify if you say I want their incomes to be three times as much as the rent.

And then you look at the properties, and my guiding rule is that the properties need to be performing at least at the 1% level, meaning you buy a $100,000 property, it needs to pay you $1,000 in rent. Now, sometimes you can get a little more, sometimes you can get a little less, but that is kind of the ratio we’re looking for. So that’s the one side of the balance.

And then the other side of the game and what I call the virtuous triangle for turnkey providers is it needs to be in a way that there are dependencies that prevent us as investors to be harmed from the relationship. And what I mean by that – if the turnkey provider is the one who finds the property and has a team that does the renovation, they take all the risk to get the property up to a modern standard.

Then the second thing is when you actually purchase the properties, assuming it meets all the criteria and has the 1% rule, it’s very well renovated, it made the inspection, it got the appraisal value, all of those things, then the turnkey provider also needs to be the organization that does the property management… For one, because we want as investors to be as passive as we can be. But for number two, this virtuous triangle comes together because if you are managing the property that you previously renovated, number one, as the owner, I’m not even getting the runaround between who is responsible when something breaks. And in our case, we make sure that we have a guarantee or warranty for the first year after we purchase, that anything that has been touched, anything that has been renovated, if it breaks, it will have to be fixed by the turnkey provider/property management.

But if you think about it, if they renovate it and they don’t renovate it well, but they signed that contract, they would shoot themselves in the foot if they then have to come up with the cost, they have to go out there and fix a faucet, fix the door or fix whatever breaks. So this virtuous triangle it comes together by them doing a good job on the renovation, knowing that the better the job is there, the less they have to do later.

Now, the other part is also where this comes in from an investor perspective, is really who pays for what. And I think this is really probably something that is not talked about enough, in my view, when I listen to a podcast – and I’m so glad that you’re making the opportunity for me to talk about it – and that is think about where the money comes from. So in our low-interest-rate environment, right now, when you buy one of those properties in the Midwest, you put 20% down and get 80% from the bank. Then later on, when you own the property and it’s running and you’re collecting rent and so forth and something breaks, let’s say after you’ve had it for a year, now you pay 100% of your money out of your maintenance reserves or cap-ex Reserves to pay for anything that needs to get fixed.

So you really have a choice to say — if you find a good provider, like the ones we’re working with, you put a little bit extra in the renovation. You decide exactly how your floor should look like, you look at other appliances really, on a long term warranty, and so forth and so forth, that might cost you maybe $1,000 more total than you would get in another year, but 80% of that comes from the bank. So those $1,000 extra or $2,000 extra cost you anywhere between $200—$400 of your own money, the rest comes from the bank. Later, when you’re in the maintenance phase, not only if you have a separate maintenance company do you have to fight between who renovated it and whose fault is it if it breaks, but also you have to come up with 100% of the money.

So this out of state turnkey provider strategy really says, “Let’s really have a relationship with the turnkey providers,” they do the upfront work, their property appraises, and they have every interest to get a good tenant and have done a good job on the renovation, so it’s really a smooth relationship where everybody benefits. The tenant benefits because they get a better renovated, higher quality home at a good price. The turnkey guys benefit because the less they have to do besides collecting the rent and sending my portion to me, the more of the 8% to 10% property management fee they keep to themselves, and I’m a happy camper because all I have to do on 9 or 10 properties a month is spend an hour or two to make sure that everything is running smoothly.

Theo Hicks: So for that last part about higher-quality renovations, because those costs will be included in the loan – so are you saying that we need to find a turnkey provider that allows us to decide what the renovations are, or we need to find a turnkey provider who is already doing these high-quality renovations?

Axel Meierhoefer: You could do both, but it’s rare to find one that is already doing it, because there’s a fine line between over-renovating and then not being able to actually meet the appraisal, because your lender doesn’t want to give you any more money than the property appraises to… So if you over-renovate, if you have golden faucets and super high-end marble or whatever countertops, then you’re never going to appraise.  So the deal is more to say, what is the relationship that we’re aiming for?

So for me – and that’s why I’m introducing our clients directly to the providers we’re working with – it’s on the one hand to find that balance, but when you have good relationships, the turnkey provider doesn’t suddenly out of the blue sky find a property and say, “Oh, Theo, there is a property now that you can buy.” They find the property probably 6-9 months earlier, when they actually look for properties that they’re going to renovate to sell them 6-9 months later.

So if you have a good relationship like we do, you find out that there are properties coming up the pipeline that fit the criteria that we gave to the turnkey provider, when the scope of work is not completed yet. When the question is still “I’ll be putting hardwood floors or I’ll be putting carpet?” And if I have a choice, I want to optimize the property for the tenant, and for myself. So the tenant has nice hardwood floors or luxury vinyl plank, and I don’t have to replace the carpets every two or three years.

But when the turnkey provider is the one who is actually conducting the renovation and the scope of work has been established, we can go over it together. And that doesn’t mean that I’m giving them money upfront, but we have a relationship. That’s really the important part. They know that if they do a good renovation, have a reasonable price that it appraises to, I’m willing to buy it from them. But that relationship allows me to have influence on the scope; not throwing everything over, but those little things.

For example, one thing that I learned and I recommend to everybody who is interested in this market, and to the listeners of the Best Ever Show, is really think about getting extended warranties on literally everything; on the refrigerator, on the range, on the ceiling fan, on the air conditioning… Literally, the example that you have when you go to Best Buy; every time you get to the register, they say, “Would you like to have the extended warranty?” I found if you add all the extended warranties that you can get on all the moving parts, anything that gets electricity, water or gas, kind of somehow fitting it, and you get those extended warranties, the price ultimately may go up 500 or 600 bucks; $5 here, $20 here…  But now, when something actually happens, even in the best renovation or the best equipment you get, something can go wrong. But for the next three years, or sometimes in some cases, five years, you have warranty, which is also much nicer for the turnkey provider property management side to say, “We just call him and have him come out.” We don’t need to charge you 80 or 100 bucks for somebody to come out and figure out why is this thing not doing what it’s supposed to do. And you can tell your tenants, “Everything in this place is under warranty.”

Theo Hicks: So you’d have to tell that provider that when they’re buying this stuff, include a warranty. What are your thoughts about the general home warranties?

Axel Meierhoefer: Well, most of the general home warranties that I’ve seen are a year, and most of this stuff that you buy, any kind of appliances or any kind of ceiling fans or air conditioning, unless it’s like a roof or a big A/C system or so forth, they also have about a year, sometimes maybe two years… But almost everything comes with an extended warranty.

Now, you can buy the builder’s warranty or the home warranty, but this, in my experience – and I’ve dabbled in this a little bit – is more applicable when you do new construction turnkey, where you would say, “Okay, everything is new anyway, so from that, I want the builder to warranty their work and the equipment in the house for 3-5 five years,” and you can get a policy for that anywhere between 600 and 1000 bucks.

What I’m talking about is a property more typical for turnkeys, that is maybe built in the 60s, 70s or 80s, something like that, and you’re bringing it back up to standard, but you’re still doing a lot of stuff and a lot of new equipment goes in, and those $600-$1,000 extra extended warranty is basically preserving your reserves, because I’m still saving about 5% for vacancy, 5% for cap-ex, and 5% for reserve into your little accumulation fund, but you want to use it as little as possible. The more you have on warranty, the less money has to come off your own pocket.

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

Axel Meierhoefer: The best advice I would give people is look for the best-balanced deal. The best balance between people saying 1%, and what the property is really worth.The best balance for how much money you want to get in… But fundamentally, the best balance means you want to start now; don’t wait or let people tell you that you have to wait for a long time. Take the best balance that fits for you and start now.

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

Axel Meierhoefer: Yeah, absolutely.

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

Break: [00:19:47] to [00:20:38]

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

Axel Meierhoefer: I really have to say I really like the Wealthy Gardener from John Soforic. I’ve spoken to John and got some permission to use some of the quotes that he has in there, but I would call this almost like a seminal book. And for anybody who hasn’t heard about it, I highly recommend it.

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

Axel Meierhoefer: If it were to collapse today, I would probably move into one of those areas that our turnkey providers are in, and then basically start doing a BRRRR deal myself. Find the property, maybe a duplex or so, renovate it, refi it and then keep doing that to build equity, and as soon as equity is there, then find a nice place, like at the coast somewhere, to live again and keep doing what we’re doing now.

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

Axel Meierhoefer: The best ever deal is probably a house in New Mexico that we first occupied and then turned it into an investment property. And within a year of moving out, the city decided to build a road – this was in Santa Fe, New Mexico – that connected our neighborhood with the main highway, and improved the value of the house by 30% in nine months. Normally, I’m always a big, big fan of buy and hold, but on that one, I just couldn’t resist to collect 100 grand overnight, basically.

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

Axel Meierhoefer: I believe that the best way I give back is by merely educating and letting people participate in what we learned, and really making those relationships available… Because I know there’s a lot of fear of getting into investing, not knowing what to do, who to talk to and always being afraid that somebody is giving you a raw deal. So I think by helping people get my relationships accessible to them, so I’m making these introductions and helping them to actually really reach what your show showed about financial independence, I think that’s the greatest service I can do.

Theo Hicks: And then, what is the best ever place to reach you? Where can we go to get this education you’re talking about?

Axel Meierhoefer: People can email me at axel@idealwealthgrower.com. And one thing that I did for the show and for the audience is we created a mindset menu that helps people to get into what is this idea of Wealth Grower thing about. You can find that by going to https://idealwealthgrower.com/free, and you basically click on the little form there and then you can download it. And it’s going to help you understand how we work and wire your mindset in how to become a good investor and residential real estate investor using our out of state turnkey strategy. That is the first thing – you need to be willing and confident that you can do it, and then we help you to do it

Theo Hicks: Perfect. Axel, thank you for joining us and kind of giving us a taste of this out of state turnkey strategy, which could obviously work for anyone, but it’s ideal for people who live in a really expensive area and there’s not that good price-to-rent balance, whereas you will be able to find that in places like the Midwest.
The major benefit is the shifting of the risk over to — not it all being on you. But your big thing is balance, so the balance of risk between you and the actual provider. You talked about the virtuous triangle, and you gave us some ideas on how to make sure that this risk is balanced properly.

You want to have a turnkey provider who’s buying the property, who’s renovating the property, and if they sell it, they are the ones that are doing the management as well. That way, if they did poor work upfront, they’re the ones that are going to suffer the consequences, at least in part, especially if you add into that the one year warranty that you put in all of your contracts with the turnkey provider for any of the work they’ve done, in addition to getting extended warranties on everything, so that once this one-year period is over, you don’t have to worry about paying money for anything that gets damaged. The turnkey providers/management company can just call whoever is responsible for that warranty to get things fixed.

And then you also talked about the importance of relationships. Obviously, to find a good turnkey provider, you need networking relationships; you guys do that over Ideal Wealth Grower. But you also mentioned that having solid relationships will allow you to reduce your risk even more by making sure you’re able to get higher quality renovations. Again, not going overboard, but making sure that you’re not doing poor quality renovations that are going to end up resulting in maintenance issues. And so if you have this good relationship with the turnkey provider, then you will be able to get your foot in the door earlier in the pipeline, before the scope of work is completed, so you can direct what you want. Obviously, you need to have an established relationship with them first and probably do a few deals, but eventually, you want to get to that point.

And then your best ever advice, which [unintelligible [00:25:26].28] through everything we talked about, is making sure you’re looking for the best-balanced deal, the best-balanced market, the best-balanced provider, and starting now.

So Axel, thank you again for joining us; I really enjoyed the conversation. Make sure you check out that free mindset manual at https://idealwealthgrower.com/free/. Best Ever listeners, thank you for listening. As always, have a best ever day and we’ll talk to you tomorrow.

Axel Meierhoefer: Thank you so much, Theo. I’ve really enjoyed it.

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JF2289: Shifting Focus to Turnkey With Alexander Cruz

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

Alexander Cruz Real Estate Background:

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

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Focus and stick to one area” – Alexander Cruz


TRANSCRIPTION

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

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

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

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

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

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

Theo Hicks: How did you meet your business partner?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Alexander Cruz: I’m ready.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Alexander Cruz: That’s it.

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

Alexander Cruz: It’s huge.

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

Alexander Cruz: Yup.

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

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

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

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

Alexander Cruz: Thanks, Theo.

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JF2000: The Hybrid Turnkey Model with William Robison #SkillsetSunday

William is a returning guest from one of our very first episodes, JF09. William has been focusing his efforts on growing his Hybrid Turnkey Business and shares some of the benefits of having a successful business that purchases many deals a year including discounts with local contractors, plumbers, electricians, and materials. He also shares how he prepares to negotiate the terms of a bulk deal with a vendor. You would think it would be easy but it takes a lot of work and many no’s before he finds the right partner.

William Robison Real Estate Background:

Best Ever Tweet:

“They get too comfortable with their cushion job, and we have to sometimes rein them back into a good spot or move on to another.” – William Robison


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, William Robison. How are you doing, William?

William Robison: Doing great, how are you?

Joe Fairless: I am doing great, and looking forward to our conversation. Because today is Sunday, we’ve got a special segment for you, Best Ever listeners, called Skillset Sunday. The skillset you’re going to learn is a hybrid turnkey model. We might have talked about it on the show before, but it’s always good to get an additional perspective on this from a different person.

First off, if you recognize William’s name as a loyal Best Ever listeners, props to you, because I interviewed William one other time, and that one other time was episode 9. It was titled “One critical component of building a real estate business.” I have no clue, I do not remember what that critical component is… It’s been five years, so if you wanna know what that is, then go listen to episode number 9.

William has been in real estate for 15 years. He started a brokerage in 2008… Maybe I should listen to that, too. It’s important that I know what that critical component is building a business. He’s helped dozens of investors to purchase hybrid turnkey investments totaling over 500 acquisitions, renovations and daily property management. Based in Kansas City, Missouri. William, do you wanna give the listeners just a refresher of your background? …and then let’s roll right into talking about the hybrid turnkey model.

William Robison: You bet. As you mentioned, 15 years in real estate; that was after two corporate downsizings I decided to jump out of the corporate world and go into the much more exciting and lucrative opportunity of real estate. I have never looked back. It’s been an exciting ride. I’ve worked with investors for the majority of those 15 years. I did a little bit of REO during the debacle and bust in ’08, plus or minus, and for the last 6 years I’ve been working with investors to build out their own personal portfolios.

