JF1635: Leveraging Others’ Skills To Scale A Real Estate Investing Business with Steve Streit
Steve wanted to make more money, but felt bad for doing it. He first had to overcome that mindset, after he realized it was okay to work less and earn more, he was able to build a business over the past two years. He’s flipping houses, and just closed on a 20 unit. We’ll he’ll tactical advice from some of his deals, as well as how to build a great team and leverage other people’s’ skill sets. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Steve Streit Real Estate Background:
- Real estate investor focused on developing key areas in Detroit
- Flipped over 70 houses in the last 18 months, actively buying 1-2 houses a week, and has a portfolio of 50 units and actively looking for more multifamily units
- Based in Detroit, MI
- Say hi to him at https://www.stevemovesmichigan.com/
- Best Ever Book: Never Split The Difference
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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, Steve Streit. How are you doing, Steve?
Steve Streit: Hey, Joe. Awesome. How are you doing today?
Joe Fairless: I’m doing awesome as well, nice to have you on the show. A little bit about Steve – he is a real estate investor focused on developing key areas in Detroit, Michigan. He’s flipped over 70 homes in the last 18 months; he’s actively buying 1-2 homes a week, and he’s got a portfolio of 50 units, and he’s actively looking to purchase more multifamily deals. With that being said, Steve, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Steve Streit: Awesome. I’ll keep the background short, because it’s pretty boring. Until I got into real estate I was a common house painter. I shifted from a common house painter to owning a painting company. I read a lot of the books that I was told to read, E-myth being one of them, and that was me; I was doing it all – I was the typical solopreneur, trying to run my own show, doing the marketing, doing the billing, shuffling paperwork, then slapping paint on the walls and then coming home at all hours at night, trying to devote time to friends and family… And they usually got the short end of the stick, it came second to work.
I quickly realized that the harder I work, the less money I make. It was pretty disheartening. But me being a die-hard, never-give-up type of guy, I kept that business for about ten years, and I quickly realized that flipping one house would cover my profits that I would make for an entire year in painting. I had to do that a few times and I realized I was just in the wrong vehicle. It wasn’t necessarily my work ethic, or my aptitude, it was simply just being in the wrong vehicle, around the wrong people, with the wrong mindset. The rest is history.
I couldn’t be in a better position today. I’m not where I wanna be, but we’re flipping houses, wholesaling, getting into developing… I own multifamily; we just bought a 20-unit apartment complex; I’m head over heels about that. It was in a good enough neighborhood, but the apartment was in real bad shape, but I’m just really excited about the whole thing. It’s a newer adventure to me. We’re about two, two-and-a-half years in full-time.
Joe Fairless: We have a lot to talk about, I’m excited to talk to you about this, because there’s a couple things that I’d like to address with you and learn about. One is you said you went from a house painter to owning a painting company, and then you realized you could do one flip and that would make you as much money as a year’s worth of having that painting company… And you said you had the right attitude because you’re a hardworker, but you were in the wrong vehicle, so you were doing the wrong business… What in addition to the a-ha moment of “Okay, clearly I’m making more money flipping this house”, you also mentioned mindset, and being around the wrong people versus the right people, so what on that aspect of things changed for you? And any specific examples would be helpful.
Steve Streit: Joe, that’s a great question, because I think the mindset was really the thing that was holding me back the whole time. I thought that I was supposed to be doing a certain thing; I thought that I was supposed to be putting in a certain amount of hours in order to earn a certain amount of revenue. So if I earned more, a lot of times I would feel uncomfortable and I’d feel like I was cheating somebody, as odd as that sounds.
Let’s just say I charged $1,000 to paint a couple rooms, or let’s just say a small apartment was $1,000. If I had the opportunity to charge $1,500, sure I would, but it wouldn’t feel right. So my pay was directly proportionate to how much I thought that I could charge. In the painting world, in the contracting world you’re limited by industry standards, so you try to stay within that realm; one plus one equals two in that world, and in real estate one plus one might equal ten, because you can leverage other people’s time, you can leverage the market, you’ve got cap rates in apartments… I don’t know if I answered that clearly, but it’s really been a learning curve for me.
Joe Fairless: You did!
Steve Streit: One thing I love about real estate is just the opportunity to leverage other people’s money, other people’s time, other people’s talents, and then seeing that I have value, being the match-maker, being the person that brings deals together – I can put whatever price I want on that.
Joe Fairless: I’ll just speak personally, I totally get the thought that I’m supposed to work a certain amount of hours in exchange for a certain amount of money, and when I make more money for less or fewer hours, there can be a guilty feeling… So how did you get over that? What tools did you use to shift your mindset?
