JF1203: Richard Schulman Runs The #2 Keller Williams Team In the World
Richard tells us how he has been able to climb the ranks to becoming the leader of the #2 team in Keller Williams worldwide. Richard is also an active investor as well as helping a lot of other investors find and buy cash flowing properties. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Richard Schulman Real Estate Background:
– Real estate broker at Keller Williams, one of their top producing real estate agents
– Sold nearly 1,000 homes valued at over $500,000,000, runs the #2 Keller Williams team Worldwide
– Over 30% of his sales are properties intended for rental or resale, ranks in top 0.1% of all Realtors nationwide
– Based in Los Angeles, California
– Say hi to him at: http://richardschulman.com/
– Best Ever Book: 4 Hour Work Week
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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 fluff.
With us today, Richard Schulman. How are you doing, Richard?
Richard Schulman: Hey, I’m great. Thanks for having me on.
Joe Fairless: My pleasure, nice to have you on the show. I was reading your bio, you are a machine… Sold nearly 1,000 homes valued at over 500 million dollars, and runs the number two Keller Williams team worldwide. Holy cow, that’s impressive!
Richard Schulman: Thank you! Yeah, just a combination of good service and hard work. I look at that and I think, “Man, we could be doing so much better!”
Joe Fairless: [laughs] As a top performer usually does. Over 30% of Richard’s sales are properties intended for rental or resale, and he ranks in the top one-tenth of a percent of realtors nationwide. Based in Los Angeles, California, and you can say hi to him and check out his company at his company website, which is his name, RichardSchulman.com. A link to that will be in the show notes page.
With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Richard Schulman: Yeah, absolutely. I am from L.A., born and raised. I had a small painting franchise business in college through a student painting company, which was quite an experience, and I learned an incredible amount about business from that. I realized that I learned more doing that than with my economics business degree.
So I did that, and then the painting business got soft — of we thought the painting business was getting soft, because the economy was getting soft; we actually did really well, because that was the first year of the real housing boom in 2003-2004… So I got out of painting and got into real estate, which has been a long haul; I’ve been in real estate basically my whole professional career, and I really quickly early on realized that investors were great because you take the emotion out of it [unintelligible [00:04:10].26] it’s more like “Bedrooms, bathrooms, rent.” And I also realized that most people would just buy one home for themselves to live in. Your average client doesn’t have like three primary residences, but your average client who buys the house could probably buy a rental property, and some of them will buy ten rental properties. So I figured when you say “A third of the business is rental properties”, that’s the easiest business because you’re just trying to find good value for your client, and it’s usually a very small pool of clients who develop good trust with you…
So it’s been a real focus on my business, and then personally, I remember in 2008 I was trying to sell this guy the second foreclosed condo I’d ever been inside of, and he wanted to throw us some low offer, and I was selling him so hard on it, I’m like “This is a great deal, it’s down 45% in 18 months, and the return is 10%” or whatever it was, and he wanted to throw a low offer at them, so I bought it myself, and then I started realizing it’s sometimes easier just to buy the property yourself and to make a commission on it.
Joe Fairless: How many times have you done that?
Richard Schulman: Once I sort of realized that that was a better move, I became more of an active investor myself. Just as [unintelligible [00:05:18].01] agents who listen to this show, in order to protect the integrity of my business, I will always give the property to my client if they’re interested. I won’t sandbag any deals or I won’t try to [unintelligible [00:05:28].16] I’m not gonna outcompete my clients, but there’s always a lot of properties out there that make sense for people, so there’s always value to be had.
Joe Fairless: Got it. How long have you been going at this?
Richard Schulman: 14 years in real estate. I bought my first rental property personally in 2008, I guess around 9-10 years into that.
Joe Fairless: That was the condo?
Richard Schulman: Yeah, I still own it.
Joe Fairless: Okay. That’s in Los Angeles, you said?
Richard Schulman: Yeah, that’s right.
Joe Fairless: And are all of your rentals in L.A.?
