JF2211: Don’t Underestimate Your Potential With James Evans
James Evans is the Owner of Gladstone Capital with 6 years of real estate investing experience with a portfolio consisting of 20 rentals, condo conversions, limited partnerships, and creative joint venture deals. James got into real estate because his job has him traveling constantly where he felt like he shouldn’t have to pay for a mortgage since he was never home which started his journey into renting houses and eventually grew into a nice portfolio.
James Evans Real Estate Background:
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“We tend to underestimate our own potential” – James Evans
Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks and today, we are speaking with James Evans. James, how are you doing today?
James Evans: I am doing great. How are you doing, Theo?
Theo Hicks: I’m doing great as well. Thanks for asking and thanks for joining us. Looking forward to our conversation. Before we jump into that, let’s go over James’s background. So he’s the owner of Gladstone Capital. He has six years of real estate investing experience and has a portfolio of 20 rental units, condo conversions, limited partnerships and creative joint venture deals; so a little bit of everything. He is based in Boston, Massachusetts, and you can say hi to him at his website, which is gladcap.com. So James, do you mind telling us a little bit more about your background and what you’re focused on today?
James Evans: Absolutely. So a quick version of the background – I was a finance major in 2006 through 2010, so through the financial crisis. Got out of school and ended up getting a job at PricewaterhouseCoopers on the consulting side of their business. So I was traveling around all the time. I would leave DC where I was living on Monday, fly out to my client site, fly back on Thursdays. It got crazy. I was just living on the road, never had any local projects. And after a year, I decided that it was stupid to be paying rent with all the time I was spending in hotel rooms. So I convinced a couple of my friends to let me just crash on their couch during the weekends, so I paid 100 bucks in rent, or 200, or whatever it was. It was something very, very much lower than the typical DC rent. So I was able to save a bunch of money that way. And then also traveling all the time, most of my meals and things like that were expensable during the week. So it was a ton of fun to fly all over the place, that nomadic kind of lifestyle.
I had been thinking for a while about saving up to buy my first place and simultaneously moving back home to the Boston area. So when I looked around at a few places, and I guess the math I was doing was I wanted to be able to buy a two-bedroom place where I could have a roommate to cover the majority of my living expenses. Living that couch life, I got really addicted to this low overhead lifestyle that I was loving and wanted to keep that going. So I ended up getting a really good deal on a place, and everything spiraled from there. Second part of the question is what I focus on now, right?
Theo Hicks: That’s okay. So you bought a single-family house and you rented out one of the units to someone else?
James Evans: It was a condo, a two-bedroom condo, and I rented out one of the bedrooms.
Theo Hicks: Perfect. So what are you doing today?
James Evans: Today, like you said, I’ve painted the board. I was doing a little bit of a lot of things, so in progress on a few joint venture development deals with other local partners around here… I have been slowly and steadily building up a multifamily portfolio of rentals, I have done some property management for others, I’ve done things outside of real estate. I bought, owned and operated and sold a website… I own a food truck with a few friends… So like you mentioned, I’m all over the board right now.
Theo Hicks: Yeah, you’re doing it all.
James Evans: Yeah. So the phase I’m in now is looking at everything through a different lens and figuring out what to actually keep on my plate, and really focus on and try to compound my efforts on over the next ten years or so.
Theo Hicks: That’s a good place to start. So you’ve got a lot going on, and you also have a full-time job?
James Evans: Correct.
Theo Hicks: Okay. What’s your day like? What’s your week? Like? Are you waking up at 4 o’clock in the morning and [unintelligible[00:07:18].27] blocked off to focus on each individual enterprise? I’m just curious, how do you do all that?
James Evans: So I wish I could tell you I was following the 4-Hour Workweek protocols correctly and was batching all my emails and time blocking things out really well, but I think — I try to do a little bit of everything every day and just keep momentum going. Like I said, now I’m focused on subtracting out the superfluous and really… The lens I’m looking at things through now is what I call return on headache. And I think what I want to do going forward is pick one, maybe two things that are really high headache, complex, take a lot of work to get through the other side of, but have a really high and the rainbow at the end of the road, or the pot of gold at the end of the rainbow – I’m mixing up my phrases – but really high reward. I think that’s where the really high impact, life-changing things come from, are these high headache, high return activities.