Steve Streit: Time was one of the biggest ones. I would tell myself that I can do this, I should be allowed to make money, I deserve to be wealthy, I deserve to have this in my life… So it’s really a self-help type thing as much as it is a real estate thing, to kind of break down the ideas and the barriers, and the years of me telling myself what should happen – that I should fit into a certain box, under certain parameters.
So number one, Joe, was time. It took years to kind of break that down. And then a lot of the reading, Napoleon Hill, a lot of those type books, really, Think and Grow Rich and a number of other ones… Listening to podcasts, listening to other successful people, and then slowly but surely inserting myself physically around other people, going to the real estate meetings which I was a little against at first, because I wasn’t sure how that was gonna help… But I think the power of being around other successful people really rubs off. And it goes back to the old adage of “You become the company that you keep.” Who you surround yourself with is important, so be careful of your friends… And maybe when mom was telling you “Don’t hang out with those kids” she was right, but maybe she should have also said “Hey, hang out with these other ones. You might gain some stuff, too”, so it really works both ways.
Joe Fairless: Very helpful, thank you for that. So that was the mindset and the foundation of how you’ve gotten to where you’re at; now let’s talk some specifics on deals. I believe you said it was a 20-unit – is that correct? …that you recently closed on.
Steve Streit: A day before Thanksgiving.
Joe Fairless: Closed on a 20-unit the day before Thanksgiving. What was the purchase price, what are you putting into it, what’s the business plan? I would love to hear some specifics on it.
Steve Streit: Okay, imagine this – 1920s, all brick, limestones caps… We have a bald eagle at the top, beautiful architecturally. Solid, brick building, and it’s two-and-a-half stories, including a garden-level basement apartment. I bought it and I thought there was a few people living there. I got to go through most of the units; some of them were locked. It turns out there was more than a few, it was over half occupied, most of which by people who have not had any lease in place, with a mom and pop style landlord, living in the basement, who ended up in the hospital because of pneumonia and other illnesses, that may or may not have been caused by the living conditions in the building.
So it was really a sad situation for the tenants, and the building owner seemed like he was holding on to the very end to that building, but there was just so much maintenance and upkeep that wasn’t done that these folks were heating their apartments with their stoves; there wasn’t adequate heating. The living conditions were subpar at best; it was really disheartening to walk through some of the units and see the situations… But we started the eviction process, some people voluntarily left, and we’re still hanging on to a few die-hards, if you will. But [unintelligible [00:10:00].17] roofs, bricks, we got a brand new boiler in the building within two weeks, we got heat on, we capped off the broken pipes and we’ve been through about eight 30 yard dumpsters…
Joe Fairless: Wow.
Steve Streit: So it’s been a constant process. I really need pictures to illustrate this, but it’s been a full-on rehab, and we’re gonna do a nice restoration on this building to bring it up to get market rate rents, and safe living conditions for people. It’s an exciting opportunity, but let me tell you, it’s heavylifting.
Joe Fairless: Oh, yeah… How much did you buy it for?
Steve Streit: Oh, money. $140,000.
Joe Fairless: Details. Those are details, I know, but…
Steve Streit: Yeah, minor details…
Joe Fairless: $140,000?
Steve Streit: Yeah.
Joe Fairless: And how much are you going to put into it total, assuming things go according to plan, which of course they will, right? Exactly according to plan.
Steve Streit: Always, every day, no matter what. [laughter] So on the low side we’re at a $200,000 rehab. It could go up to 220k-240k. We should be all-in under 400k, I’d say, if we hit a few [unintelligible [00:11:00].07]
Joe Fairless: So you bought it for $7,000 a door. You’re gonna be all-in for — we’ll call it 400k, worst-case scenario; I’m knocking on wood for you. Worst-case 400k all-in. What’s the stabilized valuation of it, assuming whatever cap rate that is market for it?
Steve Streit: We’re looking at about $750,000 stabilized. It could go as high as $850,000 or $900,000. That’s kind of living on a hope and a prayer, a little bit… But it also depends on what the other apartment buildings are doing around me, because the area is rolling and developing rapidly. But that’s everything restored; that’s all the units brand new…
Joe Fairless: What part of Detroit is it?
Steve Streit: It’s East side, and it’s lower East side, by Grosse Pointe, so it’s got kind of a nice little buffer… It’s a couple miles off the water and it’s off of Mack Avenue, for anybody that’s familiar with Detroit.
Joe Fairless: The 140k – is that all cash?
Steve Streit: Yeah, I’ve used my own money cash, and then I put some hard money on it afterwards, but I needed to close on it quick, so…
Joe Fairless: Okay. So you put 140k out of your bank account, and then for the renovations you’ve got a hard money loan on it.
