JF1614: BRRR Method Investing With Delayed Financing with Alex Felice

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Alex has a very specific way of investing, and he’s here today to tell us about it. He has seen a lot of success so far, and has also helped others do the same. Hear about his strategy in today’s episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Alex Felice Real Estate Background:

  • Invests in long distance single-family real estate
  • Commercial banker in Las Vegas
  • Owns 7 houses currently and is known for doing complete rehabs in just 8 weeks
  • Based in Las Vegas, NV
  • Say hi to him at https://www.brokeisachoice.com/
  • Best Ever Book: Sapiens

 


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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, Alex Felice. How are you doing, Alex?

 Alex Felice: I am fantastic, thanks for having me.

Joe Fairless: Yeah, my pleasure. Nice to meet be on the show, and looking forward to having our conversation. A little bit about Alex – he invests in long-distance single-family home real estate, he’s also a commercial banker in Las Vegas. He owns seven homes currently, and is known for doing complete rehabs in just eight weeks. Based in Vegas, as I mentioned, and you can check out his website, which is linked in the show notes page. With that being said, Alex, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

 Alex Felice: Yeah. I was, like a lot of people, living week to week, always being bent out of shape about being broke. This was a few years ago – someone told me you can make money in real estate passively, without that much money; I thought it was too good to be true, and it turns out it’s not… It’s actually fairly easy for me, and it turned out my life around. I’m thankful for real estate, and I spend my days now trying to get other people to learn the same benefits that I’ve been able to enjoy.

Joe Fairless: It’s been fairly easy for you… So what about it has been easy?

 Alex Felice: What I’ve found was this BRRR method with this little program from Fannie Mae called delayed finance. Basically, I can go in there, long-distance, have  somebody rehab the house, and refinance it with 100% of my funds back in eight weeks. I’ve spent the last two years just repeating this over and over again, and I haven’t seen half of these houses. I don’t know how it could be easier.

Joe Fairless: Alright, yeah, I’d love to be educated on this. So you said it’s a BRRR method, with delayed finance, correct?

 Alex Felice: Yes, sir.

Joe Fairless: Will you just elaborate a little bit more on that?

 Alex Felice: Yeah. Basically, you go in there, you buy the house, you rehab it, you put a tenant in there, and then Fannie Mae will give you 100% of HUD back with no seasoning. So along the way I figured “Just put the rehab, and the insurance, and the ancillary costs on the HUD.” They’ll give you 100% of it back, as long as it’s — I think the rule is 75% LTV or 100% HUD, whichever one is lower. It turns out that most of my houses, the way they work is my total all-in cost is around 75% of LTV… I know I’m throwing a lot of numbers at you. Basically, I’ve been able to save for a bunch of years, I got enough cash to buy one, and then I flipped that same money 7-8 times over, and I’ve helped a bunch of other people do it, too. It’s like a well-oiled machine now.

Joe Fairless: Huh…! How much did you have on the first one?

 Alex Felice: I’d spent a long time sacrificing and saving cash. I had 71k in cash, I spent 68,5k. I had 71 grand to my name, and I spent 68k on that first house… It was quite nerve-wracking, I’ve gotta say…

Joe Fairless: So you did 68k. What were the numbers on that first one?

 Alex Felice: The first one – we were all-in for 68k, it runs for $950, and it ended up being appraised at 100k. I couldn’t believe it.

Joe Fairless: Yeah, it’s like perfect math, where you got it all back…

 Alex Felice: Actually, I had equity left in the deal; I couldn’t get out all the money I made. It was egregious.

Joe Fairless: And where is that?

 Alex Felice: This is all in North Carolina. I had lived there for a little while, so it was kind of my back door at the time. Then I did one, I moved across country, and then I’ve done five since.

Joe Fairless: Where in North Carolina?

 Alex Felice: Fort Bragg, Fayetteville, North Carolina. I stayed there after I got out of the Army.

