JF1923: From 0 to 82 Units In Just 3 Years with Jens Nielsen
Jens is focusing on building his rental portfolio via value add deals. While he’s building his portfolio, he’s also still working full time. There are a lot of people in the same situation – wanting to or currently building a portfolio while working full time, with hopes of being a real estate investor full time in the long run. Hear how he’s going about scaling his business, the deals he’s finding, how he’s finding them, how his business is structured with his partners, and a couple of deal specific case studies. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“We don’t have any investors, we’re just a group of people that are long term buy and hold investors” – Jens Nielsen
Jens Nielsen Real Estate Background:
- Denmark native, been in the US since 1996, investing in multi family real estate since 2016
- Owns 82 units in New Mexico and Colorado, all value add deals
- Based in Durango, Colorado
- Say hi to him at https://opendoorscapital.com/
- Best Ever Book: Begin With Why
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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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Jens Nielsen. How are you doing, Jens?
Jens Nielsen: I’m doing quite well. How are you, Joe?
Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Jens – he is a Denmark native, been in the U.S. since 1996, investing in multifamily since 2016, owns 82 units in New Mexico and Colorado. They’re all value-add deals. Based in Durango, Colorado. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Jens Nielsen: Absolutely. I should just mention – I grew up in Denmark, been here since 1996, and I actually moved to London in the early ’90s, and then to the East Coast of the United States in Maryland, and then on to the West Coast through Albuquerque, New Mexico, and now Colorado.
I followed the traditional path – go to school, get a good education, get a job, saving in a 401K… That’s what I was supposed to do, until I got the wake-up call a few years ago and realized that probably was not the path for sustainable wealth and income… So I kind of had a mindset shift a few years ago.
Joe Fairless: What takes your focus now? What are you doing?
Jens Nielsen: I still have a W-2 job, but my focus really is a couple of things… When I had that realization a few years ago, I started out buying some smaller properties just because “Hey, let me put my own money at risk and see how this goes.” So I did that, and that’s worked out pretty well. I connected with some local investors, and then they told me to reach out to this broker, and he helped me a lot; an older gentleman who wants to help newer investors. He helped me a lot with sourcing deals, and rehabbing, and everything.
So I did that, I started with those smaller properties, and then since that it has kind of moved into some joint ventures, bought some larger properties with some friends and family, and then actually doing some syndications in the last year. It’s kind of progressing… Once you get that real estate bug, you can’t really stop, right?
Joe Fairless: Yeah, that is very true. Let’s talk about the 82 units you have in New Mexico and Colorado. What’s the largest deal of those 82?
Jens Nielsen: 38 units. That’s the one we bought about a year and a half ago.
Joe Fairless: Let’s talk about that one. Where was it, purchase price, business plan, all that stuff.
Jens Nielsen: So that’s in Albuquerque, NM. It’s a ’70s vintage, classy property, probably in a B- area. We bought that for 1.2 million dollars. “We” – that’s my broker/property manager, and a couple of friends, a group of five of us that brought capital to the deal.
Joe Fairless: So you, the broker plus three friends?
Jens Nielsen: Yeah.
Joe Fairless: Okay, got it.
Jens Nielsen: That thing was listed at 1.55, and we ended up getting it for 1.2 million. It was one of these situations where the owner was out of state, they hadn’t really put any money back into the deal, so it was just deteriorating. Plumbing issues, and delinquencies, and just kind of falling apart. We were able to get it at a reasonable price, but also with the realization it needed a lot of work. I think we only got a 50% loan-to-cost at that time, and then we brought another 600k to the deal. Then we got a construction loan from the bank, so we’ve been using that 600k to really fix up the property… Which is new roofs, because for some reason every roof in New Mexico is flat, which is a pain. They always tend to leak.
Joe Fairless: They have some mansard roof, too?
Jens Nielsen: What kind?
Joe Fairless: Mansard, where the shingles are on the front of the building, not just on the top… It looks hideous.
Jens Nielsen: No, it’s typically parapets, where you have built-up stucco, and then you have the roof a foot below that, with canales (as they call them) where the water runs off… But back in the day they all tended to be flat, and it’s hard to have any slope on this; a lot of issues with standing water, and so forth. We ended up putting a whole new membrane roof on there, and replaced all the windows, did new stucco, new — it’s a two-story, so new exterior decking, new parking lot… And then we’ve just been tearing up the units and pretty much gutting them to the studs. So a lot of work, a slow process… Not your typical slight value-add, where you’re trying to invest in a couple years. This is a longer-term hold, for sure.
