JF2079: Money in Low Income Housing With Johnny Andrews
TTJohnny was an emergency room nurse turned real estate investor. He was able to build his portfolio to 114 single family homes with his brother in 7 years while working full time. He focuses on lower-income housing and shares why property management has been a key part of his success in this niche.
Johnny Andrews Real Estate Background:
- ER nurse turned real estate investor.
- Currently owns 114 single-family homes with his brother
- Was able to create his portfolio in 7 years while working full-time as a nurse
- Based in Baton Rouge, LA
- Say hi to him at email@example.com
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Best Ever Tweet:
“Management, management, management. If you’re not hands-on in management, and you don’t stay on top of your game, it will bite you in the butt in the end.” – Johnny Andrews
Joe Fairless: Best Ever listeners, how you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. 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, Johnny Andrews. How you doing Johnny?
Johnny Andrews: I’m living the dream man. Thank you for asking.
Joe Fairless: Well, I’m glad to hear that. A little bit about Johnny – he’s an ER nurse turned real estate investor, currently owns 114 single-family homes with his brother, and was able to create his portfolio in seven years, while working full time as a nurse. Based in Baton Rouge, Louisiana. So with that being said, Johnny, you want to get the Best Ever listeners a little bit more about your background and your current focus?
Johnny Andrews: Yeah, man. I would like to amend that number… Just signed a purchase agreement on another six more this weekend. So we’re going to be at 120, and I’m pretty excited about it… But I just want to do amend that number. Basically, this is my full-time gig now. I was working part-time as a nurse and I got injured in November of last year, so I can’t be a good nurse. I just get to ride around with my cane and crutches at the moment. My main focus is single-family homes in the Baton Rouge area, and the bulk of them all lower-income houses. We’ve got a bunch of Section 8, but we cater to a crowd that’s working class, and it’s done very well for me and my brother.
Joe Fairless: Well, we’ll go with what you’ve acquired so far. So in seven years, you acquired 114. That is 16 a year, which– it’s weird that math, it would seem like it’d be more a year, but 16 homes a year times seven years, 114. So what have you and your brother been doing to acquire so many homes? I heard you when you said they were lower-income, so I believe that means they’re also a lower price point, but can you just talk about your business?
Johnny Andrews: Yeah, man. So I think in 2006, 2007, I was working like a dog in an emergency room, not making too much money, and I knew there would be something different, there’s got to be something else out there. So I was looking at some houses. I was going to buy one for $100,000, put some money into it and flip it. And this might sound a little hyperbolic, but the housing market seemed to crash overnight, and I would have gone bankrupt if I would have bought that house. So I ended up not doing anything, and a couple of years passed, and I just was looking around for houses. I saw houses around me that were selling for $30,000, $40,000 of a rent, and between $700 and $900 a month. So everybody thought I was crazy. Nobody wanted to do anything with me. Everybody tried to talk me out of it. So I went and bought my first one by myself.
Joe Fairless: How much was it?
Johnny Andrews: I think it was 33k. I put a renter in it for $750 a month, and at the end of the year, I had a pile of cash. For me, I was making $45,000 a year. A third of that is a pile of cash to me. So somebody had four more houses. I went to buy these four houses. I told my brother about it. My brother’s like, “Let’s do it.” So we pulled the $25,000 that we saved up our entire lives together and we bought those four, and we’ve just been rolling ever since. It was a struggle at first. What I’ve learned about the low-income housing is that it’s management, management, management. If you’re not hands-on in the management and you don’t stay on top of your game, it will bite you in the butt in the end. So we ended up starting our own little management company, too. Now, we don’t manage anybody else’s properties, but we have an office in the area and we do our own management.
Joe Fairless: Did you ever try to hire that out to a third party?
Johnny Andrews: Oh, yeah. We learned our lesson.
Joe Fairless: [laughs] Crash and burn?
Johnny Andrews: Yes, we did, man. We did. My ability to explain – it sounds smooth, but it didn’t go smooth. We bought them from someone who was turnkey. So we bought from him, he’d managed it for a discounted rate. He would find the properties, fix them up, turnkey, here you go, we’ve got renters in them. Well, we didn’t do our due diligence, and these were nightmares, and they were terrible homes, they were empty. Our collections were in that low 60%. We were barely making the taxes and the mortgages.