Joe Fairless: Okay, got it. So you bought it, 68k all-in, and it rents for $950. That was an 8-week period of time?

 Alex Felice: That one took longer because that was my first one. I didn’t know about all this at the time. But the second one I did, we found this process out… I bought this house — man, this thing was treacherous. It had growth coming through the walls… And I got too cocky on the first one, so I bought this house and not even a contractor had seen it. I bought it off the MLS pictures, and I don’t recommend doing this, really… But it worked out really good.

The next one I bought – it was treacherous. But the contractor went over there, rehabbed it, we ended up flipping it… I think that one took 12 weeks. I got 100% of my money back, and by that time I was way too brazen, I was way too confident… So like I said, I’d been doing a bunch of them, I clipped one in just under eight weeks earlier this year, and I’m doing one now which I think is going real long at 11.

Joe Fairless: Wow. The second one, how much did you buy it for?

 Alex Felice: 35k.

Joe Fairless: 35k. So that was after you got your 68k back from the first one, correct?

 Alex Felice: Correct.

Joe Fairless: You then rolled into the second one and you bought it for 35k. How much did you put into it?

 Alex Felice: About 30k, and there was some dragging on, so a little over 30k.

Joe Fairless: Okay, so you’re all-in 65k. What does that rent for?

 Alex Felice: That one is $900.

Joe Fairless: That’s in Fort Bragg, too?

 Alex Felice: Correct.

Joe Fairless: How many of them are in Fort Bragg?

 Alex Felice: All of them.

Joe Fairless: All of them, okay… You might have said that, I’m sorry if I missed that. So all of them are in Fort Bragg. Are you using the same contractor to do the work, since you’re based in Las Vegas?

 Alex Felice: Yes. If you can find a good contractor, you marry him. So after two of these things going slick, I said “Oh, this guy… I’ve gotta marry him.” [laughs] So I’ve molded a lot of my business around him and his business, because he’s done so well for me… And we had the confidence to bring other people in and show them a similar process and they used him as well.

Joe Fairless: In Fort Bragg, or surrounding areas?

 Alex Felice: Yeah. Look, if you find good people, your business goes stratospheric pretty quick. That’s where I’ve been really lucky – I just found some good people, and man, it just makes life easy.

Joe Fairless: How did you find the contractor?

 Alex Felice: I talk about real estate and getting ahead to every soul that will listen to me speak.

Joe Fairless: But at the time you didn’t have a property, so how did you come across him?

 Alex Felice: Well, the first one I did I didn’t use this spec contractor. You’ve gotta go through a few bad ones before you run into a good one. I literally was working at a bank, a  guy walks in and he says “Hey, I’ve got 21-something houses, all paid off, and I wanna go buy this other thing… Is there any way I can grab some of that equity out as a loan?” [laughs] I said, “Yeah. What are you doing?” We started talking about real estate, I forced him to become my best friend, and we’ve been doing a lot of business together for a while. And he owns a property management company too, so… I just latched onto him, I would let go, like a leech.

Joe Fairless: Right. And he was a contractor?

 Alex Felice: Yeah.

Joe Fairless: Okay.

 Alex Felice: And a fellow investor.

Joe Fairless: Yeah, clearly, a fellow investor.

 Alex Felice: And a veteran. We were in the Army – not together, but we were both in the Army.

Joe Fairless: Sure. So you connected on many levels. I imagine he’s got a company, he’s not the one swinging the hammer on your deals.

 Alex Felice: Correct.

Joe Fairless: Okay, cool.

 Alex Felice: And I’ve brought in enough other investors that he’s grown pretty — I don’t wanna speak for him, but pretty good over the last two years, where he’s added a bunch more teams, and stuff, so… Just find people you can grow with. That’s really it.

Joe Fairless: Yeah, that’s a big deal. On the first one you said that you had to go through some contractors that didn’t work out… What happened?

