JF1024: The 2008 Crash Turned Him Into A Real Estate Investor!
Luis has a civil engineering degree and was working on skyscrapers when the market crashed. Laid off and without an income, he turned to wholesaling and lease options. Hear how he went from wholesaling to flipping apartment complexes!
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Luis Carrera Real Estate Background:
-Real Estate Investor at Innovative Property Group and IP Group
-Currently raises capital for larger apartment complex purchases
-Started real estate in lease options to eventually doing wholesaling, and flipping
-Born 4,713 miles away from the market he currently invests in
-Prior to investing he was a civil engineer and built skyscrapers
-Based in Durham, North Carolina
-Say hi to him at 973-902-7203
-Best Ever Book: Be Obsessed or Be Average
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Joe Fairless: Best Ever listeners, 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 fluff.
With us today, Luis Carrera. How are you doing, Luis?
Luis Carrera: I’m great. Thank you, Joe, for having me on.
Joe Fairless: My pleasure, nice to have you on the show. A little bit about Luis – he is a real estate investor at Innovative Property Group and IP Group. He currently raises capital for larger apartment purchases. He started in real estate in lease options and eventually doing wholesaling and flipping, and he is based in Durham, Raleigh area, North Carolina. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Luis Carrera: Sure. A little bit about my background… Basically, I immigrated with my family from Spain in the ’80s and we moved to New Jersey, primarily Newark, New Jersey, and then to Harrison. I was pretty much raised in that area.
I went through the typical family process… We had to go to college, so I went to college – Rutgers and [unintelligible [00:03:33].01] where I got a civil engineering degree, both a bachelors and a masters. Then I went on to work for a large contractor, and did a couple of skyscrapers and whatnot.
Then the economy hit and I was laid off in 2008. That’s when I started really investing in real estate, with lease options and then eventually wholesaling to some flips until I started getting private investors in 2010 to actually blow up my capital, so to speak.
Joe Fairless: Yeah, so let’s talk about 2010 to today. How are you making money?
Luis Carrera: Basically I’m making money with a combination of things. First and foremost, I’m a big believer of marketing. We do Google AdWords, yellow letters – postcards not so much, because they don’t help out much in this area – and a lot of referrals, basically through door hangers and word of mouth.
We do a lot of wholesaling still, and the [unintelligible [00:04:33].06] we actually keep. And during the same time, I realized that capital is the most important thing in real estate. You could always find capital, but deals are a little harder to come by, but it’s all about networking. So now I raise capital for these smaller projects, for smaller investors, for flips, or maybe turnkey solutions for them, or we raise capital for apartment complex purchases so we could flip them.
Joe Fairless: Alright, let’s talk about the last thing you said – you raise capital for apartment complexes so you can flip them. Are you on the general partnership side on that deal?
Luis Carrera: Yes, that’s correct.
Joe Fairless: Okay. Can you give us a case study of one that you did?
Luis Carrera: We did one in 2010… One of my first flips was an 8-unit. It was pretty interesting, because I had an investor that wanted to invest in real estate but didn’t have time or experience, and he knew I was doing some work, so we hooked up, and he insisted on a multifamily. I had never done a multifamily until that point, so we bought a small 8-unit complex in Kearny, New Jersey, for about 75k, and we used his 401k money; we rolled it over into a self-directed IRA and we worked on that one.
After ten months it sold for about 550k, and we rolled it over into the next project. He wasn’t gonna pay taxes anyway, but the only way to actually use leverage for a self-directed IRA was to 1031 it. So then we moved on to the 28-unit complex, and then eventually we did the same process, sold it after another year, moved on to a bigger complex, an 86-unit in South Carolina.
Rinse and repeat, did it again, and now last year we placed it into a 250-unit in Greenville, South Carolina. So between 2010 and last year, in less than 7 years he went from 240k in his IRA to over 2.25 mil.
Joe Fairless: …worth of value, right? Not actual profit, but value of property that he’s controlling with that original money…?
Luis Carrera: Well no, that is his original money now. What transferred over from that IRA was that amount.
Joe Fairless: So what did he originally put into the 8-unit?
Luis Carrera: 240k.
Joe Fairless: And he now has how much cash?
Luis Carrera: Now he has minimum cash, because we placed that money into another complex. But the transfer was 2.25 mil.
