JF2151: Construction Owner and Investor Point Of View With Jorge Abreu

July 23, 2020 | Joe Fairless | 00:22:46

JF2151: Construction Owner and Investor Point Of View With Jorge Abreu

Jorge Abreu decided to leave real estate because he was not passionate about working in the corp world. He ended up developing a construction company called JNT Construction and now is the CEO of Elevate, a commercial investment group. He is now a full time active and passive real estate investor with 14 years of experience. 

 

Jorge Abreu Real Estate Background:

  • CEO of Elevate Commercial Investment Group and owner of JNT Construction
  • Is a full-time active and passive real estate investor with 14 years of real estate experience
  • He has wholesaled 200+ properties, flipped 100+ and developed several construction projects from the ground up
  • Current portfolio consists of 1,720 doors as a GP and 1,400+ as a LP
  • Based in Dallas, TX
  • Say hi to him at: www.ElevateCIG.com 

 

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Best Ever Tweet:

“If a contractor doesn’t have a presence online, it is a huge red flag.” – Jorge Abreu


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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Jorge Abreu. How are you doing, Jorge?

Jorge Abreu: I’m doing good, Joe. Glad to be on your show.

Joe Fairless: Yeah, I’m glad to have you, and looking forward to our conversation. A little bit about Jorge – he’s the CEO of Elevate Commercial Investment Group, and owner JNT Construction. Full-time active and passive real estate investor, with 14 years of real estate experience. He’s wholesaled 200+ properties, flipped 100+ properties, and developed several construction projects from the ground up.

His current portfolio consists of 1,720 doors as a general partner, and over 1,400 doors as a limited partner. Based in Dallas. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jorge Abreu: Yeah, definitely. As far as the background, I graduated from university with an electrical engineering degree. I went to work for UPS in the engineering department. Probably my senior year before I graduated I knew I didn’t wanna do engineering, I didn’t wanna be in a cubicle, crunching numbers all day, so I started looking at some other successful individuals and noticed that a lot of them built their wealth through real estate… So I started getting educated on real estate investing, did some single-family deals, decided to quit my W-2 job, start doing real estate full-time… That’s where I’ve found my passion.

Then, while trying to scale the single-families, I started doing a lot of fix and flips, and ran into some issues with some general contractors, so I decided to open a construction company to help scale that aspect of it. So then the construction company kind of took off on its own as well, and then about 3,5 years ago I kind of looked back, looked at what I had built, and realized that a lot of the stuff I had done was very transactional, and I didn’t have that constant cashflow coming in, and I also hadn’t built that legacy, or that wealth… And that’s what kind of turned me into looking into multifamily.

Luckily, I had some clients through the construction company that were multifamily syndicators, and they kind of opened my eyes to that world. Before then I never thought about purchasing a 200+ unit property, didn’t think it was possible… But with the syndication, that kind of changes things. So at that point — at first, I tried doing both the single-family and the multifamily. I’m a big Tony Robbins fan, and he always talks about focus is where the energy flows, so I decided to just stop doing single-family altogether and just put all my focus into multifamily. Since then, it’s really paid off.

Joe Fairless: Well, let’s talk a little bit about your story. Your senior year in college you worked so hard — you were about to get a degree in electrical engineering and you realized your senior year you don’t wanna do what your degree is in. Electrical engineering, for people I speak to, is  a very tough degree to get…

Jorge Abreu: [laughs] Yes, it is.

Joe Fairless: Were you demoralized by that, or what was your mindset?

Jorge Abreu: That’s a great question. Thinking back, it’s a five-year degree. A lot of math, so a lot of hard work to get past those classes… And I wasn’t demoralized. I had found what I knew I wanted to do, so more than anything I was excited. And I knew this was gonna have to be part of my path to get there – to come out of university making a decent  salary, and then do what I really wanted to do on the side, until I built that up enough to where I can do that full-time.

Joe Fairless: You said you looked at successful people and a lot of them got money through real estate… Who were some of the people you look at?