Richard Schulman: Yeah, they’re all in the L.A. area, so there’s a lot of smaller cities that are sort of incorporated into Los Angeles, but yeah, they’re all in the L.A. metro area.
Joe Fairless: Okay. What’s your overall approach with your own portfolio? Do you have to make a certain return, is it cashflow, is it appreciation? What is it?
Richard Schulman: That’s a good question. This is where it’s really important when you’re talking to your clients, or even for yourself, trying to analyze what you’re looking for. For me personally, nothing matter besides cashflow, and I know not everyone agrees with me on that, and I’m prepared to defend my claim. If my property is worth a billion dollars — well, I guess if it was a billion dollars [unintelligible [00:06:35].21] but if there was a ton of money, or 30% more than they’re worth now, I really couldn’t do anything else with those properties. If the property values were much higher, it would be hard to sell that and to reinvest the money at a better return. It’s just the nature of how returns work. So for me it’s all about cashflow.
I would say that probably about three-quarters of what I own was purchased strictly for cashflow, with a couple caveats. I have a partner on some of them and we did purchase a couple of things that were sort of hedges… Like, nice properties in more expensive areas that we might wanna redevelop in the future. We also purchased some properties that were larger lots with income, so that we could also redevelop those lots in the future. By doing that, if the land value goes up enough, we can build condos or apartments on that land… But we’re still collecting our minimum return now. We’re not looking to buy anything under 9% cash-on-cash return, so all those properties met that requirement as well.
Joe Fairless: Who’s “we”?
Richard Schulman: I have a partner on some of them, a friend of mine; we’ve purchased some of the properties together. He’s in mortgage, so it’s a good combination.
Joe Fairless: He’s in mortgage, you’re a real estate broker… When you do a redevelopment, who brings the construction management/project management experience?
Richard Schulman: The biggest we’ve done is we’ve done heavy rehab on properties, but we haven’t done any development of new units yet, so… We’re gonna figure it out. I think the best way to do it is just to learn it by trying. We’ll probably make a lot of mistakes, but we’re gonna start with a smaller project, maybe just build a couple of units, and just make sure we know what we’re doing before we build something larger.
Joe Fairless: How much of your focus is on the growing your company as a real estate broker, versus growing your cashflow as a real estate investor?
Richard Schulman: My entire focus is on growing cashflow, I’m all about passive income. It’s really been beaten into my head from people I’ve talked to. I really think that’s the right move to make for my future financial security. That being said, the only way to acquire cashflow is with investment money; you need money to invest, otherwise you’re not an investor. So growing my business and driving my business produces income to invest. The shortage is always money to invest, it’s never properties to buy. I’ve never said “Oh, I have a lot of money sitting there and I can’t find the right properties.” It’s always the other way around. It’s always like scrambling to borrow money to buy a property that came up and I really think it would be a good deal for me.
Joe Fairless: 14 years in the business and you are top one-tenth of a percent of all realtors nationwide. What are some tips for some best ever listeners who are real estate agents and want to climb the ladder of success as an agent.
Richard Schulman: I think there’s a sort of weird thing in real estate where — I’ve learned a lot of this by observing; I just had this natural instinct to learn and observe from other agents. If I had a new agent, I would quiz the agent on what they were doing, “Are you buying properties?” and what I found, surprisingly, was a lot of agents are really bad at actually their own real estate. There’s very successful brokers who have a nice house and that type of thing, but a lot of your mid-level agents who are making a good living and have or should have investable income are not saving and investing; they’re not really competent or confident in their ability to invest in real estate. I get asked by a lot of brokers doing 20, 30, 40 million a year for investment advice. That’s just not something they’re focused on, so I think the lesson would sort of be like, you have to learn that business. If you’re not brokering investment properties, you do have to learn that business, you have to get comfortable with it, and you have to be a disciplined saver. You have to understand that unless you’re putting away lots of money, especially in a high price point market like ours, it’s gonna be hard to invest.