Joe Fairless: Wow, that’s incredible… So clearly we need to dig in here. So you went from an 8-unit – you had that for one year, you said?
Luis Carrera: Less than a year, actually.
Joe Fairless: Less than a year. Okay, I wanna get the lay of the land and then I’m gonna go deeper into each of these. So the 8-unit has less than one year, then you went to a – what unit?
Luis Carrera: It was a 28-unit. We had that for two years, actually; with the transfer it was less than two years. We sold it for 2.2 mil and moved it over to an 86-unit.
Joe Fairless: You sold the 28-unit for 2.2 million dollars?
Luis Carrera: Yes, and it was an acquisition of 1.2 mil.
Joe Fairless: Okay. And then you went into an 86-unit?
Luis Carrera: Yes, which was a 4 million dollar purchase price, and then four years later (last year) we sold that for 5.6 mil, and that’s what helped us 1031 that into a 7.9 mil over a 200-unit property in Greenville.
Joe Fairless: You being a civil engineer I knew you’d have the details… The 250-unit in Greenville, purchase price was 7.1?
Luis Carrera: 7.9
Joe Fairless: 7.9… So you went from a purchase price with an 8-unit of 550k, right?
Luis Carrera: Well no, we purchased it for 75k. That’s how we got a great jump. We purchased that for 75k and sold it for 530k.
Joe Fairless: That’s a great start right out of the gate. And then you went 28-unit, bought it for 1.2, sold for 2.2, and then the 86-unit, bought for 4, sold for 5.6, and then the 250-unit you bought for 7.9 and that’s what you’ve got right now.
Luis Carrera: That’s correct.
Joe Fairless: What’s the key to flipping these in such a relatively short amount of time?
Luis Carrera: The smaller units were a lot easier to relatively flip, just because the competition is a lot greater for those units. I think we were a little — I can’t say fortunate, but we bought a property… They weren’t in the best areas; they were in C areas for the most part, but we gave them a good, finished, quality product. And once we rented it all out and leased it all up, they were typically in those areas 100% leased, so after six months it was pretty simple to actually just put it on the market and provide additional investors some meat on the bone.
So that’s what we did – instead of asking for a 6 cap or a 6.5 cap, we went to like a 7, 7.5 typically, and they would go under contract immediately. Some of them were a lot easier. Obviously, the renovations were a lot quicker for the smaller units, but once we got into the 86-unit it took a lot longer… It was almost 4 years, just because we needed to upgrade every single unit.
We had a plan in place, but the very important key that we had was the management side of our team. We needed to get a manager that was experienced in actual repositions. That was key. We had to – not fire, but we had to let go of the original manager, because we wanted to bring that up from a C to like a B- property. So we put a manager in place that had experience so we don’t have to be there every single day. That was an important part of our learning curve, really.
Joe Fairless: For all these properties, are they self-managed, meaning you’re basically overseeing the property manager directly?
Luis Carrera: Yes, that’s correct.
Joe Fairless: How influential has that been, versus hiring a third-party management company to do these for you?
Luis Carrera: Well, just because we don’t have much volume, it’s easier to manage 3-6 properties every year, just by putting the right property manager in place and just making sure the numbers are coming in properly through the P&L and the rents coming in… We just have to make sure that there’s no [unintelligible [00:11:21].23] defects when it comes to the P&L, like why this month we’re down 7k, as opposed to the last month.
We always make a phone call immediately if something goes wrong or there’s any delays in the repositioning. We always have a weekly meeting, even if it’s a conference call or a face-to-face. We go to the asset every single month, and every week we have a meeting with the property managers to make sure that the renovation is up to speed and up to date and there’s no delays.
Joe Fairless: With the 250-unit, how many team members do you have on-site? Can you go through the staff?
Luis Carrera: Yes, we have about four team members on site: the property manager, a leasing agent, a full-time maintenance, and another assistant maintenance guy. They are in charge of running the project. And I think we have a part-time during the summer for the leasing agent, and a part-time as well for the management just in case there are any issues. But obviously, we’re renovating those units as we speak.
Basically, once these units are renovated, they need less maintenance than the other units. We only have about four full-time and two part-time on staff, and we make sure to keep track of all the work orders coming in, and to see if there’s another need to actually force the renovation on a couple of units that are problematic units. That’s what we typically do.