 Alex Felice: Well, you don’t know what a bad contractor is on your first deal. You don’t know what lazy looks like yet. So you see somebody and they tell you a price that’s probably a little too high, but… When you buy that first house, you’re nervous. It’s paid for, and it’s gotta get working on it. So when you get somebody out there, they give you a bid, you’re like, “Man, I don’t know…”, but this guy is here, and he might deliver. So people are inclined to take the first person that shows up, through no fault of their own. When you’re nervous, you take the first guy, and that’s what I did – I took the guy. He did the job, but he gave me a hard time – he went over schedule, he went over budget… It was like babysitting a full-grown adult; I couldn’t take it.

So you go and you find the next person, and eventually — people say “How do you find a good contractor?” I’m like, “Go through five bad ones first.”

Joe Fairless: Right. Any questions that you would ask, knowing what you know now, with the good contractor that you married, and the bad ones – any questions you would ask if your good contractor were to go away unfortunately, and you had to find someone else?

 Alex Felice: Yeah, don’t even talk about that…

Joe Fairless: I don’t wanna put that out in the world, sorry.

 Alex Felice: I had an old boss who told me once, he goes “Be slow to hire, and quick to fire.” That advice is really good. So if you’re looking for a contractor, what I’d say is go take this guy to lunch every Friday for a month. And if he’ll sit there and he’ll give you his time and he’ll let you build a relationship with him, then odds are he’s gonna work for your interests. But if you find somebody that’s just trying to get the transaction, there’s no hope. There’s no way that they can be that good if they’re just trying to do the transaction. You have to build a relationship with these people, they have to be aligned with your long-term goals. There’s no other way it really works… Not great; it might work okay, you can huddle through bad contractors and still be successful, but I don’t think that’s the ideal way to do it. So find somebody that you can go slow with.

I don’t know about any specific questions that I could think of right now, that I would say, other than ask a lot of them, and make sure that somebody will stick around to let you ask a lot of them. People who are going quick, or trying to be transactional, or just trying to get the job – you’ll notice; let them go.

Joe Fairless: What are your thoughts on if a contractor who is qualified and listening to this interview and they’re thinking, “Well, I definitely hear you on being aligned with your long-term goals, but going to a meeting with a potential client of mine once a week for four weeks straights, and I also have all these other jobs that I’m working on… I wouldn’t have time to do that.” What are your thoughts?

 Alex Felice: Well, don’t pin me to specifics. I just mean find somebody that — for instance, people that I do business with now, I’ll talk to them on e-mail and it’s like, “Give me a month. Let me talk to you again. Are you still gonna be around…?” The contractor that I used on the first deal, by the time he was done with my job, he left town. Right after he was done. So if I had just waited and said “Let me talk to this guy in three weeks, just an e-mail or a phone call…” It doesn’t have to be like I said, every week, but all I mean is be slow to hire; get good referrals, get good references, talk to other people that do what you’re doing in town, and they should help you.

I don’t have a perfect solution. All I know is you’ve gotta find people and you’ve really gotta fire the bad ones quick.

Joe Fairless: Sure. Okay. With your portfolio, you’ve got seven houses currently… When was the last purchase made? How many months ago?

 Alex Felice: October 25th I closed.

Joe Fairless: Okay, 2-3 months ago from when we’re doing this interview… What’s your plan for that deal and what are the numbers?

 Alex Felice: We paid 50k, rehab will be 13k, ARV is gonna be 100k, conservatively…

Joe Fairless: Oh, that’s  a good one.

 Alex Felice: It’s pretty good. That one should be rented any day now, and then as soon as we have the tenant in place and a contract, I can get an appraiser out there; underwriting will take me — I do underwriting for a living, so I’m a master… Underwriting will take me 2,5 weeks to close a loan that will be in my bank account. So this one will take less than 12 weeks.

