JF2337: 4 Decades Of Real Estate Experience With Paul Montelongo

Paul is a full-time investor and entrepreneur with 40 years of real estate experience and a portfolio of 555 units. Paul started when he was 17 years old and through the course of his career he did the whole gambit; wholesale, single-family, fix and flip, etc… and now he focuses on multi-unit-properties.

Paul Montelongo  Real Estate Background:

  • Full-time Investor and entrepreneur 
  • 40 years of real estate experience
  • Portfolio consists of 555 Units
  • Based in San Antonio, TX
  • Say hi to him at www.PaulMontelongo.com 

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Best Ever Tweet:

“Get a mentor, I’ve been fortunate to have 3 mentors in my career” – Paul Montelongo


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 is today, Paul Montelongo. How are you doing Paul?

Paul Montelongo: Really good, Joe. How about yourself?

Joe Fairless: Well, I’m glad to hear that, and the same. I appreciate you asking. A little bit about Paul. He’s a full-time real estate investor and entrepreneur. He’s got 40 years of real estate experience. 40 years, four decades worth of real estate experience. His portfolio consists of 555 units, and based in San Antonio, Texas. He’s got a website, paulmontelongo.com. With that being said, Paul, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Paul Montelongo: Sure. When you say 40 years experience, that makes me sound like an old guy, doesn’t it?

Joe Fairless: It’s impressive. That’s why I said it multiple times.

Paul Montelongo: Well, I did my first deal when I was 17 years old. My father said, “Buy real estate”, so I believed him and I did. But anyway, through the course of my career, you know, I’ve done all the single-family residence stuff, and flip, and wholesale and cash flow, that kind of thing. And then about seven, eight years ago, someone introduced me to multi-unit properties. And I thought “Now, that’s a cool idea.” So I just took the life experience that I had, the career experience that I had, contacts, network, etc. and just started acquiring multi-unit properties. And so that’s brought me to here, 2020. That’s what I do full time, just looking for multi-unit properties. And I still do single-family and I still do that arena, but my primary focus is the multi-unit property.

Joe Fairless: Okay, let’s go back in the time machine. Seven years ago, what were you doing from a real estate standpoint that was generating the most income, prior to buying multi-family?

Paul Montelongo: Single-family flips, and I was in various areas of the country. In late 2008, 2009, 2010, 2011 I did flips in California when the market was really calling for opportunities… So we did that. But when I got into multi-unit, I was doing single-family flips and wholesales. And I think a lot of people who listen to your program — we were in the single-family and you flip one, and then you go find another and you flip one, and you go find another. I mean, even if I were doing five or six or seven at a time, you’re still basically on a one-off situation. So when I was introduced to the multi-unit concept, I’m like, “Oh, that makes sense.” So one acquisition and multiple streams of revenue. I’d heard about it; obviously, being in the real estate business, I’d heard about it. But it seemed too big to me, it seemed too overwhelming to me. And what I’ve discovered is that a lot of people who come into this space, at one point they did seem to be like “How do I go raise millions of dollars? How do I manage hundreds of doors and the toilets that break with that?” You know, these paradigms, these preconceptions that you have because you don’t know any different. And then once you know different, or once you learn differently, well then – ah, the world opened up. The world becomes your apartment oyster.

Joe Fairless: Were you living in San Antonio seven years ago?

Paul Montelongo: No. I was actually living in Las Vegas, doing real estate in California and some in Las Vegas, but mostly in California. I’m originally from San Antonio, I’ve been born and raised here. And then in 2009, I moved to Las Vegas for a real estate opportunity. And I had some transitions in my life, so I moved to Las Vegas and I spent eight years out there. And then I acquired a property in North Carolina, and moved to North Carolina, and moved there for a couple of years. And then two years ago, I moved back to Texas. Came back to my roots in San Antonio, and my current deal is in San Antonio. So that’s kind of been my journey, my path there.

Joe Fairless: How were you doing a flip in California when you were living in Las Vegas?

Paul Montelongo: Partners, competent partners, confident contractors.