And then also where I can, pick off the low headaches, medium to high return things. A lot of how I do the rental portfolios fall into that category where I can put on some upfront time to make sure it’s a good deal. But then I have property managers and hands-off besides making decisions and holding people accountable. So I’m using that lens to cut out the middle tier of that things. So property management, the website I was running, I’ve really taken a step back. I sold the website, I’ve stopped doing property management for the most part, and self-managing any of my own rentals. So just trying to find those areas where I can either pay or cut off to eliminate a good chunk of headache and time [unintelligible [00:08:44].22] my day-to-day.
Theo Hicks: Sure. I like that concept of return on headache. Just to make sure I’m understanding this properly… So you’re saying that you want to focus on the things that do give you a headache, but that also result in higher returns, and get rid of the things that aren’t giving you a headache and then aren’t giving you a high return?
James Evans: Yeah, those are the two categories I’m focused on. So one, high headache, high return and maybe one, maybe two things like that. I haven’t quite narrowed it down yet, but I’d like one midi project/ten-year goal to track through that’s going to be complicated, it’s going to be messy, that I think I can do a better job in and have a higher return than if I put that time into something else.
Theo Hicks: So do you have an idea? Is it going to be real estate? Just in the intro, we’ve got your rental portfolio, we’ve got condo conversions, we’ve got limited partnerships and JV, some more passive deals. Do you have an idea of which one you plan on diving all in on, or is it something that’s not on that list?
James Evans: With the list right now, I would say building the multifamily portfolio is probably one of the highest priorities there. The joint venture deals I’m doing also tend to be lower headache on my end. Again, some upfront work, but I’m pretty hands-off, because I’m not super involved in the construction side of things. I really like the people I’m working with, so I don’t consider it a high headache thing. So those are the two real estate related tracks I’m gonna start focusing on.
Some bigger multifamily projects where I can have a property manager, cash flow as well, and I can just put it on autopilot for a five to ten year period… And then the joint venture deals which are more complicated, and I get to shadow and be involved with as it makes sense, but I don’t have the weight of every single decision on my shoulders, I’m not getting calls from subcontractors in the middle of the afternoon, and I can just be more involved a more strategic level.
Theo Hicks: Sure. So you’ve got your 20 rental units. How many properties is that?
James Evans: As of now, it’s five. So I have two six-units, a five-unit, a duplex and a single-family.
Theo Hicks: Okay.
James Evans: I think that math checks out.
Theo Hicks: Yeah, totally. So just to be clear, the biggest one, you said, is a six-unit?
James Evans: Yep. So two six-units. I’m on a contract on an eight-unit right now as well.
Theo Hicks: Okay. Let’s talk about the eight-unit under contract. So walk us through where did you find it, and then what’s the purchase price, what’s your plan…
James Evans: So it’s in Manchester, New Hampshire. That’s the area I look in predominantly; Southern New Hampshire. I can get into that later if you want to… But I found it through an agent. It was listed. My agent had another contract with a different buyer. Six months go by and the buyer’s circumstances change. The seller’s taking forever to get documents back and they just couldn’t get the deal closed. Sellers, upstate New Hampshire, no internet, everything gets paper signed to track down bills, financial statements, things like that. So just– it didn’t work out for the last buyer, so I ended up coming in and offering significantly less amount than it was originally listed for. So it grosses about $94,000 a year, and we’re buying it for $500,000. So a good deal, a good cap rate going in, pretty clear path improvement. Looking at things like doing either RUBS, or separating out some of the utilities, reduce expenses. And then as the units turnover, we’ll clean them up and fix what needs to get fixed to get higher rents. So kind of your bread and butter…
Theo Hicks: Sure. Do you know what the rehab costs are going to be, and then how much you will be able to raise the rents by?