Joe Fairless: What’s an example of you being a disciplined saver?
Richard Schulman: I did an interview for Keller Williams Realty… We’re broken up into regions, and I did an interview about six months ago for the Northern California region, and they wanted to ask me… They gave me an example if they cut out the fancy copy service, because they thought the market was shifting in that area, and they wanted to trim costs so they would be lean and profitable, and they said “What would you do?” and I said “I would have never had the fancy copy service in the first place.” I’ve just always been a no-nonsense guy as far as expenses. I invest money where it returns for me, so if we’re doing advertising spend, I wanna make sure that advertising money is getting returned to me in multiples. If it’s not, we’re gonna cut it out.
I see a lot of realtors driving really fancy cars. I don’t. I look at every dollar as like, if I can make 10% on this dollar in six months, then I save it up and I put it into a property. And when I say 10%, remember, I’m just looking at cash-on-cash, not appreciation. I don’t think I’ve clarified that before.
Joe Fairless: Right, right. Earlier I think you said 9% cash-on-cash return… So between 9% and 10% is what you’re looking for?
Richard Schulman: Nines are minimum, so we really wouldn’t look at anything below that. I just think that we’re finding enough stuff there, and… There is some sweat equity, there are all these things, and there is some hassle and effort, so it’s not just like an [unintelligible [00:11:31].01] so I do wanna make sure we’re making enough, and I think in our market it’s a reasonable return to be hitting.
Joe Fairless: Tell us about the last deal that you bought in the Los Angeles area that netted at least 9% cash-on-cash return.
Richard Schulman: Sure. We just bought a triplex in Inglewood, where they have a new stadium going in. We bought it on the market, it’s not like a secret deal – that’s another misconception; most of the stuff that I’ve purchased has been on the market publicly available. So we bought the property, it was in awful condition, and one of the units had some [unintelligible [00:12:08].06] and needed to be cleaned up. So we purchased it, a triplex, 600k, on a 10,000-foot R3 lot, so we could build seven units on it one day.
So we purchased it, and we went in right away, we totally gutted the front house, cleaned up all the problems, got rid of some mold and some other stuff and really made it beautiful. I’m a big believer in my properties. I always have the best properties in the neighborhood, or the second best. Nothing brand new, but when we remodel that house, it’s by far the best thing that those tenants are gonna see. When they’re touring rentals, we have the cleanest — we do the yard, we do the fences, we paint everything… When they move in, it’s spick-and-span perfect for them, because we want those tenants to really appreciate that and value that, and we get an extra bump on the rent for that.
So we created a little yard, the little house in the front with the duplex [unintelligible [00:12:53].16] We try to stay very ethical in our approach; when we buy the property, it’s a non-rent-controlled area, so we don’t want the tenants to have to move out, so we keep the rents below market so they can stay in their homes, but we’re still hitting our targets on return. Even though they’re paying a little bit lower than market, we still take care of their units and everything looks perfect for them, and that’s the best way to keep your tenants happy, paying rent, not causing problems. When you take care of tenants like that, they never call for maintenance. They fix it themselves, they don’t bother you with that stuff. They pay the rent early… So it works out for us overall.
Joe Fairless: You said in that example you paid $600,000 for a triplex in Inglewood, and it was on a 10,000 R3 lot, so you can build seven units additional? Did I hear that correctly?
Richard Schulman: Seven total.
Joe Fairless: Seven total, so four additional units.
Richard Schulman: Yeah. If we developed it, we would scrape it and build over, and build bigger units.
Joe Fairless: Okay, you would just start from scratch – knock down the three and build seven up. And then also you had to gut the front house, and there was mold in I guess one of the other two units, right?
Richard Schulman: The mold was in the front house.
Joe Fairless: Okay, the mold was in the front house… And what else did you have to do? I think I missed something else that was a major part.