Joe Fairless: Yeah, how do you structure that?

Paul Montelongo: I was the money person. So the deal would be presented to me, I’d bet the deal, I would check out the numbers on the deal, and if the deal made sense to me then I would fund the deal. And then I would have a competent partner that would run the contracts and run the contractors. And I was involved along the whole process, but in terms of actual day to day or even week to week operations, it was the boots on the ground people. And then I would visit about once every 30 to 40 days, check on the projects.

That’s when I really understood the power of what’s going on with the internet. Doing your homework on the internet, sending job photos on the internet, paying all of your bills… Because everything is virtual, right? That really helped. And that’s when I really got an understanding of what the virtual world is about. So since then, I’ve been able to use the virtual world, obviously, like you and most people, to do this business.

Joe Fairless: And want to spend some time on the 555 unit portfolio… But just a follow-up question on that joint venture structure. What percent ownership do you get of that deal on a fix and flip? Or is it just debt structure?

Paul Montelongo: It would depend, but usually it would be a 50/50. So as the money partner, someone would bring the labor, and someone would bring the money. So as a money partner, that’d be a 50/50 joint venture partner. 50% of the profits. Sometimes I get a little interest on the money, but usually, if I brought the gap, and if I brought the rehab, then 50/50 partner on the profits.

Joe Fairless: How much were you putting into one deal?

Paul Montelongo: At the time, the values in California had really nosedived. So we could buy a deal for 200k, and then put 40k or 50k into it, and then it would sell for 350k. I’m using round numbers. But why that was so cool is that the Californians would see a house, and it would be for sale on the market after rehab for $350,000. But just 2, 3, 4 years earlier, that same house would have run 550k, 600k. So in my experience, Californians were like, “Oh, this is a good deal.” Even though it was by most terms around the country — it was a small house, it was 1,200 square feet, maybe 1,400 square feet, that sort of thing. But Californians would be “Oh, that’s a good deal.” So there was never a vacancy of buyers because of values.

And now, the values of those homes have met or exceeded the potential market value. We call this a hypermarket. In other words, all the elements were right for flips. There were low days on market, usually 30 or less, the banks were letting go of foreclosures, there was a pool of buyers, and it was hyper at that time.

Joe Fairless: It was good eating.

Paul Montelongo: Yeah, it was. If you had some sensibility and didn’t get greedy; at least that’s how I felt.

Joe Fairless: What area of California?

Paul Montelongo: Mostly in the Inland Empire. Orange County and the Inland Empire.

Joe Fairless: Now let’s talk about 555 units. What’s the largest deal?

Paul Montelongo: I am a passive investor of 192. So the other ones I have partnerships in four others, and they range from 80 units, 58 units, 120 units, that kind of thing.

Joe Fairless: Which one do you have the most active role in?

Paul Montelongo: One that I have the most active role in is — up until about a year or so ago, it was at a marina RV park out in North Carolina. I call it 158 units. And the way I reasoned on that was…

Joe Fairless: Is that the one you moved to North Carolina for?

Paul Montelongo: Yes, it is. So I moved over there to help stabilize it and to put in place on-site management. So I was there two years and then moved on, after became stabilized. But I always classified a boat slip in a marina as a unit, like an apartment door, and an RV space as a unit, like an apartment door. Now you receive your money a little bit differently, but to me they were still units. So I believe the total number of that one is 158.

Joe Fairless: You lived there for two years.

Paul Montelongo: I did. It was great, because it was on the lake, and I had an office that overlooked the lake, and every morning — this is a great period of my life, because most days when the weather was right, I’d go to work in shorts and flip flops and a company T-shirt, look over the lake, and do the business of the business, because that was acceptable attire. In fact, if you went in any other kind of outfit, you know, the locals would go, “What’s this guy up to?” So that was a cool experience.

Joe Fairless: On the general partnership side, how many people were on the general partnership? And can you, high level, describe what everyone’s role was?

Paul Montelongo: Are you talking about the marina, or are you talking about just in general my other ones?

Joe Fairless: Yeah. So I’m specifically talking about the marina.

