JF1533: From Wealthy To Homeless To Successful Real Estate Investor with Heidi Nelson

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Heidi and her family were doing well before it all fell apart around 2008. She was forced to move back in with her parents (with her own kids as well) but she didn’t let that keep her down. Joe and Heidi spend most of the conversation on her story coming back up from scratch as a real estate investor. She’s done some creative deals and has a great story everyone can learn something from. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Heidi Nelson Real Estate Background:

  • Went from single family investing to a 6 unit building
  • Successful in procuring partnerships for the down payment and creative financing to put deals together
  • Buys businesses, all of which have been purchased using seller financing
  • Based in San Benito, CA
  • Say hi to her at https://www.handmpropertymanagement.com/
  • Best Ever Book: Bible

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Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help. See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Heidi Nelson. How are you doing, Heidi?

Heidi Nelson: Hey, I’m blessed, Joe. Thank you so much for having me. I really appreciate the opportunity and you’ve been a huge inspiration in my life.

Joe Fairless: Thank you for mentioning that, and looking forward to learning more about yourself and your background. A little bit about Heidi, and then we’ll get into it in more detail. She just mentioned to me right before we started recording that she was basically homeless nine years ago, so we’ll hear about that. She has gone from buying single-family homes to buying smaller multifamily properties. She has purchased two businesses: a property management company, as well as a pre-school. She buys the businesses, all of which have been purchased using seller financing. She is based in San Benito, California. With that being said, do you wanna give the Best ever listeners a little bit more about your background and your current focus?

Heidi Nelson: Yes, Joe. Like you said, I’m in the Hollister, or the South County area, South of the Bay Area in California; a little bit easier than the  Bay Area to get into this market, but however, it’s still California market, which is a struggle. About nine years ago I was knocked off my high horse, went from living in a million-dollar home, accustomed to a very nice lifestyle, to virtually being homeless and having to take my kids – they were pretty much all I had left – and move into my parents’ house, and try to figure out which direction was up.

With that — you know, when you’re on the bottom, you can’t fall any further down, because you’re already down as far as you can get… [laughs] So it was all up from there. Basically, I had to learn how to pick myself up, figure life out, and how do I do this with no money? Strategies quickly came into play.

Joe Fairless: Let’s see… The first question is what happened where you had a million-dollar house and then you and your kids were having to move into your parents’ house?

Heidi Nelson: What happened was actually — I got married when I was 18 years old. I had no formal college education; I did some college, some technical school kind of thing, but basically what I was was a support wife. My husband was in full-time ministry, so we had pretty much dedicated our life to that, and I was a stay-at-home mom. When your income is derived from ministry and you go through a divorce, you immediately find yourself jobless. So you can go from a nice income, a very comfortable lifestyle, surrounded by wonderful, great people, to immediately not income, no spouse, no college education, and we were in the midst of the 2008 economic downturn. Now, I did have my real estate license at that time, but at that time it was taking nine months to 11-12 months to complete a shortsale, and it was a whole new way of doing business that I didn’t understand.

When you’ve got kids and expenses and everything’s going out and there’s nothing coming in – there’s no alimony, there’s no child support, there’s absolutely nothing – you’re pretty much stuck.

Joe Fairless: What did you do?

Heidi Nelson: I moved in with mom and dad. [laughter] And from there actually doors began to open. I did know the value of hard work; I’d always been raised with “You do what’s right, you trust in God, and you just work as hard as you can.” That was the basis of where it started. I received a phone call from a friend of mine who worked at a property management company, and she said “Hey, the seller wants to sell. Do you wanna meet him?” I said, “Yes.” She said, “When?” I said, “Today, 1 o’clock.”