So the only way we could avoid bankruptcy was we bought a tax sale house on the main drag in Baton Rouge, put a sign out front and took over our own property. We took them from them. At that time, we had 19 of them, and my mom is coincidentally retired; she used to run hospitals. So she does her books and she’s in the office, and ever since then, it’s been a fantastic move on our part to open up our own office and do our own management.
Joe Fairless: What must you enjoy doing in order to be successful managing these types of properties?
Johnny Andrews: I like the people. I like my tenants. I grew up in Baton Rouge. I like the culture. I like the area. Some of them are my tenants, and not only that, they were also my patients. So I have a relationship with a lot of them. I like helping out. There’s a lot of single moms. We have a lot of Section 8 properties which are my favorite, hands down. I love Section 8 properties. And just being my own boss, working with my brother, working with my mom is fantastic. I couldn’t imagine my life without doing this actually now. I’m glad I stumbled into it.
Joe Fairless: With Section 8, you said you love it. It’s probably because you get the payments on a consistent basis, but then there’s the flip side of that, as I know you’re much more aware than I am, of if you get an inspector who is having a bad day, then that could hold you up for a long period of time, or if there’s a grudge. Have you experienced any of the bad side of Section 8?
Johnny Andrews: I didn’t know inspectors could have good days. [laughter] So I have definitely experienced it, but I have the inspectors’ phone numbers. We talk, we communicate… And it’s hard at first to establish a relationship, because there’s a lot of carpetbaggers and scalawags that go in and out of these neighborhoods, and that are truly skullduggerous landlords. And they’re bitter, probably just like police officers, sometimes; they think everybody’s a criminal. But they finally over the years– I’ve developed a relationship with them, but don’t get me wrong, they will still break me in half when they have to, but I have good properties and I have good tenants. So the last five inspections I had, I didn’t have to do anything. So it hasn’t been terrible the last couple of years.
Joe Fairless: What’s been the biggest challenge that you’ve had within the context of managing lower-income housing?
Johnny Andrews: On our cash clients, collecting rent in a timely manner. I would say, maybe, 25% to 30% of our cash clients pay rent between the 1st and the 5th. Again, not being hyperbolic, it is crazy. We get the bulk of them between the 10th and the 15th, but a lot of that has to do with when the government sends their social security checks or disability checks out. Our cash clients, they make it complicated, but the hardest thing we’ve ever had to deal with was in the 2006, they had a gigantic flood, North Baton Rouge, and it flooded 20 of our properties, and it was awful. Those people were in a bind, and we were in a bind, but we pulled through… But collecting money from the cash clients is very hard. I went to eviction court today, by the way.
Joe Fairless: Okay. What are some tips that you have for solving that?
Johnny Andrews: Oh, you have to stay on top. You abide by the lease and force them to abide by the lease. I think that a lot of the landlords’ take what they can get in the area that I am in, and if you sign the lease, and you say you’re gonna pay between the 1st and the 5th and you don’t, we file evictions. Over the last few months or years or however long we’ll have to work on it, we’ll get the bad ones out and get the good tenants in, and right now, we are doing fantastic. Of all those properties, we have two vacancies. That’s it. I’ve never had anything like that. This has been an amazing year and a half.
Joe Fairless: If someone were to buy homes at that price point and work in similar areas that you’re working in with your properties, what are some tips that you’d give them before they start out?
Johnny Andrews: Subway is hiring. No, I’m joking. You have to stay on it. You’ve got to be hands-on. You got to be willing to knock on doors, and you have to hold people accountable. And finding a decent management company in such a labor-intensive market is really, really hard. I’m under the impression it might be different in other parts of the country, but where I am, you need to be the one knocking on the doors. They need to know who the owner is. That’s just what I’ve experienced.
Joe Fairless: So that’s not a scalable model, or is it?
Johnny Andrews: No, I wouldn’t think so. We have to be geographic, and that’s just where I’m willing to go. The good thing about it is the cashflow will allow me and my brother to diversify, which we’re looking forward to doing. Just right now, we bought a big package in October of last year that we’re trying to get settled in, and once I get settled in, we’re going to start broadening our wings.