Richard Schulman: [unintelligible [00:14:10].06] so we made it like a house. We put a fence around it, had some parking — it’s sort of separated from the back unit. And we’ve done that on a lot of our properties like that, where if there’s like a cottage or a secondary house, we [unintelligible [00:14:22].12] which allows us to get higher rents, because it’s not an apartment, it’s not like a little house on a multifamily lot, it’s like a totally separate unique home. We do the landscaping…
I just see a lot of rentals out there, and the little details really matter to the tenants, because you want the tenants who are gonna really pay a premium for like a really nice place, not the tenants who are gonna come in and look at the cheapest thing on the market. Those tenants are the ones who are gonna be causing problems long-term.
And every market is different. We’ve been doing this over and over again, so we sort of learned what are the right things to do and not to, but I think in any market taking care of your tenants, taking care of your properties, getting the best tenants in the market paying — I don’t say the highest rent, but pretty close, the highest rent… I think that’s always gonna be a winning strategy, and those tenants tend to give you the least hassle. The most hassle comes from the lowest quality units.
Joe Fairless: If I were a new client of yours and I said “Hey, Richard, I’ve got $300,000”, I want to buy something like what you’ve just described, I can hopefully get some financing for the 600k purchase… Would you be able to find me another one of those deals?
Richard Schulman: Yeah, that was a pretty good deal because of the mold that scared off a lot of buyers, and I’ve done a lot of mold properties, so we were able to really analyze the risk and cost of remediating it. I think that probably close to that there’s stuff available, but we’ve been able to acquire less this year than last year. We’ve done two acquisitions this year, and we probably did seven or eight last year.
The prices have gone up a lot, which are squeezing margins, and it’s making it tougher. So that was a pretty good deal, but I think there’s stuff out there generally, in that range, sure.
Joe Fairless: The reason I ask is because California has the second-highest representation of listeners of this podcast, and there’s a lot of people in California who listen who are trying to get at least 9% cash-on-cash return on their deals, while hopefully investing in their backyard, and you’ve just described a case study for how to do so.
Richard Schulman: Yeah, it’s not like you’re just gonna go on the MLS today or call a broker today… If they wanna call me, or you’re gonna call me, I can’t be like “Well, here, I have six things waiting.” That was the best thing we bought all year. So there is some patience involved. There’s also just the aspect that if I brought you into a home that had mold in it and said “There’s an unknown mold problem, but the sellers have priced it accordingly…”, we have a very tight contingency period, so we don’t have the opportunity to go in there, bring a mold tester and do destructive testing and bring in our vendors. We have the opportunity to go in there for five minutes with our handymen and our contractor, check it out and then make a bid.
This requires a certain level of experience and faith, and then you have to go in there and put that sweat equity in there. A lot of times I show people a property and they don’t want a mold property. They don’t want a property that was quite frankly disgusting when we bought it. Well, we did the remodel, of course, and we know there’s gonna be surprises… Like, we went to go retile the bathroom floor, and the floor fell through; it was rotted out. So now we’ve gotta spend thousands of dollars building a new floor in the bathroom. [unintelligible [00:17:24].26] These are all things that are gonna happen that people have to worry about.
I guess the advice piece there would be that if you wanna make money in real estate, you have to get your hands dirty. There’s not brand new apartment buildings in Beverly Hills that are making 9% returns. Those get 2,5% returns. But if you want 9%, you have to go in there and remediate some mold, you have to demo some things, you have to put in a new bathroom subfloor when it falls through, you have to get your rent in cashier’s checks and go to the bank and cash them; you can’t do it by phone. Sometimes those cashier’s checks bounce… You’ve gotta do all those things. I didn’t even know cashier’s checks could bounce.
Joe Fairless: I didn’t either, actually. I’m glad I didn’t know that. [laughs] I’m glad I haven’t experienced that.
Richard Schulman: Pro tip – when you get your rent in cashier’s check, like if I get a deposit, I take it to the bank and have them verify that it’s good. I usually only take Bank of America cashier’s checks, so that I can walk into the branch across the street and have them cash it on the spot for me.