Jorge Abreu: Donald Trump was one. I know there’s a lot of people that love and a lot of people that hate him. Back then he was mostly a lot of real estate… And then Ron LeGrand I don’t know if you’re familiar with him. He’s been around for a long time.

Joe Fairless: Yup.

Jorge Abreu: So he was the first seminar I went to when I ended up signing up for his coaching, and that’s really what got me going.

Joe Fairless: And then you decided to quit your job at UPS in the engineering department… I imagine, since you majored in electrical engineering, you’re a very thoughtful, logical thinking person… What was your thought process that led you to say “I’m ready to leave this cushy W-2 job and go full-time in real estate”?

Jorge Abreu: It took a couple good deals to close for me to really prove to myself that I can do this, and I can pay consistently… And it got to the point where it was costing me money to be going to my W-2, and I think that’s where I’m very numbers-driven… So when I saw that, it just made sense.

Joe Fairless: That makes a lot of sense, if you have proof that you’re making more money doing your own thing than your full-time job, and it’s actually costing you money to be there. As far as GC issues –  you said you came across general contractor issues, and then you started your own construction company… What were the issues? And maybe if you have a story that you can share about some issues, even better.

Jorge Abreu: Just overall getting burned, paying the contractor too much in advance, and then having them disappear… That happened to us twice. This was back in South Florida; now I live in Dallas, like you mentioned… But I’m originally from South Florida.

Then when we made the move to Dallas after the ’08 recession, the same thing happened here. I think that was the last draw, when it happened here in Dallas; I was maybe thinking “Okay, maybe it’s something in South Florida.”

Joe Fairless: There’s crooks everywhere.

Jorge Abreu: Yeah, that’s for sure.

Joe Fairless: Why did you pay too much of an advance the second time, after being burned the first time?

Jorge Abreu: That’s a great question, too. Just not the right move, obviously… But when you’ve got a lot going on, and trying to scale… I can definitely say that – and this has always happened – I always trust individuals right off the bat, and I’m very optimistic. I finally have learned – it took maybe a couple more times, but… Yeah, that’s mainly why.

Joe Fairless: Let’s talk about some specific deals. So you’ve wholesaled 200+ properties, flipped 100+, and developed several construction projects, and you’re also a GP on deals, and an LP. As far as the development of construction projects from the ground up, tell us about one.

Jorge Abreu: So as the market go hotter – residential is what I’m talking about right now – it got harder to find good deals… And what we decided to do was leverage our construction company to create deals. It started doing a small addition – I know I can add 500 sqft to this house, and it’s gonna cost me $100/sqft, but I can turn around and sell that extra square footage for $200/sqft. Then we started ripping the  roof off of houses and adding a second floor, to the point where we just finally went to the next step where we demolished the house and started building new ones. And then on the multifamily side, actually working on the first one, on a large multifamily scale, which – we’re just in the entitlement phase right now.

Joe Fairless: With the renovation process where you’re building out 500 sqft more, compared to building a brand new house after you demolish it – what are some main differences, other than it’s just larger? But besides that, maybe from an approval process, or from some other type of consideration that we might not think of, and that you’ve discovered when you got into it.

Jorge Abreu: Most people would actually think that addition would be easier than the new construction, which is not necessarily true. Building a new construction is easier. The permitting is harder, obviously, and that’s one reason why we were ripping the roof off and adding a second floor, versus just tearing the whole house down – it’s because the permitting process is a lot quicker, a lot easier… You can get off the ground quicker, because you already have your foundation… But on a new construction, once you have that foundation poured and you start building it, it’s a lot easier than the existing, because you don’t run into plumbing pipes that are broken… You never know what you’re gonna find behind the walls that you’re tearing down.

Joe Fairless: That makes sense. Permitting is harder for new construction, but the construction aspect of it is easier. You gave the example of $100 versus $200. $100 to build the 500 sqft, but you can get $200 on the sale… What were the ratios that you were looking at with new construction when you were doing them?

