JF1602: Accidental Landlord Falls In Love With The Real Estate World & Builds A Business with Mike Jordan

Mike became an accidental landlord around the 2008 crash. He actually enjoyed the business and decided to take it up full time. Now he has multiple strategies in real estate investing, with each separate company having a different leader. Hear how he was able to scale to having multiple successful businesses after accidentally stepping into this career. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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 of that fluffy stuff.

With us today, Mike Jordan. How are you doing, Mike?

Mike Jordan: I am doing well, thank you… And thank you for having me. I appreciate it being back on the show.

Joe Fairless: Yeah, my pleasure. Nice to have you back. Best Ever listeners, you recognize Mike’s name because he was on episode 1558, fairly recently, and it is titled “Championship-level rehabs for better returns.” I love how we went — well, I’m not gonna give myself credit; I shouldn’t… How YOU went through the rehab process and you talked to us about the keys to a successful rehab. Today we’re gonna do a regular episode and we’re gonna learn more about yourself and your background.

A little bit about Mike before we get going – he has been an entrepreneur since 1999, and he has over 100 million dollars in total transactions under his belt. He has done a bunch of different real estate strategies, from renovations, building homes, buying buy and hold properties, he’s a turnkey provider, has a property management company, wholesaling a whole bunch of stuff, and again, you can hear his other episode on “Keys to a successful rehab.” I highly recommend that episode, episode 1558. Based in Detroit, Michigan. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Mike Jordan: Absolutely. You’ve given out a lot about the background, but I’ll tell you, I started out as a contractor back in 1999, and always had a passion for growing financially, and opportunity-wise, and got into building homes back in the early 2000’s when it was a very hot thing to do… And that’s the only thing I knew how to do real estate-wise to make money, because I didn’t have the education that I’ve gained throughout the years through different sources such as yourself and many other sources that have taught me how to make money without just building homes. There’s a lot of routes to make money in real estate.

So I got into building homes, the market went down around 2006, I was left with approximately (I think it was) five homes, had no debt on them, kept them as rentals, and I became an accidental landlord that loved the business. So what I started doing is I said, you know what, as the years went on and the market got worse and worse, I started buying more and more properties. What happened was I learned how to take my construction skillset of renovating the homes, not going too far with them, but having  a beautiful home, if you had hardwood floors in there refinishing them, putting in a good kitchen in there, and most importantly, put in a good tenant that you manage properly.

Then after doing that, I started selling a lot of these homes to turnkey investors, and I created a property management company and became an accidental property manager. Prior to that I was an accidental landlord, I became an accidental property manager… It was by force, because I didn’t feel any of the property management companies delivered the right kind of client services, the direct, straightforward, honest service that owners deserve… And my companies kind of blossomed from there.

Then I got into buying notes, because I learned the business, buying debt, and it was good to buy when I come across good deals that make sense… So I kind of put that into my inventory bucket of opportunities to buy along the way.

Along doing that, a lot of the wholesalers and realtors that I would deal with, and events I would go to, people would sometimes say “Hey Mike, I got this deal under contract and I need money for around three months to buy it, fix it up and flip it”, or “I need money to buy it and wholesale it”, so I also became an accidental lender.

Actually, the accidental lender thing is kind of funny, because my first lending opportunity really came from one of my contractors that was working for me who was flipping a home, and then the second one was through a dentist that was working on my teeth. I said, “Wow, okay. This could be really good.” So I put that into the mix, and it sounds like it’s really complicated what I’m doing, but it’s not. It’s all synergetic, it’s all really related businesses in real estate, and there was a natural progression.

I looked at it like everything I’m doing, I wanna maximize, hit the ceiling on, and then basically add another function that makes sense to the business. That’s where I went on to create a brokers firm, which just made natural sense that if we’re going out there and doing off-market marketing, why not take the homes that we don’t wanna buy and create turnkey properties [unintelligible [00:06:35].06] for our clients, why not take them and list them? Or if the price doesn’t meet what we’re looking to buy it for, why not take it and list it? So we started out own brokers firm, and that’s been going really good, and it also complements our other business, such as the hard money business and our turnkey business and our property management business.