Joe Fairless: Yeah, let’s talk about that. How do you make the decision to gut the units to the studs, versus just spruce it up some?
Jens Nielsen: Just because the cabinets were in poor shape, we had some plumbing issues, so we had to go into the walls to fix the plumbing… Flowing was — sub-floor in the upper stories were not very solid, so we had to put some backer down, and then put those vinyl plank flooring in… We didn’t tear the drywall out on every wall; if it was in good shape, we left that… But there were a lot of places we were in the studs, especially for the plumbing issues.
The decision was really — we don’t have any investors, we were just a group of people that are long-term buying and hold… So if it takes us a few years to start seeing a return, that’s totally fine, because we know the long-term value is there, and we just wanna keep it as a long-term cashflow type thing.
Joe Fairless: How do you define long-term?
Jens Nielsen: 10+ years.
Joe Fairless: Is that how the rest of the four are defining it as well?
Jens Nielsen: Yeah, that was how we entered into it. It was basically “Hey, this is gonna be ten years at least in order for it to be worthwhile putting all that money into it.”
Joe Fairless: Okay. And how much money do you have in the deal?
Jens Nielsen: Personally, or…?
Joe Fairless: Yeah, personally.
Jens Nielsen: About 100k.
Joe Fairless: Okay. And does everyone have about 100k?
Jens Nielsen: It varies a little bit. Some have slightly less, some have slightly more… But I own about 20% of that deal personally.
Joe Fairless: And how did you all determine who brings what amount of money?
Jens Nielsen: We just sat down and negotiated. “Here’s what we need to raise”, and what people were interested in bringing to the deal. It was kind of an organic discussion; we just said “Hey, this is what I can bring, this is what I can bring”, and we just came up with the money. We needed the 600k, and that’s how we got to it.
Joe Fairless: Any challenges in putting together a partnership with five people that you’ve come across?
Jens Nielsen: I think some people want to be more active and have a more hands-on — but really, the rehab is being run by a property manager; he has a construction company… And he calls the shots. At times we’re questioning some of the decisions, like “Hey, why did you do this? What was the rationale behind it?” [unintelligible [00:07:35].01] and then try to understand that. I think that’s the major thing.
Joe Fairless: And what are the roles of everyone on the project? Because you talked about the broker/ property manager; that’s clear. What about you and the other three?
Jens Nielsen: I’m actually heading there this afternoon. I do the site visits, and see how the rehab is going. We have some of the other guys who look over the monthly expenses and summarize those, and tax returns, and other things. Some are more active than others for sure, but everybody takes an active role in what’s going on.
Joe Fairless: So that is the largest unit size, 38 units. What’s the next-largest?
Jens Nielsen: That’s a 16-unit that we’ve just closed on in May, and “we” are now in this case my wife and myself. We just bought that outright. I mean, not outright; we had the down payment and got a loan on it. It was interesting, because that was one that I found through direct mail, I sent out some letters?
Joe Fairless: Really?!
Jens Nielsen: Yeah.
Joe Fairless: Good for you.
Jens Nielsen: Everybody talks about it, but this actually worked out. It was a gentleman that had owned it for about ten years, and he was just — typical mom and pop type of managing it and dealing with his tenants… We negotiated for like eight months before we finally had enough relationship that he was willing to sell it to me, I guess… So that was interesting.
Joe Fairless: Oh, man… Let’s talk about this. Direct mail – where did you buy the list?
Jens Nielsen: Well, people are gonna think that this is crazy… I actually created my own list, me and my wife, a few years ago. We just sat down and started looking at Apartments.com and just started looking “Where are the apartment buildings? The area we liked? What are the sizes?” and we started creating our own list from scratch, essentially. We figured out who the owners were… This was time-consuming, but also, New Mexico is a non-disclosure state, so it’s not super-easy to find that information… So we just did it the hard way, created the list and started writing Mail Merge letters, and handwrote the envelopes, and that was the process.
Joe Fairless: So how did you find the information if it’s a non-disclosure state?
