JF1402: From 6 SFR’s To 200+ MF Units In 7 Years with Greg Ford
Today’s guest did not mess around when he got started in real estate. He rolled up into multiple multifamily buildings and communities. Hear how he was able to do it. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Greg Ford Real Estate Background:
- Real estate investor since 2010
- Purchased 6 single family homes from 2010-2013 which he 1031’d into 50% ownership into an 85 unit apartment complex in 2016
- Refinanced in July 2017, pulled out $1.5M, which rolled into 136 units
- Say hi to him at gregfordinvestingATgmail.com
- Based In Dallas, Texas
- Best Ever Book: Rich Dad Poor Dad
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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 of that fluffy stuff. With us today, Greg Ford. How are you doing, Greg?
Greg Ford: I’m doing good, thanks for having me on.
Joe Fairless: My pleasure, nice to have you on the show. A little bit about Greg – he’s been a real estate investor since 2010. He purchased (listen to this…) six single-family homes from 2010 to… What year?
Greg Ford: The last one I bought was 2013.
Joe Fairless: 2013, which he 1031-ed into 50% ownership into an 85-unit apartment complex in 2016, and then in July of 2017 he pulled out 1.5 million and rolled that into 136 units. Did I get that right?
Greg Ford: Yeah, that’s pretty much right.
Joe Fairless: Alright. Well, we are gonna dig into that. He’s based in Dallas, Texas. With that being said, Greg, will you give the Best Ever listeners a little bit more about your background and your current focus?
Greg Ford: Sure. Well, first of all, I’m an industrial engineer by trade, so I’ve got the engineering background that loves to crunch numbers and sometimes I have analysis paralysis, but we try to get rid of it. I still have, to this day, a full-time job, and I do that mostly 9-to-5, but I do have some flexibility to do my real estate, and I have to admit, my job gets in the way of my real estate quite a bit. However, my focus was initially on single-family, and in 2010 I saw that the market was [unintelligible [00:02:36].16] down at that point, as we all know, and I thought it was a good opportunity to get in there, and I didn’t have any education at all… So I just bought a house that was near where I lived, and started renting it. Then I bought another and another, and I started seeing the cashflow and I really enjoyed it, and it’s kind of mushroomed now to where I’m primarily focused on multifamily, and I’m sure we’ll talk more about that.
Joe Fairless: The six homes that you purchased in 2010 to 2013 – how much total equity did you bring to closing for those six houses?
Greg Ford: My average purchase price was probably around $160,000, and I did the traditional 20% down on those… I did get creative on where to get that $20,000 from; in some cases, I took a loan out on my 401K, in some cases I [unintelligible [00:03:28].10] and sold, for that matter, IRA accounts and paid the taxes and then used that for the down payment. I saw that even if I was paying the penalty to get to those retirement assets, that my return here was gonna be far greater, and it was worth it to do it.
So the reasons that those houses were spread between 2010 and 2013 was I didn’t wanna create a huge tax impact in any one year by selling the retirement assets, so I spread it out a little bit.
I really didn’t have the education, I didn’t really know what I was doing, I just kind of knew that this was working, and if I had to do it again, I’d probably do it a little bit — in fact, I think most of us would probably do things differently… But that’s how I took 3-4 years [unintelligible [00:04:10].03] to acquire the six single-families.
Joe Fairless: If you had to do it again, I’m guessing you would compress that a little bit and do more in a shorter period of time?
Greg Ford: I think yeah, certainly. In hindsight, 2010 was a fantastic buying opportunity; we know the market has gone crazy since then, so I think we had to do it over again, we would certainly do that… And I would probably be a little less gun-shy about selling my retirement assets and diving in head first, even if it meant short-term tax paying… I’d be much farther along.
Joe Fairless: So the six homes, according to my math, you said approximately 130k per house, on average?
Greg Ford: 160k was the purchase, and then 20% down.
Joe Fairless: Let’s just round that for easy math – 200k. So 200k out of pocket… You did it in creative ways, but at the end of the day it was 200k out of pocket… So let’s begin where you then made a decision to package them together into a 1031 – can you talk to us about that?