I met him in a Starbucks in Gilroy, California, I shook his hand for the first time, we sat down, we talked for about an hour, and basically I bought that business on a $5,000 deposit and a handshake. He called me after the meeting around 5 o’clock that evening and he said “I hope you’re serious”, and I said “I am.” He said, “Okay, because I just fired the property manager. You’ve gotta be here at 8 in the morning.” So I took over the next day as owner. We kind of did everything in reverse, where I started, I wrote out the check, and then we figured out how to sign contracts and make it legal.

Joe Fairless: Wow. What did the property management company own that you were buying?

Heidi Nelson: Basically, they just had accounts. When it was originally sold to me, they thought there was about 95 to 100 accounts. It ended up that the person he fired got angry and took about half of those accounts, so I probably in real reality had about 60-65 accounts when it was all said and done… No property or anything like that. It was just the book of business, and the name and the reputation within the town.

Joe Fairless: Why fire the right-hand person prior to you buying it?

Heidi Nelson: She was in a purchase agreement and had not delivered on the purchase agreement, and then at the same time of not delivering on the purchase agreement the payroll for the staff began to bounce… And when he became aware that the employees were not getting paid, he had to immediately terminate and dissolve his association and agreement with her. He was already retired at that point, he didn’t wanna take back up the business, and from there he was immediately desperate looking for somebody, and I happened to be the shoes that could fill that need.

Joe Fairless: How much did you buy it for in total?

Heidi Nelson: I bought it for $55,000, with a $5,000 deposit.

Joe Fairless: And what were the terms of the seller financing?

Heidi Nelson: 5% interest and $5,000 went towards the down payment. $50,000 at 5%, paid monthly.

Joe Fairless: You bought it and you moved in, or you–

Heidi Nelson: I just set up shop… [laughs]

Joe Fairless: You set up shop, okay… And then what did you do with the business?

Heidi Nelson: Well, it was a hard market. A lot of people were pulling their accounts because the market was getting a little bit shaky, but pretty much by the time that I took over, everything that could have fallen off had fallen off, so we had a good core. I just began to work hard… I actually worked for no income for probably the first year and a half, maybe even the first two years, and then at some point I started taking $1,000 a month. So I was doing that during the day, and selling real estate – I continued to sell real estate, because I had a broker’s license by that time – on the nights and weekends, and just pretty much doing anything I could to make it work.

Joe Fairless: You were selling real estate on nights and weekends and you were turning this property management company — maybe not turning it around, but you were…

Heidi Nelson: It was a slow turnaround.

Joe Fairless: Yeah. How come you didn’t focus your efforts on bringing in more property management clients versus selling real estate at night and weekends?

Heidi Nelson: I would say probably the largest reason being is it was a learning curve. I was just doing what I knew to do. I knew how to sell real estate, I knew how to make deals happen by that time, and with the property management it was still something that I was having to learn. At this point, I would probably focus differently – hindsight is 20/20 – but I just didn’t have the mentorship or the direction, the leadership… I was kind of like a little boat in a big sea, trying to figure it all out.

Joe Fairless: We’re all little boats in a big sea, I think that analogy fits everyone… The business was at 60-65 accounts — well, before I ask this, you said hindsight is 20/20 and you might have done some things differently… What would you have done?

Heidi Nelson: Well, I probably would have focused more on the property management with that whole course of it, but in reality maybe I wouldn’t have done something different, because I was doing only what I knew. So if I knew or my knowledge was bigger, then I probably would have been trying at that time to buy more property management companies, or buy accounts from property management companies… But it just wasn’t something that I knew or thought of to do, or a direction I thought to go in.

Joe Fairless: What year was this?

Heidi Nelson: This was about 2010.

Joe Fairless: 2010. Do you still have the company?

Heidi Nelson: I do.

Joe Fairless: How many accounts do you have now?

Heidi Nelson: About 350.

Joe Fairless: Wow! You’ve grown it a little bit.

Heidi Nelson: It’s still a small company… [laughs]

Joe Fairless: Well, you went from 60 to over 300.

Heidi Nelson: Correct.

Joe Fairless: Wow. How did you do it?