Jens Nielsen: Well, we could see somebody’s rental site, we could see what the unit size was, and then we could go to the assessor’s office and figure out who the owner was, and if it was an LLC we could go to the state’s business registration to figure that out and try to google a bunch of stuff. We didn’t have any information about when it was last sold, or what it was sold for… So I’m sure we sent letters to people who had just sold it, or had owned it for a short period of time. It wasn’t a lot of letters; probably 200-300 at a few different intervals.
Joe Fairless: What was your interval?
Jens Nielsen: Every 2-3 months we would target them.
Joe Fairless: Okay, every 2-3 months. How many intervals did you do before you got your first deal?
Jens Nielsen: This gentleman said “I’ve had your letter for a while, and I wasn’t ready to sell, but now I’m ready.” So I don’t know if we only sent one or two to him, but he didn’t get a whole bunch. [unintelligible [00:10:21].23]
Joe Fairless: That’s great.
Jens Nielsen: Yeah, absolutely.
Joe Fairless: So how many intervals have you done to date?
Jens Nielsen: I stopped again when I got more involved in syndications, because I realized — a 16-unit is great if you’re one or two people buying it, but you can’t syndicate it, and I kind of didn’t have a whole lot of capital left, so I stopped doing it… But I may start it up again if I wanna buy some smaller properties again, which is not really on my radar at this point.
Joe Fairless: Okay. So about how many intervals have you done then?
Jens Nielsen: Probably 3-4. It was about a year where we were sending them out every 2-3 months. It wasn’t a ton. I have a few other people that reached out to me, that I still have kind of in my backpocket, that maybe at some point I can reach back out to them and see if they’re willing to sell.
Joe Fairless: What did the letter say?
Jens Nielsen: It said something like “Dear Mr. John, we saw your property at 123 Main Street. We’re real estate investors in your state and we’re looking to buy your property if you’re interested in selling” and then a picture of me and my wife, and an email, and a phone number… So just very simple, clearly something that was hand-made, if you will… So it didn’t look like the postcards you may get dozens and dozens of.
Joe Fairless: Right. Do you have any children?
Jens Nielsen: No children.
Joe Fairless: Okay, and what type of attire were you and your wife wearing in the picture?
Jens Nielsen: I think it was a picture of us on vacation somewhere, very casual.
Joe Fairless: Okay. And did you address the person by name?
Jens Nielsen: Yeah, “Dear John”, and then the address of the property.
Joe Fairless: Okay. Eight months of negotiation… How did the first call go?
Jens Nielsen: He called me and said “Hey, I’ve had your letter for a while. I wasn’t ready to sell, but now I’m looking to sell…” And I think I made some mistakes there. I’m an analytical guy, so I wanted to go straight to “Hey, what do you want for your property? Let’s see if we can make a deal.”
Joe Fairless: Right. [laughs]
Jens Nielsen: So it was a mistake, and I’ve learned that since… Because I said “Well, that sounds interesting. Send me some info.” He shared his P&L and stuff like that. It was handwritten by him, but it was still pretty accurate, and I could see “Well, that actually kind of makes sense.” I went down there and he showed me the property… And then I think I probably offended him by trying to lowball him a little bit.
Joe Fairless: You couldn’t even get that out. You felt embarrassed almost. You’re like “I was trying to, um… Well, I lowballed him.” [laughs]
Jens Nielsen: Because I realized it needed some work. It really was a little bit tired, and stuff…
Joe Fairless: Did he have a number initially?
Jens Nielsen: He wanted somewhere close to $800,000 for it.
Joe Fairless: That’s what he told you initially?
Jens Nielsen: He said he had gotten a broker’s opinion on it, which was $780,000 or $800,000 or something.
Joe Fairless: Okay, and what was your offer?
Jens Nielsen: I think it was in the low 700k, because–
Joe Fairless: Your first one?
Jens Nielsen: Yeah.
Joe Fairless: That’s not an embarrassing low offer…
Jens Nielsen: People get very emotionally attached to something, because I know he paid — when I saw his loan pay-off, he had paid over 800k for it in 2008, or something like that. I said “Okay, well you’ve also had your 10+ years of rent income, and payoff of your mortgage, and everything else…” He said to me “Well, I guess we have nothing else to talk about…” [laughter]
Joe Fairless: How do you respond to that?
