JF2260: Daytrader to Real Estate Investor With Mitchell Jaworski
Mitchell is a full-time real estate investor and owner of ScaredyCatGuide.com. Mitch has invested in many different types of vehicles from a full-time day trader to now a full-time real estate investor because he has found that it is much easier than dabbling in the markets where we have less control.
Mitch Jaworski Real Estate Background:
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“Real estate is the one asset class where you have the most control over the results of your investment” – Mitchell Jaworski
Theo Hicks: Hello Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today we’ll be speaking with Mitch Jaworski. Mitch, how are doing today?
Mitch Jaworski: Doing awesome. Glad to be here.
Theo Hicks: Thanks for joining us. I’m looking forward to our conversation. But before we hop into that, let’s go over Mitch’s background. So he’s a full-time real estate investor and owner of scaredycatguide.com. He has 6 years of real estate investing experience and his portfolio consists of rentals. He’s also done flips and wholesales. He’s based in Palm Beach, Florida and his website, as I already mentioned, is scaredycatguide.com. So Mitch, do you mind telling us a little bit more about your background and what you’re focused on today?
Mitch Jaworski: Sure. So I think like everyone else, you evolve in your investing. So I went from being a full-time day trader, and addicted to the stock market, to getting into real estate and really realizing real estate is the best investment out there. I’m proud to say I’ve invested in pretty much everything, and I’ve found that real estate is the one asset class where you have the most control over the results of your investment. And also, you don’t have to be a rocket scientist to do well in real estate, you really don’t. As long as you know the basic principles, everything after that is more situational and just getting creative, as opposed to other investments, like stocks where you can get crazy algorithm computers and stuff trading. So it’s one of the reasons I really love real estate.
For me, I started out just straight — the first property was basically a turnkey rental. And as I progressed I started falling into what was really my bread and butter, the BRRR strategy. Most people know, buy, renovate, rent, refinance. I love it for the value-add component, and that’s mainly what I do, is value-add rentals. But if the money is right I will flip. Recently I had what was supposed to be a rental, that I realized this was much more beneficial financially to turn into a flip. So we flipped it. We’re under contract. We’re supposed to close sometime next week. I’m looking forward to that. And yeah, wholesaling – it’s funny, when you’re a real estate investor, you look to connect with wholesalers to find you deals. But when you press pause, I guess in a certain market, you’re not acquiring that market, those wholesales are still hitting you up.
So because of that, I generally started co-wholesaling, because I have a network of people in a different market I am in, so I was able to co-wholesale a few deals… Which is nice because you connect two people, it’s a win-win, and you make a little fee in the process. So, that’s saying that your network is your net worth, I’m living it right now. So it’s pretty cool to have my hands in the three big different facets of real estate investing has been fun, considering day one it was just kind of turn-key rental, and then it just evolved from there.
Theo Hicks: Once you decided that you were going to move from your day trading to real estate, what was the first thing that you did to get the ball rolling on doing your first deal?
Mitch Jaworski: Well, I’d like to say I made a clean break, but I still do a bit of day trading. Can’t get rid of the bug. But I always had a financial background, I have an economics degree, so I knew nothing about real estate when I started. It was just, “Alright, if I can bring enough rent to cover my mortgage, my taxes and my insurance, I should be okay.” Now, anyone that’s experienced in real estate, we know there’s a bunch of stuff that’s left out right there. So that’s what I did. The irony is I actually found a tenant before I found my first property. And I did what a lot of people saying you’re not supposed to do, rent to family or friends. So, the short version is a buddy of mine, his dad was renting a house. It was being foreclosed on, because I guess his landlord was not paying the mortgage. So I said, “If I find a place that’s the same size and I can rent it to you for the same price, would you want to rent it from me?” And hands down he was ready to go. So that’s what I did.
I found a property, essentially, that would fit my tenant. He moved in, he lived there for five and a half years, which is great, no turnover… And I actually sold that property last year, which was bittersweet in a way, but it was great. I had one tenant, it was in South Florida, so the appreciation was pretty much out of control, it was awesome. And I have used that money to roll into different markets. I’m investing a lot in the middle of Massachusetts now. I’m starting to invest in middle Pennsylvania… So I went from being very local to now almost exclusively investing out of state. I haven’t bought a property in [inaudible [07:18] County Florida since 2017, because numbers got to work, and the numbers just don’t work in that area. You can find some stuff wholesale here and there, which is why I have a good wholesale and network down there.