Steve Streit: Yeah.
Joe Fairless: What are the terms for that loan?
Steve Streit: I have a couple different notes on there actually, so it’s 12%-13% on average.
Joe Fairless: Okay. And how long do you have those until?
Steve Streit: A year. I usually get them for a one-year term. That will give me enough time to get the building stabilized and get some new money. Now, after a year comes, I can always talk to them and see if they wanna stay in it longer, if we get to that point… But I don’t think we will. We’re moving pretty good on that.
Joe Fairless: Because the goal is to not renew that and instead put maybe a community banker or some sort of longer-term loan on it?
Steve Streit: Yeah, get some long-term agency debt, 15-year, 20-year, whatever I can get, at a better interest rate, that’s amortized, that pays principal, and of course some interest.
Joe Fairless: And clearly, you’re rolling up your sleeves and you’re on the ground, overseeing this project… At least from what I can tell.
Steve Streit: 100%.
Joe Fairless: Out of the different cap-ex projects you mentioned – roofs, fixing pipes, cleaning stuff out, what’s been something that surprised you about the process?
Steve Streit: Good question. I think there were a lot of surprises. I have a construction background being a painting contractor; I also have a builder’s license, so we’ve done decent-scale remodel projects, but really digging in a little bit and realizing that a lot of the units were just total guts, so we just ripped everything out and started fresh.
Another thing that I wasn’t familiar with – I’ve never had an issue with this, but it was full of bed bugs and roaches, I ain’t gonna lie. It was nasty, and it sounds like the little stuff, but it’s harder to get folks to work in those conditions.
Joe Fairless: Oh, roaches are fine, but bed bugs – that would be a problem.
Steve Streit: Yeah. Bed bugs, roaches, rats – you name it, it was there. We had to evict the people that were living there, but we had to get some of the insects out, too.
Joe Fairless: Okay, you come across bed bugs… I think roaches – come on, man up, right? You guys get in there and there’s roaches, whatever; but bed bugs, they’re hitchhikers; they’ll get on your clothes and then they’ll come home with you, so I get that. You discover the bed bugs and your crew is like “Hey, Steve, we’ve got bed bugs here. I’m out. You fix this.” Does that delay your project for a month? …because it takes at least three treatments to get those suckers out of there.
Steve Streit: Yeah, so I’ve been very lucky to have an amazing crew. They literally just put on their suits and got the infested couch, or whatever. I physically see them. I knew they were in there, but I didn’t hang out in the apartments long enough to look for them, Joe… But they complained about it quite often; they said this one’s bad, and I believed them.
So they just dumpstered pretty much everything. Anything that they were living on was dumpstered and they were put out. Thank god we had freezing cold weather. I don’t know if that killed them, made them dormant, whatever the hell it did, but most of the infestation was out. We still are gonna have to [unintelligible [00:15:07].21] before we do the final, final renovation; we haven’t started the drywall repair or the painting yet. But I think even before we do that, we’ll probably put that [unintelligible [00:15:18].16] but we got out the worst of it. These guys have been troopers, they’re awesome; I couldn’t have done it without a very loyal, dedicated, hardworking, good-attitude crew. So you need that relationship with the contractors.
Joe Fairless: And those relationships were formed from the 70 fix and flips you’ve done over the last 18 months, is that correct?
Steve Streit: Yeah, and spanning time, and I hate to say it, but it is a time-intensive thing. You’ve gotta spend time with these people; you have to talk to them, you have to show up on the jobs, meet with them. They’re not gonna go into bed bug infestation, nasty apartments for you if they don’t kind of like you a little bit, I’ll just say that.
Joe Fairless: Yeah, yeah.
Steve Streit: So “Yeah, I’ll pay you a thousand bucks” or “I’ll pay you X amount of dollars to do it. Just get it done” type thing – yeah, that works, money talks, but you want people that are gonna work hard for you and that wanna be a part of the team, that wanna grow, and they’re doing something to help the cause of the business, if you’re into the fix and flip thing, if you’re into the renovation thing. You might wanna stay away from that altogether and buy fully-occupied buildings, which is a lot safer bet probably… If you end up doing this.
Joe Fairless: But those are boring podcast interviews. This is so much better.
Steve Streit: Oh, okay. [laughter] Okay, cool. Yeah, yeah.
Joe Fairless: The $240,000 budget – I know that’s the high end, but we’ll just go with that… 240k for the improvements to the property – how much of that 240k is interior work versus exterior work?
Steve Streit: We’re probably only 25k-30k on the exterior.
Joe Fairless: Yeah, that’s what I figured.