Greg Ford: Sure. Well, 2013 was my last purchase. Sometime around 2014 I kind of took a look around, and honestly, time got away from me, and I look back and I say “You know, it’s been a year since I’ve done anything. I really need to kick this in gear. I need to do something and take more action, because I’m not gonna get where I need to be taking this with one or two houses a year kind of thing.”
So in 2014 I made a decision — and I guess it was really towards the end of 2014. I said, first of all I’m gonna hook up with a local mentoring group, because I wanna start learning the right way to do this… Because up to that point, I had really just been kind of feeling my way through, reading a few books here and there, and… It was working, but I wouldn’t say I was crushing it.
At that time, those six homes were probably producing $2,500 – $3,000 a month in cashflow. Now, that’s before my capital reserves… So by the time I paid for repairs and things I might have been down to $1,500 or so of cashflow on those six, so they weren’t exactly crushing it. I knew I needed to do something a little more dramatic.
So I hooked up with some mentoring group, and then I said “Alright, well, let’s look at multifamily.” Bottom line is we decided that my homes – one of the calculations they had me do which I had not done was look at my return on equity.
Obviously, between 2010 and 2014 those homes had appreciated in value, and what we determined is my return on equity was very low; it was 3%, 4%, 5%. So the first thing that came to mind was let me do a refinance on these, do a blanket loan, pull out some cash from these homes – this was before I sold them and 1031-ed them… And I got about a quarter million dollars out on the cash-out, and I put that whole quarter million dollars as a passive investment into some syndications just so I could learn the multifamily side, and start to understand how that was all gonna work… Because prior to 2014 I didn’t even know what NOI meant. I didn’t know that whole calculation, I didn’t know the whole books side of it, and I was just like “Alright, it’s time to learn.” So that’s what I did initially in 2014.
Then in 2015, after I’d been doing the passive investing for about a year – those had been going great, I’d been working with the lead syndicators to really understand what they do… And I met a gentleman by the name of Mitt, and he and I were kind of in the same boat, and we were looking to do our first multifamily deal… And I figured I could afford about a 40-unit complex if I cashed out and sold all my six single-family homes, and he was in the same similar situation… And he said, “Well, why don’t we work together and we can find maybe an 80-unit. This way we could afford management, and we’ll both have full-time jobs…” This was just gonna work out better, so that’s what we decided to do at that point, and this is now late 2015 at this point, so a whole other year had rolled off the calendar.
Sure enough, Mitt was a passive investor in a syndication that as a group they had decided to sell their property. They’d already owned it for four years. Mitt and I were talking like “You know what, this would really be cool if we could just buy this”, because it was an 85-unit in Irving, Texas… So we approached the lead and said “Hey, let’s just keep this off-market, and what if we come in and buy the partnership out?”
At the time, to kind of bait that a little bit, we said “If any partners that are currently in here wanna stay in here, we’ll be happy to have them stay, but if they wanna sell and they wanna get out, then that’s fine, we understand that, too.” It turned out that the other six that were in there voted to just cash out; they wanted to take their money and go on their other ways.
So now we had the tricky situation of pulling that off, and we got hooked up with a local real estate attorney and a local tax person, and they crafted a situation to where we came in as tenants in common, two 50% ownerships. Now, like I told you, Mitt was already a passive in that deal, so in the sales agreement what we agreed to was that there would be a two-day close. On day one of the close the existing partnership would split into two 50% pieces. Mitt would only be part of one of those pieces.
Then on day two of the close, Mitt would buy out the remaining share to get him to 50%, and then I would bring my six homes in as the 1031 exchange and buy out the other 50%. That’s how we closed that deal. Obviously, there’s a lot of moving parts there.
Joe Fairless: A whole lot of moving parts there. That is fascinating… How did you qualify your partner? Because you’ve taken fees on your retirement funds to get the access to that money, you have spent 3-4 years acquiring this capital through your investments, and now it’s very precious to you, I imagine, the six homes, and now you’re gonna roll this into something else… But instead of doing it on your own, you decide to partner with someone, so I imagine the qualification process was something that you went back and forth with in your head to know if this is the right thing to do.