Along the way with being a turnkey provider, one of the things is to get the home done as economically as possible, without not providing a quality home. So quality has to be in the forefront of producing any product that we provide, and we started buying materials in bulk so we can bring those costs down without jeopardizing the quality. Then we started our own materials outlet company, which only carries certain products that we feel other investors – not homeowners – would buy from us.

I think one of the keys to my business is diversification, and [unintelligible [00:07:30].21] businesses that don’t affect what we’re doing in a negative way. So I’m not in the real business but then I also — I don’t have a pizza place. I’m in the same realm of businesses, and that’s where we’re achieving our success of flipping around 300 homes a year.

Joe Fairless: When you were building homes in the early 2000’s, and then in 2006 — you mentioned the recession started in 2006 where you were at, in Detroit… How did you have five homes with no debt on them? Because my assumption is that you had used financing in order to get loans  to build those homes, but it sounds like that’s an incorrect assumption, right?

Mike Jordan: Yeah, that was me saving every penny that I made for the last six years, and having a thriving construction business that was making a lot of money. So what I was doing is — I didn’t know how to dip into the “good debt world”, as I call it; because I think there’s good and bad debt. I didn’t know how to dip into that the right way, so what I  was doing is I was using my own cash. That was from me being in business prior to that for 4, 5, 6 years, and saving up money, and businesses doing really well… So I could go out there and build these homes in cash.

I wasn’t doing volume. I’ve built a total of 20 homes in my career. So when I was left with those four, actually two of them were new construction, and the other three were properties that I bought that I would have demo-ed and created lots out of.

Joe Fairless: But did you build all five of them? I mean — so the two new construction, did you build those two?

Mike Jordan: Yes, I built those two.

Joe Fairless: And the three that were demos – did you demo them and start building, or did you just keep those three?

Mike Jordan: No, I kept those three. They had tenants in them. I bought them anywhere between 70k and 120k, because they were on multiple lots… So I was valuing the home based on the value of the land. I was able to get by with not having debt, and that was a really positive thing for me to do. It was based on the earlier success that I had in my construction company and gaining a lot of business from that company.

Joe Fairless: For the two that you built, and you had to sit on them and rent them out and you became an accidental landlord, how much did it cost to build each one, approximately?

Mike Jordan: Well, back in the early or mid-2000’s, I was building actually (I would call it) a builder-grade home, which was standard finishes… I was building for around $80-$85/square foot. It wouldn’t be more than that.

Joe Fairless: And how big were they?

Mike Jordan: My typical size home was about 2,000 square foot. Well, from 1,900 to 2,000 square foot.

Joe Fairless: About $170,000 all-in, for each.

Mike Jordan: Absolutely. And we would list them for 249.9k, 259.9k. After commissions and hold costs and everything we’d probably end up netting roughly 40k-50k max. It was a decent business for me to make some money in, and I did what I knew at the time. But nowadays there’s a lot more access to information, where if you put out that kind of money, you could possibly make more money with it, and not as much movement and not as much heavy-lifting.

Joe Fairless: So you had about $700,000 tied into these homes whenever you became a landlord…

Mike Jordan: Yes.

Joe Fairless: What have you done since then with each of these five homes?

Mike Jordan: There’s two of them that I still own, they’re still rented till today.

Joe Fairless: The new construction?

Mike Jordan: No, the ones that I bought that were on double lots, that were just small homes that I bought for — I think one of them I bought for 90k… There was three of them that I bought; one was for 70k, one was 90k, one was 100k-and-something, if I remember right… But two of them I still own, they’re right next to each other. They’re actually four lots right next to each other, and I still own that.

Joe Fairless: And how did you net out with the other ones?