Heidi Nelson: Good customer service, follow-up, and I did during that time buy out two other companies’ accounts. One of them was an opportunity in Morgan Hill, which is where I was living at the time. I got a call and it was the seller of the property management company; he had hired a gentleman who was basically stealing some of the trust funds, and it was a bad situation, but at the time that he called, again, I didn’t have any money. He wanted about  (I don’t know) 30k or so for the accounts; I did not have the money and I couldn’t figure out how I would be able to do it and satisfy what he needed and what I needed, so I came up with a plan of if you will turn over these property management contracts to me, then I will give you a 15% referral fee. Basically, if I collect the rents and from there I’m able to collect the management fee, then I will give you 15%.

If you influence the people against me and don’t help me keep these landlords on board and they go somewhere else and I’m not collecting a management fee, then you don’t get paid. So we structured it a little bit different in that aspect, and I did it for the life of the account, which means as we lost an account, he would no longer get paid on that account. If we kept the account, he would get paid.

I don’t know that it was the best way to do it, but it was the only way I knew how to do it at the time, with no money down… And I will say he’s been handsomely paid, because — oh, that was probably about seven years ago, and since that time I have retained every single account with the exception of one. One property was in the middle of an eviction when I took over, and we did lose that landlord. But to this day, seven years later, I have every single property, and that man that sold me that property management company has continued to get paid… Whereas if I had just given him the $30,000, it would be said and done. But it really doesn’t cost me anything at this point. I just figured it as a cost of overhead.

Joe Fairless: Wow, what a creative way to structure that. When you say 15%, is that 15% of whatever property management fee–

Heidi Nelson: Of the management fees, yeah. At that time, I think there was around $7,000/month income, and I took and times that by 15% and he got 15%, we took 85%. So after all overhead and expenses, I think I added about $5,000 a month income to the bottom line.

Joe Fairless: Wow.

Heidi Nelson: Doing what I already did, because I already had an employee that was handling the management for me.

Joe Fairless: And you got into it with no money out of pocket.

Heidi Nelson: None.

Joe Fairless: That’s great. That works out for both. Granted, he’s getting multiples of what he would have been paid out at closing, but time value of money, too – he’s getting it at a later date, and you got into it where you didn’t have any money out of pocket, and you started receiving money at the very beginning, because those were now accounts.

Heidi Nelson: Correct. It helped me to get some income, and then I could get a little bit more than $1,000/month that I was taking from the other company… [laughs] It helped everybody to get what they were desiring, and if I would have known techniques and actually started marketing and looking for more mom and pop management companies at that time, that I could take and implement that strategy… I was just young and green and didn’t have any business experience. I didn’t go to business school, I didn’t have business experience, so I was just stumbling my way through the dark, trying to find some direction.

In hindsight, knowing that that strategy now works, I probably would have just been blanketing anybody that had a property management company and trying to buy their accounts.

Joe Fairless: Yeah. How many accounts did that company add to your —

Heidi Nelson: I think they had 30.

Joe Fairless: Okay, cool. And the first one that you bought with $5,000 down, you bought it $55,000 and you said drama happened with the person who got fired, and you ended up getting about 60 accounts for that.

Heidi Nelson: Correct. And I’ve retained all of them to date, as well.

Joe Fairless: Okay. So you’re right around — what is that, $1,000 an account? Is that how you think of it whenever you purchase a —

Heidi Nelson: Yes, since that time I’ve kind of based it on that formula for our area. I don’t know if that’s industry standard, but I am willing at this point if somebody comes to me and says they have accounts — and I did buy another 27 accounts, I believe, from another individual, and I paid $27,000 for it, again, but I got it over seller financing, the same concept.

Joe Fairless: The 15%?

Heidi Nelson: No. I gave him a down payment, I believe $5,000, and then I collected the monthly management fee and paid them out of that management fee about $1,200/month until they were paid off. And that’s been paid off. But it equated out to $1,000/door.