Paul Montelongo: Four. Two had a minor role. One was a mortgage guy and knew everything there was to know about the mortgage, and helped us with a mortgage. And another one was someone that helped us raise money for it. And then another partner – her role was marketing, administrative, the paperwork involved in managing a business. And then my role was the actual building out the business model to get the place stabilized and up to speed.

Joe Fairless: Okay. Did all partners put in money?

Paul Montelongo: Yes.

Joe Fairless: Okay. How much money did you have in that deal?

Paul Montelongo: That one I had $55,000 in. And then since then, I have $75,000. I still have part of that $75,000, $76,000 actually, that is out to the property as a loan for cash.

Joe Fairless: So you all still have that one?

Paul Montelongo: Yeah.

Joe Fairless: I’ve never bought a marina… And this is an RV park and marina, is that correct?

Paul Montelongo: Here’s the cool thing. So originally, it was an RV park, right? It was  zoned for an RV park. So we had the concept of replacing the RVs with tiny homes, for nightly rentals. So what I discovered – and I didn’t know then, I now know – is that the RV park zoning designation is the same as a tiny home designation as long as that tiny home is 400 square feet or less, and as long as it sits on an axle, and it’s transportable. So when a tiny home sits on an axle, is transportable, 400 square feet or less, it is designated by the United States for Recreational Vehicle Association, it’s designated as a recreational vehicle, thus it can be placed in an RV park.

And they get more on a nightly basis through Airbnb, VRBO, TripAdvisor, any of those kinds of services, right? They get more per nightly rental than you would, say, to put an RV in there. For example, you put an RV on the pad and you might get $45, $55 a night; you put a tiny home on the pad, you could get $250 a night depending on its location and depending on the time of year. Now, you’re going to invest $55,000 or $65,000 for a tiny home. But the business model was, I believe, 65% of the year occupancy. So at 65% of the year occupancy — it could be somewhat seasonal. At 65% of the year is occupied, at say $200 a night, then you pay for the tiny home, its infrastructure, furnishings, and so forth, just shy of three years. I think it was two years, nine months, something like that. Then beyond that, then it’s just a cash-flowing asset.

Joe Fairless: Who came up with that idea? That’s next-level.

Paul Montelongo: It’s a group effort, okay? So what’s cool about this is we’ve looked at a lot of different models. Everything from keeping it an RV park to making it an airstream park, which is a thing, you may notice. It’s an airstream park…

Joe Fairless: I don’t know that. Aren’t airstreams RVs?

Paul Montelongo: They are. Classic air streams is a thing. So people will go stay at classic airstreams at an RV park just because of the… What’s the word I’m looking for? The ambiance. They’re vintage, usually. So we looked at that. We also looked at yurts, we also looked at tents, we also looked at little tiny cabins, and we finally settled on tiny homes.

Joe Fairless: Why not yurts?

Paul Montelongo: Maintenance. They get dirty, and the tent material, I discovered, needs to be replaced usually in a three to five-year period, depending on its usage. And you can’t put bathroom facilities into it. You have to walk down the hill to go to the community bathroom. So these tiny homes, they all have kitchens and bathroom facilities, air conditioners, mini-split units. Most of them have lofts. A number of them have balconies that overlook the lake. That’s a slick deal. Let me ask you this, Joe, how many lime green jeeps do you see on the road?

Joe Fairless: Lime green jeeps?

Paul Montelongo: Lime green jeeps.

Joe Fairless: Don’t remember the last lime green jeep I’ve seen on the road.

Paul Montelongo: Precisely. Now that I pointed it out to you, you’ll be looking for lime. You’ll see “Oh, there’s a lime green jeep. There’s a lime green jeep.” So…

Joe Fairless: Is that the reticular activating system?

Paul Montelongo: Yes, yes, yes, yes, yes. So now since I’ve discovered tiny homes, they’re everywhere. So tiny home parks and tiny homes, and so… The lime green jeep, right? And the reason I used lime green jeep is because my wife wants a jeep, and I keep telling her she needs to buy a lime green jeep. We’re having that conversation, and of course, everywhere we go, we see lime green jeeps. But yeah, you have an awareness.