Joe Fairless: Got it. So what is the hybrid turnkey model?

William Robison: Sure. A lot of people are very familiar with what a turnkey real estate investment is. It’s typically a single-family house, where a company has gone out, acquired the property, done some renovations, got that property leased up, and then selling it out to investors as a passive investment.

What a hybrid turnkey property does is it offers them a little bit more transparency, and it gives them the opportunity to capture that built-in equity that can be built through that process. So what we do is we help an investor capture a property from the open market, whether it be an off-market transaction, from the courthouse steps or MLS, we put them through a renovation process using our construction department, and then finally we put them into the property management for the long-term. So what that does is it gives them transparency of the process, they get to know exactly what’s going on going into that property, and then they get to capture some equity along the way.

Joe Fairless: Yeah, so that’s the ideal model if you’re looking to buy single-family homes… Because if you buy on the MLS and it’s move-in ready, then you’ll be paying a premium, whereas here you can capture some of that equity, as you mentioned, through the renovation process… Assuming that the  renovation process goes according to plan. Yeah, that’s a big variable in this… What are some ways that you’ve seen it go wrong, and then how do you mitigate that from happening?

William Robison: There’s always the hidden items that you’re not going to know when you start. There’s rarely ever going to be the $10,000 [unintelligible [00:04:33].07] against the sheetrock inside the wall that we find on HDTV… But there’s rarely ever a surprise; usually, it’s just a decision-making process of “Hey, this roof has 5-7 years of life left. Do you wanna continue forward and have a cap ex later, or do you wanna take care of it now and have a durable product for a long time?” And there’s several more examples like that…

Joe Fairless: What are some more?

William Robison: Some more might be opening up the flooring and finding the sub-flooring needs to be wiped out, opening up a wall in the shower and we have to replace a shower valve, rather than just retiling the shower out… That’s a couple hundred dollar difference, so it’s never anything that’s just outlandishly going to completely blow a budget. And we do bake in a little bit of  a contingency budget; the majority of the time, that’s going to be covered through that.

Joe Fairless: How do you know what contingency budget to bake in?

William Robison: Typically, just a few percentage points of the overall budget. After going through roughly 10,000 houses in  my career, I have a pretty keen knowledge of what we’re looking for on a property. We typically have a pretty solid understanding of what we’re going to have. Sometimes we’re gonna estimate on the high side and come in a little bit less if we don’t know exactly what we’re going to find; we’re going to make an assumption that it’s failed, and we need to fix it.

For example, buying an REO in the wintertime in Kansas City, where the pipes freeze – I’m gonna assume that the pipes are broken, and we’re gonna plan an expense for that. If we get in there and we like the lines, and the lines hold pressure – fantastic, we’ve just saved $1,500.

Joe Fairless: When did you start doing the hybrid turnkey model?

William Robison: Hybrid turnkey started almost six years ago today.

Joe Fairless: Okay. When you think about the business, six years ago, as far as this business model goes to today, what are some things that have been optimized on your side?

William Robison: Volume pricing. We’re able to capture some volume business from various contractors, from some suppliers… Rather than buying a stainless steel appliance package that is a very good, mid-grade brand, and paying $2,100 on the shelf, I’ve got that negotiated down to $1,400. So there’s just some volume priced in by buying dozens or hundreds of x on the marketplace… Same thing happens with our plumber. We went and looked and saw how much we were spending in plumbing in a given year – it was about 80k – so we were able to go out to a variety of different plumber vendors and say “This is the amount of money that you can capture. Are you willing to give us some volume pricing discounts?” etc. Same thing with our electricians, and our roofers etc.

Joe Fairless: On that plumbing example, you spent 80k a year on plumbing… What’s a reasonable discount to ask for?

William Robison: It depends on exactly what’s it gonna be doing for you. A lot of what we’re doing in that 80k is sump pumps, and line clearing, and water heater change-outs… Small items; nothing that’s ever hugely drastic… But we’re able to capture usually a 30% discount to what we would have paid out in the market.

Joe Fairless: That’s substantial.

William Robison: Yes. Line clearance, for example, costs you $100 to $120 for a main stack; we’re paying $65. So it’s just  cost savings that you  get by doing more than 100 a year.

Joe Fairless: Do you have to go to multiple plumbers before you get one that says “Yes, I’m good with that.”

William Robison: Dozens.

Joe Fairless: Dozens? [laughs]

William Robison: Literally, dozens. Yes.

Joe Fairless: You go through literally dozens, and then you finally find a taker?

William Robison: You know, America has done a fantastic job of bringing STEM (science, technology, engineering and mathematics) to the educational world. It’s been a fantastic thing to help put America on the map, but…

Joe Fairless: Not the trades though.

William Robison: On the flipside, on the trade side we’re stalling a lot. So all of our trades are highly maximized on the amount of business that they have, and the only way that we can go in and capture a discount from them is to offer them an opportunity to have more consistent work, less advertising budget, and find ways to help them save money, so that they can help us save money on the flip.

Joe Fairless: I’m glad we talked through this. So your talking point to them is you have more consistent work, and maybe you ask them “How much do you spend on an advertising budget?” and they say “X amount.” And you say “Well, you’ll spend X amount less, as a result of that.”

William Robison: Right.

Joe Fairless: Any other talking points that you give them?

William Robison: WE try our very best to do the majority of our work Monday through Friday, 8 to 5… So we’re gonna have that rare phone call that’s gonna be Saturday night at midnight with a flooded basement that we need help with, but the majority of the business that we’re gonna be giving them is during their optimal times that they want to have business anyway. So if there’s an emergency type plumber, we can offer them the opportunity to have a little bit more family time at home, and give them some volume during the daytime.

Joe Fairless: I’m glad that we talked about this, because it might be counter-intuitive to some listeners that you had to go through dozens and dozens of plumbers to find one that was qualified, and would accept your deal of “Hey, I want 30% off.” Because on the surface, people might think “Oh, well – yeah, if you give someone a lot of business, then you would get a discount”, and that makes sense, and you just have to go to a plumber, or maybe two, if the first idiot turns you down… But the reality is, as you said, they’re in such high demand – the good ones are, especially – in such high demand… And they don’t need this type of structure, because they can go and be busy Monday through Friday already, and get premium pricing through single-family home primary residence owners.

William Robison: Another good point is that our plumbers rarely stay with us for a very long time. Every once in a while you’re gonna run into somebody that has price creep; they get way too comfortable and they try to increase their prices, and some of the standards that you set in place for a few different items, that you can… The rest of the items start to  have a little bit of price creep, and they get too comfortable with a cushion job. We have to sometimes wrangle them back into a good spot, or move on to another.

And sometimes it becomes very comfortable, they outsource it, they hire somebody else to take on our business, that person doesn’t take care of us well, and we have a staffing issue that we have to correct. And half the time, that means we have to change our vendor.

Joe Fairless: Good info for really anyone working with vendors over the long-term, or contractors and subcontractors… Just to keep a watchful eye for price creep, and just check — if you’re doing the same type of stuff, keep those invoices and check them over time if they are going up… Which I would expect them to go up a certain amount over time, just because of inflation… But make sure that it’s still in line with the market and you’re also still getting whatever discount or agreement that you had agreed upon with them.

William Robison: Exactly. A question that we get often is why don’t we have 3 plumbing bids on the sump pump. And as you can see, if you have a vendor who’s willing to give you really good pricing, and only do it at this amount of volume, if I go and spread that out over three, then I’m gonna get less of a discount. So if I take that 80k and drop it down to 27k per vendor, I’m no gonna get that same level of attention, I’m not gonna get the same level of service, and I’m certainly not gonna get the same level of discount.

So yes, we want to make sure that we’re on point on price, but we also want to make sure that we’re maximizing for the vendor that is giving us the discount for that volume. So it becomes a little bit entrusting, working with a variety of our investors, especially on the property management side, where they’re looking for “Hey, can I get three bids on this?” “Sure. Push comes to shovel, I’ll get you two  more retail bids that are gonna be 30%-40% higher.” But having trust in your vendors if you’ve built a good, solid relationship with those people, have a little bit of faith in what they can do, but also make sure that there’s transparency of what’s happening at the same time.

Joe Fairless: Anything else that we haven’t talked about as it relates to the hybrid turnkey model that you think we should?

William Robison: You know, six years ago when the market was coming out of a big downturn and there was a lot of foreclosure inventory on the market, and people were able to BRRRR and do all kinds of fantastic financing methods, and purchase properties at extreme discounts – that was a fantastic time, and if you bought during that time, kudos to you. I still believe that we’re in a good market; not only Kansas City but several other good markets around the country offer the same… But we don’t have that same discount that we had five years ago.

Recognizing where we’re at in the market is an important factor, and I also still think that we have quite a bit of upside, because we don’t have enough inventory out there to take care of the demand that exists for rentals. We’ve got a new generation coming to the marketplace, looking for rental properties because they don’t wanna be tied down to any particular location… And within that, we’ve gotta be able to provide them with the supply, and get that sent out to them.

Specifically in Kansas City, there’s a lot of class A multifamily built out in the downtown area. Fantastic, great location, close to everything, lots of entertainment… But those same people are now having children, and when they’re 2, 3 and 4 years old, they start thinking “I need to go to the suburbs, where there’s parks and sidewalks and good schools.” And that is where we’ve built our business.

So within that, let’s say that we’ve got a hybrid turnkey property that we’re gonna have an all-in of 150k; that’s gonna be quite a bit more than we had five years ago, but the ability to replace that is still substantially higher. I cannot build a house for less than 190k in the market areas where these houses exist. That means we still have a window of appreciation available for those that are willing to look at  appreciation as part of that investment model.

Joe Fairless: Is that what you look at, the replacement value?

William Robison: That’s just one of the factors. Obviously, we’re looking at cashflow. Cashflow is getting compressed. All across the country we’ve got a large group of the national Wall Street players (like BlackStone) that are buying up thousands and thousands of properties around the country… So we’ve gotta be able to compete with those guys. But the replacements scenario is definitely still a piece of the puzzle.

There’s two different factors to look at in an investment – what’s  your cashflow, whether that’s positive, flat or negative; what is your appreciation historically and what’s expected… And what kind of equity can you gain out of the investment. So there’s two different ways to look at it, and we try to make sure that we’re amplifying that for the particular investor’s needs… And sometimes we need to modify their needs. If they’re thinking “I need cashflow today” and they’re 25 years old, getting ready to go into their prime earning years, they don’t really need that investment to perform for them until years down the road.

So we try to educate them into the direction of looking at IRR, that it’s gonna perform for them much better over the course of the next couple of decades.

Joe Fairless: As long as it’s cash-flowing out the gate though, and you’ve got the right management in place… 2008 hits and if it’s cash-flowing and you have the right management and you have a long-term loan on it, you still should be fine.

William Robison: You’re stable, right. You’re in great shape, and you’ve got more [unintelligible [00:16:45].19] coming into play for those that are unfortunate enough to fall to the next recession.

Joe Fairless: Yup. 3 immutable laws of real estate investing – if you google that, Best Ever listeners, I have a bunch of articles on that. 3 immutable laws of real estate investing, Joe Fairless.

Well, William, I enjoyed our conversation. How can the Best Ever listeners learn more about what you’re doing?

William Robison: They can certainly reach out to us, they can check out our website, which is very long, designed for Google – KansasCityInvestmentRealEstate.com. It’s the best place to find out some information. They can also email me directly at william@kcinvre.com.

Joe Fairless: William, thanks for being on the show, talking about the hybrid turnkey model, talking about the biggest risk in that, which is the execution of the improvements on the property, and then how you mitigate that… And then we got into the weeds on volume pricing and contractors, and I’m glad we did, because that is relevant, as I mentioned earlier, to really anyone who’s looking to negotiate a discount with a vendor.

The three talking points that you have is more consistent work, less advertising budget, and doing the work during the hours that they want to work.

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

William Robison: Sounds great. Thanks so much.

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JF1907: Turn Key Deal & A Duplex In Cincinnati, Breaking Down The Numbers with Amanda Cassiday

Amanda is a successful entrepreneur who is still new-ish to real estate investing. We’ll hear about her turn key deal, where she found it, what company manages it, and how much money it’s making. Then we’ll hear about her recent purchase of a duplex in Cincinnati. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“9 months of owning this property, we had put $40,000 into it” – Amanda Cassiday

 

Amanda Cassiday Real Estate Background:

  • Entrepreneur, house-hacker, turn-key investor, and business designer and strategist
  • Recently started investing in real estate long distance and is growing that portfolio
  • Based in Brooklyn, NY
  • Say hi to her at https://www.amandacassiday.com/
  • Best Ever Book: The Alchemist

 


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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, Amanda Cassiday. Hello, Amanda.

Amanda Cassiday: Hi. How are you, Joe?

Joe Fairless: I am doing great, and looking forward to our conversation. A little bit about Amanda – she’s an entrepreneur, house-hacker, turnkey investor and business designer and strategist. Recently started investing in real estate long-distance, and is focused on growing that portfolio. Based in Brooklyn, New York… And we’re gonna be talking about some challenging stuff that she has come across on a property. First though, Amanda, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Amanda Cassiday: Of course. I’ve spent my 20’s living in West Africa, as a Peace Corps volunteer, earning about $8/day, doing a lot of microfinance and health education work. Then I went to grad school and got my MBA, incurred a lot of loans, and eventually got my first job in New York City at 28 years old [unintelligible [00:02:24].03] in the healthcare world. With $70,000 in debt, I had no savings, and by the time I moved to New York I was obviously super-overwhelmed by the cost of living in New York City… So I first started my real estate journey by house-hacking; I rented a two-bedroom apartment and airbnb-ed the second bedroom. It’s been great, I’ve been doing it for years; I earn about $20,000/year, and I’ve met some really incredible people all over the world.

Then I got into turnkey investing, which was a great opportunity for me to leverage these resources that I first started to gain in my job… And put them into something that was earning me more passive income. However, I think it was a little bit too passive for me.

Over the last year-and-a-half I’ve decided to get my hands a bit dirtier and get into real estate investing independently… But the problem was in [unintelligible [00:03:12].25] I live in New York City, and both markets are too expensive for me, so I knew I had to become a master in a market that I could afford, that also had potential to grow.

So through a several month analytical and intuitive process, I landed on Cincinnati. That’s when I first connected with you, Joe, through our mutual friend Carla…

Joe Fairless: Yup.