Steve Streit: I’d probably say 25k. It’s all on the inside, really. You look at the budget, that’s 10%, that’s nothing. 50k off the rip for boilers, returns, fixing the radiators…
Joe Fairless: That’s about $10,750 a unit that you’re doing there, for interior work.
Steve Streit: Yeah, and that covers your hallways, and miscellaneous, and stuff like that.
Joe Fairless: Based on your experience, and taking a step back from this project, but just taking assessment of your experience to date in real estate, what’s your best real estate investing advice ever?
Steve Streit: Okay, so if you’re gonna rehab, know what you’re gonna get into. Get a team established. I think people lose the biggest, and rehabbing is the most risky thing you can do if you have zero relationships with contractors. I’ve seen more people get robbed by contractors, and having faulty budgets, and projects go sideways than anything. So get those relationships established. If you don’t have those relationships, partner with somebody who does.
I think it’s better to take half of the profit or a part of the profit with an experienced investor. That’s what I’m doing now a lot – helping new investors get in, and helping them rehab houses, and showing them… So if they have a deal and they don’t have contractors lined up, we’ll come in and facilitate and help them with that, with a profit share.
So I’d partner with people. Don’t try to knock this all out on your own, because you’re gonna learn, and it might hurt. That’s my best advice ever, Joe.
Joe Fairless: And on the 20-unit building that you purchased, you’re the only owner of it, but when you say “partner”, it’s these team members who you have a relationship with, who are helping doing the work – is that correct?
Steve Streit: Yeah, I’m the only owner of this building.
Joe Fairless: Are you doing property management, too?
Steve Streit: I’m probably gonna step away from that. I will probably help with getting the unit filled up, and then I’ll give that to somebody else. I’ll turn the management over to a separate company. We’re really not geared for management.
Joe Fairless: Who do you use?
Steve Streit: Local people. They manage only a couple hundred units, but they’re in the area, so they’re able to service the building if something goes wrong.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Steve Streit: Oh, yeah.
Joe Fairless: Alright, well then oh-yeah let’s do it. First though, a quick word from our Best Ever partners.
Joe Fairless: Okay, best ever book you’ve recently read?
Steve Streit: Books… I haven’t read a book cover-to-cover in probably a year…
Joe Fairless: You’ve got all you need from Napoleon Hill, “Think and grow rich”, huh?
Steve Streit: Yeah, right. So Never Split the Difference, Chris Voss; the book was on audio, so that’s one thing I’ve heard.
Joe Fairless: Best ever deal you’ve done that we have not talked about during this conversation?
Steve Streit: Okay, so – last summer, a wholetail deal. I bought it for 45k, sold it for 100k. I had the cost of a dumpster and a clean-out in it, so my rehab costs were $980, with a $50,000 spread.
Joe Fairless: You said “wholetail” instead of wholesale, and not a “hotel”, correct?
Steve Streit: Not a hotel, Joe. Wholetail, for those of you who don’t know – it’s like a wholesale deal, but you will close on it and then do a very light rehab and then list it on the market. At least that’s my definition of a wholetail. It involves no major upgrades. It’s quick, easy, and you use the MLS in your favor, you leverage it.
Joe Fairless: What’s a mistake you’ve made on a transaction we haven’t talked about?
Steve Streit: Under-estimating rehab costs still. Know your numbers. I’m working off of spreadsheets and budgets. What’s in your head and what actually happens is two different things. I’ve done, like I said, 70 of these things in the last 18 months, and counting. The numbers are changing, costs go up; just watch your numbers.
Joe Fairless: Best ever way you like to give back?
Steve Streit: Working with new investors. If you are looking to flip a house and you wanna flip a house in 2019, and you’ve been thinking about it for months or even years, I wanna help you. I’m happy to work with people who are willing to invest in themselves.
Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on?
Steve Streit: Okay, so I’m gonna do something that has helped me more than it’s hurt me, so I’m gonna just give my cell phone number. I would ask you to just text me, okay? My number is 248-977-8481, and shoot me a text with your name and information, just so I know the context of the text would be helpful.
Joe Fairless: So definitely call you directly and then put you on robocall systems too, is that correct?
Steve Streit: All hours of the night, no problem.
Joe Fairless: [laughs] Steve, I really enjoyed learning about your shift in mindset from painting, to owning a painting company, to doing fix and flips, to having a business in fixing and flipping, and now doing multifamily… And then also getting into the details on this 20-unit distressed property and what you’re doing to turn it around, and also improving the community, as well as enhancing the lives of the people who are there, and deserve to be there because they’re paying rent.
Steve, I really enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you soon.
Steve Streit: Joe, thank you for everything you do with the industry, and I hope to talk to you soon. Thank you.