Joe Fairless: Yeah. It’s fascinating. I don’t think in 1,500 interviews+ I don’t think I’ve interviewed someone who’s buying property management companies, and certainly I have not interviewed someone who used the creative financing that you did to do it. I love hearing about this stuff. What else about those transactions do you think we should talk about?

Heidi Nelson: Well, probably that I should focus more on them, and I haven’t, because distractions come and a lot of things get going… I did have another interesting business buy that may or may not be interesting to you, but in one of the management calls that a landlord wants you to come and talk to them about either selling their property or renting their property out, when I went and I sat down with that landlord, I asked them, like I normally always do, “Why are you looking to lease out your property? It’s a beautiful home.” She said, “Well, I have another business here in town”, and it was the town that I worked in… “I have a business here in town and it didn’t sell. So if I ever need to come back, I would like to be able to just remove the tenant and have my home back.” And I said, “If you don’t mind me asking, what kind of business is that?” She said, “It’s a pre-school.”

What she didn’t know was I had already written on my goals that within seven years I wanted to start a pre-school. My father had been in business in a pre-school, and I had kind of been raised and grew up around that business, although I didn’t really know that business. I knew it was a solid, steady business, and I was just looking for different ways to increase cashflow. So I began to talk with her, not about property management, but “How can I buy your business?” With that one, we ended up coming to a deal of 100% finance at 0% interest, purchase price $75,000; I think there were 27 students at that time. I gave her a $1,000 deposit and I spread the payments out so that basically I could collect the income from the business and then pay her out.

So I started out paying her $1,000/month and then it escalated up, but everything goes straight to principle paydown at 0% interest. So on that one it was 100% financing; I only put $1,000 out of my own pocket, and then the business virtually began to pay her each month. I took that business from 27 students and increased licensing to 60. It took me about seven months to do the turnaround and get the licensing increase, because there were some problems with the Department of Social Services and the paperwork and just the red tape that you have to go through… So it did take me longer to take and expand that pre-school, but today we’re licensed for 60, we have a waiting list, and that business has completely paid her and has become very valuable to myself as a secondary, backup business.

So I’ve kind of taken that same concept and moved it into real estate, because when all of this started I didn’t even own a home. From there, I began to make some purchases and utilizing the same concept of buying businesses, but doing it with real estate… And pretty much every property that I have purchased – with the exception of my personal home – I have used all the power of either seller financing, or leveraging a partnership.

Joe Fairless: Wow. Really interesting how you structured that, and how coincidentally – or maybe not coincidentally, depending on your beliefs, you had that as a goal, and then you came across it. Because personally, I have not come across someone who is selling or was trying to sell a pre-school, but you happened to do it.

Heidi Nelson: [laughs] I had no idea — I mean, I’d just have to say that’s a God thing; I don’t know any other way to explain that. It was on my goals, and this lady called. She had tried to sell it through a business franchise, from what I understand, and that didn’t work, and then she sold it to an employee, and at the last minute they couldn’t come up with a down payment and that didn’t work. She was exasperated, and she hired a director — well, I’m not gonna be a director anyway, so I needed a director… So she hired who she thought would be the greatest director to run the pre-school, locked them all in place, and she would then run it remotely from San Diego.

Well, the way it worked out – like I said, I wasn’t gonna go and be an on-staff person; I just wanted to own the pre-school, so I kept that director in place, and we just figured a way to make it happen. By that time, I think possibly she had come to the reality of the situation that maybe this was the best type of agreement she should take. You’re not the best person sometimes if you’re the first in line. Sometimes if some deals fall out before you get there, you get the cherry on top, so to speak.

Joe Fairless: Or in your case, you’re the only one still in line.

Heidi Nelson: Mm-hm.

Joe Fairless: Which one makes you more money, the property management or the pre-school?