Typically, for a 250-unit we only have four people on-site, but for every 50 to 100 units more or less, we just subtract a team member. If it’s 100 units, we’re not gonna have anybody really on-site, maybe just a property manager. But once we go above 100 units, we’ll have a full-time team on-site.
Joe Fairless: With the 8-unit, the $75,000 purchase price – was that paid all cash with your investor’s self-directed IRA?
Luis Carrera: Yes, that’s correct.
Joe Fairless: How did you make money on that 8-unit? How were you involved?
Luis Carrera: Basically, I took the same concept as the flips. I would over-leverage on the front-end, which included repairs, included the purchase price, insurance, holding costs, and my fee. So that’s how I got paid on the front. Then during the course of the renovations, obviously we didn’t have it rented for at least two and a half months, but after that we had a general split. I took 25% of the equity, and my partner took 75%. That’s how we worked the deal out. We gave him an equity split.
Joe Fairless: Okay, so at the 8-unit you got a fee at closing, and then you got 25% equity in the deal.
Luis Carrera: Yes.
Joe Fairless: What percentage of the purchase price, or how much was the fee, just so we have an idea of the structure?
Luis Carrera: Basically, we were all-in for 240k. The fee I took was only like 15k. I was basically the asset manager, so once we closed, I got a check for X amount. I think it was like 160-something. I got a check for that amount, in which I just held 15k-20k as my fee, which was disclosed. Then after that we used everything else to repair.
Joe Fairless: Cool, so it was like 6.25% of total capitalization – that was your fee at closing, and 25% equity. That’s the 8-unit…
Now, let’s fast-forward all of the way to the 250-unit. What’s your structure there? Is it the same?
Luis Carrera: It’s a little different, because I worked with another team that I met over the years, and they had the asset. They’re controlling the asset, so I just take part of the management side, just because I brought the one investor to invest into the entire asset.
So in that case, yes, we did have an acquisition fee. I think it was 3% or 3,5% acquisition fee on the front-end, which I took 0.75% of that, and my equity position is about 11%.
Joe Fairless: Cool. That sounds great. You mentioned there’s another group – how did you all structure it? I thought you said they control it… Will you elaborate?
Luis Carrera: Yes. Just because they have the asset. In order to grow in this business, I felt that “Okay, under 100 units I can handle easily. Over 100 units, I may need somebody else to help me with the loan, with sponsorships and what not”, so that’s what I went about.
I do network a lot, I go to all the [unintelligible [00:16:16].17]
Joe Fairless: Yes, absolutely.
Luis Carrera: That’s where I met other teams. With these networking events I would create teams and I would actually try to work with the ones that are best situation with future connections, and I would tell them “Hey look, I’m pretty good at raising capital. If I were to raise capital now, could I be a part of the management team?” and most of them usually always say yes.
Now I decided to change my position, just similar to what I did with the 250-unit in South Carolina, so I found the people that needed money, money. I said to myself, “Alright, this is a lot easier. I can get deals in my inbox, and all I have to do is raise capital. I prefer just doing that instead of going crazy and finding additional deals and overworking.” My goal now is just raising capital for teams that I feel confident in.
Joe Fairless: And then you get to be on the general partnership side.
Luis Carrera: That’s correct.
Joe Fairless: Have you looked at it from a standpoint of if you raise a dollar, how much projected profit do you want to have returned for being on the general partnership side?
Luis Carrera: It just really depends on the asset. The first couple of times I tried to just network with them; even if the raise is like 5 mil, I’ll try to bring somebody at 1 mil for a certain percentage of it. And if the general partnership is 75/25 split, for example, and I bring half of the capital, I do expect to get half of the acquisition fee that’s not gonna be used for repairs, or renovations. And then the equity position, I don’t mind taking a smaller piece, just because there were more people involved that actually found the deal and actually got it funded through a primary lender. I know it also takes a lot of work on both sides – raising capital, and then the other side, which is making sure to get the loan from the lender. And that’s how I structure it.
I prefer working with five teams a year, doing ten deals a year, instead of just doing one deal and only getting side percents of every deal. I’m fine with that. As long as my investor is happy with the rate of return he’s getting, I’m happy, because they’ll keep on coming back and they’ll keep on referring me to other investors.