But I always tell people, “If the numbers don’t work in your area, you have two choices. You can grind and work off-market deals and find something that does, or you can go find a market that does work and just get over the fact that you’re not going to be able to drive by your property every day.” Because as a new investor, we all want to be able to see our property all the time.
There’s a reason I have a brand called Scaredy Cat, because my first three properties were all within a three-mile radius of my home. And now six years later, I’m basically buying things out of state, almost sight unseen. I have boots on the ground that are my eyes, but it’s still not me getting in there and doing it myself. So, anyone can progress really, with real estate. It is I think the big takeaway I’ve learned, at least from my experience, no matter how scared you are… Because I really was a control freak, scaredy-cat, like I have to see it, I have to touch it, I have to be in control. And now I got used to property management, I buy out of state… So, I think that’s just the big thing I’d like to share – if you have the fear, just push through it, because we’ve all been there and I especially am a big example of it.
Theo Hicks: Really quickly — because I want to talk about the out of state business… But just really quickly, how did you find that first deal in South Florida? Was it on market, was it off-market?
Mitch Jaworski: With straight newbie status, I had a realtor that I played basketball with, and he had worked with some investors, and I told them that I was thinking about grabbing something to turn into a rental. And mind you, I was still renting an apartment at that time. I bought my first rental property before I bought my own personal home, because I wanted an asset that generated income. I was always, like I said, a financial guy, and stocks are great, but I just thought that maybe some dividend stocks – how you’re generate an income without you grinding and making transactions? So that buddy I played ball with basically started looking for stuff for me, and they found something that was in my price range that would make sense with the rent I knew I could get, and I scooped it up
And like I said, that’s why I was pretty much turn-key, I bought it from the regular homeowner, and I pretty much just got in there and had a handyman repaint it, and that was about it. Then my buddy’s dad moved in and I learned how to be a landlord from there. And he definitely gave me some learning experiences. A good guy, but sometimes a little late with their rent and things like that. So I got my landlord certificate on that one, I’d like to say.
Theo Hicks: There you go. Alright, so you’ve got this deal in South Florida, you sell it, you start the process of investing out of state before you sold that deal… My question is, can you walk us through from somewhere — I said for that first deal, once you decided that you were going to start investing out of states, that was the first step you took; and then from there how did you build it to the point where you’re confident in buying deals? Because, again, you are the scaredy-cat guy, and you’re confident on buying those deals out of the state.
Mitch Jaworski: And you know what? As an investor, you’re always going to push that inner scaredy cat, because now buying property out of state doesn’t scare me… But now I’ve pushed the envelope with different types of creative financing and things that I thought I would “never do”, that now I’m comfortable with, that years ago I was like “Oh, my god.” So the first answer is — it’s a personal answer, in that everyone has a bit of a different process. For me, I generally look for areas where I have some kind of network possibly already. Maybe I have an old friend, maybe I have an old business associate, or maybe it’s someone I’ve met just through a lot of the real estate groups, whether it’s Facebook or just — everything’s virtual now, so you can do REIA meetings all over the country, which I really suggest people leverage right now while everyone’s doing things from Zoom.
But I’m always going to check the market though. So that’s kind of the basic what’s the population growth, is there any? Anything that’s got a declining population, out the window. I want it growing if it’s an appreciation market. If it’s a cash flow market, I want it to be at least flat. I invested in a market in Massachusetts, the population has not changed in 20 years. And that’s exactly what I want, because it’s a cash flow market; no one comes, no one leaves, they just stay and rent and it’s perfect.
So I would definitely suggest making sure the population isn’t declining. I obviously keep an eye on overall crime compared to the national average. I want it below the average. And then from there, you find your town. Everyone’s got a preference, A, B, C class markets. I generally find myself in kind of like the B minus C plus is my sweet spot. Some people are willing to go into areas that offer better cash flow, but maybe have more problems… And then other people just want that A-class rate, gambling on the appreciation. And it’s a personal decision in the end.
So, like I said, as long as I don’t see any red flags or population crime — and the numbers have to work. I’ll start looking for average rents versus your average listing price. You cannot buy things on MLS; if I can, then it’s even better. Or, do I have to start working the off markets and finding local wholesalers.