It’s the same thing in multifamily. I’ll go back to my story – I didn’t have that awareness prior to seven or eight years ago. I mean, I had this cursory knowledge that was out there. I’d obviously lived in an apartment when I was younger. I had this knowing that it was out there. But once I stepped into it, now – guess what? You’re the same way, I’m certain. Everywhere you drive, everywhere you go, “Oh, there’s an apartment. It’d be cool to have that apartment. I wonder what that apartment costs. I wonder how much that is per door. I wonder what they had to do that one?” It’s the lime green jeep.

Joe Fairless: You initially put in 55k. You said now you’ve got 76k. That’s 21k as a loan. So what happened that was unexpected that you put in an extra $21,000?

Paul Montelongo: Let’s see. How can I say this…? We didn’t account for some of the overages in infrastructure. Some sewer and water services. More was required than I anticipated.

Joe Fairless: Was that tiny home-specific? …where if you didn’t use tiny homes, and if you did the yurts, then you wouldn’t have had that?

Paul Montelongo: That’s correct.

Joe Fairless: Okay. So what about the tiny homes–

Paul Montelongo: Because each of these tiny homes has a bathroom. So when you build out a community, let’s say of houses, you do a load test on what that community is going to require for sewer and water capacity. And we underestimated; that’s all there is to it.

Joe Fairless: How’s the project doing?

Paul Montelongo: Well, it’s doing well. So I haven’t been an integral part of it for a couple of years. I get an overview on it, and as I said, my money is still invested in it. And it’s doing well. Let me put it to you this way – it survived COVID. And kind of an odd, unexpected thing happened. Since people were on lockdown and in their houses, they looked for places to go that were “safe.” So an outdoor park, an outdoor nightly facility seemed to make sense to people. So it was able to be sustained through that time.

Joe Fairless: What type of loan do you have on it?

Paul Montelongo: Oh, you’re going to ask me the hard questions here. It’s a permanent, and I believe it’s a 10-year with a 25-year am. And it’s somewhere in the 6%.

Joe Fairless: So you’ve got some time to hold on to it. What’s your plan for an exit, if any plan of exit?

Paul Montelongo: The plan for that one is to build out some more amenities in it, and then refi, take some cash, and then either sell, or keep and cash out. So sometime in the next three to five years.

Joe Fairless: How many tiny homes have you built on that…

Paul Montelongo: 38.

Joe Fairless: 38 of them. Dang.

Paul Montelongo: Yeah. I like to talk about it, because it was a unique deal to me. Most of my life…

Joe Fairless: [unintelligible [00:18:51].06] deal to everyone who’s listening to this. Changing an RV park to a tiny home village…

Paul Montelongo: Yeah. Right now, currently, all over Central Texas, I’m in search for an RV park. Because I like–

Joe Fairless: To do the same thing?

Paul Montelongo: To do the same thing.

Joe Fairless: Good for you.

Paul Montelongo: So there’s a set of conditions that it has to be. It has to be zoning friendly, there has to be something major close to it that’s an attraction – a theme park, a lake, a river, some kind of entertainment that causes people to want to come into your area. In Charlotte, there was the lake, it’s a big NASCAR community, so there were always people coming in for NASCAR and they needed a place to stay. The city can hardly hold the crowds that come in on big weekends. So Charlotte’s a booming metropolis, right? So what I’m in search of now is, maybe not a major metropolis area like that but right on the outskirts of a San Antonio, of an Austin, of a Houston, somewhere in Central Texas. I like to be boots on the ground, right? So somewhere that I can find an RV park.

Here’s the thing, Joe, about an RV park. If it has RV pads, and it has trailers on it right now — and I say trailers, right? …it will begin to cash the day you close. Maybe just a little bit of marketing to get some people on those pads… While you convert it progressively to a tiny home park. So a tiny home – they’re manufactured, and from the time you ordered it, it takes a couple of months. But when they actually put them on the assembly line, it only takes three days to build the tiny home.