Mike Jordan: With the other ones – I actually sold them in the 2012-2013 timeframe, when the market got back up. I was actually profitable on them, because what happened was I rented them out through the downturn, didn’t make a ton of money on the rent, but I covered taxes and I was still [unintelligible [00:11:54].07] My cap rates were low (probably 5%, 6%), because they were not built for renting; they were more built to sell to a homeowner. So I was still profitable, but not very profitable. I would say I still made some money off of that, if you include the money I made after the rent… And I was just happy to get it off my books and take that money and go buy other inventory that was way below market value and it could cash-flow much better, and be better for flips for me at the time. I look at it like you could flip up and down the cycle, as long as you buy at the right prices.

Joe Fairless: Now that you had that experience, there was a major recession, and you were not leveraged, you were all cash, so you could just hold on to the properties, rent them out – it wasn’t what you wanted to do, but what you really didn’t want to do is lose them, and you didn’t, because you weren’t overly-leveraged… How have you applied those lessons learned to your portfolio today?

Mike Jordan: Well, I would say that I know that to use data and indicators is a better tool for me to predict what’s gonna happen in the future, in market turns, a lot better. That’s number one. Number two, I learned that I don’t like to be in the space of anything above 150k, because the homes that I sold were 260k, 270k… One of them was actually a little bit more, because I think the one was about 2,500 square feet, and the other one was around 3,500. So those weren’t my typical 200-square-footers, at the time; those two homes were two bigger homes, and maybe that’s why they didn’t sell when the market went down.

So I also learned to stick to my sweet spot, and that’s right around the 150k and below range. I have homes right now that we produce all the time that are 70k, and they produce $1,000 rent. That’s my sweet spot, where I could sell them turnkey for 60k, with a $900 to $1,000 rental income/month, and maybe I’m into them for 40k, 45k, 50k, whatever I’m into them for… So that’s a safe haven for me that if the market ever did turn…

Another point that I bring up is when it does, I’m gonna buy more aggressive. I’m not gonna try to make something happen that’s not there. If someone doesn’t wanna accept my offer, they don’t have to accept my offer. I’ll go on to the next one. Buy right is very important.

I guess those are some lessons that not only — like I said, number one, the data situation to understand what’s going on in the market, and number two, to understand the lane that you’re really good at, and number three, to buy at the right prices that work for you, and don’t make something happen that’s not there.

Joe Fairless: As far as understanding the lane that you’re really good at, maybe from an outside perspective – you’re doing property management, you’ve got a brokerage, you’ve got a turnkey company, you’re also doing private lending… It appears that there’s different lanes there; how would you respond to that?

Mike Jordan: Well, I guess when I say “in the lane that you’re in as far as buying properties”, what I meant was I guess the price point you’re in; that’s what I should have maybe clarified, by saying the price point model that you’re good at in real estate… But going to what you’re talking about with diversification or being in different lanes, what I do is we run a company that is diversified and has a leader of each division of our company which is a separate company… And I do feel that there’s certain rules in lending that are different than in buying, and there’s different rules in property management than there is in owning the property.

What we do is we formulate core values and key point indicators and processes and procedures for each company to be able to be successful. And each company follows those rules that we create, with having the leader implement those on a daily basis to make sure that everything is followed… And I as the owner of those companies take a look at everything and try to pivot, turn and make sure the ship is always going in the right direction. We have created this system by working with the right people, who have helped us create our processes and procedures, and we really put ourselves in a situation where we can diversify and have many things going on that work well for us.

Joe Fairless: Tell us a story of a deal that has gone terribly wrong.

Mike Jordan: Oh, absolutely. A deal that I bought in 2014 seemed like an incredible deal – comps in the area, about $100,000-$110,000 at the time; now they’re around 170k, 180k. I bought it for 25k, on a slab; it looks likes we can go in there and fix it for 20k, be in it for 45k, sell it really quick for 90k… But you go in there, and one of our newer inspectors – that all get trained – missed something that was key, which was a crack in the foundation. The crack in the foundation led to a lot of other problems, such as the structural situation that the city also found to be in jeopardy, where we have to not only fix the foundation, but there were some issues with the stability of the structure.