Joe Fairless: And I’m sure you’ve been asked about this before – diversification. You’re in Fort Bragg, there’s a clear employer there, but all of your properties are in one area. How do you think about that from a risk standpoint?

 Alex Felice: I think about this all the time. Look, here’s what happens – I was broke, and I thought I could get ten properties in ten years, and make a little nest egg, because I’m a lazy idiot. I just need to do the bare minimum to retire, so I don’t have to work every day. And it really picked up way faster than I thought. I never imagined to get here so fast. So I’m now looking at my whole strategy differently. This is a really good process, it works, but it’s not really scalable. So what I need to do is, like you said, a different geography, and build two of these systems in two different cities at least, and certainly scale. I’m working on multifamily currently.

Like you said, there’s certainly risk in concentration of both asset class and geography, and it’s something I think about every day, but like everybody, I’m working with scarce resources, so… It’s on my to-do list.

Joe Fairless: Fair enough. Well, that’s impressive what you’ve built, the portfolio. How long since you purchased your first property?

 Alex Felice: Just over two years.

Joe Fairless: So two years, seven houses. What’s the value of all the houses? I’m guessing they’re around 70k-80k a pop?

 Alex Felice: Yeah, a little over that, but not much. Maybe 90k or 100k, but yeah.

Joe Fairless: Wow. When you think about your business as a commercial banker, what are some advantages that you’ve had as being focused in commercial banking, as you’re building your portfolio?

 Alex Felice: Let me tell you, underwriting really is a super-massive advantage… Because if you ever wanna go borrow money, the standard for underwriting is banking. Now, private lenders and hard money lenders might do their own metrics, but they base everything off the banking standard. So understanding how a bank looks at a loan, it helps tremendously, because I understand going in what the underwriting is gonna look at, what they wanna see for collateral, what they wanna see for cashflow, how they wanna see it on a Schedule E… I look at business Schedule E’s all day, every day, and it’s a fantastic advantage, to say the least.

Joe Fairless: Will you elaborate on that?

 Alex Felice: Well, for instance, people come to me all the time and they say “How much money down do I need?” versus “What LTV does the bank want?” and “Why are they gonna want this collateral over that collateral?” For instance, I’ve got a friend who flips houses, and from a business perspective, flipping houses is fantastic; but from a bank loan perspective, it’s terrible, the way they look at a balance sheet. So I learned this pretty quickly in, and I’m not saying anything bad about flipping, but it doesn’t work for me because banks only care about cashflow. So these advantages, where I can see the risk on paper – maybe not better or worse, but just differently – have helped guide my strategy.

Joe Fairless: Based on your experience both as a commercial banker, as well as investing in the single-family homes, what is your best real estate investing advice ever?

 Alex Felice: I’ve thought about this a lot, actually… I hate to be so vague, but PEOPLE. You need people. If you wanna know what the bank is thinking, go talk to the bank, make friends with them, and learn what they want, build a relationship. Contractors – the same way; you’ve gotta build a relationship. I know it’s not easy. Realtors – same thing. Go to conferences. I’m going to your conference… You’ve gotta meet people. The more time I spend meeting good people and finding good people to help them first (hopefully), the more time that they’ll spend helping me, and really that is the biggest key. I know it’s vague and abstract, but that is THE biggest thing that I’ve done to help my business.

Joe Fairless: What’s an example of when you first met someone, you helped them first, before you were helped by them?

 Alex Felice: I’ve got a buddy named Lee. He reached out to me about five years ago through the internet, and–

Joe Fairless: What method through the internet? How did they come across you?