But the one thing I always will do once I locate markets, I take a trip. I’m going to go there, I’m going to check out the market, I’m going to almost drive for dollars, that town. And then decide if I want to move forward. I’m going to try and meet as many people as I can, I’m going to use a realtor — I’m going to meet a realtor. If I’m looking at properties I know we’re going to need specific work, I’ll try and contact contractors and see even if any are willing to go look at a property with me. Tough, they’re usually busy, which is a good thing… You want a busy contractor. If your contractor is completely free all the time, that’s surely a sign that he might not be a good contractor. So I like that sometimes I have to chase after my contractor. Not in terms of completing a job, in terms of getting a hold of him and getting him scheduled for a job. Because then I know he’s busy and he’s in demand. So, you always take the good with the bad. So anyone that can drop everything on demand for you, either A, it’s because you’re paying them the most, or B it’s because they don’t have enough work.
Theo Hicks: You also look at property managers in there, when you’re driving there for dollars? Or do you look at that later?
Mitch Jaworski: I will try and line that up, if I can, especially because — you’d be surprised how much you can learn from the local property management. They have their thing on the pulse of that area, as they should, so they kind of direct you and give you information on different neighborhoods. But more importantly, what I’ve noticed is there’s a lot of property managers that are good at what they do, that might invest a little bit or want to invest, but just either aren’t in a position to financially, or they have that mental block; they are able to manage properties great, but for some reason they have this mental block on, “Financially I can’t do that, or I don’t want to take that risk doing private money”, or whatever it is. And those people are great, because generally they also have good leads; they know the properties that are out there that are either for sale, or properties that they can point you to that clearly are either vacant, overgrown grass… And they have a whole clientele already of people that they’re managing properties for, and some of those people may be looking to unload pieces of their portfolio.
The greatest is if they have a client in their ’60s or ’70s. “Please introduce me!” Because that person is generally looking to wind down at that point. They’ve owned stuff for 20 or 30 years, so… Again, it goes back to these advantages to networking. So yeah, I will definitely do tha. If I have boots on the ground, someone I’m partnering with, if they have any experience, a lot of times what I’ll do is if I’m being the main financial partner, then, “Alright you’re doing some management and some sweat equity,” and that’s how this deal is going to work.
So I have had that happen as well, like what I have in Massachusetts; luckily, my partner has the ability to property manage. But when I look at deals though, I’ll always factor in that 8% to 10% for property management, because at some point it will be hands-off for all parties involved, and I still need the cash flow to be right.
So that’s something that I think a lot of people forget to do early on, they go like, “Oh, I’m going to self manage, I want the experience.” Well, still factor in property management, because you want to take your hands off the wheel at some point, and you don’t want to basically cashflow negative when you add in the property management.
Theo Hicks: How are you funding the deals? Is this all you? Do you have money partners?.
Mitch Jaworski: So early on it was all me; when I first started, I was able to get traditional loans a little easier because I had the text documents and a lot of good stuff. When I went full time investing, then you know how that goes… No nice 1099 or W2. So that’s when I started going private money. But for the most part, I have used is my own personal capital plus an equity line on my primary residence to fund most of my deals. And then what I’ll do is as soon as they complete, I’ll refi out into a long term loan. But recently I’ve started to ramp-up acquisition mode. So now I’ve started to use the same — I call them private lenders. Kind of like that secondary market, like the [unintelligible [00:15:48].05] loans. They lend to you in your LLC. So a lot of those firms, they offer short term products; sometimes I leverage those. They are similar to fix-and-flip loans, but you get better terms than you would with hard money.
So luckily, I’ve been able to get away with not using hard money yet, which there’s nothing wrong with if it gets you the deal, but as we know, hard money is very expensive, usually 12%, 2-3 points. And if you’re newer, sometimes it’s even higher than that. So yeah, primarily funded with my own capital, my personal equity line, and then I’ve been using these secondary lenders to either refinance and cash out, or to do like 12-24 month fix-and-flip loans that are at favorable rates compared to hard money.
Theo Hicks: Okay Mitch, what is your best real estate investing advice ever?