Greg Ford: It certainly was. Now, I had gotten to know Mitt — at the time we ended up doing the deal I’d known him for about a year and a half at that point, and spent a lot of time even outside of the mentoring group talking, and his son and my son were in gymnastics together, and we got to know each other a little more that way… So it was definitely that part of it.
But I was looking at it more from an enablement. As a 40-unit, which was my original goal, I may not have been able to afford on-site management – I certainly would have had a third-party property manager running it – and I wasn’t really scaled. Scale wasn’t there. And when Mitt told me he was looking for something very similar to that, that’s when we started saying “Well, now with an 80-unit we can afford to have on-site management”, and it just seemed like it would scale much better.
It just so happened within a month of that discussion is when that partnership that he was part of decided they wanted to sell theirs, and we jumped all over that.
Joe Fairless: So now you’ve got an 85-unit at this point in time in the story… Tell us about how that went.
Greg Ford: Well, let me tell you about the 1031 process just a little bit, because again, my not being educated as well as I am now, I decided that since these homes were in a very affluent, suburban area, part of Dallas, I said “I think the right angle here is they’re not good rental properties anymore, because of the price appreciation, so I’m gonna sell these individually…” And I had the foresight to set all the leases to expire at the same time – I think it was in June 2016. I had my realtor that I’d been working with all of these years – I had him market them and sell them, and I thought that would be the easiest part of the process. It actually was the hardest part of the process… Because what I thought would be easy — the reason it wasn’t easy was because we had rental homes, and they were competing against homes that people had lived in and were pretty well upgraded, and the countertops in some cases, and nice flooring, and mine were just average builder grade [unintelligible [00:12:44].12]
So here we are, getting ready to close – or I won’t say getting ready to close, but we certainly were under contract – and I wasn’t completely assured that these were gonna sell in time to provide the funds for the closing.
It got down to where several had gone in and out of contract, people had backed out, and I was getting a little nervous, so we were talking about plan B – where do we get these funds from?
For me in total I needed about $400,000 of equity to do my 50% share, and these homes were gonna be about $400,000. Bottom line is we got down to the end and five of them did sell, but one did not, so when talking with the 1031 company we ended up doing a reverse 1031 on that one, because it was under contract, but it wasn’t closed… And the way reverse 1031’s work – you basically get a short-term loan and you’ve gotta cover the equity. So I basically did that, I had the money to do that, a part of it – it was about $50,000 or so – and we were able then to close the apartment. Just a crazy way of getting there, but we did, we pulled it off.
Joe Fairless: No kidding. You went from a single-family home investor to putting together one of the more complex 1031 exchanges and deals you could possibly do, with ticks, and reverse 1031’s, and normal 1031’s… It’s baptism by fire.
Greg Ford: Yeah, absolutely. Anyways, we got it all closed, we took over the property… When we took over the property – this was in August of 2016 – there were probably 5-6 vacant units out of 85. We had a plan to renovate them and kind of test the rents, and the funny thing was, since we got the property management team in place, and I don’t remember what day it was they took over, but we came to meet with them on-site a few days after closing and tell them like “Okay, here, we wanna renovate these, and this is what we’re gonna do” and they’re like “Oh, well we’ve already rented all five of these.” And not only did they rent them, but they rented them for quite a bit more money than they had previously been renting for, even without doing the upgrades, and we were like “Oh, okay… So we’ll have to wait now for some units to turn over.”
The third-party management team, and specifically the manager that they brought in was really a fantastic salesperson. She could sell ice to an Eskimo, so she had a really good ability to keep that property occupied… And it had never had an occupancy problem before, but now it was really — when we got one or two, it was a lot.