Heidi Nelson: Well, I take my income from the property management, and that definitely takes more time, but the way I look at the pre-school, the pre-school has become a very strong financial arm, and it does have the ability within the community to have a lot of growth, and I am looking to expand that, but it’s hard to balance everything. I’m one person, I’m still a single mom, although my children are to the age of they’re starting their adulthood now, but I still have to keep some perspective and some balance in life as well.

Joe Fairless: What’s your best real estate investing advice ever?

Heidi Nelson: Oh, boy… The best real estate advice would be solve somebody’s problem, even if that means you have to take a calculated risk. Solve their problem. I have done that over and over with some of the property that I have purchased. The biggest element is solve their problem.

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

Heidi Nelson: I sure hope so. Let’s go.

Joe Fairless: Alright, well I hope you are, too; I think you are. First, a quick word from our Best Ever partners.

Break: [[00:23:32].22] to [[00:24:19].11]

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

Heidi Nelson: I would have to say the Bible. I use that as my moral compassing guide. I will say though, I did order your book. It hasn’t come yet. [laughs]

Joe Fairless: Well, I’m not gonna compete with the Bible. Best ever deal you’ve done that we haven’t talked about?

Heidi Nelson: Earlier this year I had the opportunity to purchase a fourplex, so I tied it up and with that wrote an all-cash offer; I did not have the cash, but I knew I could find the cash. As it all kind of worked out, I ended up finding an investor who was willing to put up 100% of the acquisition and rehab costs, and we secured him with the first deed of trust. So we bought it at 655k, we put a first deed of trust on the property at 700k, to make sure that no matter what, he would get paid out. He was also a partner in the fourplex, and two weeks after we closed the escrow, one exact footprint two doors down sold for 980k. So we had about 325k instant equity in that; I have no money out of pocket, just the ability to structure the deal, put that together, find the investor, sell the investor on the concept, and he’s secured, because he’s a first deed of trust plus a partner. So I think that was a pretty good deal for a small person like me.

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

Heidi Nelson: A mistake I’ve made on a transaction is 1) getting distracted, and 2) having [unintelligible [00:26:00].18] but not having the vision to see the deal. I had a listing on a mini-storage several years back, and this mini-storage – I had the listing probably for six months right under my nose; the gentleman that I bought the property management company, he came in and he sat down at the adding machine in front of me and he began to work the numbers and he said “I’m buying this deal.” He bought that with no money down… I shouldn’t say no money down; it was no money out of his pocket. He did a 1031 exchange out of a bad partnership, put it into the purchase of this, and then got a construction refinance that basically brought money back into his pocket, to the same amount that he was exchanging into it.

So he did a construction loan that ended up giving him his down payment back. He was able to expand that to about 700 units, and if I had been the listing agent on that, I would have been either looking to syndicate that out, or somehow get some sort of partnership in on it. As it worked out, it was a huge, huge learning lesson for me, but it’s a mistake that I don’t wanna make again.

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

Heidi Nelson: I like to give back to my church, and also through missions trips.

Joe Fairless: What’s the best way the Best Ever listeners can learn more about what you’re doing?

Heidi Nelson: They could just give me a call. My number is 408-500-5000, if that’s okay to say over there.

Joe Fairless: Heidi, thank you for being on the show and talking about the creative way that you went from moving back in with your parents, you brought your kids there too, to buying and owning property management companies, and how you bought them; I just find it so fascinating how you were resourceful and put those deals together and made it work, especially the second one. Well, the first one because that’s a big deal because you needed to make things happen, but the second one, how you worked it so you had no money out of pocket, and you gave them 15%, and you acquired more… Because I do know that you make more money with property management companies when you scale, so you get more and more units, that’s when you make more and more; so you’ve got to get it to a critical mass, and you were doing it in a very creative way. Thanks for being on the show, talking about this. The pre-school thing was really interesting, too.

I hope you have a best ever day, and we’ll talk to you soon.

Heidi Nelson: Thank you, Joe. We’ll talk soon.

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