We get started without having the foundation taken care of, because we really don’t know there’s a foundation problem. Then we start realizing there’s a foundation problem, so then we’ve gotta tear up everything we’re doing, get a foundation company out there, and that is a deal that went from something that we thought we were gonna make 100% or 80% on our money in a matter of 4-5 months or even less, to a situation that cost us a lot of money.

So one thing I can point out to listeners out there, that they should always be cognizant of, is foundation issues can be major, major costs that you can miss… And you have to know the indicators of a foundation problem. I think that if someone would have given me this advice back in 2014, which I would have passed on to my team, trained them on it, I think we could have saved ourselves a whole lot of loss of money on that flip.

Joe Fairless: How much did you end up losing?

Mike Jordan: Oh, geez, I would say we probably lost around 20k or 30k on that particular house.

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

Mike Jordan: My best real estate investing advice ever is for investors to find a core business that they love, that they’re good at, that they can get educated on, learn and grow and maximize that business. If they wanna be ambitious and have other ancillary incomes or build other companies, don’t do it before you perfect your core business… And perfecting your core business takes time. Someone might start a  business flipping homes today, and they might think they know it all, but there’s so many things to learn and so many little things that you can learn throughout time, and you’re gonna keep hitting the ceiling. And what I suggest is to create goals and create different short and long-term goals that you hit, hit the ceiling on, and then create other goals by learning from other experts around the country and other people that are in the business.

That really is the best advice – find that one area that’s your core business, that will always make you money, whether it be wholesaling, flipping, buying and holding properties, and have that be your income-generator. And then you can go out there, and if you wanna do other things, like I do, in some people’s perspective, which I am — and I didn’t diversify right away; it took me a while… But don’t do that until you perfect your core business.

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

Mike Jordan: Absolutely.

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

Break: [00:20:44].14] to [00:21:52].24]

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

Mike Jordan: Traction, I always mention that. I know it’s not a recent book I read, but I always recommend people to read Traction, because I believe it’s a great book on how to work together as a team. If you work by yourself, it even helps you there, too.

Joe Fairless: Best ever deal you’ve done?

Mike Jordan: Best ever deal I’ve done was an apartment complex I purchased, that was being mismanaged. Partners that didn’t have the time to run it, and a city that was fed up with them, and I got it for an incredible deal, in an A area. That was the best deal I’ve ever done, and if I could do a lot like that, I would keep doing them.

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

Mike Jordan: We give back by — our whole office was great this season; we pick families that are in need and we try to fulfill their needs for the holidays… But we also give back by hiring people that can work and grow in our organization, through different organizations like Michigan Works and different employment agencies. We feel that helping them create a career or gain a skillset, whether it be something even simple, we feel that that’s great, because we’re helping out our community and people to learn how to fish, instead of just giving them fish.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing and get in touch with you?

Mike Jordan: They can visit us on our website. The best website for us is strategyproperties.com. Or they can call us at our office at 734-224-5454. We’re more than happy to speak to them about anything that we can help them out with, with any aspect of real estate that we feel that we have a very strong grip on. Because if someone was to ask me about self-storage, I would tell you that’s not my area of expertise.

Joe Fairless: Well, thank you so much, Mike, for being on the show again, talking about your starting as a contractor, building the homes in the early 2000s, how you avoided a major, major error, and that would be giving your homes back, and instead you were pumping your money back into your deals… Which is probably a good lesson for developers and fix and flippers now, because there might be a slowdown coming up, and if you’ve got highly leveraged properties on a fix and flip or a development, you could get in some trouble financially.

If you’re using all your cash, then recession comes, and it stinks, because you’ve gotta hold on to your properties, but you’re holding on to the properties, and that’s the key. Thanks for talking about that, as well as the different areas of real estate that you’re in, with the foundation of it being your knack for being a value-add investor in the contracting business, because a lot of things tie into that, I can tell.

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

Mike Jordan: My pleasure, and thank you for having me on the show, and hopefully I’ve added some aspects of the real estate market where the listeners could gain some value from, because that’s very important to me… And I really appreciate you having me on the show.

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