Amanda Cassiday: And you [unintelligible [00:03:32].07] who became my agent, and my friend and now business partner Jeff and I just bought our first duplex about a year ago, last September.

Joe Fairless: And with turnkey investing, did you buy any properties before you got more hands-on with what you’re currently working on?

Amanda Cassiday: No, I just bought one turnkey property, and as the name suggests, it was very easy; they hold your hand from beginning to end. So for me it was helpful having finally had some savings for myself that I had never really had before, to help me practice the idea of taking a larger amount of my savings and putting it into something else. It was a scary move for me. Even though it was a $17,000 down payment, that was a very big deal for me at the time… So the process I think helped shift my perspective around “Hey, I can do this over and over again. I can choose the market I wanna do this in, I can choose the property, I can choose the approach I wanna take to generate revenue.” So that’s when I ultimately decided to do this on my own.

Joe Fairless: The turnkey rental – what group did you go with?

Amanda Cassiday: I went with a company in Memphis called Mid-South Homebuyers.

Joe Fairless: Mid-South Homebuyers?

Amanda Cassiday: Correct.

Joe Fairless: And what did you buy it for and what does it rent for?

Amanda Cassiday: It was a $64,000 property, so the down payment was around 17k, and I’m getting about $750/month in rent. I’m earning around $330-$350/month.

Joe Fairless: Okay, so you get $300-$350/month in your bank account every month, barring something irregular with the property.

Amanda Cassiday: Correct.

Joe Fairless: Cool. And how long have you owned that?

Amanda Cassiday: Almost three years.

Joe Fairless: Any challenging things that have come up with that property?

Amanda Cassiday: The first year was pretty smooth. After my first tenant moved out we had a new tenant that came in, and they had a lot of trouble paying the rent. Eventually the property manager got them up to speed and I’ve been reimbursed for lost rent over the last month or two, but so far it’s been smooth sailing.

Joe Fairless: So they reimburse you if you don’t have a tenant living there?

Amanda Cassiday: I had only six weeks between tenants, but once they filled it with a new tenant, that’s when they were kind of delinquent in paying rent.

Joe Fairless: Okay, but the property management company didn’t reimburse you for the time lost…

Amanda Cassiday: Correct.

Joe Fairless: Okay, got it. Cool. So if you are making $300-$350/month in profit every month, then why change that approach and go into something where you’re more hands-on?

Amanda Cassiday: I have, I think, in my core, a  bit of an entrepreneurial spirit… So when I enjoy doing something, I typically want to end up doing it myself. I make candles, I now make ceramics… When I see things I enjoy, I take the expensive ownership of “I want to own the process and experiment, and learn more about myself along the way…” And turnkey – you’re right, it was very passive. All I had to do was wait in line every six months and buy a house… But I wasn’t learning about the Memphis market. I wasn’t building relationships with anyone other than my property manager and turnkey company. I wasn’t scaling my reach through knowledge and resources and partnerships, so I wanted to take the leap and really take more ownership of my financial future, and hopefully scale much more quickly.

Joe Fairless: So let’s talk about your most recent acquisition. Tell us about it, please.

Amanda Cassiday: It is a duplex in Cincinnati. The asking price was $115,000. It was positioned as two one-bedroom properties, but both of them had large square-footage and an extra room. So they could quite easily and cheaply be converted into two two-bedrooms. We put in an offer for $100,000 and it was accepted, so we went ahead with the due diligence process. The inspection was great, actually; the inspector said it was the best 100-year-old house he’s ever seen…

Joe Fairless: Wow.

Amanda Cassiday: …with the one caveat — yeah, it was great. It was so great to hear. It was almost too good to be true, which it kind of was, as we’ll see… But the caveat to his inspection was “This is a 100-year-old house. It has 100-year-old clay pipes underground, and I cannot guarantee the quality of those pipes.” Since this was our first purchase in Cincinnati, we paid for a little bit more due diligence. We brought in a plumber to scope the pipes, and the plumber found some clogs and issues. Clay pipes are a little porous, and so over time [unintelligible [00:08:23].22] and create clogs…

So what we ended up doing is we added an addendum to the purchase agreement that said that the seller had to ensure that the drain was clear and there were no faults between the house and the sewage line.

So the seller went ahead and paid what was around $6,000, used the same plumber that we used to scope the pipes, and then in September of last year we closed.

Joe Fairless: Okay. Congratulations on the close.

Amanda Cassiday: Thank you. It was a big day. We were pretty scrappy about — the first few things after that is we did a lot of the repairs ourselves… Since we were in Cincinnati to close, we went ahead and showed the space to tenants… It was a great experience for us, but it certainly could have been done more efficiently with experts. We ultimately got the place filled within ten days.

Joe Fairless: Wow.

Amanda Cassiday: Yeah, it was exciting for us… And the total rent that we’re netting through that  is $1,550.

Joe Fairless: $1,550 is what they’re going for between the two bedrooms?

Amanda Cassiday: Two combined, yeah. Just over $1,500, yeah.

Joe Fairless: Okay.

Amanda Cassiday: It’s between the 1% and 2%, so that checked out.

Joe Fairless: Sure.

Amanda Cassiday: And it wasn’t until the tenant moved in that the turbulence really started. The background for the house is it had been owner-occupied for many years, almost the entire life of the house… And that second unit had been unoccupied for quite some time. So when those tenants moved in, everything was a bit rusty and there were kinks that needed to be worked out.

Joe Fairless: Like what?

Amanda Cassiday: The first thing that happened right out of the gate is there was a gas leak. And I think it’s just those pipes hadn’t been used in such a long time for that unit… We weren’t quite sure what the issue was, but that gas leak ultimately took about two weeks to resolve, because the plumber who came in to identify the leak and fix the leak and the Cincinnati gas company weren’t talking to each other. So they each kept coming out at different times, the leak still hadn’t been resolved, and two weeks later our tenants are obviously upset and frustrated coming out of the situation.

Joe Fairless: How was the gas leak identified in the first place?

Amanda Cassiday: Our tenant smelled gas and called us right away, which was great.

Joe Fairless: And then are they living in the unit during these two weeks?

Amanda Cassiday: So had we known this would have taken two weeks, we would have put them up in a hotel right away. It’s just not a good environment, for the tenants to be in a place without gas… But every day we were told that it would be resolved, and then every day something else happened and prevented that from being resolved… So we ended up giving our tenants a pretty large gift certificate to a restaurant in the area, we sent them heaters, we did everything we could to get them as comfortable as possible once we realized that this would take a bit longer than we expected.

Joe Fairless: Okay. How much was the gift certificate?

Amanda Cassiday: I think over $300.

Joe Fairless: Where was it to?

Amanda Cassiday: It’s The Eagle.

Joe Fairless: The Eagle. I don’t know The Eagle. Okay…

Amanda Cassiday: I think it’s in Over-The-Rhine.

Joe Fairless: Oh, it’s a cool, hip area that I never go to. [laughs]

Amanda Cassiday: Yes.

Joe Fairless: Fair enough. Alright…

Amanda Cassiday: All the young kids are going there.

Joe Fairless: Yes, yes. Okay, so that got resolved…

Amanda Cassiday: That got resolved. The next few issues were appliances shutting down… We actually had some tenants that were a little difficult; it was their first time living in an apartment together… They were very, very young, were accustomed to living at home, and just were fairly disrespectful to the property, disrespectful of the property management, of us… And it just took quite a bit of time and energy.

Ultimately, after we feel like we’ve had our fair share of issues, really the kicker came this past February, where we get a video from our tenants in the bottom unit of sewage literally spewing from the ceiling and getting all over the walls, couch and floor.

Joe Fairless: Oh, my…

Amanda Cassiday: Yeah… It was difficult.

Joe Fairless: Where were you when you received that?

Amanda Cassiday: I was at work, in a meeting. I had to step out of the meeting; my heart sunk… I was really hard on myself for the gas leak and for this. I wanna provide a safe, comfortable living environment for people as a landlord; that is my responsibility… And I felt like this was wildly out of our control. We did everything we could during the due diligence phase to make sure there were no issues, and then suddenly we have issue after issue… And then this was kind of one of the worst possible things that a tenant could live with.

Joe Fairless: Yeah…

Amanda Cassiday: So we brought in the same plumber who fixed the pipe a few months ago, and he stopped the leak immediately. We brought in sewage mitigation, which is a pretty lengthy process. It takes quite a lot of time to sanitize everything and make sure the walls are dry. We had to bring some other folks in to fix the ceiling… And then we kicked off what is a lengthy insurance claim preface to cover the damages.

Then a few weeks later, just as the walls are drying, just as our tenants are feeling more comfortable in the space, we get another leak in the exact same location.

Joe Fairless: Oh…!

Amanda Cassiday: [laughs]

Joe Fairless: At this point tell me you’re not going back to the same plumber.

Amanda Cassiday: I’m not. You’re exactly right. At this point I’m thinking “This is clearly a systemic issue, and we need to look at the entire system. We need a fresh set of eyes to really evaluate what the problem is here.”

Joe Fairless: Right.

Amanda Cassiday: So we bring in Roto-Rooters, and I’m mentioning their name because I’ve had a fantastic experience with them, and I highly recommend them. We bring them in, they do a full scope of the pipe, and they discover what appears to be a separation of the pipe underground, between the house and the main line. And based on what we know about the pipe replacement and the pipe separation, it seems like it is that exact same length of pipe that had been replaced, that has separated from the main line.

Joe Fairless: Oh… Bad plumber.

Amanda Cassiday: [laughs] So… Bad plumber. It seems like negligence… And at this time I’m drinking out of a fire hose. This is my very first issue with plumbing in my entire life. I am not an expert in any way, shape or form, and here I am in the middle of two plumbers. One is Roto-Rooters, and they’re telling me “Here’s my hunch based on a picture I have of inside the pipe.” And on the other side I’m hearing from the original plumber, who is adamantly against the notion that his pipe replacement from a few months ago had anything to do with this problem. He thinks it’s further down the line.

So it was really difficult at first for me to navigate these two conversations not being an expert in the field…

Joe Fairless: Yeah, yeah… How did you do that?

Amanda Cassiday: One thing is I leaned on experts within my network. We use Hemlane to manage our property, and Dana Dunford was calling us probably every week at this point and giving us a lot of very, very sound advice. She was fantastic throughout the entire time. But the other thing I really tried to focus on is, while I might not know anything about plumbing, I know about people, and I know that gut feeling of when I can trust someone and when I can’t. And it was through those conversations with both Roto-Rooters and the original plumber that I realized I cannot trust that original plumber. He is not there to help me as a customer, he is there to save his own butt.

Joe Fairless: Yup.

Amanda Cassiday: So we went ahead with Roto-Rooters, we broke ground… Sure enough, the pipe had been separated. So when you count the repairs of fixing and replacing that pipe, when you count two rounds of sewage mitigation, and when you count vacancy, because at this point [unintelligible [00:16:31].25] “Tenants, you guys have been through the wringer, and we’re not providing a safe, comfortable living environment, and quite frankly at this point we don’t know when we will be able to.” Based on our track record we kept uncovering things, and I wasn’t comfortable yet in assuring them that this would be it.

So they’re out, so we have a vacancy. When you add all of that together, we were at about $20,000, which was the cost of our down payment.

Joe Fairless: Wow. You said that equals your down payment, right?

Amanda Cassiday: Yeah. So basically at this point — all of this happened by April. So nine months of owning this property we had put $40,000 into it.

Joe Fairless: Huh.

Amanda Cassiday: Down payment plus this.

Joe Fairless: And was the original plumber recommended to you by your property management company, or someone else, or how did you get in touch with them originally?

Amanda Cassiday: It was by my agent. And if you look this person up on Yelp, they have 4,5 stars. They are very well-reviewed. Look, people make mistakes; I’m not questioning whether or not he is an expert… But licensed professionals are ensured and sometimes bonded for a reason… And it’s for reasons like this. When there is an issue of negligence, or just a simple honest mistake, you can tap into those resources and pay for the damages done. But in the case of us, he was completely unwilling to tap into those resources.

Joe Fairless: Got it. Well, it’s interesting… I was just talking to a local real estate investor, and he was talking about a contractor who skipped out on a job, and basically took this investor’s $900. Then that investor’s friends reached out to the investor and was like “Hey, would you recommend this contractor? I’ve got this $5,000 job” and he’s like “No, I don’t.” He skipped out on $900, and… What the contractor doesn’t see in the long run is you do what you’re supposed to do or what you’re committed to do, and that $900 will turn into a $5,000 job with that investor, or some other investors…

Amanda Cassiday: Right.

Joe Fairless: But instead, he’s missing out on some larger stuff because he didn’t fulfill his obligation to some smaller stuff.

Amanda Cassiday: Absolutely.

Joe Fairless: But that’s just how the cookie crumbles.

Amanda Cassiday: Absolutely. And there is a happy ending to this… Even though we talked to a number of people and they said “Look, this is going to be a really tough case”, but we ended up getting every single penny of our $20,000 back.

Joe Fairless: What?! How?

Amanda Cassiday: Yeah… I can’t tell you all of the details for legal reasons, but I can share some of the key steps that I took, that I think you and your Best Ever listeners can also take. In the case of this contractor there are tools that we can use to try to get as much as we can out of negative situations like this. Because at the end of the day, we had dropped $20,000, it just didn’t feel like this was over. We might as well try, but spend a little bit more to make the effort and try to get some of that money back.

Joe Fairless: Yeah.

Amanda Cassiday: So there are a few strategies, and I’ll list them in order of magnitude, because at the end of the day you don’t wanna go to litigation. It’s extremely costly from a finance and from a time perspective. So take those steps little by little and build to there if you absolutely have to get there, and decide if it’s even worth your while.

The first thing is have a conversation with your service provider directly. Oftentimes they really care about the quality of their work, and they care about whether or not their customers are happy… So maybe a simple conversation and they’d be willing to tap into their insurance and help cover the work, or maybe if you trust them to go in there and fix what was done improperly. That wasn’t the case for us, so the next step I took was I shouted my experience from the rooftops. Service providers really care about their ratings and reviews on Yelp and other platforms, and I felt like given this experience I had a duty to share my experience with the world.