Joe Fairless: Why diversify? I know I’m going against what I was just saying, where it’s not that scalable, but on the flip side, I’m going to be devil’s advocate for myself… Why go into other things if you’ve clearly had success with this?
Johnny Andrews: Of course, we’re going to continue to expand to doing exactly what we’re doing, where we’re doing it, but it would also be nice to have other income streams where we don’t really have to worry about too much. If we could put up a pile of money together with me and my buddy or families and maybe buy an apartment complex in a higher-end area, maybe even in another city somewhere in Florida, somewhere in Oklahoma or Kentucky and have a property management company run that bad boy, I’d like that a lot. Plus, I like staying busy, so that’s why I’m gonna keep doing what I have around. I live a mile from my office; it’s fantastic.
Joe Fairless: What’s a typical day look like for you?
Johnny Andrews: I lay in bed at night, wondering how I’m gonna pay all my bills. Then I wake up really early in the morning, and I make my rounds, I check out all the properties that might be vacant or where I sent somebody to go clean, or maybe I set my maintenance man to go patch some holes or hang some doors. I go check out all the stuff that was done the day before, and then I go in the office, check my Dropbox answer my emails, and then I just feel phone calls all day long. As soon as I get off with you, I got to go check out a tree fall on the house last night. So I got a bunch of properties that’s just got to babysit constantly.
Joe Fairless: How do you and your brother divide responsibilities?
Johnny Andrews: Well, my brother is in the oil business and he’s pretty busy. He runs a company. If we have to get financing or if he needs to wrangle emails or– he does office stuff every once in a while, but I’m the hands-on guy. He’s still running a company right now. We’re not to the point where he’s going to come on full time.
Joe Fairless: Okay. How much on average, factoring in expenses and vacancies and your gas to go knock on their door and all that, how much on average does a home of yours make per month?
Johnny Andrews: Cash flowing, between $250 and $275.
Joe Fairless: Okay, got it.
Johnny Andrews: I have a secretary, I have a full-time maintenance man, I’ve got some expenditures… And then these are all C class home, so it’s a lot of maintenance.
Joe Fairless: So that $200 to $275, does that factor in those other expenses, or you’ve also got to factor those in too?
Johnny Andrews: No, no, no, that’s what I put in the savings account.
Joe Fairless: Okay, about $250 a house?
Johnny Andrews: Yeah.
Joe Fairless: Okay.
Johnny Andrews: $250 to $275. Yeah, some really good ones out there do better than that, but across the board, that’s what I’m averaging.
Joe Fairless: Okay, got it. It’s a very profitable business, because 250 times 12 times 114, $342,000 a year. What would you say the homes are worth right now?
Johnny Andrews: On average $38,000 to $42,000.
Joe Fairless: Are you getting financing?
Johnny Andrews: Yes, sir.
Joe Fairless: What kind of financing do you get on it?
Johnny Andrews: Five year balloons, 20 year amortization. We don’t really have to put too much down anymore, because I have an investor that lets me borrow. I buy in cash, do some work to it, go to the bank and finance it, so I don’t have to put money down. And it’s all on a 20-year. We would love to have all this under one big portfolio loan. We’re in a process to try to figure out how to do that. We’re in the infancy stages in knowing what we’re doing. You’ve got to bear with me on that one.
Joe Fairless: Yeah, I get it. So the elephant in the room that probably is keeping you up more so than the bills and stuff, which they are obviously making money, so I know that was tongue-in-cheek a bit… But it would be the five year balloon, because that’s probably the biggest financial focus of yours, I would imagine, is getting these out of the five year balloon payments.
Johnny Andrews: Yes, sir. It’s still really not that bad, because if the banks ever come to it, they don’t want to take over 114 homes, especially where ours are. So we’ve got leverage, and we’ll make it work, I’m sure. We’ve already had to resign on the dotted line. So it’ll be not that stressful, I guess.
Joe Fairless: Okay, and what has been one of your favorite properties and why?
Johnny Andrews: How about favorite package? Because we’re buying packages now.