Joe Fairless: Okay. You mentioned that was the best deal that you purchased – was that last year or this year?
Richard Schulman: This year.
Joe Fairless: And what was the worst deal you purchased this year?
Richard Schulman: Well, I’ve only bought one other property, so…
Joe Fairless: Oh, okay. Well, that’s easy then… [laughs] What about last year? What was the worst deal you bought last year?
Richard Schulman: I don’t live in regret. I think that really there’s nothing that I’ve ever purchased that I look back and say “I wish I didn’t purchase that.” I think it’s like a simple business, like we’re just looking at income and expenses, and we’ve never had a huge misfire; we’ve never even had like a moderate misfire.
Joe Fairless: Let me ask the question differently. What is the lowest-performing acquisition you’ve done on a return standpoint?
Richard Schulman: Sorry to be difficult.
Joe Fairless: That’s alright, I get the mentality; I understand it.
Richard Schulman: I don’t think it’s a complicated thing. When we’re buying income, we’re buying income. Actually, I’ll tell you one that’s a little bit of a funny story. I do have one, I forgot…
Joe Fairless: Conveniently blocked it out of your memory… [laughs]
Richard Schulman: Yeah… You can edit this in post, we’ll cut that all out, but… We bought this condo, and [unintelligible [00:19:27].06] Let’s say it was worth $175,000 at the time, and it was on the market and there was a holdover tenant who was not allowing any repairs, and the seller tried to evict, and the seller went out of money and gave up, so she sold it to us for like 110k or 120k, something like that. All cash, no contingencies. They’re taking on this [unintelligible [00:19:46].11] I showed it to an eviction attorney. She said, “No problem, slam dunk. Eviction if he doesn’t cooperate with the repairs.” I’ll tell the condemned story, it got very interesting actually, but… Then we wired the money, we closed the escrow, we were really excited.
I had met the guy, he was very nice. I said, “Listen, I’m sorry about the other owner. You know how I operate – I’m gonna go in there, I’m gonna make everything better, I’m even gonna do extra things. As a show of good faith, we’re gonna keep your rent”, which was like $500/month below market. “We’re gonna give you a one-year lease at that rate, so that you’re happy.” He was like “Great.” The minute we closed escrow I called him up, “Hey, can we come over? We wanna start repairs right away. I don’t want you to have any problems…”, and the problems were all nonsense. There was a brand new HVAC and he had disconnected it, and [unintelligible [00:20:30].19] All it needed was like an hour of a handyman to connect the gas lines.
He’s like, “You’re not coming on my property. I think a judge needs to hear my story”, and this was on and on and on. I sent the handymen over to try to reason with him, I had my partner call and try to reason with him… Finally, I’m getting to my wits’ end because he’s not gonna help me. Now the eviction attorney is like “You know, I’m thinking about it, since you’re an investor a user, it’s a real messy eviction and you might lose”, and I’m like “What are you talking about?” “Oh, it could be $10,000 in legal fees.” I said “If I give you $10,000 you guarantee me an eviction?” “No, there’s no guarantees.”
All these things are adding up, so I finally called the guy and I said “Listen, I’ll give you $25,000 cash to move out”, and he said “I think a judge needs to hear my story.” I said “Okay, well I’m out.” I actually ended up selling it to a friend of mine’s employee, who bought it, did an owner occupied eviction, so [unintelligible [00:21:22].11] I was net zero on it.
That was the messiest deal we’ve bought. We thought we could go in there and handle a difficult tenant, and we totally [unintelligible [00:21:30].03] I was fortunate that that guy was able to buy it off of me. He did the owner occupied eviction, [unintelligible [00:21:35].09] out on the street, unfortunately for him… He could have had $25,000 cash.
Joe Fairless: Oh yeah, yeah.
Richard Schulman: And now the condo is probably worth 275k, so…
Joe Fairless: And the takeaway for the eviction process is to do the owner occupied, because then you’re dealing with someone’s living situation, versus an investment property, right?