Jorge Abreu: So we started doing some higher-end single-family  homes, and that was more of the ratio maybe — we were building it for more like $130 to $140/sqft, and then turning around and selling that for $240. I’m not sure exactly what the ratio is there, but…

Joe Fairless: That’s fine; that helps, that comparison. When you say higher-end homes, what’s the end price point range?

Jorge Abreu: Most of them were a million to — I think the most expensive one we did was right around 1.5 million.

Joe Fairless: Any of them sat on the market for too long and made you sweat?

Jorge Abreu: Absolutely. [laughter] Unfortunately.

Joe Fairless: What happened with one of them?

Jorge Abreu: There was one that location — they always say “location, location, location.” It was a good location overall, but it was a little closer than we realized to a main street, and we kept hearing that comeback in the feedback, that they didn’t like the fact that it was — we’re talking about maybe 4-5 houses in from a main street. So it sat out a bit longer than we expected.

Joe Fairless: Out of your deals, thinking back, what deal have you lost the most amount of money on?

Jorge Abreu: Hm… It’s a tough question. We’ve definitely lost on some deals. I won’t say we haven’t. I know there was a renovation we did… It was something with a neighbor… I can’t remember the exact deal, but I know we ended up losing maybe 20k or so on it.

Joe Fairless: You don’t remember — not specific, but high-level, why you lost the money? In case we can learn from that, that’s the only reason I’m asking…

Jorge Abreu: Yeah, for sure. We ran into some issues, so we had to replace all the plumbing. You’re originally from Texas, I believe, so you know about the foundation shifting…

Joe Fairless: Yes… [laughs]

Jorge Abreu: Okay… So the foundation had shifted quite a bit, which we saw that going in, but we did not expect to have to replace all the sewer lines, which we did… So that cost us some money. And then on top of that, it ended up sitting longer than we expected, we ended up having to drop the price… So  a mixture of spending more on the renovations than we had expected, and then having to sell it for less.

Joe Fairless: Do you still have your construction company?

Jorge Abreu: Yes.

Joe Fairless: Knowing that you have a successful construction company, what are some things that you can share with people about the construction process, that you know because you own the company and you see from the construction side what things are like? That maybe are either missed, or things that other investors should realize about the construction process. I know it’s a broad question, but maybe think of it from the standpoint of “When we get quotes from construction companies”, or the payment process, or “Here’s some unique things you could do to work with a company…” Just anything that comes to mind.

Jorge Abreu: No, for sure; I’ve actually done quite a bit of webinars and stuff on these things, because I feel like it is an aspect of multifamily investing that a lot of people don’t have a background in, and they do some of these things wrong…But I think it starts with the contractor that you hire; you need to do your homework. You need to call references, you need to make sure that they have insurance – that they have general liability insurance, and enough to cover if something was to go wrong. That they have a presence online… Nowadays if a contractor doesn’t have a presence online, it’s a huge red flag. So that’s one – do your homework when you’re hiring the contractor.

And then while the project is — well, not even while the project is going on… So once again, before  you hire them, dig into how they communicate exactly. How are you going to communicate with me throughout this project? Are you going to give me a weekly report? Are  you gonna give me daily reports? Do you have a software that you use to actually manage the project? Are you gonna give me schedules? How do I hold you accountable? Those kinds of things. How do you handle change orders? That’s big, because if you’re picking a contractor solely on price, you’ve gotta be careful; you’ve gotta look at the details and make sure that they have a detailed scope of work. If not, they may change-order you to death, which I’ve seen several times… So yeah, I’m not sure if there’s something else… I can keep going on and on.

Joe Fairless: That’s good. So when I meet with a general contractor, what are 2-3 things I need to make sure that I either ask him/her, or get from him/her? I know there’s more than that, but what are 2-3 things that “Hey, you’d better ask or get this information from him/her before they do the job”?

Jorge Abreu: For sure you need to get a detailed scope of work, that lays out exactly what you’re getting. If they delivered a paragraph with a price at the bottom, I will not accept that. Make sure that if they’re supplying some type of materials, that you have an actual allowance of what they’re supplying and how much they’re budgeting for that. And their insurance – make sure that they supply a certificate of insurance, and that it has the owner of the property’s name on it.