I also reported him to the Better Business Bureau. They reached out to hum several times, and he never responded. So that complaint through the BBB became public. And again, some people may be willing to bargain with you after that. “Those reviews mean everything to me. Hey, if you take those down, let’s go ahead and work something out.” But that still wasn’t the case for me, so that’s when I decided to get a lawyer, and I’m happy to recommend my lawyer to anyone in the Cincinnati area. He was fantastic. I interviewed a few and I’ve found someone who I felt like really heard me, who was confident but also really curious and passionate about this issue.

The other thing I wanna say here is how important it is to document everything. And I don’t mean document everything once an issue occurs, I mean document everything over the life of the property that you own… Because the minute something comes up, you’ll have the evidence you need to support yourself.

Joe Fairless: What are some things along the way that you can document?

Amanda Cassiday: Inspections… Obviously, all inspection records you wanna hold on to that. When we had that plumber scope the pipe, he actually sent us a video of the original pipe, so we filed that away. When the seller did the work, we got a copy of the invoice of the work that she did, and we filed that. Obviously, pictures of the sewage leak and all the damages done is important… But I would say frankly comparing the original scope video of the clay pipes with the separation of the pipes, it was really clear — you can’t see PCV pipe in this first scope, and you can see a separation between clay pipe and PCV pipe in the second scope. So I think that really helps support our evidence.

The other thing I did in terms of documentation is reach out to local ordinances to find facts. I learned through reaching out to local the local Cincinnati district that the original plumber did not pull a permit to do the work. And had he pulled a permit and had he gotten an inspection, he would have been told that he had to encase that pipe with cement, due to the depth of that pipe cell underground… And he didn’t; and that could have been one of the reasons why the pipe wasn’t supported and dropped.

So it was important for me to get a holistic picture, and I think if Best Ever listeners can — just any receipt, any work done in particular to the house, names of people who did them, contact local counties and ordinances for documentation… You’ll be able to have people who are willing to testify to say “Hey, this is correct. I looked up this person’s name and they didn’t file a permit.” All of those things can help build your case even more.

Joe Fairless: Very helpful. I did not remember — because I think you’ve told me, but I did not remember that you got the $20,000 back… Because we have a mutual friend, and we were hanging out at our mutual friend’s wedding this past summer when you were telling me about this… And I was like “We’ve got to do an interview about this…”

Amanda Cassiday: [laughs]

Joe Fairless: And wow, I’m so glad that we did. Based on your experience as a real estate investor, what is your best real estate investing advice ever?

Amanda Cassiday: I would say you really wanna make sure your incentives are aligned in any deal or partnership that you make. For me it was with the seller. When we had that addendum to the purchase agreement that said the seller had to fix the pipes, they’re not incentivized to do their best possible  job. They wanna spend as little money as possible on the house that they’re selling.

So I think what I would have done had I done it over again is just negotiate the price of the house lower and then use those savings to fix it myself.

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

Amanda Cassiday: So ready.

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

Break: [00:24:49].23] to [00:25:25].22]

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

Amanda Cassiday: I would say personally The Alchemist, by Paulo Coelho. For me it was a really transformative book. It helped me understand that you don’t need clarity in your path in life; you just need to stay true to yourself and have faith in yourself to take that next step forward.

Joe Fairless: It’s powerful. What’s the Best Ever way you like to give back to the community?

Amanda Cassiday: I advise entrepreneurs in the U.S. [unintelligible [00:25:44].01] entrepreneurs in Africa, and then I’m actually happily doing my very first Habitat for  Humanity build later this year.

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

Amanda Cassiday: Folks can reach me on my website, which is www.AmandaCassiday.com.

Joe Fairless: Well, Amanda, thank you for being on the show, and my bad earlier on your last name. I just realized that I think I pronounced your last name Cassidy instead of Cassiday… So thank you for bearing with me on that.

Amanda Cassiday: No worries.

Joe Fairless: I really enjoyed our conversation… Such helpful advice. I love talking about case studies, and some case studies go according to plan, some case studies don’t. This one did not. However, there’s a lot of things that you shared with us that I’m sure you’ll be applying in your future career as a real estate investor… But boy, you helped out a lot of people with this advice, especially when we come across a situation that a contractor, a vendor or a subcontractor does not live up to the billing. Here’s a process that we can go through – talk to them directly, shout from the rooftops, report to the Better Business Bureau, get a lawyer, and it’s important to document everything along the way. And then check local ordinances, too.

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

Amanda Cassiday: Thanks so much, Joe.

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JF1720: Building A High Volume House Flipping And Turnkey Rental Company with Antoine Martel

Antoine has been investing in real estate for four years now, and he’s only 23. Turnkey was not always the business plan, but that is what the company has grown to. Just two years ago, they did 10 houses, last year they did 60, this year they’re on track to complete 100 deals. Learn what he does to grow his business to 100 deals per year in four years. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“From the networking, I had a pool of people that were interested in turnkey rentals” – Antoine Martel

 

Antoine Martel Real Estate Background:

  • 23 year old real estate investor
  • Does 100 flips per year (turnkey rentals), owns a 20 unit apartment building
  • Based in LA, CA
  • Say hi to him at https://martelturnkey.com/
  • Best Ever Book: The 10X Rule

 


If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.

We created this site just for passive investors to have a free resource providing the questions to ask and things to think through. BestEverPassiveInvestor.com


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, Antoine Martel. How are you doing, Antoine?

Antoine Martel: Very good, how are you? Thanks for having me.

Joe Fairless: Yeah, my pleasure. I’m doing well, and looking forward to this. Antoine is a 23-year-old real estate investor who owns a 20-unit building and does 100 flips per year that are turnkey rentals. Based in Los Angeles, California. With that being said, Antoine, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Antoine Martel: Sure. This all started four years ago when I was 19 years old. I was in university, I went to Loyola Marymount University down here in Los Angeles. I didn’t wanna get a job after graduating, I wanted to go and do my own thing. I was studying entrepreneurship at LMU, and I wanted to really start my own company out of college.

While I was at university I went to a real estate investing seminar. They were talking about flipping houses, and wholesaling, and all the different ways that you can invest in real estate, and flipping houses was the most interesting to me… So I started to make all these offers in Los Angeles, but I didn’t have much money in the bank account; I was just a college kid, and my parents didn’t wanna fund a full rehab project for a million bucks here in Los Angeles, so after placing 20 offers a month for a number of months and never got anything under contract,  I realized I needed to change my strategy. That’s when I heard about rental properties out of state, and I thought that would be the perfect fit for my parents.

My dad owns his own company, my mom had her own company, so no retirement account, no 401K, but my parents had some money saved up, and I thought that it would be a great way for them to have a plan to retire at least, without having a 401K… So I started researching all these different markets out of state, and found a couple of good ones – Memphis, Cleveland, Birmingham, St. Louis. I went to Memphis, TN, bought a single-family home, renovated it, rented it out, and then did a cash-out refinance (the BRRRR strategy). My dad funded that first deal. We bought that first house in my last semester at university. Then I graduated in May and told them, “Hey, I can keep buying these properties out of state and keep growing the family portfolio”, so that’s what I did.

My dad paid for my living expenses for a couple of months so that I can grow the family portfolio, and by the end of that year we had ten single-family homes in Memphis. Then after that friends and family started reaching out to us to invest out of state as well, because they had never heard of people buying properties halfway across the country.

We started selling properties out of our portfolio to our friends and family, which led us to the company we have today, which is a turnkey company. So that’s what started it. We were like, “Oh, okay, we don’t’ have to refinance every single property. We can also sell it and make a profit, and then use that cash to keep growing the family portfolio.” Now we’ve built that company up the last couple of years to where we are today, and in 2019 we’ll do over 100 single-families and duplexes.

Joe Fairless: How many did you do last year?

Antoine Martel: Last year we did 60, and the year before that we did those 10.

Joe Fairless: Wow. Okay – 10, 60, 100. How did you go from 10 to 60?

Antoine Martel: Great question. I raised a lot of money here in L.A. So I was not only working on building teams on the ground in all these different markets, and researching markets, and finding the right projects, but then also we had run out of money, so we kind of started this whole thing with just $50,000. That first house – we bought it with $40,000, renovated for 10k, then did a refinance, and then my dad had all this money back because of the refinance and the way that we financed it. So we were able to pull all our money out and that’s how we grew our portfolio to ten properties.

Then after that I kind of built all these different case studies based on those ten projects, to show people that I knew what I was doing, and that I had rapport, and that I’ve done similar projects and similar project types in those neighborhoods… And then I would just network all day, every day, on Bigger Pockets, and go take people to coffee, or lunch, or dinner, and just share with people what I was doing. That in turn helped me grow my list, and grow my network from zero to 100 people, and those people started funding our deals then. They were equity investors on the turnkey flips.

We would buy a property, renovate it, rent it out and then resell it on our website, and people would fund those projects, they would fund 80%-90% of the project and then get a percentage of the profits. That allowed me to scale; with my $50,000, now I can just put $5,000 or $10,000 into each project, so it allowed me to go from one deal to ten deals really fast.

Joe Fairless: How much did you raise to the best of your recollection that year, from investors?

Antoine Martel: That year… So 60 projects, times $50,000 each, would be around how much I raised.

Joe Fairless: I will do that. Three million. Yup. You raised three million dollars. Approximately how many investors did that comprise of?

Antoine Martel: And again, people repeated their money, because these projects are very quick; they’re two or three-month projects in and out, renovations and reselling… Because we don’t have to list them on the market. So I had the investors — again, from that networking I also built a pool of people who wanted to buy turnkey rentals, so it was great. No matter what, I would walk into those networking meetings, or the coffee, or whatever it was, and I would get something out of it – either an investor, or somebody who wanted to invest in turnkey rentals. So it was perfect for me, because I got both ends of the spectrum.

The amount of investors – it was probably close to 50 investors, but the investors would keep reinvesting their cash over and over, because they would invest 50k, then they would get their money back plus the profit in 2-3 months, and then they were like “Oh wow, this is actually working” and then they would invest 150k. So it helped scale up very quickly the dollar amount that I was able to raise.

Joe Fairless: What were the terms?

Antoine Martel: It was a joint venture. Our LLC would buy the property, they would invest in that project and partner with us on that project, with our LLC, they would fund 80%-90% of the total cost, which is purchase price plus the rehab, and they would get close to 50% of the profits, sometimes a little bit less. So the annualized returns were incredible, because they were making a 10% return, but they were making it in 2-3 months.

I think it was worth giving that return at the very beginning, because then people kept doubling down their money and it helped me really scale the whole company.

Joe Fairless: And that’s why I said “were” those terms… What are the terms now?

Antoine Martel: [laughs] Yes, that’s something, too. We looked at those 60 projects at the end of the year and we were like “Here’s our profit, and here’s the payout to investors”, and it was literally like 50% of the payout. And then we had a little bit of overhead for other things that we don’t really put on a per-project basis.

We changed our model now… We still do joint ventures here and there to those people who are kind of grandfathered in and still have money with us, but we’ve kind of converted everybody to just being private money lenders, where people just lend money and they make 1% a month for a six-month project or less… So 12% annualized return is what we pay out to the investors, and first lien position, and all that kind of stuff.

Joe Fairless: Any points at closing?

Antoine Martel: No points at closing.

Joe Fairless: Okay, so just nice and clean, make 1% a month.

Antoine Martel: Easy. Right to their bank account, too. We just get their ACH, and then every single month they’re paid out. At the end of the project they get their principle back, hopefully they don’t want it back, and they just keep it with us and we keep growing their money.

Joe Fairless: What’s a deal that went backwards/sideways, just terrible on you?

Antoine Martel: I’m lucky enough to not have had a terrible deal yet. We’ve had some deals that have been pretty close to breaking even. We were lucky that we didn’t have any investors in those deals. That’s something else, too – we started doing more and more deals with our own cash, which helps expedite our growth of our own money as well. Raising private money, paying them 1% a month, but then also using our cash more and more to fund these transactions.

A deal that did go south – there’s a couple on the top of my head. One of them was stuff being stolen. We bought a house, and the day we closed, the furnace and all the ductwork was stolen out of the basement of this property in Cleveland. So I went and filed an insurance claim etc. They denied it. Then I replaced the furnace, I paid for it… The renovation was completed, and we were listing it on the market for rent, so whoever was watching the house knew it was vacant, because the contractors had left. Somebody goes back to the house and steals the brand new furnace again.

Joe Fairless: Ooh…

Antoine Martel: [laughs] So they must have been watching this thing, because… I don’t know. They timed it so perfectly. That eats your profits… A couple thousand bucks we had to pay out, times two, and our projects are pretty slim on the profit… There’s a big margin, but the profit dollar-wise is pretty small… So yeah, two furnaces and all the ductwork being stolen out can take a heavy hit on your profit… But we were able to probably break even on that deal still, even though we got all that stuff stolen from us.

Joe Fairless: Did you put another furnace in it?

Antoine Martel: Yeah, we had to, because there was tenants moving in.

Joe Fairless: Do you do anything to try and protect it?

Antoine Martel: We can do that with HVAC units. We can put cages around them etc. What we actually ended up doing was we waited for a tenant to set a move-in date, and then 24 hours before the move-in date we went and installed the furnace. These people who do this, who are stealing it, could be contractors, or contractors’ friends, or somebody who has a lockbox code… But they really watch the property and they check to see if the properties are vacant. They don’t wanna do it when somebody’s living there. Most of the time that doesn’t happen, so… We decided to just install the unit as soon as the tenant moved in.

Joe Fairless: How were they getting in?

Antoine Martel: There was a basement, and then from the backyard there was kind of a  barn door that would open with a left wing and a right wing, and they went and just popped off that lock every single time, because it was a piece of crap. So they just kept popping it off and breaking in through that little door in the back.

Joe Fairless: Isn’t there some video or security system, like maybe Simply for something like that, that you could install relatively inexpensively?

Antoine Martel: Yeah, we’ve never thought of that, because this doesn’t happen very often. We’ve done probably close to 100 projects now over the last couple of years and it’s happened twice where stuff has been stolen and restolen. Most of the times the insurance company will cover it, up to like a $10,000 a personal property… It just so happened that this time the insurance didn’t wanna cover it. Normally, we’re protected with that insurance company, just this time, for whatever reason –  it was the timing, or something – they didn’t wanna cover it.

Joe Fairless: Alright, we’ll move on. Contractors – I’m sure contractors are challenging. Do  you live in Los Angeles?

Antoine Martel: Yeah, I live in Los Angeles.