James Evans: Initial capex budget is going to be around $50,000, and that’s going to be spread out across the board, some common area, things that needs to get fixed, and then unit turnovers. Some require a little more work than others. And then depending on the units, $50 to $100 a month in rent increase.
Theo Hicks: You said, “we”. So something else I wanted to ask too is, how are you funding all this? And then are you the only person, or do you have business partners you’re working with as well?
James Evans: Great question. So this is one of the first multifamily deals I felt comfortable enough to go out and raise private capital for, or doing that with private investors for some of the money. I’m going to put in some as well, and then bank financing for the majority of it. So I do tend to say “we” more than “I” because like anything, there’s going to be a lot of people involved in this. Even if this was like the other rentals I have where it’s solely my own balance sheet and money, my property manager’s involved, the broker’s involved, tenants involved… It’s a team sport, so I say everything with “we” even if it’s just me doing things.
Theo Hicks: So this is the first time you’re raising capital for the deal. How much money do you need to raise? How much do you already have? And then who are these people you’re raising money from?
James Evans: We’ll raise between $75,000 and $100,000, and I have about $60,000 so far, and commitments for the rest. So we’re just waiting on a closing date and a few other stipulations to get ironed out. But who we’re raising money from – a lot of them have been investors from previous deals we’ve done. So the joint venture deals, those I’ve brought investors into as well. That was my trial run raising money, and it was an interesting, unique experience doing it because I had really experienced developers and operators that were my backstop. I had always been hesitant to do something for my own projects, because I felt like I needed to skin my knees and learn using my own money before I would put anyone else’s money at risk.
So having two guys who do this full time, one of them being a contractor who has worked in the industry for a while, I was really confident in their ability to perform. I thought it was great deal, so I felt really comfortable bringing my friends and family into the project. So we’ve done two deals together in these joint ventures, and now some of the investors who have gotten to know us through that have expressed interest in things that provide monthly cash flow or quarterly cash flow versus development projects, which are you write a big check upfront and then a year, a year and a half, two years later you get a bigger check back, hopefully.
Theo Hicks: Yeah. So just to confirm. In the JV deals, one of your responsibilities was to raise capital. So you brought family and friends on to those deals. And then for this deal, you’ve got those same friends and family plus other people the other JV partners brought on as investors in those deals for this deal.
James Evans: Yep. So the people I brought to the other deals, plus so many people that have been following along and their time wasn’t right, or whatever, that just have been in the background, but now are interested.
Theo Hicks: And what structure are you offering these investors on this deal?
James Evans: These are going to be notes at 10% monthly interest-only payments two-year term. So by that time, we’ll be able to get the rehabs done, do a cash out refinance on this one, and a few other buildings. So that’s the game plan there.
Theo Hicks: Perfect. Okay, James, what is your best real estate investing advice ever?
James Evans: In two words is “buy low”. I think buying low, you can make up for a lot of other mistakes. But nothing on the back end you can do can really make up for paying too much for something. Thousands of other pieces of advice that I’ve learned along the way, but I think that a lot of it comes down to buying low.
Theo Hicks: Perfect. Okay, are you ready for the Best Ever lightning round?
James Evans: Let’s do it.
Theo Hicks: Okay, what is the best ever book you’ve recently read?
James Evans: I’d say, Living with a SEAL by Jesse Itzler. Key takeaways from that were how much we tend to under index our potential. There’s an interesting story in there about him going in to do pull-ups with this Navy SEAL who he had hired to live with them for a month. He did maybe,10 or 15 and was just toasted, arms were linguini. But the SEAL made him stay until he did 100. He did it. I think that key lesson throughout the book was that we tend to give up on things at about 40% of our actual potential. It’s a fun, quick read to go through and always brings me back to that key takeaway.
Theo Hicks: If your business were to collapse today, what would you do next?