Joe Fairless: Sure. Yeah, package. Alright, cool. Let’s go with that.
Johnny Andrews: Okay, I guess in October of last year, we came across 38 houses from a couple of guys out of California that just got in over their head, and my brother and I were able to buy these. These are all ten year old houses. It had every appliance, central air and heat, planned houses, only ten years old. We bought all 38 of these for $1.1 million. Out of pocket, $250,000 for the down payment, which my brother and I had to squeeze together, by the grace of God, and some blood banks, we were able to do that.
Joe Fairless: [laughs] Sell your plasma. You get more money for that.
Johnny Andrews: Yeah, it’s good to know man [unintelligible [00:15:51].01].
Joe Fairless: My roommate in college would do that on a weekly basis or as frequently as he could.
Johnny Andrews: We would save money too back when I was in college; we’d go give blood, and then go to the bar. [unintelligible [00:16:00].10] so much to get drunk. Three beers and we were laying out in the grass to cool off. The good old days.
Joe Fairless: [laughs] That’s $29,000 a door. That’s pretty good. $1.1 million– Yeah, 38 homes, right?
Johnny Andrews: Yes, 38. It is absolutely amazing. Our cash on cash return is 70%. I got lucky. I was severely injured in November. We bought the houses in October, and I was working part-time as a nurse to pay the bills, and I guess I lucked out. I picked a good time to get hurt, because me being able to buy those packages, I now can afford to not be a nurse anymore, or work a second job. Not that I couldn’t before, but now I could comfortably do it, keep the lights on and my wife won’t leave me. So it’s been a blessing, this last package, and we’re super proud of it, and we got very lucky. The timing was impeccable.
Joe Fairless: So that one, you and your brother got the down payment out of your own pockets.
Johnny Andrews: The only time we ever did it.
Joe Fairless: The only time you did it. Okay, so now the business model for you, if I heard you correctly, is you borrow from one investor, then you do the work, and then you refinance it with the bank so that you have no money in.
Johnny Andrews: Yes, sir. That’s exactly what we’re doing.
Joe Fairless: Does the money for the rehab come from the initial investor who’s fronting the money to buy?
Johnny Andrews: No, sir. We have cash reserves just from our business, from cashflow, and we don’t take money out. We live very frivolous lives.
Joe Fairless: What are the terms for that one investor who you’re borrowing money to buy the homes?
Johnny Andrews: I don’t want to say it out loud because everybody listening is gonna be jealous, but it’s only 6%.
Joe Fairless: Okay. Any points?
Johnny Andrews: Nothing. 6%.
Joe Fairless: There you go. Yeah, so if the property takes you, say, six months to do a refinance, then it’s six months annualized. So really, you’re paying them 3%?
Johnny Andrews: That’s it. Yes, sir. The longest we’ve ever held any money for him was probably 60 days. We’re so lucky. I embarrassed myself for about six years trying to get him to do it, and finally, he did and I love him for it.
Joe Fairless: What do you mean by that?
Johnny Andrews: I wanted to do it this way. I wanted to be able to buy houses cash, because I know it gets better deals. I just didn’t have access to it. So I kept begging the investor to just lend me. He didn’t want to do it. He didn’t want to do it, he didn’t want to do it, and then finally, he sat me down at breakfast one day, me and my brother, and said, “Okay, I’ll give you $250,000. You can do whatever you want with it,” and then we got the $250,000 and we immediately paid him back within a few weeks and we just kept rolling since then. It’s how we built up to [unintelligible [00:18:33].03] we were able to do that way.
Joe Fairless: Wow.
Johnny Andrews: Yeah, we got really lucky. We’ve got some good people in our lives, that’s for sure; couldn’t have done it without them, or it would have taken a lot longer.
Joe Fairless: Well, based on your experience as a very hands-on real estate investor, which I love talking to hands-on investors, because just completely different perspectives from people who are not, what is your best real estate investing advice ever?