Joe Fairless: Alright, you live in Los Angeles. Your projects are not in Los Angeles. How do you navigate contractors, what are some tips you have?

Antoine Martel: Great question. I get this question all the time too, from people who are looking to invest out of state. One thing that I do where I haven’t had too much of an issue with contractors – I had only started having issues with contractors when I got into multifamilies. Again, I bought a 20-unit building back in December, a couple months ago, and we’ve only had troubles with contractors who are doing special things – HVAC, or electrical, or plumbing; just those contractors, the special contractors have been hard for us to find and navigate.

The general contractors have generally been – knock on wood – pretty good to us thus far. I think the reason why is just the method that I have used to find and vet those contractors. What I mean by that is I never picked up the phone and called a bunch of contractors and vetted them over the phone. I never went and visited, or shook hands with contractors, or personally chose a contractor for my project. The reason why is I’ve set up my teams on the ground to have a project manager (you can call it) for every single market, and those project managers have been people who have been doing real estate and renovation projects for many years in these markets, so they already have the contractors that they really love and like on speed dial.

I have been hiring these people to manage those projects, manage the contractors, and choose the contractors for me. I think that by doing that I haven’t had too many issues with general contractors, because I have that person who already has those pre-existing relationships with contractors on the ground actually manage the team. Some of these people – they go for beers after work, and they’re friends, and they hang out, and their families know each other… So if I just come in, the guy from California, and meet that guy from an ad, or calling him off of HomeAdvisor.com, or something like that, he may not trust me as much; but I think that putting that buffer in place – now it’s John’s project, and they’re friends with each other, but it’s unrelated to me, and they already have that pre-existing relationship.

Joe Fairless: How do you find the project managers?

Antoine Martel: There’s a couple of ways. Most of my project managers are either realtors, or they work in some fashion with the property management company. The most important thing for me, having a turnkey company and having rentals out of state, is the property management company. They play an integral part in the renovations, in taking the photos, in getting the properties rented… So a lot of these property management companies will have people already; a lot of them are required to have agents on board on their staff and on their team, in order to sign the lease agreements and all that kind of stuff. Many of those people also buy and sell real estate on the side…

So when I first go into a market, I try to find the best property management company that I can find; I don’t need it to be a huge property management company, with 3,000 doors. I’m fine if they have 300-500 doors or less; 200 doors is fine with me as well, as long as they can have somebody on staff who can help me grow my business, which therefore will help them grow their business. So if I can pay somebody off the property management staff, or just an outside realtor to manage my project, and then once that renovation is done, they help me take the photos, and then the property management company comes in and they’ll rent that property out… And they’ll be able to grow their property management business all because they helped me get the project from point A, which was unrenovated and not tenantable, to rented out. Now the property management company gets to grow their business by helping me take the project from unrenovated to renovated and rented out.

Joe Fairless: What fees do the property management charge you?

Antoine Martel: All of my property management companies charge first month’s rent as a lease-up fee, and then they charge 10% of collected rents on an ongoing basis.

Joe Fairless: Let’s talk about that 20-unit apartment building… When did you buy it, what are the numbers, where is it?

Antoine Martel: Sure. The apartment building is in Memphis, Tennessee. 20 units. We bought it in December of 2018. We bought it for a million dollars, so $50,000 per unit. The renovations entailed of full exterior renovations – painting, removing the bars off the windows, renovating the courtyard, installing all new doors, all new lighting, all that kind of stuff, and then also renovating the interior.

The rents when we bought the property were $550/unit. This is a B class, B- neighborhood. It’s in between a hospital district and a bunch of hipster upcoming hot spots. There’s a lot of young millennials, young professionals moving into the neighborhood.

Joe Fairless: What area of Memphis is it, for anyone familiar with it?

Antoine Martel: It’s in Midtown Memphis. The rents were $550/unit when we bought it. Our initial underwriting was we can renovate the units, renovate the exterior and increase the rents to $725. It turns out that we  were actually able to raise the rents — we spent a couple thousand dollars more per unit to get stainless steel, and granite countertops, and all this kind of stuff, and we were able to get the rents from $550 all the way up to $850, and we’re about halfway done with all of the units now, and just slowly as tenants leave we’re renovating the units and re-leasing them up for a much higher rent than we thought.

Joe Fairless: How much are you investing per unit?

Antoine Martel: Per unit it’s gonna be around $7,500.

Joe Fairless: That’s a 48% return. That’s pretty good.

Antoine Martel: Yup. [laughter] Yeah, it’s very good. And then the goal is to do a cash-out refinance with Freddie Mac at the end of the year, and just like we started with the single-family homes, do the same thing for the apartment building. We’re expecting to be able to pull out all our money at the end of the year, when we get long-term Freddie Mac financing.

Joe Fairless: A 20-unit last December, that is  a value-add deal… How did you find it?

Antoine Martel: Great question. For about nine months last year I built a list of brokers on LoopNet, and others methods, just collecting as many brokers in the multifamily space as I could, who are doing apartment buildings or multifamily in Memphis, Cleveland, Birmingham, all of my markets. And I collected this list of brokers and called them first, and told them who I was, what I was trying to do, what I was looking for, my criteria, and then every two weeks I set it up on just a calendar thing – every two weeks I would either call or e-mail these people, reach back out to them, ask them if they have any deals available, if they have anything that fits my criteria.

So every two weeks for about nine months I did that, and then it just so happened I emailed one of those brokers on a Thursday night, and he said “Oh yeah, I just got a deal that fits these criteria perfectly. I’ll send it to you in the morning.” Friday morning he sends me a little  jenky email with a couple of sentences and he says “Hey, you’ve gotta make an offer before we send you the financials.” I was like, “Okay, well, my offer is a million bucks then. There’s nothing else I can do.” The numbers worked at a million bucks based on the tiny information that I was given.

Joe Fairless: What info did they give you?

Antoine Martel: He told me 20 units, one-bedroom/one-bath units. He told me what the average rents were; he just wrote “Average rent – $550.” And then he told me the operating expenses, whatever the dollar amount was, and then like a taxes dollar amount, insurance dollar amount. And the last sentence – “You need to submit an LOI before we give you any other information.” I was like, “Okay…” He left me between a rock and a hard place.

So I just did a super-simple back-of-the-napkin thing, and the price per unit made sense, the rents definitely needed to be increased, so based on that we just submitted the LOI. And I wrote in the LOI that due diligence doesn’t begin until I get all the financials. I wanted to make sure that they actually had some financials, because trust me, there’s some landlords who just don’t even keep records, and they just keep it on a napkin as well.

Joe Fairless: Let’s go back in time – we don’t have to go back too far, because it was fairly recent, but… You said you did that for nine months. You made a list first, and then you called or e-mailed brokers from your list, every two weeks, and you followed up with them. Let’s travel back in time to month eight. So you still haven’t got a deal, but you’ve been doing this for eight months. What internal thoughts do you have at that point in time?

Antoine Martel: That’s hard… You just have to keep going, and I just kept listening to podcasts like this; people just kept saying “Yeah, just keep following up with the brokers, keep following up with the brokers.” So what I would do is I would just kind of keep changing my e-mail, and… I analyzed a lot of deals in those nine months, so I knew that it was working. It wasn’t like I wasn’t getting any replies, or I wasn’t getting any deals. Every time I would email, I would get a deal; maybe something on the market, or whatever… But sometimes I would get these off-market deals, I would run the numbers and go back to the broker and tell them “Hey, this deal is just way too overpriced. I can’t make this make sense at this price, but keep sending me stuff that you have.”

So there was this relationship that I was building, because I was replying to these people’s e-mails, giving them feedback on their listing from an investor’s perspective… So throughout those eight months – yeah, it was hard to keep going and to keep analyzing deal after deal after deal after deal, but I just knew that the break had to come eventually, and there had to be some landlord or some owner who was distressed, and it just so happened to be one month later, after those eight months of e-mailing and underwriting probably a hundred deals, that I was able to find the deal that made sense.

Joe Fairless: How many brokers were on the list?

Antoine Martel: I think 20, in a bunch of different markets, too.

Joe Fairless: How long does that take you to go through and follow up with 20 brokers?

Antoine Martel: Probably 30 minutes.

Joe Fairless: That’s it?

Antoine Martel: Yeah, because I had a template email just in my notes…

Joe Fairless: What did it say?

Antoine Martel: It was “Hey, my name is Antoine Martel. I’m a real estate investor, I own a turnkey company called Martel Turnkey. We buy, rehab and resell 100 homes a year.” And then I would say “Hey, I’m looking for apartment buildings in (whatever the market is) Memphis, Cleveland etc. I’m looking for 20 units or greater, less than 3 million dollars, cap rate between 7% and 8%, and I’m looking for 90%  occupancy or higher.” That’s kind of what the template said.

The last couple of sentences would be — I would change it up every single time. I would say something like “I just did a huge cash-out refinance…” I had a four-unit building last year that I bought as well, so I had done a cash-out refinance, so I would just include that little two-cent change in there as well. So I would say “Hey, I just did a cash-out refinance, and was able to pull out $250,000, and I’m ready to go. I just got the check from the bank.”

Every time that I would email, or every month I would kind of change up that last final sentence, to kind of tell them why I had cash and why I would be able to close, and that I just sold something, or I just refinanced something and got the money to be able to close.

Joe Fairless: And that’s the first email, because you’re not gonna introduce yourself to the same broker every two weeks, or else you’re gonna get in the spam folder, in his or her e-mail… So what were the follow-up e-mails?

Antoine Martel: The follow-up e-mails were very similar. Instead of introducing myself, I would just say “Hey, by the way, I’m still looking for apartment buildings. Here’s my criteria”, and then “By the way, I just did a cash-out refinance and I have funds available, ready to close.”

Joe Fairless: Every couple of weeks you’d just mix up the talking point. Sometimes you requalify yourself with “I just got a refinance”, sometimes it’s just other things about your criteria, or whatever else… Okay.

Antoine Martel: Yeah. And then let’s say I had a ton of cash in the bank one month, or one day – I would just take a screenshot of it and I would include that in the e-mail, too. Because I think a lot of these brokers get e-mails from California people all the time, and then they don’t really know that the people have actual money and they’re actually looking to close… So I think that showing them the bank account and showing them the number that I had… I kind of made it urgent, like “Hey, I need to get rid of this money. You’d better sell me something.”

Joe Fairless: [laughs] Oh, I love it. And how much was enough? How much would you be like “Okay, now I think I should send this” versus “Oh, they might laugh at me. I don’t know if this is enough.”

Antoine Martel: Since I was looking for 20 units, anything over 500k-600k I would just take a screenshot of it and send it. I think the first time I did it there was a million dollars in an account, and I just took a screenshot and I was like “I’m gonna use this for months.” [laughs]

Joe Fairless: Yeah, forever… [laughs]

Antoine Martel: So I took a screenshot of that, and then for a couple of weeks I would e-mail that and be like “This is urgent. I need to buy something. I need to get rid of this money.” So… yeah.

Joe Fairless: Wow. So smart. Thank you for sharing all of your stuff. I’ll summarize some lessons learned in just a moment, but first, what’s your best real estate investing advice ever?

Antoine Martel: Best real estate investing advice ever is to match your resources to the best strategy that makes sense for your resources. What I mean with that is a lot of people will do all this homework, and study all these different ways to invest in real estate, and buying 20 million dollar apartment buildings may be the most sexy or most attractive to you, but then look at your resources – how much time do you have? How much money do you have? What’s your experience level? Match those three things with the best strategy that makes sense today, that you can get started today… Because trust me, if you have $10,000 in the bank account and your end goal is to buy 100 million dollar or 20 million dollar apartment buildings, you’re gonna have to take a lot of steps to get there. Start with step one. That may not be even related to apartment buildings. It may be single-family, it may be Airbnb etc. But at least get your foot in the door and match the strategy today that makes the most sense for your resources that you have today.

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

Antoine Martel: Let’s do it!

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

Break: [00:25:36].08] to [00:26:38].20]

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

Antoine Martel: Best ever book I’ve recently read was The 10x Rule by Grant Cardone.

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

Antoine Martel: In Cleveland we have this thing called “Point of sale inspections”. When you buy a property, you have to put pretty much a hold, which the escrow company holds until the renovations are completed, and I just realized yesterday that I sold two properties a couple of months ago and didn’t ask for the POS hold money back.

Joe Fairless: Best ever deal you’ve done?

Antoine Martel: The 20-unit apartment building.

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

Antoine Martel: I sometimes go to the Los Angeles National Forest and we plant trees and clean up the shrubs, and brush and replant new trees, and also clean up the existing trees in the forest.

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

Antoine Martel: I post a lot on Instagram. My Instagram handle is @martelantoine. If anybody wants to reach out to me, all my contact info is on my website, MartelTurnkey.com.

Joe Fairless: I thoroughly enjoyed our conversation. I learned a lot. You’re very wise, and have some great perspective and resourcefulness. Just making a list of brokers from LoopNet, calling them every two weeks, or e-mail them, and doing it for nine months, and giving them feedback along the way when they do send you deals, and then ultimately sending deals and switching up the follow-up process. That’s just great.

And then I loved the “Match your resources to the best strategy to utilize those resources.” I might have butchered that a little bit, but…

Antoine Martel: No, that’s good.

Joe Fairless: That’s the paraphrased version. And also just how you got out of the gate, senior in college, and started the company with your family, and then have grown it from there… So thanks for being on the show; I enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you again soon.

Antoine Martel: Absolutely. Thanks so much for having me.

 

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Al Beahn and Joe Fairless

JF1201: Turn Key Real Estate Investing In Detroit with Al Beahn

Al runs a business that finds cash flowing properties for other investors in Detroit. He’ll tell us that most of the negativity associated with Detroit is exaggerated media driven information. About 90% of the clients that come to Detroit to see some properties are surprised ina  good way and end up investing with Al. Find out how to set yourself apart from other turn-key providers. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Al Beahn Real Estate Background:

– Founder and CEO of Pioneer Homes, the leading source for cash flow rental properties

– Past seven years, he has closed more than 1,000 deals, valued in excess of $50 million

– Has clients across six continents

– Based in Detroit, Michigan

– Say hi to him at: https://www.pioneerhomesus.com

– Best Ever Book: Profit First

 


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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 fluff.

With us today, Al Beahn. How are you doing, Al?

Al Beahn: I’m doing great, Joe. How are you?