James Evans: If my business were to collapse today, what would I do next? It’s tough because you have to think in terms of what does collapse mean… So I was ready for that, and tried to prepare for people to stop paying rent as a result of COVID, and things really coming back… But I’d be really grateful for the journey that’s brought me down and what’s happened. I always know there’s potential and you have to have backup plans and cash sitting on the sidelines waiting to go back. So I think that’s a great equalizer in real estate. You’re buying cash-flowing asset, so one of the worst things that can happen is everyone stops paying rent at the same time, and then you’re sitting with mortgage payments. So then what’s the next step? Okay, can I work with my lenders to defer my mortgage payment so that we can time with these cash flows better? If a fire burned down one of my buildings or something like that happened, you’d hope and pray everyone’s okay, and make sure you contact your insurance agent right away. So I think it depends on the nature of the collapse.
Theo Hicks: Out of all the deals you’ve done so far, what was the best ever deal?
James Evans: The best ever deal is maybe not always, but I think it tends to be the first one. The first place I lived got me started, got me interested in real estate and I think everything circles back to the first condo I bought.
Theo Hicks: And then on the flip side, tell me about a time you lost money on a deal. How much did you lose and what lesson did you learn?
James Evans: I haven’t lost money on a deal, knock on wood, yet. I think there definitely have been times where I haven’t made as much as I thought or I’ve had to put in a lot more of my own time than I anticipated… So I think one of the key is, again, it comes back to buying low, making sure you’re doing inspection and just being really thorough in your upfront analysis and negotiations.
Theo Hicks: What is the best ever way you like to give back?
James Evans: So there are two big organizations I work with and devote a lot of time and energy to. The first one is called Build, and the mission of Build is to help teach entrepreneurship in lower-income schools and help students start an actual functioning business while they’re in class. So it’s incorporated in the curriculum. The teachers are school employees, and then they have Build mentors come in and help work with the students. So I mentor them weekly on Thursdays, and that’s been a really rewarding experience. Now I’m on the rising leaderboard for the Boston chapter. So getting to work at a more strategic level with them as well.
The second organization is the Pan-Mass Challenge, which is a 200-mile bike ride over two days, and we have a team of about 100 people, and we raised $500,000 towards glioblastoma research. It’s a rare brain cancer. John McCain famously passed away from glioblastoma. But it doesn’t get a lot of funding because as deadly as it is, the numbers aren’t as high as other cancers in terms of actual people diagnosed with it. So that’s been a really rewarding experience. Last year, the Pan-Mass Challenge, as a whole, raised $63 million to Dana-Farber, and some of that actually came from you and Joe, so I appreciate the donation towards my ride. I think that was super awesome of you guys, and that’s just been an amazing experience. Amazing organization. A 100% of rider-raised funds go directly towards cancer research. So they run a super lean team. It’s heavily volunteer-organized, and they’re just really efficient with everything they do.
Theo Hicks: And then lastly, what’s the best place to reach you?
James Evans: James@gladcap.com for email. And then I’m also on BiggerPockets. My website, Gladstone Capital, gladcap.com. Instagram, @gladstonecapital. So I think those are the best areas.
Theo Hicks: Perfect, James. Well, thanks for joining us today and walking us through your journey. I think the biggest takeaway that I got that I really enjoyed, and I definitely want to think about a little bit more, because it kind of goes against conventional real estate wisdom, where everybody’s talking about the four-hour workweek type of lifestyle, whereas yours is the concept of return on headache – making sure that you’re focusing on things that are hard, require less effort and headache, but also have that super high return. So picking a few of those things, focusing on those, and then trying to make everything else passive.
So as opposed to making everything passive, still have a few things that you put a lot of time and effort into, and then trying to take other things that are maybe a little bit of lower headache, but also don’t result as high of a return as those high headache tasks. So I definitely want to think about that one, but I appreciate you sharing that with us…
And also sharing the eight-unit you currently have under contract, walking us through the process for that and walking us through your process for raising money for your own deal for the first time. And then also we’ve got your best ever advice which was super straightforward and simple and to the point, which is to buy low.
So James, appreciate you coming on the show. Best Ever listeners, as always, thank you for listening. Have a best ever day and I’ll talk to you tomorrow.
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