Johnny Andrews: Just stick with it, and the numbers don’t lie. You’ve got to be consistent, have a plan and stick to that plan. Know that sometimes you’re gonna have overages for your remodel and sometimes things will be a lot cheaper than you thought, but you need to stick to your plan and absorb and talk to anybody you can that does this, whether it’s somebody that’s been doing it for 30 years or whether they’ve been doing it for 20 minutes, everybody has something to offer, you just got to listen. Read that book Rich Dad, Poor Dad. It got me started on it. Not so much real estate, but it just gets you in the right mindset. Just stick to a plan and always listen to advice. Just try to get knowledge from investors or builders or whomever.
Joe Fairless: So you mentioned that numbers don’t lie. I do remember you mentioning the turnkey seller that you’re buying from, it ended up being 60% of collections, and I can guarantee that you did not think it would be only 60% of collections. So if a Best Ever listener is considering buying it from turnkey provider, what are some questions that knowing what you know now, you’d make sure you would ask him or her, the turnkey provider?
Johnny Andrews: All the questions I had were all answered concisely and precisely. I didn’t put my eyes on the property. I didn’t crawl under the house and climb in the attic. I just saw the numbers that coincided with a picture. I didn’t get my knees dirty and my fingernails dirty looking around at the product, and I should have, especially in the market that I’m in. I guess I can understand if you’re buying $200,000 homes in Orlando, where snowbirds are moving to, but where I am, in particular, you have to go look at the houses and make sure there weren’t termite damage, make sure that it’s not the 80 year old galvanized pipe. And then when they say they did a roof, they did a roof; just don’t take a man at their word. You’ve got to go check. That’s what I would recommend, in my situation.
Joe Fairless: Noted, and thank you for that. So I’m putting myself in someone’s shoes who is looking at turnkey properties, and they’re likely not the type of person who is going to want to and/or have time to go get under the house that they’re potentially looking at, and that’s why they’re using a current turnkey provider. So perhaps for them, they could pay someone locally to go look at it for them and just give an objective perspective on the area. So we just wouldn’t take the turnkey providers word on face value. Instead, we’d have an objective third party go physically look at it and just give a report on the area itself.
Johnny Andrews: I could never argue with that. Yeah, having a relationship with a broker or a realtor out there… Maybe you can take pictures and you could send them that– and you said objectively can look at something. That would be fantastic actually. I think you talked me into doing it.
Joe Fairless: [laughs] No, no. You keep getting [unintelligible [00:21:49].16]
Johnny Andrews: You’re pretty good, Joe.
Joe Fairless: No, it makes for more entertaining interviews. So you keep being the hands-on. I like it.
Johnny Andrews: I got your back man. Call me. I’ll have tales from the hood every three weeks for you.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever lightning round?
Johnny Andrews: I am, man.
Joe Fairless: Alright, let’s do it.
Joe Fairless: Alright. What’s the best ever resource that you use in your business? Something that you couldn’t live without because it really helps you get the job done.
Johnny Andrews: MLS, actually. The MLS that everybody and their brother uses. I find fantastic deals on the MLS.
Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about already?
Johnny Andrews: Buying sight unseen. I’m gonna stick with that one, even though we talked about it. That clearly bit me in the butt fairly significantly.
Joe Fairless: What’s the best ever way you like to give back to the community?
Johnny Andrews: I’m not as quick with my ambitions as I should be. No, I’m joking. My brother and I, we give to his church and his school for his son a lot of money. I wish it was less, but it’s a really good school and they take really good care of his two kids. I don’t have any kids, so I live vicariously through him. And then I’ve been a nurse forever. I love people. I’ve been taking care of people for a long time. I guess that’s how I give back. Just being me.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Johnny Andrews: They can email john [at] redstickbrothers.com or call me at 225-227-2512, and I’d love to talk shop. I would enjoy it immensely.
Joe Fairless: I enjoyed this conversation. Thank you for talking about your business model, how you are buying packages of homes, the financing from the equity. Well, actually, I guess it’s the double debt. One is you do a loan from a private investor, then you refinance it out and you put a longer-term loan on it once and you cash out the original investor. And the tips that you have for managing lower-income properties, as well as the focus for where you see the financing headed and how you’re looking to get ahead of that with a larger loan that encompasses all the property. So thanks for being on the show. Hope you have a best ever day and talk to you again soon.
Johnny Andrews: Yes, sir. Thank you, Joe.
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