Joe Fairless: I’m doing great as well, nice to have you on the show. Al is the founder and CEO of Pioneer Homes, which is a leading source for cash flow rental properties. Over the past seven years he’s closed more than 1,000 deals valued in excess of 50 million buckaroos. He has clients all across six continents, which almost is all of the continents; is Antarctica a continent? I think it is.

Al Beahn: I haven’t done anything there.

Joe Fairless: I figured that would be the one continent that you don’t have — this is where my board game risk background comes into play; I know my continents. And Al is based in Detroit, Michigan. His website is PioneerHomesUS.com, which is also in the show notes page.

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

Al Beahn: Yeah, absolutely. Thanks a lot for having me, Joe; I’ve been looking forward to it. I actually got into real estate in 2009. I graduated college, CMU [unintelligible [00:03:31].16], and I was living in my parents’ basement. My dad was not the kind of guy that liked having that going on, so I think I was home for about three or four months and he just sat down and said “Look, man, you’ve gotta figure something out.”

I had always wanted to get into real estate, I just never really understood how or what to do, so I just kind of took a plunge and went out and I raised some funds, and I bought my first fix and flip. I did that back in 2009. Bought my first property for $27,000, I did all the work myself – I guess you could say I learned the hard way doing that. I flipped it, I think we sold it about four months after we purchased it. It was a 90-day renovation, and about 30 days to sell.

At the time I think I was 22 years old and we cleared about $16,000, and I said “Man, this is kind of cool.” I was kind of like my own boss, I was doing whatever I wanted to do, and that’s kind of where I got into the business. That kind of transitioned us into the turnkey model, which kind of developed in about 2010 for us.

We were just kind of in the market; I always say we got lucky. It was just good timing, and being local Detroit guys, that model just kind of fell into our lap, and the rest is history, really.

Joe Fairless: Are your turnkeys in Detroit?

Al Beahn: Yes, about 90% of what we do is in Detroit. We were doing a lot more in the suburbs a few  years back, but the markets kind of shifted and we don’t see as much value there anymore, but yeah, we about 90%-95% now is in Detroit.

Joe Fairless: Pros and cons of investing in Detroit.

Al Beahn: Pros and cons… Pros is definitely going to be the price points. The ROI’s are significantly higher than the rest of the country. I think there’s a ton of value still to be had. Last week we were walking through properties that we could be all in at 40k-50k that will appraise in today’s market for 80k-100k, so… I think there’s a lot of opportunity for instant equity in certain parts of the city. I think there’s obviously the high ROI as well.

Cons – I think if you’re not careful with where you are, you’re definitely gonna be liable for some vandalism and theft like that, because that’s a real thing in Detroit if you’re not careful where you are. I’d say probably that’s the biggest con.

Joe Fairless: Where do you need to be? What areas?

Al Beahn: We try to stay in the North-West side of Detroit. We hone in on about six or seven different zip codes. East side there’s a couple small pockets; we like East English Village… That’s one of those areas I was talking about last week. It’s one of the few areas on the East side that we invest in. So between that and the West side, we try to stick to the West side for the most part.

Joe Fairless: When you talk to potential clients who have only heard about Detroit through probably negative means, what does that conversation sound like? And when they do invest, why do they ultimately invest?

Al Beahn: It’s really just media-driven negativity. This isn’t something that they’ve experienced themselves, so it’s just like a false image that they have, and I’d say 90% of the people that come here end up investing. I don’t think people expect to see what they see when they get here, and I think that’s one thing that kind of makes them get over that hurdle. But I don’t know, I guess we [unintelligible [00:06:46].01] They really take the time to educate the people that don’t wanna come visit. The sales cycle is extremely long – 60 to 90 days is pretty common, so I think they’re just comfortable that we spend that much time with them over the phone and educate them about the city as much as possible.

We like to share info about the market as well, so there’s just a lot of things I think that go into that, but ultimately the easiest sale is when they come here. They come and  we show them certain parts of the city, and they just… A lot of people that have never been here are shocked to see what they see in certain parts. We’ll show them the good and the bad. I’m not gonna sit here and say there’s not bad parts in Detroit because there are, but we just try to avoid those areas.

Joe Fairless: Let’s talk about your business – how do you stand out from other turnkey providers?

Al Beahn: Great question. There’s definitely some competition here. I think it’s just the time that we spend with our clients. I’m not gonna bash any of the clients or competitors because I think they’re all great in their own ways, but I think that some people just wanna be educated a lot before they decide to make this decision. I’d argue that our sales guys are pretty thorough with our clients, and then obviously our product is definitely top tier to our competitors. We know where to be in Detroit.

So I think just a communication thing, and obviously, after the sale too, we really try to stay in contact with our clients. If they have any issues, or sometimes there might be some paperwork [unintelligible [00:08:16].03] with the property management, so we try to help them get through those hurdles as well. I think those are a handful of those issues why we kind of stand apart.

Joe Fairless: And how do you make money on the business?

Al Beahn: Our profit is built into the purchase price of a property. We buy it for X, we put X into it, and then we sell it with our profit built in.

Joe Fairless: Do you manage it, too?

Al Beahn: No, we have a third party. I actually did property management for the first five years we were in business, and then I realized it’s not profitable. It was really more of a quality control for our clients, but it just kind of became a drag and it was really just kind of a money pit for the company, so I got out of that about four years ago, and now we just refer it all to a third party.

Joe Fairless: Do you have one third party you work with?

Al Beahn: There’s a couple we work with. If we have a really big month, I try not to shift too many properties at one company at any given time, just to ensure that everything is handled properly. Nobody will tell you that they can’t handle it, but we’ve kind of learned that there is a breaking point for sure on what they can take in at any given point.

Joe Fairless: On that note, on the breaking point for what a property management company can take in, what were some things that you noticed slipping through the cracks that normally wouldn’t if you didn’t inundate them with a bunch of properties that they’re bringing on for the month?

Al Beahn: I’d say the number one thing is just getting in contact with the tenants on a timely basis. A lot of the companies that we’ve screened, they would get really hung up on the paperwork and they wouldn’t wanna contact anybody until the paperwork assignment. Sometimes when we sell a house, we have clients that work 70 hours a week, they travel to different countries or out of the country or out of state, and sometimes they can’t get to that, so we were seeing a property management agreement (PMA) not be signed for 30 days, and the next thing you know we have a tenant who hasn’t been contacted in 30-45 days. So I think the biggest thing for me – and I’m not sure about you guys in your market, but here my most important part of this whole process is the transfer… So when we give a file to the manager, my number one thing is to get in contact with the tenants right away, and I think for us at least — because we also buy properties that are already turnkey… So we might buy property from a landlord that’s retiring, or something like that, so for me I think it’s really the contact with the tenant, to make sure that [unintelligible [00:10:33].07] with everything.

Joe Fairless: Yeah, I’d say that would be from a business owner standpoint. That’s the huge variable for you and growing your business, because if your client has a poor experience with the third-party management company, the house could be great, but then the management company just totally blows it on who they put into the property, or how they retain that person, or how they screen the future person, or they don’t address certain maintenance issues… That just seems like that could be a big headache for you and that could cost you some business.

Al Beahn: Right, absolutely. This is our screening conversation when we’re looking for new managers – “The number one thing that we need is that when we give you a file, you need to contact these tenants within 24/48 hours”, because a week goes by, two weeks go by, they have some maintenance issues, rent’s due and then they try to call somebody and they can’t get a hold of anybody, then red flags start going up. We’ve had tenants leave on us just for that simple little thing… So yeah, when you’re doing volume, there’s gonna be that little tiny percentage of issues, and that’s usually the number one issue – the lack in the management process. We’ve really tried to hone it and tried to perfect it. We’re not perfect, but I’d say we do as good as we possibly can with that part.

Joe Fairless: How many deals are you selling a year?

Al Beahn: We’re pacing probably to do about 250 this year. I try to hit between 15 and 20 a month, that’s our goal. Obviously, we have months where we succeed that and then other months that we don’t, but we’re pacing to do about 250 this year.

Joe Fairless: That’s a whole lot of deals, and you’re talking about you’re buying, renovating and selling them as turnkeys, about 20 a month or so?

Al Beahn: Yeah, we do about — I’d say 60% is already turnkey; we buy a lot of property as is, and then the rest would be the turnkey renovations, correct.

Joe Fairless: What type of process do you have – if any – with your clients who purchase the property and then after the purchase hand then off to the third-party management company. Do you have some sort of process to follow up with them later?

Al Beahn: Well, our sales guy is known to keep in touch with them, and a lot of our clients are long-time clients, so I wouldn’t call it a specific process; it’s more of just a relationship thing, because we’ve learned that if you maintain these relationships with these people, and you don’t just sell them a house and say “Hey, it’s great to meet you. Good luck”, there’s always that repeat business.
We had a guy who bought a house from us early in the year last year, and my sales guy just kept a relationship with him. Not trying to sell him anything, just “Hey, checking in… How are you doing? How’s your family?” I think they had a similar interest in sports, so they kind of chatted about that, and the next thing you know the guy had saved up some cash and bought another property. So it’s really not a specific process per se, I think it’s more about building relationships with your clients, and for me that’s always been the best way to do business… So I’d say that’s what we do with that.

Joe Fairless: The biggest challenge that you have right now is what?

Al Beahn: The biggest challenge… I’d like to say inventory, but it’s usually not inventory; Detroit is a really big place. I think really it’s just some of the people in Detroit, some of our competitors – I don’t wanna call them competitors, but… They’re in every market. The guys that think they’re wholesalers and they market properties at just crazy prices. When we’re selling houses at 45k-50k, these guys are sending lists out with properties for 25k-30k, and it’s just a real struggle because people see that and they just think that’s the market, so they want properties for that price, and we just really don’t do that. Yeah, we come across deals from time to time, but I think that’s probably our biggest. If I talk to our team, that’s probably the number one thing, if I had to pick.

Joe Fairless: What do you do to help mitigate the damage that that could have on your listings at the price points you have?

Al Beahn: Well, we cannot pool comparisons. Go look at the Google Maps Street View, go pull up Trulia and look at the surrounding values. I’m never one to use Trulia, but if you pull up a property and there’s houses in the area at 10k-15k, the majority of that, and then you go pull up one of our properties and there’s houses in the 50’s and 70’s, you can just see it’s a totally different property, it’s a totally different asset; it’s not apples to apples.

And the number one thing is to say “Look, I think you should come and look at them both. We’ll take you to that property and we’ll take you to ours and you can just see it for yourself.” And it’s funny, because a lot of people don’t wanna do that. They just wanna buy it site unseen. We turn away a lot of business, Joe. There’s a lot of people and we say “Look, we can’t compete with that. I don’t wanna put our name on that product.” So a lot of times we’ll just let the business walk away, because sometimes it’s a really hard pitch to get them to understand that.

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

Al Beahn: Best advice ever, that’s a good one. So the Best Ever listeners will like this, I guess… It’s really basic – I think no matter where you are, you have to do your due diligence. I’ve seen so many investors lose their shirt because they do not do their due diligence. Maybe that’s just a very simple, basic answer, but it’s such a major thing in the process. Obviously, price is one of them, but I think the due diligence part – inspections, title work and all that stuff… That to me, especially if you’re kind of getting into real estate — I know when I first got into it I didn’t even know what due diligence was; I’d walk through a property and think I just need to go to a title company and close. But I think the due diligence, inspections, title work is huge for me. If you’re just getting into it, I think that’s a big deal, for sure.

Joe Fairless: Tell us a story about when due diligence played a major role in the acquisition of a property.

Al Beahn: Yeah, absolutely. Back in the day, before we were good at this, it happened all the time. Buying properties on quitclaim deed… There was a time we bought (I think it was a) five-pack – this had to be in the very beginning, the first year, maybe a year and a half in the business. I found a house on a quitclaim deed. I think at the time the prices were so cheap back then… I wanna say we bought a five-pack for 55k or 60k, and “Hey, there’s back taxes. Hey, there’s water bills. Hey, there’s tax titles”, so you have to either [unintelligible [00:17:00].28] or you did not get title insurance. That happened to us before. I’d say that was probably early on one of the bigger mistakes that we made, just buying a property without understanding the title side of things.

Joe Fairless: Would you say that back taxes and water bills are more prevalent in Detroit that it will come up in due diligence compared to other markets?

Al Beahn: Well, it’s hard to say… I haven’t done much business in other markets, so I’m not sure. I’d say because of what happened in Detroit – there were 140,000 foreclosures when this whole thing hit the fan back in ’07 through ’09, so… To put it into perspective, there were on average 20k to 25k tax-foreclosed properties in the Wayne County auction every year. The most recent tax auction – there were only 6,500 properties. So it’s all getting cycled through.

So I think five years ago – absolutely; probably the number one in the country. But today, it might be more than average; I couldn’t say it’s more than any market, but it’s probably higher than the average.

Joe Fairless: Yeah. It was a poorly worded question. I should have asked you just relative to the properties you’re buying, are there a lot of back taxes and water bills? Because you’re in Detroit, you’ve been investing in Detroit, so you’re not aware of other markets. But you answered it. You made my stupid question into a smart answer, so thank you for that.

Al Beahn: No, it’s all good. I’d say maybe 20% to 30% of our properties that we buy have more than two years delinquent.

Joe Fairless: Okay, got it.

Al Beahn: I’m not sure, it might be different in every market. Here it’s after three years you’re subject to foreclosure, so we rarely see more than that.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Al Beahn: I’m ready, man.

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

Break: [00:18:51].24] to [00:19:44].01]

Joe Fairless: Best ever book you’ve read?

Al Beahn: Profit First, by Mike Michalowicz.

Joe Fairless: Best ever deal you’ve done?

Al Beahn: This is a tough one; there’s two of them. I’m gonna talk about the first one because  it was the first one I really did a creative deal. It was a package of 11 duplex units. In Detroit, a duplex — they’re side by side, and they’re actually two separate parcel ID’s, so you can buy and sell each half individually. There was a package of 11. I believe four of the units were actually side by side, so we actually bought the package, sold off the two buildings that were attached, profited enough to actually pay for the other seven units free and clear, and we had seven free and clear units with cash-flowing tenants basically for free.

I say that’s my best because it was one of the first deals we did that was very creative like that, and to this day I always love that deal.

Joe Fairless: Oh, absolutely. Do you still have those seven?