So one of the projects that was our cap-ex was to reseal the parking lot, asphalt the parking lot… And we said, “Hey, let’s go to the residents…”, because the previous owners, the previous syndication group had tried to sell reserve parking to the residents, and I think they were charging $30/month for a spot and they only had a couple people doing it. It really wasn’t an income-generating source. We said we’d reseal this parking lot anyway; let’s put a special out there to the residents saying “Hey, $15/month (which was 50% off), and after we reseal it, we’ll put your name on it/your reserve spot on it.”
With this manager we had in place, she sold the heck out of that. Before we knew it, currently today we have $1,300/month in parking income, that if you do the math – let’s say you use a 6-cap, that’s almost $250,000 a year in value that we created out of nothing, and it was all because we just said “Let’s try it. Let’s give it a shot and see what happens.” That was an example of one thing that we did that was just crazy.
Joe Fairless: And you didn’t do carports, you simply painted “Reserved” on certain spaces and then rented those spaces out for $15/month?
Greg Ford: Yup, that’s all we did. We had virtually no expense other than the initial paint on that, and it’s been fantastic. Now, one of the reasons I do think it works, and it work here at this property versus maybe another one [unintelligible [00:16:50].07] I think we’re about a 1.3 ratio to units, so I think that helps, and we’ve certainly hit a critical mass at some point where everybody realized that “Hey, somebody just reserved this spot that I always park on. I’d better go get in line.” At some point it just took over and we have virtually now every spot rented at this point. And $1,300/month, that’s like a unit and a half of rent that we created out of nothing.
Our goal on this whole property has been looking at other income opportunities. We have looked high and low for where we can get other income, between — we own the laundry equipment… As I started to mention a minute ago, we took some units and we fenced them a little backyard between the units as a little experiment, to see if we could get a little bit more rent. About $25/month is what we’re currently pushing for, and that’s been mixed results; I won’t say it’s been a home run, but we’ve tried that…
Joe Fairless: Are you doing it on request, or are you doing it for everyone and then they pay…?
Greg Ford: Well, there’s only a certain number of specific units that we can do it on that have the land and the [unintelligible [00:18:01].05] There’s only about 8 units that we can do it on. We did four, and then of course, those four were already under a lease when we did it, so we went ahead and just installed the fence… So as the leases have been renewing though, we’ve had the discussion that this has a premium with a fenced backyard, and trying to get the $25. I said earlier that there were kind of mixed results; in some cases they pushed back and rather than lose them as a tenant we said “Alright, fine, we’ll just renew the regular rent renewal”, and in other cases they did.
So I wouldn’t say that’s been a home run, but it has certainly been a source of a little bit of revenue per month. I don’t know that it’s offset the cost of the fence installation, so we haven’t done the others yet… But just anywhere we can generate other income has really been a focus.
Joe Fairless: How much does it cost to install the fence?
Greg Ford: I wanna say we spent about $7,000 maybe. I don’t know how long it was… But we fenced four units and we spent $7,000.
Joe Fairless: Per unit or in total?
Greg Ford: No, total for all four.
Joe Fairless: Okay, got it. So around $2,000 or so.
Greg Ford: Yeah, and then if you could generate – what is that, $400 a year, and then again, go back to your 6-cap, it might take a year or two to account for it… So I guess it has been kind of a mix on that… But when we took over this property, the total revenue was about $58,000/month; that was everything, including vacancy and everything. Our total actual revenue was about $58,000 and we’ve improved it now to about $73,000/month. That’s been in the space of just under two years.
The focus on the unit renovations, the focus on the other income, the focus on just revenue as a top line item has been fantastic.
Joe Fairless: What management company do you have on that?
Greg Ford: We use a company here in Dallas called Devonshire. They’re primarily C class focused, I would say, maybe B- focused; they have about 8,000 units last I looked.
Joe Fairless: So you now have recently(ish) – well, now about a year ago – refinanced the 85-unit and you pulled out 1.5 million… Is that 1.5 million all yours, or is that yours and your partner’s that was rolled into 136 units?
Greg Ford: That was me and my partner.