 Alex Felice: Social media. And he said, “Hey, I know you invest in Fayetteville, North Carolina, and I invest there [unintelligible [00:16:19].22] We should meet.” So  I go out there, I meet this guy, casual, just making friends… So I said, “Look, I know this area. I can help you with boots on the ground, no problem.” He had a few houses; I said “This guy can probably teach me, and he’ll teach me more if I make him some money.” Sure enough, a few weeks go by and a wholesaler sends me a deal that — honestly, I was too scared to take this deal down, and I should have. It was a $50,000 house, it was already rented, $900/month. It was done. And I said “I’m too scared to take this deal down, because it’s my first one. Lee, you take this house. Here you go. I don’t want anything. Just take it.” Well, sure enough, he closed in like five days. And that’s when it’s everything set up; I said, “Oh, I should have got it myself.”

I made this guy some money, and I helped him out with giving him advice on the area, this and that, and now five years later he’s the one that helped me put together my website, which is — over the last year, my exposure has gone stratospheric thanks to him. And that relationship has built tremendously. He’s the one that taught me how to travel-hack, and he introduced me to people, he’s the one that got me to go to FinCon… So just this small little thing – always make money for somebody else first, and then on their way up, you can probably catch their coattails if you did a good job. But always make money for people first, and it’ll work out. Just make everybody else rich and you’ll have no chance to get there.

Joe Fairless: Help everyone get what they want, and you’ll eventually get everything you want. That’s a quote that I constantly reference. I think it’s Zig Ziglar; I don’t know if anyone said it before him, but I attribute it to Zig Ziglar.

 Alex Felice: Yeah. It’s so annoying, because I’m a capitalist-first, I’m not that charitable; sometimes it can feel a little weird. This year I started inviting people to come to me, and I help them buy houses like I buy. And what I should do is turnkey – buy the house, rehab it, sell it somewhat retail, with a tenant in place, and sell to them and take the 20k. What I did instead was I said “Look, give me a small fraction of that, 2k-3k, and I’ll teach you how to do it, I’ll give you my contractor, I’ll give you my property manager, I’ll give you my realtor, I’ll give you my title guy, I’ll give you my insurance lady, they all make money, I make a small bit, and the client, the friend – they make the 20k-30k in equity plus the cashflow.”

I’ve done this a bunch of times, and I have to compete against them now. It’s really charitable, and it’s really annoying, and my hope is that I’ll make all these people enough money that we’ll grow together in the long run. It’s frustrating sometimes to do it this way, but it’s way better to give — let me tell you something… It is the biggest ego ride to be so good that you can make somebody else money, and that’s way better for me than to actually cash checks. [laughs]

Joe Fairless: It certainly makes you feel good when you help other people make money… And then obviously, consequently – well, not obviously, but consequently, everyone benefits, yourself included.

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

 Alex Felice: I’m always ready baby.

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

Break: [00:18:57].22] to [00:19:46].25]

Joe Fairless: Okay, best ever book you’ve recently read?

 Alex Felice: Sapiens.

Joe Fairless: Best ever deal you’ve done?

 Alex Felice: That deal I did across country. I hadn’t seen it, and I had to borrow money to get it, and it made me 30k.

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

 Alex Felice: Oh my god, there’s so many… Hiring the wrong people.

Joe Fairless: What’s another one?

 Alex Felice: Not being decisive enough.

Joe Fairless: What’s the best ever way you like to give back?

 Alex Felice: I teach everybody what I do, all this stuff, and I write all my deals out, I teach everybody everything I know for free; I don’t sell anything, it’s all on my website. I’m as charitable as I can possibly be.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?

 Alex Felice: Brokeisachoice.com, check me out. I’m not hard to find.

Joe Fairless: Well, Alex, thank you so much for being on the show, talking about your business model that you use, with the BRRR method with delayed financing, and getting into the specifics of the deals, how you identified the business model, and then how it works. And the keys to the business model, the contractor being one of them, and two, having the strategy and just the structure for how to pull off a deal like that based on your expertise as a commercial banker.

I really enjoyed our conversation. Thanks for being on the show. I hope you have a best ever day, we’ll talk to you soon, and I’ll also see you at the conference.

 Alex Felice: Thank you so much. I had a blast.

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