Richard Schulman: Right, exactly.
Joe Fairless: The first house I purchased to live in myself was the same thing; it was a holdover tenant with a bank, and he tried to shake me down. We went with an owner occupied eviction and he backed down, and then actually that house we ended up renting to him for eight years. He just moved out after eight years. But because it was an owner occupied eviction, it was a slam dunk. So we kind of misread the situation, but we priced in our risk that we were able to walk away with just a few hours of hassle on it, which was fortunate, I guess.
I guess the lesson [unintelligible [00:22:24].19] but the court system is a little bit tougher. The court system is not friendly to the landlord in Los Angeles (or California, I’m assuming). I’ve never sought to go to court with a tenant, because it’s not a winner.
Joe Fairless: Yeah, everyone in New York and New Jersey are shaking their head in empathy with you. That’s the way there, too. What is your best real estate investing advice ever?
Richard Schulman: I think it’s just to look at income. I think people are too focused on buying pretty properties. When I meet with someone… A lot of times we sell someone a house to live in, and then we say “Hey, you can also buy a rental property. Here’s how that works.” People are always trying to buy a rental property that’s somewhere they wanna live, or looks like something they wanna live in.
I sold this very nice lady a big apartment building, and I would call her and she’s like “Oh, I’m buying antique light fixtures at the specialty store…” I’m like, “Why are you doing that?”, she’s like, “Well, it looks spectacular.” Like, yeah, but they’re not gonna pay you three dollars a month more in rent because you have this $400 light fixture.
This woman lived in an incredible house, and for her it was like — she couldn’t imagine owning something that wasn’t matching that. So I’m not saying go out there and buy garbage, I’m just saying that you don’t need to buy very expensive properties or very nice properties, or properties in nice neighborhoods.
Find a safe neighborhood, find somewhere you’re comfortable going to, but it doesn’t have to match your quality of living at home. That’s probably not gonna make rental sense. So the best advice – just look for cashflow; what’s gonna give you the highest return, with a little bit of [unintelligible [00:23:51].26] So don’t buy an apartment studio full of studios or single-room occupancy in a really bad neighborhood… But build a [unintelligible [00:23:59].19] three-bedroom into the bad neighborhood with section 8? Great, let’s do it.
Joe Fairless: Your case studies are relevant to not only people living in California, but then also anyone living in a rental area, or a market that tends to have higher price points, like Miami or New York City or some parts of New Jersey, and I’m really glad that you talked about this. Are you ready for the Best Ever Lightning Round?
Richard Schulman: I don’t know. I guess we’ll find out.
Joe Fairless: I think you are. [laughter] First though, a quick word from our Best Ever partners.
Joe Fairless: Alright, Richard, what’s the best ever book you’ve read?
Richard Schulman: I’m gonna go with The 4-Hour Workweek by Tim Ferriss.
Joe Fairless: Very good book, and Tools of Titans is another one, and he’s got another book coming out that I’ve just pre-ordered. I don’t remember the name of it, but…
Richard Schulman: I didn’t know that. I listen to his podcast, [unintelligible [00:25:39].26] That book really changed how I thought about a lot of things.
Joe Fairless: What’s a best ever deal you’ve done that you have not mentioned.
Richard Schulman: Personally?
Joe Fairless: Yeah.
Richard Schulman: I sold my father-in-law a condo in Inglewood, and we were in escrow for 73k, the bank gave us a 10k discount, and he decided he didn’t like it because the building was pretty shabby, so I took it off his hand for $63,000. It’s probably worth 275k now.
Joe Fairless: What’s a mistake you’ve made on a transaction that you have not mentioned?
Richard Schulman: I’m a little sloppy, but my partners are very detail-oriented, so we’re a good match. I don’t think we’ve made a really big mistake, other than the one that I’ve mentioned. Nothing that was like a critical error. We tend to go in guns blazing on these things, so you’re sort of building in like there’s gonna be some risk and some margin, but no mistakes. We know our business, we know what we’re doing.