Mitch Jaworski: Oh man. Do we have an hour? [laughs] Really? The short version is, get started, take action. I do a lot of meetups In South Florida, I co-host a couple of them. We have a good mix of veterans and newbies… But the thing that kills me the most is when you see newbies come in and they’re thirsty for knowledge – and we were all there. I binge-listened to this podcast and BiggerPockets, and several other podcasts, my first year. And it was just like, “Absorb the knowledge. Absorb knowledge.” But if you don’t do anything with it… And in the end, the single sentence I can give someone for best advice is, experience is the best teacher.
So get that knowledge, listen to the Best Ever podcast, heck, jump on scaredycat.com, and read all the blog posts I’ve written over the last 4 years. Get as much knowledge as you can. But in the end, you have to take action, because not only you will not forward if you don’t take action, but also, there’s going to be unique experiences that you’ll have. Like Theo, me and you can sit in a room with 20 newbies and they can ask us questions all day. But you know what? Each one of them is going to have an experience at some point that you and I have not experienced in our real estate investing career. Because in the end, it comes to personal experience; everyone’s goal is different, every property you buy might have a different surprise that we have not come across.
So get the knowledge, especially if you are new, learn the basics, learn that foundation, so you can avoid a lot of mistakes, but then you have got to take action. And just anything you think you don’t know, experience is the best teacher and then you can leverage it on the next deal.
Theo Hicks: Yeah, perfect advice. Alright, Mitch are you ready for the Best Ever lightning round?
Mitch Jaworski: Heck yeah, let’s do it.
Theo Hicks: Alright, first a quick word from our Best Ever partners.
Theo Hicks: Okay Mitch, what is the best ever book you’ve recently read?.
Mitch Jaworski: Well, I’m biased so I can’t say my book… But I just finished one actually that my good buddy [00:19:00].10] he’s an awesome real estate investor, and we kind of share resources so much, and he told me about the book called Big Shifts Ahead. And I devoured that book. It’s basically a demographics book. It’s just straight data and demographics and recognizing trends, and it altered my opinion in regards to what I think the real estate market might do over the next three to five years, because based on the data in that book, there’s going to be a boom in household formation. It already started — because the book is a few years old. So it already started, but we’re going to see a big jump in the next three years in the number of new household formed, which means more demand for housing, and we already have a supply shortage.
So even if we run into some kind of foreclosure wave, there’s going to be a ton of demand out there, and it’s going to continue over the next few years. So that kind of blew my mind and that’s just one little example. I really recommend the book. It’s so much information that really will help you recognize trends and understand why they exist. And they do generations, but they do decades, so from the ’30s, all the way to the 2000’s and how those people think and why, based on their experiences. So, just a great book.
Theo Hicks: If your business will collapse today, what would you do next?
Mitch Jaworski: Hopefully never after really think about that, but honestly first thing, If I’m going to stick real estate, I’d pick up the phone and started dialing for dollars and trying to do wholesale deals. Just get on that phone start dialing and do some wholesale deals to generate some capital, to get right back into what I was doing.
Theo Hicks: Tell us about the time that you’ve lost money on a deal. How much did you lose and then what lesson did you learn?
Mitch Jaworski: Well, since I’m a scaredy-cat, it’s probably more of an opportunity cost. No one is going to probably believe me, but I have never lost money on a deal, and I’m very proud to say that. But it’s also because I was such a scaredy-cat; there are several deals that I look back on and just… It’s one of those, “Why did I not do that deal?” And I was scared of something that turned me off that made me think that I might lose money. So the biggest thing to me has been opportunity cost. There are a few deals I look back on where I didn’t just pull the trigger because I ended up being scared, and I look back on them and they were home runs. So my biggest loss is really just that opportunity cost. I’ve been blessed otherwise to just have all winners so far.
Theo Hicks: Tell us about your biggest win, what’s the best deal you’ve done?
Mitch Jaworski: There’s a couple, I guess, that would fight for it. So I guess I’ll just pick one, because fresh on my mind. I did a duplex with a partner, we got it late last year. It fell to us; it’s the property we looked at earlier in the year, we didn’t make an offer on it, because we were going to lowball the heck out of them. It went under contract, and I saw it come back to the market about three months later, so we made a lowball offer on it. They didn’t take it, I guess it went under contract, that fell through, and they ended up contacting us. So at this point we looked at it in January and we ended up going under contract for it in October. So it fell to us, and we ended up grabbing it for just over a hundred thousand. It was a duplex, we put 25,000 into it, and just refied actually about a month ago for two-thirty.