Joe Fairless: So 1.5 million, and then obviously half of that is 750k… So you began with approximately $200,000 from the six homes in equity that you put out, and then in July of 2017 that 200k grew to 750k, plus you no longer had the six single-family homes, but you had a 85-unit property that also I imagine has cashflow on top of the $750,000. Is that all accurate?
Greg Ford: That is all accurate. Most of the cashflow we’ve been plowing back into the property for renovations and cap-ex; we’ve been taking a little bit, but most of it we’ve been reinvesting it right back into the property. But when we got this cash-out proceeds, that 1.5 million total, the two of us decided — we had an opportunity to buy 136 units in Balch Springs, TX, which is on the East side of Dallas. We knew that about 2.5 was the total raise for that, so we brought in two other people with us.
We still maintained the tick setup in that scenario, so there’s four of us now as tenants in common on this 136-unit. Mitt and I are probably about 75% owners of it. We were able to buy that, and we are operating that now. Devonshire is doing that for us as well, and it’s working out quite well as well.
Joe Fairless: I just love hearing these stories… And again, $200,000 initially has turned into ownership interests in a 136-unit where you own 36% in a 136-unit, as well as 50% ownership in an 85-unit. That’s awesome.
Greg Ford: Yeah, and the cashflow combined – I told you earlier my six single-families officially on paper was about $2,500/month, but after I put my cap-ex reserves, it was more like $1,500/month. Now my cashflow has tripled and quadrupled from that, just from the larger assets that we’re owning.
So when I was saying earlier that I was selling my retirement accounts and paying the penalties, it absolutely was worth paying those penalties. It hurt at the time, but I had the long vision in mind of where I wanted to get to, and it’s played out quite well.
Joe Fairless: What is your best real estate investing advice ever?
Greg Ford: In my case, as a full-time employee, property management is key. Be picky about who you select, not just pick anyone; find someone with a track record. I think that’s been essential to my success with doing this… And cashflow is also king. Cashflow gives you options, so pay attention to cashflow.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Greg Ford: I am ready.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: What’s the best ever book you’ve read recently?
Greg Ford: Well, recently I listened to a lot of audiobooks. Recently the one I read was Tax-Free Wealth, but I wanna say the best one overall was Rich Dad, Poor Dad. I know that’s [unintelligible [00:24:03].03] but it really did open my eyes to the possibilities of what real estate could do.
Joe Fairless: Best ever deal you’ve done, out of all the deals you talked about?
Greg Ford: That 85-unit actually I think is the best deal. It was the catalyst to everything else at this point, by far.
Joe Fairless: What’s a mistake you’ve made on one of these transactions?
Greg Ford: A mistake I’ve made I think would be not getting enough opinions on whether it was a rehab, or a renovation, or just an idea of something that might work. My partner Mitt is just more social than I am, to be honest with you; as the engineer, I like to crunch the numbers, but I’m not as engaging as I probably should be with people. He’s my alter on that, so from a partnership standpoint it works really well.
I would say we’ve run into a few problems where we’ve spent more money for a rehab than we thought we were gonna spend. We might have gotten three bids, but if we’d just talked to even ten more people, we could have seen a better way to do it.
Joe Fairless: Best ever way you like to give back?
Greg Ford: At this point I’m learning every day, but I really like to take the person that was in my situation 6-8 years ago today, and show them the map. I’ve always really — I meet these people probably now weekly, especially in the mentoring groups that I’m part of now. I’m part of many of them. I’m happy to spend an hour at lunch or a coffee shop and just kind of help paint a picture of what is possible if they just think a little differently.
Joe Fairless: And how can the best ever listeners get in touch with you and learn more about you?
Greg Ford: The best way is probably through e-mail. I have an e-mail address, it’s firstname.lastname@example.org. Send me an e-mail and I’ll be happy to talk further.
Joe Fairless: Great, so email@example.com. Greg, thank you so much for being on the show, sharing your inspirational story of how you started with a single-family house and now have a portfolio where you have substantial ownership in a 136-unit plus an 85-unit property.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Greg Ford: Thank you.