Joe Fairless: What is your best real estate investing advice ever?
Luis Carrera: Just start out small. Go to all the networking events you possibly can, because a lot of these investors are at networking events like [unintelligible [00:18:47].19] or REI groups, and just show your thing – start telling people what you do, and eventually a lot of people will say “Hey, I wanna work with you. Let’s see what you can do.” But I’m still not confident in apartment complexes because thats’ out of my reach at this point. They’re a little [unintelligible [00:19:04].23] So what I do is I work on a flip with them. Once the flip goes well, we’ll continue to do more deals. Once they do more deals, then I can convince them to “Hey, instead of putting 400k into two flips, let’s protect some of that money and put 200k in an apartment complex. You still get the return you wanted for the long haul.” They’ll get an equity position on this property, so you could get even massive benefits. And then I still do flips with them.
I continue to build those relationships in order to eventually put them towards my goal, which is an apartment complex. That’s’ what I do.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Luis Carrera: Sure. I’m not sure I’m prepared, but…
Joe Fairless: [laughs] Well, then you’re gonna give the best answers if you’re not prepared. Usually it’s better if you’re not prepared. First though, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Luis Carrera: Best ever book I read? I really like Grant Cardone’s book…
Joe Fairless: 10x? Probably something 10x.
Luis Carrera: Yeah, Be Obsessed Or Be Average. It psyches me up. And M. J. DeMarco’s “Millionaire Fastlane.” It’s just such a quick read that I can just pick it up and read it and just make sure to be on track to be on the fastlane instead of on the sidewalk.
Joe Fairless: Best ever deal you’ve done?
Luis Carrera: Best ever deal I’ve done… Probably the 28-unit flip, because that netted me a pretty good penny. I’m not into many homeruns, but I just like building up to that. Where I am now based on equity it’s pretty good.
I haven’t really done a big home run, where you see some people online that they have these 250k checks now. I’m all about singles and doubles.
Joe Fairless: What’s a mistake you’ve made on a deal that you can think of?
Luis Carrera: When I first started flipping I never paid attention to landscaping, and I realized landscaping is not a big, big deal, but it gets the property sold a lot quicker than if you forget about landscaping. I try to incorporate landscaping budget into all my flips now.
Joe Fairless: What’s the best ever way you like to give back?
Luis Carrera: I give back every week, I am a volunteer for Meals on Wheels. I give some hours of my time to do that. I do a volunteer every month for Salvation Army as well at the food bank. I also just created a non-profit which is Solar For Hope. It’s gonna be providing solar power to low-income housing in the South-East.
Joe Fairless: Very cool. How did you get involved with that last venture?
Luis Carrera: I was doing these Meals on Wheels, and then every time I dropped food off or spoke to these homeowners, they always told me that they have these bills to pay, it’s usually electric, and it’s subsidized housing, but in some of these places in the conditions that they live in – it’s not the best, so I was like “Okay, how could I help them out by lowering some bills and doing something else that’s more creative, and something that’s needed for future generations?” So I decided “Why not do solar power on this low-income housing?” If anybody could do solar power for their 250k home, why can’t we just do a small system for a hundred families a year and help them out with their bills and trying to get them off the grid, or at least creating a neighborhood feel where these individuals feel pride, and actually contributing to a cause which is making this world a better place for everybody?
Joe Fairless: What’s the best place the Best Ever listeners can get in touch with you?
Luis Carrera: Either through Facebook… My business site is IPGroupNC.com, or they could give me a call on my cell phone or text me at 973-902-72-03.
Joe Fairless: Luis, thank you for being on the show. Holy moly, this 8-unit flip that turned into a 250-unit monster… Congratulations to you, your investor and everyone who is associated to the original and the latest; from a $75,000 purchase to a 7.9 million purchase through value-add, selling the 75k property where you were 240k all-in for 530k… You started out strong and then you just kept the momentum building from there. You talked through some practical ways that you have increased the value of the properties and then how you’re getting compensated along the way. That tends to be a question that I receive a lot, “How do I structure deals with partners?”
Thanks for getting into that and thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Joe Fairless: Thank you for having and good luck with everything. I hope to speak to you guys soon with our next deal.
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