Al Beahn: No, we sold those probably about two years ago.

Joe Fairless: Okay. And when you sell them for your own personal investing, what’s the reason to sell and what do you do with that cash?

Al Beahn: At the time I think I was trying to get into some better assets at that time, so two years ago. I’d probably just put it back into the turnkey business and use it to basically flip some more properties.

Joe Fairless: And do you currently take some of the profits from the turnkey business and then buy rental properties for your own rental portfolio?

Al Beahn: Yes, I kind of do that model. I like to buy property from some of our profit. So if we flip ten houses, sometimes I might just maybe keep one of them. It’s almost kind of like a “no cash out of pocket”, really. There’s obvious opportunity cost there, but we do that as well for sure.

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

Al Beahn: In real estate as a whole, still to this day one of the bigger mistakes was selling some of the assets that we owned. Even though it’s duplex units, I’d argue if I would have held on for a few more years, it’d be much more valuable. But mistakes — it’s always probably a due diligence thing. We’re doing so much volume, sometimes something slips through and you’ve kind of gotta eat it. But it’s always usually a due diligence thing. I don’t think there’s a deal that stands out that I’d say was like the worst deal we’ve ever done.

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

Al Beahn: That’s a good question. For me, I don’t really have any formal way of giving back. I like to donate to our church around Christmas time more than average, but… For me, we get a ton of people that reach out to us through our social channels and other ways like that, people that obviously have never done anything in real estate, and I kind of make it a point to at least help a handful of people. I get a lot of kids; I’m a younger guy, so a lot of kids (15, 16, 17) reach out to me through maybe Instagram, and I’ll just be really bold with them if I think they have a crappy sales pitch, or their approach is bad, but I try to make it a point, at least a couple kids a month, just to kind of give them a little bit of advice.

I know back when I was 16, 17, even if I had one little tidbit of advice, it would help me out a long way, so I try to do that as much as I can each month.

Joe Fairless: How can the best ever listeners get in touch with you?

Al Beahn: You can call the office. I’d say the easiest would be through e-mail. The e-mail would be info@pioneerhomesus.com. Check out our website, PioneerHomeUS.com, and all of our social handles – most of them are @pioneerhomesus, so I’d say those are the best ways.

Joe Fairless: Congrats on building such a high volume business, with 250 deals a year that you’re rehabbing and then selling to clients across six continents. I did confirm via Google, while we were talking, that Antarctica is the seventh continent. You’ve gotta work on your Antarcticans. I don’t know about the stats, but maybe I’ve got an Antarctica listener, and they’ll be a new client. If so, then let me know; that way I can claim to cover all seven continents.

Also, the overall approach that you take with the due diligence, lessons learned along the way, the back taxes, the water bills etc., and then knowing where to invest and where not to invest, or at least an area where you need to go in eyes wide open. So perhaps maybe you do invest, but it’s just an area where you go eyes wide open. Where you choose to invest would be the West side and the North-West side in general. It sounds like there are exceptions.

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

Al Beahn: Joe, I appreciate it, man. Have a good day as well. Thank you!

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JF935: RECONSIDER Your Partnership for This One Reason #SituationSaturday

Ready to jump into a partnership? Well, hold your horses! Do you both know real estate? Do you have experience? Do you and your partner bring complimentary skills to the table?

Here are some steps to form a great partnership:

– Know the skills needed. Identify skills you bring.
– Identify skills that are lacking. Identify structure.
– Approach someone with skills and offer yours.
– All partnerships end, and it is the responsibility of partners to know how it will end.

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Chris Clothier Real Estate Background:

– Partner of Memphis Invest, one of the largest passive turnkey real estate companies
– Memphis Invest does over $100 million in annual revenue
– They purchase over 600 single-family properties yearly in Memphis, Dallas, and Houston
– He and his family manage over $400 million in asset value for investors from around the country
– Founder of nine different companies in two industries billing over $10 million in annual revenue
– Based in Memphis, Tennessee
– Say hi to him at http://www.memphisinvest.com/ or chris@memphisinvest.com

Click here for a summary of Chris’s Best Ever advice: http://bit.ly/2nFyzii

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real estate partnership advice

 

Joe Fairless: Best Ever listeners, 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. We only talk about the best advice ever, we don’t get into any fluff. I hope you’re having a Best Ever weekend.

Because it’s Saturday, we’re doing a special segment called Situation Saturday where our best ever guest talks about a sticky situation they were in and how they overcame it. How are you doing, Chris Clothier?

Chris Clothier: I’m doing phenomenal, man. How are you?

Joe Fairless: I am doing phenomenal as well, and nice to have you on the show again. Best Ever listeners, if you recognize Chris, that’s because he’s been on the show before. Originally, he was on episode 58, titled Turning Smiles Into Profits, where he talked about his customer service program and how they call every single client of their with this turnkey company every month, and get feedback.
From that interview, I implemented a question that you talked about, Chris. You talked about how you always talk to potential partners about the mistakes that they’ve made, and if they say they haven’t made any, then they either are being dishonest or they haven’t been in the game long enough. I actually ask that on my normal format ever since then, for the last 900 episodes, because of you.

Chris Clothier: Wow! Are you kidding me? 900 episodes – that’s cool! I’m glad I could contribute to that.

Joe Fairless: Yeah, and there have been so many good answers as a result of that. There are so many lessons learned just from you mentioning that one thing. I guess it was 900 days ago, I guess that’s how it works. [laughs] Ain’t that crazy? 900 days ago, whenever we talked.

Well, a little bit about Chris. He is the co-owner of Memphis Invest. It’s one of the largest passive turnkey real estate companies. Memphis Invest does over 100 million in annual revenue. They purchase over 600 single-family homes yearly in Memphis, Dallas and Houston. He’s based in Memphis, Tennessee. With that being said, Chris, do you want to give the Best Ever listeners just a little bit more about your background? And then let’s dive into the tough situation you’re in.

Chris Clothier: Yeah, absolutely. As you said so eloquently, I am a partner in Memphis Invest, and I am partners with my father and my younger brother. My older brother Kent, while maybe not being a partner in the company, obviously had a huge influence on us. He’s got his own real estate company out in California, but what’s important is that my family, all of us have been raised in this very entrepreneurial environment. Ever since we were kids — I started working when I was 11, and everything that we’ve ever done has been really customer service centric, no matter what the industry was, no matter what the particular company was that we started. Each of us has started our own companies, and always based on customer service, no matter what the product was.

For that quick little background, we’re managing, as you said, 4,000 properties for passive investors from around the country. We love real estate, probably more than anything, just being in business in general. We love having clients and vendors and team members and building things… I guess it’s in our blood, it’s in our nature, from doing it for so long to this point.

Joe Fairless: From managing 4,000 properties to buying a whole bunch of properties on an annual basis, to building companies, I know you’ve come across many sticky situations, so you’ve got lots of different stories to choose from. Which one do you wanna talk about?

Chris Clothier: Let’s talk about one that may hit closer to home for many of your listeners. It’s just about doing a deal yourself, and I’m gonna talk about bravery… Being brave enough to go out there and try and take on a challenge on your own, rather than feeling like you have to go with a partnership. It really boils down to… Early on, several deals that I had done went really well, and one went South really fast. But the point of it was that all of it I did with a partner, because I wasn’t brave enough to go on my own.

It’s interesting for me, because I look back on it… I had all the tools, I had everything that I needed, I just didn’t have the confidence and the bravery to go on my own, so I chose a partnership instead [unintelligible [00:06:15].15] but that’s a partnership that no longer exists and it’s a friendship that got hurt because of it, so I’d love to share that.

Joe Fairless: Yes, please do. You’ve piqued my curiosity.

Chris Clothier: Well, I was in Denver, Colorado recently at the Best Ever conference event out there in Denver. It gave me a chance to kind of go back to some of my old stomping grounds, where I got started as a real estate investor. It’s also the place I founded my first company, which was a grocery arbitrage company. I was very successful thanks to having some really good mentors and my family around me that helped me to build my first company successfully. And I was taking my earnings from that company and I began to invest in real estate.

The biggest challenge that I had was the fact that I should have been smart enough to look around me and say, “I’m a smart person, I’ve got good people around me, I’ve paid attention, I’ve got good mentors…” I built a business at the time that was very successful, but I still felt like I needed a partner in order to invest in real estate, the fix and flip kind of stuff. And rather than pick the best partner, I picked — let me just be clear… Great guy, phenomenal person. He was a good friend of mine, but the problem was that neither one of us had any experience in real estate, and the funny thing was we both were scared of losing, and rather than lose alone, we chose to lose together.

That’s what happens so often in partnerships… We made the decision to be partners for all the wrong reasons. Not because he had strengths and I had strengths, but because we both had a weakness, which was lack of faith, lack of bravery, lack of courage to go do it on our own. To be fair to him, he was already a long-term buy and hold landlord that was doing okay, but we were going to do some fix and flip homes.

In the end, we picked a couple of deals and we were doing well. We had no idea that we were spending twice as much as we needed to spend and taking twice as long to do it, but we were selling the houses and making money. And we mistook making money for success, if you know what I mean. We were not doing a good job of anything, we were just spending money.

Joe Fairless: Well, selling houses and making money – on the surface that certainly appears to be asuccess from a business standpoint.

Chris Clothier: I’m glad you said that, because you’re right. But that was our problem… Anybody that is successful over the long term knows that you have to track your progress, you have to know how many dollars you spend in relation to how many dollars you make. You have to know how everything correlates, all the cause and effect of what it is you’re doing.

For us, we were moving so fast… We both had other successful companies that we were making money in. Neither one of us were holding each other accountable to anything. One of the tips I always share [unintelligible [00:09:11].26] is “Inspect what you expect”, which neither of us were doing. We basically were just kind of relying on the other to be the smart one. Looking back, it’s really funny – we were making some money; we could’ve done much better, and what did us in eventually was a home that we chose that… This is how fickle real estate is. It was right there in Denver, and it was a matter of 200 yards – that was the difference between us making money and losing a lot of money. We lost over six figures on this deal, and it broke apart our partnership certainly.

We were just not really friends anymore because of it. There was a lot of animosity towards each other, because neither one of us were holding ourselves accountable, much less the other. The problem is that we purchased a home that was literally two blocks away from where it needed – both school district, taxing district… The way that homes were gonna be appraised and what would be used as comparable sales – it literally was the difference between a home being worth 500,000 and a home being worth 300,000. We owned the home in the four hundreds.

We held the house for a very long time. I continue to write checks for it, and write checks for it, and write checks for it. I tell people on the backside when it’s all said and done that I went into a partnership with someone that I was comfortable with, someone who told me all the right things that I needed to hear, like I was a good businessperson and I was smart, and I was obviously successful; I had money together, we would be able to fix and flip homes.

I did not partner up with someone who had the ability to run good forecasts of as far as what we’re spending, how to budget that money and how to model that money. I didn’t partner with someone who could pull comparable sales and could analyze that 200-yard difference, that two blocks that really sunk us. I didn’t partner with a person that had the right skill set for me, because my skill set was absolutely at my business, and I had money. I had the ability to stay organized and stay on point, but I didn’t know real estate.

My partner, unfortunately, didn’t have money, but also didn’t have the real estate skills that were needed, so he was managing a project that he didn’t know how to do. It ended up being a disaster, and I go back to the very first thing I said… When we’re choosing a partner and we’re choosing a partnership, I did it out of fear, and that is never a good reason to go into any type of  — whether it’s a real estate transaction or a business transaction, you should never enter one out of fear.
Like I said, we were fearful of losing money, so rather than losing money as individuals, we lost it together as a partnership.

Joe Fairless: Based on what you said, it sounds like you need someone who has the right skill set to complement you, or fill in the blank for whoever is the person who is looking for a partnership… But when do you know that you should have a partnership, versus going on your own and doing your own deal?

Chris Clothier: If your choice to go into a partnership is based on your own fear, whether it’s fear of unknowns, whether it’s fear of failure, whether it’s fear of taking on a really big project and being highly successful, which believe it or not, that’s a fear that a lot of people have. When they haven’t done a really big project – they’re perfectly capable of doing it, but the simple fact that they haven’t done it before is a fear that makes them bring on a partner instead.

So when you’re making a decision on whether to bring a partner in based on fear of what could happen, then you’re probably not ready to bring on a partner. It needs to be a partnership – and you nailed it perfectly, Joe… You need to take on a partner when you can look around the landscape and say, “I’m able to bring these particular skills to this project.” Maybe in my case I didn’t have the time or the experience to know how to do comparable sales, so I wasn’t sure how to comp a property properly at the time. I did not have enough experience negotiating with contractors to negotiate pricing. I had been basically a very passive investor up to that point.

If I was gonna partner, I needed to bring someone in that had the experience of negotiating with contractors, getting them hired, keeping them on track, because I knew all those things had to be done, I just hadn’t done them before. If I had just spent a little bit of time sitting down and thinking about it, I would have realized that even though I’d never done it, I negotiated with contractors daily. It was a different kind of contractor, but I’d been negotiating for years; I knew exactly how to negotiate a contract, I knew exactly how to negotiate work to be done… I could have easily contacted one of the top real estate agents in the area, because I knew the things to do, I just didn’t do them. I strictly chose a partner based on fear, rather than probably looking myself in the mirror and saying, “I know how to do this. I’ve been a successful businessperson, I’ve been in the local real estate investors association, I’m surrounded by smart mentors… I can do this.”

I chose to take the easy route, which was “I’ll get a partner instead and let him do these things. I’ll provide the money and make it on the backside.” And the worst part for us, Joe, was that we were successful for the first three or four deals we did. We made money.

Joe Fairless: Yeah, false sense of security.

Chris Clothier: Oh, yes… Absolutely.

Joe Fairless: One question I have… I’m a huge Tony Robbins student and he talks about how emotions like fear and being scared or being maybe depressed, they’re all action signals if we use them in an empowering way. I don’t remember what he said fear is and what that should lead us to, but I suspect it’s something like, “Get prepared.” If we’re fearful about something, then we need to either get educated or more prepared.

The question I have is along those lines… I have entered into partnerships with a good dose of fear, but then also it’s because I know some of the aspects that they’re good at that I’m not will help with the transaction, and it’s gone well. So I am fearful that “Hey, I really don’t wanna do this because I’m not gonna set up the project for success”, so how do you reconcile that with this approach?