Joe Fairless: What type of financing — I know you said your partner has a mortgage background… What type of financing do you do on, say, that triplex in Inglewood?
Richard Schulman: Typically, one of the ways that you’re gonna get a deal or a value, or you’re gonna get to the top of the pile is you pay cash. We use private lines to pay cash for a property, and then we’ll cash-out refinance it right away.
Joe Fairless: Where do you do the cash-out refi?
Richard Schulman: Which bank?
Joe Fairless: Yeah.
Richard Schulman: It’s from different banks every time. It’s not like just from one bank. We’ll shop around for rate and terms; some are commercial, some are triplex, and different banks have pricing if you’re taking cash out, versus if you’re just doing a [unintelligible [00:27:04].09] refi.
Joe Fairless: Okay. A line of credit to buy all-cash, plus you’ve got the money to go in to improve the property, and then you do a cash-out refinance, get your money back out and hold on to the property long-term?
Richard Schulman: Yeah, exactly. For most people, the easiest way to raise capital for an investment property is getting a HELOC on their primary residence. Most major banks will go to 85% loan-to-value with a HELOC, so most people who’ve owned a few years have a lot of equity. They can get a HELOC, which is a great instrument for buying property that’s just sitting there, waiting for you, so that you have some cash on your own, you can write a check for a property, then you cash-out refinance it with an investment property loan and you can pay down the HELOC back.
Joe Fairless: What’s the best ever way you like to give back?
Richard Schulman: As far as charity, or anything?
Joe Fairless: Yeah, just in general.
Richard Schulman: Like I mentioned before, we have a lot of properties with inherited tenants, and we really never — as long as tenants are respectful and they’re polite and they pay their rent on time, we try to do our best to keep them. We have several tenants who are below market and well below market, and we try to keep them in there, because we know that in Los Angeles especially, there’s not a lot of other options for them… So my partner Adam and I improvise; we would never feel comfortable if we dislocated someone, knowing that there’s not really another great option for them. So that’s non-negotiable for us.
Now, we also have people like that who are rude, or pay their rent late, or they damage the property or they don’t take care of it – that’s a different story, but… I’ve got the thank you cards from my tenants, I’ve got Christmas cards from my tenants, at least two that I can think of… Which I didn’t know happens.
Joe Fairless: What’s the best ever way the Best Ever listeners can get in touch with you?
Richard Schulman: My e-mail is SchulmanRD@gmail.com. My website is RichardSchulman.com, and there’s a contact page. My phone is 310-482-0173.
Joe Fairless: You told us how to make at least 9% cash-on-cash return buying properties in a very hot market, in and around Los Angeles, and that can be applied to other places. You get a line of credit to acquire and you do the updates, then you do a cash-out refinance, you make sure that the deal cash-flows at least 9% return, and you gave that specific example in Inglewood on the 600k acquisition.
I guess I didn’t ask you what rents are going for… I just assumed you’re at least making the 9% on that deal, is that correct?
Richard Schulman: Oh, on that one I think we’re like at 17%. It was crazy. We’re at $1,150 each on the back units, and those are probably worth $1,300, but those tenants were there and they pay the rent on time and they’re very nice. They’ve never had a maintenance call in three months, which is pretty good. I’ve actually never been inside those two units, to tell you the truth. Like I said, we have a very short due diligence period.
And the fronts – $2,400, $2,450. So we’re getting $4,400 in rent, something like that, on a 600k purchase, 30% down loan, basically. So I think we’re like at 17% cash-on-cash, including all of our expenses, plus with amortizing… Yeah.
Joe Fairless: Thank you for sharing that case study, your overall approach, how you’re growing your business, and everything in between. I hope you have a best ever day, Richard, and we’ll talk to you soon.
Richard Schulman: Thanks, Joe. I really appreciate it.