Jens Nielsen: I said, “Well, I’m sorry”, and then I just left him alone for a bit, and then I was like “Okay, let me maybe be more realistic about my numbers.” I came back and I said “Okay, I’m thinking around 740k, I can probably do…” Because I had talked to the bank and they were willing to roll some rehab costs into the loan, and so forth. That’s what we ended up buying it for, it was 740k.
Joe Fairless: How long did it take for you to follow up with him on your revised offer?
Jens Nielsen: It was probably a month, or something. I thought the deal was dead, and– I just couldn’t get it out of my head, because I liked the property. So it was a while, I can’t remember exactly… But he cooled off, I cooled off, and we were back on speaking terms, you know… [laughs]
Joe Fairless: Was that a phone call, or was that an email, where you had the revised offer?
Jens Nielsen: I think it was an email and then following up with a phone call. Then he started kind of like “Yeah, I think that works out…” And I went back and I took my property manager and we toured the units… Because we wanted to make sure we weren’t overpaying for it in terms of the amount of work it needed. It was kind of a conversation that — I continued to develop that relationship I should have developed earlier, I guess.
Joe Fairless: So eight months timeframe… How long once you had it under contract did it take to close?
Jens Nielsen: Well, that actually took a while too, because he’s an attorney and he was off traveling, doing some work out of state… So from the LOI to actually closing was probably about four months, or five months, or something… So just because he was dragging his feet, and then the bank was kind of taking it slowly. But it actually worked out, because interest rates were kind of high late last year, so the interest rate actually ended up dropping by the time we closed on it in May, so that helped a lot.
Joe Fairless: Oh, wonderful.
Jens Nielsen: Yeah, right?!
Joe Fairless: Yeah. And with that 16-unit — was that when you made the decision, “Okay, I don’t have much capital left to invest, so now I want to turn my focus to syndication”?
Jens Nielsen: Yeah, I think I have a kind of two-pronged approach. I like to have some properties that are just mine/ours; we don’t have to answer to our investors, and we can just keep them to give us some cashflow that will just continue to come in. I like that. And then syndications, investing – I’ve been investing in that passively for years, and some people reached out to me and said “Hey, we’ve seen the work you’ve done. Are you interested in being on the GP on one of our deals?” That was super-interesting, going from 38 to 205 units; it was pretty exciting, and it’s a whole different ball game.
Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?
Jens Nielsen: I think it’s basically creating — if you’re trying to work with individual investors, to create a relationship with them before you try to get to the bottom line.
Joe Fairless: Yeah, that was something that came true on that 16-unit, right?
Jens Nielsen: Exactly. I think if you’re buying a very large property, it may not make that much of a difference, because it’s strictly a business transaction, but if you’re trying to buy a smaller property, creating a relationship with the seller is hugely important, if it’s a direct to seller type thing.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Jens Nielsen: Absolutely.
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve recently read?
Jens Nielsen: Start With Why, Simon Sinek.
Joe Fairless: What’s the best ever deal you’ve done?
Jens Nielsen: I think the 16-unit is turning out to be a really good deal.
Joe Fairless: In what way?
Jens Nielsen: We’re actually 10% above our projected rents in the units we’ve rehabbed already, and we’ve gotten it painted and everything else, and it just looks really awesome. And it’s in a great area, so I think it’s gonna be a long-term, great cashflowing asset.
Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about already?
Jens Nielsen: I think initially I was buying properties in areas that weren’t that great, because “Oh, they’re cheap, so what could possibly go wrong?” Well, in reality, just because it’s inexpensive and it looks good on paper doesn’t necessarily mean it’s gonna make money in the long-term.
Joe Fairless: Best ever way you like to give back to the community?
Jens Nielsen: I do some coaching. I have some students that I help coach, new investors, and stuff like that. That’s a great way to share some of my knowledge and help them grow.
Joe Fairless: And the best way the Best Ever listeners can get in touch with you and learn more about what you’re doing?
Jens Nielsen: My email is email@example.com. I like to offer people — if they wanna schedule a call, go to my website, OpenDoorsCapital.com/call and schedule a call with me if you wanna chat about real estate.
Joe Fairless: Jens, thank you so much for being on the show and talking about your advice. The 16-unit – holy cow, I love hearing about the direct mail approach, and how that worked out for you, and the specifics for how you did direct mail… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.
Jens Nielsen: Okay. Thanks, Joe. I appreciate your time.