Chris Clothier: You said something perfect right there… You are aware of your weaknesses. I’ve got a better way to put it – the things [unintelligible [00:15:49].26] on that particular deal, and it was that awareness that made you fearful to move forward without correcting that. What I’m talking about for me is I guess I had that same mentality, but I just didn’t recognize what I needed in a partner. Instead for me it strictly was “I like this person, I’m good at what I’ve been doing, he’s been good at what he’s doing… It will be fun to be in a partnership with this person. He and I can make some money together. We have done all this stuff together, so we can — whatever it might be… It might be playing softball on Thursday nights together, and we’re gonna meet for a happy hour…” Whatever.

These things that say “Hey, this is what makes us a good partnership, and he’s got time on his hands, he’s got some experience…” I was never asking the questions that you were asking right there – “Does this person bring to the table exactly what I need?” Forget anything else about it, and “Do they bring to the table the specific things that are gonna make me successful in this project?” Being fearful and not moving forward because you don’t have everything you need yet, that’s smart.

I love the way that you said Tony Robbins puts it, in the case of “Get educated, get yourself surrounded by the right pieces, don’t just stop.” But for me, I didn’t do that. I just chose a partner that I thought would be fun to hang out with and I can make some money with, and I thought if I do lose, we’ll both lose together so it’s no big deal, because we’re buddies.

Joe Fairless: Everyone loves losing over a hundred thousand dollars with a friend. You should experience that with all your best friends. I highly recommend it.

Based on listening to you and taking notes, I’ve condensed it into a five-step thought process, and I wanna run it by you to see if there’s anything else that you’d like to add. One is to know the skills that are needed to do what you wanna do. Two is to identify the skills that you bring, three is to identify the skills that are lacking, four is to know how you wanna structure it, and then the fifth would be when you approach someone saying, “Hey, I know skills are needed…” — and you don’t saying it exactly like this, but say, “I know the skills that are needed for this project X, Y, Z. I bring these skills, I think you can bring these other skills. I’d like to structure it as follows. What are your thoughts?” Is that the approach that you would take?

Chris Clothier: Yes. And I will add one asterisk for everybody to understand, and we’ll see if you agree with this. I was told by a very good mentor of mine that all partnerships end, and it’s the responsibility of those entering into the partnership to decide on the frontend how it will end. That includes — as he pointed out, he’s like “Look, at some point debt is chasing us all.” Man, I will not forget what you said up there on stage, that we’re all dying. I remember that when hearing you speak on stage, Joe, and that is true. So from the very beginning, set up how will this look, because it may look like one of you passes away at some point, and what happens next?

So he said, “If you will sit down and decide on the front end if this go good, if things go bad, should there be debt – whatever happens, this is how we’re gonna handle it”, then that partnership has the pieces it needs to get started up on the right foot. If you partner with people because you like hanging out with them, as I did, you very well may end up as I did, and that is no longer with a partnership, and possibly losing money.

Joe Fairless: Yeah, and I can tell you if you bring in investors in a partnership, they’re gonna ask the same question of “What happens if one or both of you die?” I’ve been asked that many times, and we have to make sure that it is written out in the agreement, because then we go, “Oh, good question. Let me show you point three sub. three, or whatever it is.

Chris Clothier: Yeah, “Let me show you exactly what will happen.” That’s good.

Joe Fairless: I love that. This has been great. It’s a very clear theme and story. Is there anything as it relates to identifying the right partners that you wanna mention that we haven’t talked about already?

Chris Clothier: I don’t know about exactly the things you need to look for, because everything is going to be different… But I love what you said earlier, I think clarity is really, really smart. When you recognize that you don’t need to move forward on something without having the right pieces in place – and that might be a partner – let that be a great starting point for you to start defining “What do I need?” I can’t say this is always gonna be the case, but I do believe that there’s no need to be in a hurry. There’s a need to get things done, and there’s a need to have timeframes, but there’s no need to be in a hurry.

When you know that you need to surround yourself with other pieces, get to defining it. Get to learning exactly what it is you need around you, and then go get it.

Joe Fairless: As far as partnerships go, we don’t necessarily have to have partners, we just need to identify the skills that are needed, and then perhaps we hire someone instead of bring on a partner, so maybe we hire a vendor to do that.

Chris Clothier: Well, like I said earlier, sometimes the skill is already in you, you just don’t know it. Maybe it’s just learning a different way to look at something, taking a different approach. Some of that happens when you surround yourself with mentors and you run your ideas past them and what it is you feel like you need to move forward on a project, and they’re able to educate you that you have these particular skills, you just need to hone in on it, you don’t know it yet. Or you don’t need to have a partnership to bring that skill, you’ve already got it. You need to bring it out of you.

Had I been told some of that back in the day, maybe I wouldn’t have moved forward on that partnership… Who knows? Maybe I still would have, because I would have had a different kind of fear, but hopefully you get the point there, that it’s all those steps: surround yourself with good people, know your strengths, know what you need, be clear, and see what happens.

Joe Fairless: Chris, where can the Best Ever listeners get in touch with you?

Chris Clothier: I am always at MemphisInvest.com. They can send me an e-mail, chris@memphisinvest.com, or they can go right there onto our website and take a look around. There’s tons of videos of me, I guess, and they can certainly register to get more information on our company. I’m more than happy to try and help people get educated.

Joe Fairless: I love this conversation. It is about when to find the right partner, or if to bring on a partner at all, and that is first know the skills that are needed for your venture, second, identify the skills you bring, third, identify the skills you need, and like you just said, make sure that you don’t have those skills and you just haven’t uncovered them yet. Lastly, look to structure it as follows for however you wanna structure it and, as you mentioned, having an idea of what the end looks like, because all partnerships end, we’re all gonna die, or it’s gonna go in opposite directions for whatever reason (who knows? life happens) so know how it will be dissolved when the time does come to be dissolved.

Thanks so much for being on the show, Chris. I hope you have a Best Ever weekend, and we’ll talk to you soon.

Chris Clothier: Talk to you soon, man.

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JF814: How He Turned $10,000 into Over $10 MM in Real Estate Developments

Starting with $10,000 in his bank account our guest was able to surround himself by the right people and begin his fix and flip ventures. Developments, fix and flips, and other ventures have built his total net worth above $10 million. Also, find out how he is able to only do a project the year and make it out alive!

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Slava Menn Real Estate Background:

– Principal at Labrador Real Estate & Contributing Writer at Inc. Magazine
– Guest lectures at his alma maters, BU & MIT, and writes for Inc Magazine
– Started with a $10K savings and has developed $10M worth of real estate
– Since 2013, Labrador Real Estate has developed over $6.5MM in real estate
– Based in Boston, Massachusetts
– Say hi to him at http://www.labradorre.com
– Best Ever Book: Unique Ability by Catherine Nomura

Want an inbox full of online leads? Get a FREE strategy session with Dan Barrett who is the only certified Google partner that exclusively works with real estate investors like us.

Click here: http://www.adwordsnerds.com to schedule the appointment.

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JF560: Why You Need to Consider a Turn-Key Business Model

Think everybody has time to prospect for leads? Wrong! There are millions of people ready to purchase an investment property that rely on professionals to have established cash flowing properties. We call this turn-key. Hear how our guest gets these leads and find buyers for these ready out-of-the-box cash flow homes!

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Chris Erwin real estate background:

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

Listen to all episodes and get a FREE crash course on real estate investing at:http://www.joefairless.com

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

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JF410: He Lost $25,000, but Learned This Valuable Lesson #situationsaturday

“Measure twice, cut once,” are wise words that our Best Ever guest should have adopted on a particularly sticky deal. He is known as the Real Estate Dingo, Engelo Rumora, and he is back on the show to share an unfavorable situation that could have been avoided. Engelo is a growing investor in the Ohio area with a savvy team, hear what he did wrong and how he made it right!

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Engelo Rumora’s background:

  • Trying to buy back his time doing 100 hr weeks
  • Cincinnati, Toledo, Dayton and Columbus
  • From Australia
  • Known as “The Real Estate Dingo”
  • Works with many investors in Ohio
  • Say hi to http://www.ohiocashflow.com 

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You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

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JF289: The Power of Numbers…Why More Investors Can Lead to Cheaper Deals

Bienvenidos, Best Ever listeners! Today, we discuss why buying in numbers may just lead to cheaper deals, which markets YOU should be investing in now, and what to look for in a market. If you apply these simple tips today, YOU will be making all the moola!

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Matt Bowles’s real estate background:

–          Partner at Maverick Investor Group where he and his partners have helped real estate investors buy over $100 million in turnkey rental property

–          Joining us from Spain

–          Personally has bought and sold over $4 million in real estate

–          Lived in 14 countries since 2013

–          Say hi to him at http://www.Maverickinvestorgroup.com

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Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

Wela – Get clarity and insight on your money by using Wela. See all your accounts in one place, and get all the answers to your questions from a real financial advisor ANYTIME.  Go to yourwela.com to learn more.

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JF284: How to Speak Chinese…and Of Course, Buy Properties

Today’s Best Ever guest may throw you for a loop with his Chinese/Wisconsin accent, but don’t let him fool you because he shares with some incredibly valuable experience about building and maintaining relationships with out of state investors, and where you need to look to determine whether or not your investment is in a safe neighborhood.

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Mark Shaffer’s real estate background:

–          Purchased 5 turnkey rentals starting in 2010 and currently own 10 units

–          Bought all of them while living in China

–          Based in Madison, Wisconsin at Midwest Equity Partner

–          Today is his 38th birthday

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Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

The Land Geek – Do you want to build monthly real estate cash flow without the typical headaches? Start learning about investing without all the typical headaches at  http://www.thelandgeek.com/best

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JF281: How to Build Relationships With Private Lenders to Get More Funds

Today’s Best Ever guest made a massive mistake with hiring a contractor, but now shares with you what to look for in one. We also discuss how he funds his deals, and how to successfully build relationships with private lenders.

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Darrell Shepherd’s real estate background:

–          Founder of Lone Palm Lending

–          Fulltime investor since 2000 based in Atlanta, Georgia

–          Say hi to him at http://www.lonepalmlending.com/

–          Has a rehab business, a lending business and working on a turnkey rehab real estate brokerage

–          Used to run 3 crews full time and own 50 – 60 units of rental property now focused on doing about 10 rehabs a year

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Made Possible Because of Our Best Ever Sponsor:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

1,000 Houses  – Are you tired of being a landlord? Are you tired of headaches? Thousands of investors have felt the same way you do, and have found their solution! Go to http://www.1000houses.com/mitch to find out more.

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JF163: Wanna Raise Money? Here’s How to Do It Properly.

Today’s Best Ever guest shares how to use a turn-key model to raise money and get your paperwork in order. You want to use OPM (other people’s money)? Then, listen up my friend!

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Douglas Ruark’s real estate background:

–        Principal at Regulation D Resources based in Denver, Colorado

–        Recognized expert in Regulation D offering programs

–        Say hi to him at http://regdresources.com/

–        And…he’s a descendant of Scottish royalty

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Sponsored by Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

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JF111: The 10 Rules of Successful Real Estate Investing

Just what the title says, my friend. Today’s Best Ever guest shares with you the 10 Rules of Successful Real Estate Investing. What? You just wanted ONE piece of advice? Sorry Charlie. You get 10 golden nuggets in this episode!

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Marco Santarelli’s real estate background:

–        Founder of Norada Real Estate Investments, a nationwide of turnkey property rentals

–        Started business in 2004 and is based in South Orange County, California

–        Been investing in real estate for over 20 years

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Sponsored by: Twenty Four Sound – visit http://www.twentyfoursound.com and mention “bestever” for an exclusive 20% discount on your purchase.

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JF91: Raising Money from International Investors

How do you set up international investors so they can take their money and invest in your deal? Today’s Best Ever guest shares with you the process.

Tweetable quote:

Decide what you want not what you think is possible.

Ben Gray’s real estate background:

–        Founder of American Properties International based in New York City

–        Match up international investors with turnkey American investment properties

–        Say hi to him at http://www.Americanproperties.com.au

–        Experience raising money and working with international investors to invest in United States properties

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Sponsored by: Twenty Four Sound – visit http://www.twentyfoursound.com and mention “bestever” for an exclusive 20% discount on your purchase.

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JF58: Turning Smiles into Profits

Combine a long-term vision with best-in-class customer service and what do you get? A company that Inc. Magazine recognizes as one of the fastest growing in the United States. Today’s Best Ever guest shares with us how he helped turn his company from a transactional operator to an industry leader. You’ll hear about achievements, mistakes and everything in between in this candid conversation about building a company from the ground up.

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Chris Clothier’s real estate background:

–        Partner and co-owner of Memphis Invest, a turn-key real estate company (http://www.memphisinvest.com)

–        His company has been recognized by Inc. Magazine as one of the fastest growing private companies in the US for three straight years

–        Memphis Invest has over 2,600 properties under management

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Sponsored by: Door Devil – visit  http://www.doordevil.com  and enter “bestever” to get an exclusive 20% discount on your purchase.

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JF 52: A Different Kind of Due Diligence

We all think about due diligence as research on the property we’re going to buy. But, today’s Best Ever guest talks about the importance of conducting more due diligence on his team than the market or property. And he would know because he has invested in Australia, Kansas City, Upstate New York and Ohio…so he’s implemented this advice successfully many times over.

Tweetable quote:

Do more due diligence on your team than your market.

Engelo Rumora’s real estate background:

–        Started with $40,000 in savings and bought first house in 2011 in Australia

–        Then, 6 months later purchased 7 more in Australia and the U.S.

–        Portfolio is valued over $1,000,000

–        Can be found at http://www.engelorumora.com/

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Sponsored by: Door Devil – visit  http://www.doordevil.com  and enter “bestever” to get an exclusive 20% discount on your purchase.

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JF 49: One…Two…Three…Four…FIVE Keys to Real Estate Success!

From CPA to successful investor, today’s Best Ever Guest shares with you the five keys to success that will help you do more deals and make more moooola.

Tweetable quote:

Matt Owens’s real estate background:

–        Has a portfolio of over 350 homes

–        Founder of OCG Properties (http://www.ocgproperties.com)

–        Currently buying 5 to 10 properties a month in Memphis and Atlanta

–        Started investing 8 years ago and was previous a CPA

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Sponsored by: Door Devil – visit http://www.doordevil.comand enter “bestever” to get an exclusive 20% discount on your purchase.

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