Joe Fairless: What do you mean by owner of the property’s name?

Jorge Abreu: You know, each property is gonna have its own LLC, most likely… So that should be mentioned on there as additionally insured.

Joe Fairless: Okay, cool.

Jorge Abreu: Yeah, it just makes it easier if something does go wrong – it makes it easier to file the claim on that insurance, if it goes that far.

Joe Fairless: Okay. Got it.

Jorge Abreu: And the third thing I would say would be the communication – really dig into how they’re gonna communicate with you, and have them lay that out for you.

Joe Fairless: Got it. You actually gave a bonus; you gave four, so even better. Detailed scope of work, materials allowance, make sure that you’re additionally ensured on their certificate, and the communication.

Taking a step back, based on your experience, what’s your best real estate investing advice ever?

Jorge Abreu: Best real estate investing advice ever… Get focused. Don’t get distracted with all the different noise that’s out there. That’s a pretty broad statement, but that can go for so many things. Real estate alone – if you decide that you wanna be a real estate investor, get focused on what type of real estate you’re actually gonna do, what area you’re gonna do it in, what type of properties you’re gonna look for, and then go all-in… And don’t try to be a real estate investor while selling things on Amazon, while doing something else. Conquer the one thing in front of you, focus on it, and then possibly start adding other streams of income.

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

Jorge Abreu: I’m ready.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [00:18:55].23] to [00:19:38].15]

Joe Fairless: What’s the best ever book you’ve recently read?

Jorge Abreu: Recently, it would have to be Atomic Habits, which mainly goes over the fact that every day we have habits, a lot of them we don’t even realize it; it’s our subconscious mind just doing things. But if you become aware of that, you can actually replace those bad habits with good habits… And then when you really break it down, the outcome of your life depends on those habits.

Joe Fairless: Best ever deal you’ve done?

Jorge Abreu: That would have to be our five-property portfolio of 1,275 units we closed on end of November, last year.

Joe Fairless: How did you find it?

Jorge Abreu: Found it through a broker.

Joe Fairless: And where are they located?

Jorge Abreu: Houston.

Joe Fairless: Why is that the best ever, because it’s the largest?

Jorge Abreu: Because it’s the largest, yes, and there was a lot that went into getting it closed… So it felt really good getting it there.

Joe Fairless: What was just one of the challenge?

Jorge Abreu: Raising 22 million dollars.

Joe Fairless: Fair enough. When you take a look at that deal and the challenges you came across, what’s one thing that you learned?

Jorge Abreu: If you’re going for a institutional or an equity partner, have several back-ups.

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

Jorge Abreu: I know our company goals — by the end of this year we wanna have a non-profit organization that we support 100%, and we’re gonna start doing a yearly event, where all the proceeds would go to that organization… And probably doing some other things throughout the year. So that’s not something we’re doing this second, but it’s definitely in our plans.

Things I do right now – I like to educate others. I feel like some people get trapped in the “Okay, I’m supposed to go to the university, get my degree, go work a W-2 job, have my 401K or whatever retirement plan, and that’s it. That’s what I’m gonna do.” And there’s other ways to really be able to build wealth, and other investments, like multifamily and things like that, that aren’t really taught in our school systems.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Jorge Abreu: They can visit my website, which is ElevateCIG.com, or JNTConstruct.com. They can also shoot me an email if they like, at jorge@elevatecig.com, and if they do that, I can send them a couple different contents. I have a free checklist for due diligence for multifamily properties, and a couple other things I can send them.

Joe Fairless: Jorge, thanks for being on the show, talking about your construction management experience, lessons learned, talking about the deals that you’ve done, and what’s worked, what hasn’t worked, and the differences and the thought process with new construction versus adding on, versus what you were doing before that, buying existing product and wholesaling.

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

Jorge Abreu: Thank you.

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