So it’s always nice when you can generate 100K in equity on something that doesn’t need a ton of work. And the biggest issue at that moment was when COVID hit was when we were looking to refinance, so we ended up being delayed for three months on our refinance, because you know how that one goes. Everything tightened up, especially the secondary lenders. A lot of them went out of business. So, we just sat and collected good cash flow and had capital tied up, but it ended up being still an awesome deal, and that capital is actually going to work now. We’re negotiating a deal this week, off-market, that hopefully we can get locked up by Friday.
Theo Hicks: What is the Best Ever way you would like to give back?
Mitch Jaworski: Honestly, I love teaching, it’s the reason I wrote a book, and I’m part of four different real estate meetups. It’s not like there’s an admission or anything, it’s just investors getting together and there’s always a lot of newbies. I share everything I can, they ask questions… A lot of these people like to come to these meetups, they’ll email me with questions here and there and I’m happy to help. I just enjoy teaching and I really enjoy it when someone basically makes a better choice or doesn’t make a mistake because of some kind of advice I gave them. I don’t know why that just juices me up, it makes me happy… So just teaching, really. I love teaching and seeing people be able to do better and not make the mistakes I made… Because in real estate mistakes, in the end, they cost money. That’s all there is to it.
Theo Hicks: Then lastly what’s the Best Ever place to reach you?
Mitch Jaworski: So you’ve mentioned the website, scaredycatguide.com. Obviously, people can find my contact information on that website, along with — I write a weekly real estate blog. So plenty of education there. And you can email me directly at firstname.lastname@example.org.
Theo Hicks: Perfect, Mitchell. Thanks again for joining us and walking us through your journey and kind of what you have been up to. Some of the biggest takeaways I got was I liked your thoughts on the contractor, and how if you reached out to a contractor and he drops everything and comes to do whatever you need them to do, it’s not necessarily a good sign. It’s actually good to have a contractor who is busy.
You also mentioned your Best Ever advice, which was to get started. A lot of people can understand that. It’s important to consume content, it’s important to read books and gain knowledge, but at the end of the day, you’re going to go through something that you did not read in a book, and the only way to know how to get through that is to do it.
Mitch Jaworski: And just to interject one thing to add to that advice – learn how to run the numbers. Use a property calculator. There’s one on my website, but there are tons of them anywhere. Just use a property calculator and make sure you know how to run the numbers to see if a property is going to cash flow. Because if it doesn’t look like it’s going to cash flow, don’t waste time looking at it, or know you need to negotiate it way down. That’s what I see people doing now in hot markets, is overpaying. So run your numbers.
Theo Hicks: Exactly. And then the other thing was about management companies and how property management companies, obviously, primarily will help you manage the property once you buy it, but they are also really good sources of leads too, because they are not only tapped into the markets and maybe will see distressed properties and tell you about those, so they’re kind of good bird dogs, but they’re also good because they have clients and they will know. If you’re selling a property, you’re going to let your property management company know that “Hey, I’m selling this property. So prepare to lose this property.” So they’re a great source for deals.
Mitch Jaworski: And it’s in their best interest to get it sold to another client.
Theo Hicks: Boom, there you go. And then the metrics you look at when you are considering a market out of state. So you said that you’ll start at places you already know someone, so a friend, a work colleague, that way you have at least some existing network in the area. And then you look at things to make sure that there is not a population decline. You don’t necessarily need population growth. You gave the example of a market where it hasn’t grown in 20 years, people never leave. Those are still good markets for cash flow.
Mitch Jaworski: Yes.
Theo Hicks: You look at crime, and then you said it’s very a personal decision on the class of neighborhood that you invest in. Obviously, you also look at average rent versus the average list price to see if it’s possible to get deals on the MLS, which is amazing; if not, then you’ll need to network with the local wholesalers.
So – tons of great information. Make sure you check out his website. Again, that’s scaredycatguide.com, link will be in the show notes as well. Thanks again for joining us. Best Ever listeners, as always, thank you for listening, have a Best Ever day and we’ll talk to your tomorrow.
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