Joe Fairless: Who do you order from?

Paul Montelongo: There’s a company in Virginia, they’re called Pinnacle Park Homes. And they are a combination of Pinnacle Homes who built, if I remember correctly, mobile homes, and Cavco. Cavco built RV recreational vehicles. So they put their two heads together, they have an assembly line, they have a really cool warehouse, and they feed these down a railroad track, and they have little ants crawling all over them just building them, and they can pop them out in about three days. They deliver them with a big trailer, you level them up and skirt them, you connect all your infrastructure and furnish them…

So anyway, I learned a lot. And the key thing is though, you’ve got to have a zoning-friendly tract of land, so that RV could be converted to tiny home. Because like I said earlier, the zoning is the same… Or an agricultural piece of land that has little to no zoning or deed restrictions, so that you can immediately go in and start putting infrastructure in and pads in, and start filling it with tiny homes. And then, of course, you put some amenities around it. You put a pool, and you put a bathhouse, and a dog park, and those sorts of things. Google tiny home parks. They’re peppered all over the country.

Joe Fairless: I will. I’d like to know where the closest one is to where I live in Cincinnati.

Paul Montelongo: Where do you live? Cincinnati?

Joe Fairless: I live in Cincinnati, yeah. So I’ll do some research on that. I could go see a village.

Paul Montelongo: Yeah. That’s what they call them too, villages.

Joe Fairless: They should. That’s an appropriate term for a tiny home community.

Paul Montelongo: Yeah. It was a different type of project. It was more development than rehab. So a very cool project.

Joe Fairless: And that’s why I wanted to talk about it so much, and thank you for humoring me. And I’m sure it was very interesting for a lot of the audience as well.

Paul Montelongo: Yeah. The Discovery Channel, they came out and did two episodes out there on the property, because we had a resident that brought her own tiny home and placed it out there, that she had built. So they did a couple of episodes on the Discovery Channel. And we’ve actually had tiny homes come through the property and park for a couple of nights… And then they move on down the road. So like I said, it is a thing,

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

Paul Montelongo: Get a mentor. I’ve been fortunate to have three men that have mentored me. And not only have they mentored me in the technicalities of the business, but they’ve helped me go through the ebb and flow, and the ups and downs, the tides of the emotions that investors can get involved in.

And very early on my father was a mentor to me, as well. He was in the real estate and construction business, and he’s the one that originally told me to buy real estate. And he’s a businessman, so he also taught me how to operate a business, manage people, set a goal, stick to the goal, and keep a structure or an organization to your business. I’d say having a mentor is key. Sometimes that sounds cliche to have a mentor, but I just have found it so important.

Joe Fairless: Oh, there’s a lot of truisms that sound cliche, but they’re true. And you better do it, otherwise, it’s not going to work out. We’re going to do a lightning round. Are you ready for the Best Ever lightning round?

Paul Montelongo: Let’s do it.

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

Break: [00:23:57][00:24:47]

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

Paul Montelongo: Mentorship. I have a group of young to middle-aged men and a couple of women that I mentor. I’m just with them, and my deal with them is they have access to me at any time. And I handpicked these folks, and I don’t charge them. I just mentor them.

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

Paul Montelongo: Anything Paul Montelongo. Paulmontelongo.com, any social media outlet, @paulmontelongo – Facebook, Twitter, Linked In, Instagram.

Joe Fairless: Paul, I thoroughly enjoyed our conversation, and learning about joint venture structure on fix and flips. And clearly, the star of the show, the RV park marina, turned tiny home village, and the economics that drive that business decision. And it’s also a good competitive advantage that you’ve created by turning something into something else that most people wouldn’t do… Whereas if you’re a value-add apartment building investor – I won’t name any names – then that’s a model that a lot of people have, so you’re going to face similar competition… Whereas they talk about the blue ocean strategy – you go where there’s not a lot of blood in the water, and that’s what you’re doing. So thanks for being on the show talking about that. I hope you have the Best Ever day and talk to you again soon.

Paul Montelongo: Thank you, Joe. Best to you.

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