JF2426: From Fix-and-Flip Family Business to Multifamily Unit Acquisition with Jonathan Barr
Jonathan got his real estate start in a family fix-and-flip business. As he was growing up, family dinners resembled business meetings a lot. After the last recession, Jonathan decided to join it full-time since good jobs were hard to come by. Thanks to his deep involvement in the business, he had a chance to learn every facet of real estate.
After separating from the fix-and-flip business, Jonathan and his brother started a new company focusing on multifamily buildings. Last November, he bought his first large multifamily unit in Kansas City, and this year he closed the deal on a 72-door house in Oklahoma City.
Jonathan Barr Real Estate Background:
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“Start bigger sooner” – Jonathan Barr.
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 Jonathan Barr. Jonathan, how are you doing today?
Jonathan Barr: I’m doing great. How are you today?
Theo Hicks: I’m great as well, thanks for asking. Thanks for taking the time to speak with us today. A little bit about Jonathan. He’s a full-time real estate investor with 11 years of experience. His portfolio consists of a 14-unit, a 72-unit, a commercial property, and he’s also been involved in over 400 flips. He is based in Los Angeles, and his website is jb2investments.com. That link, as always, will be in the show notes. Jonathan, do you mind telling us some more about your background and what you’re focused on today?
Jonathan Barr: Sure. I got my start after the last recession. I started in a family flip business. My parents kind of lost everything after the last recession, so I came back after college to kind of help them rebuild. It was obviously a tough time to get a job during that time.
We first started going to the foreclosure auctions. We were bidding on properties — we were probably bidding on buying at one point 7-8 homes a month; it was pretty nuts. As you said, we did about 400 flips during that time period, made about $22 million in profits, and a 38% return average yearly on all our deals.
Last November, I bought my first larger multifamily, a 14-unit in Kansas City, and then two or three months ago I just closed on a 72-unit in Oklahoma City. The reason why we transitioned was in 2010 or 2011 I bought a few duplexes that I held long term for eight to ten years. They appreciated 400% during that time period, and I was like “I need to do more of this.” I sold those and 1031’ed into these deals. Today we’re looking for more 70-unit plus deals and we’re now syndicating mostly with friends and family right now, but we are opening it up to other people at this point.
Theo Hicks: Is the transition from the fix and flips to the large multifamily just something that you’re doing? Or is the total family business now transitioning?
Jonathan Barr: It’s something I’m doing and it’s what I’ve been wanting to do for a while. My brother is my partner, so him and I left that business to start this business separate from that business. So we’re not flipping at all anymore. Part of the deal of us leaving the business was that we wouldn’t flip in LA and did not compete with our family in that business. So we’ve completely separated.
Theo Hicks: That makes sense. What’s it like growing up in a household where everyone’s doing real estate all the time?
Jonathan Barr: Our dinners are basically business meetings that we talk about real estate. My daycare was my mom’s real estate office. I’ve been showing houses since I’ve been a kid, it’s in my blood, it’s ingrained, it’s our whole life. Thanksgiving is basically talking about deals. It’s fun.
Theo Hicks: So you went to school, you graduated, and then basically went straight into the family business for the past 11-ish years?
Jonathan Barr: Yeah. 11 years.
Theo Hicks: I know a lot of people, when they start doing deals they have a background where they worked in real estate in some form or fashion, and then they start to do their own deals. Walk us through what do you think are some of the advantages of that, as opposed to just going from a W2 job that’s not related to real estate, and then jumping into investing?
Jonathan Barr: Yeah, that’s a good point. Because most of the people out there — I’d say it’s 50/50 of GPs that I meet are either coming from W2 or have some sort of real estate experience. I feel it’s very beneficial to have — even though it’s smaller deals, it’s very beneficial, because you experience all kinds of things, even on the smaller deals, that you could use in the future… Especially because most of the deals we’re doing were heavily dealing with construction, so I have a pretty good understanding of construction down to beams, plans, all kinds of things. I feel it’s helped me a lot in negotiations, I’ve negotiated 400 deals, I’ve experienced all different kinds of people, I’ve dealt with tenants, I’ve been in the trenches doing leasing and management… I’ve kind of done every facet of real estate in the last 10 to 11 years, and I’ve learned so much that is helping me leaps and bounds now.
Theo Hicks: Let’s talk about the transition. You’re doing mostly, or it seems like, all fix and flips, and then you eventually did your first 14-unit deal. What brought about that transition? Why don’t you just keep working in the family business? Things seem to be going pretty well. What made you decide to say, “I want to do my own thing. I want to transition into multifamily.”
Jonathan Barr: So the thing about flips is, especially in LA, you can make 100k a pop easily on a deal, and it’s great, but you make that one pop and then you’ve got to keep on finding the next deal. It’s pretty challenging, especially with inventory so constrained and so much competition in such a large market. I wanted to have a future where I could be the business and not have to kind of keep on going, and not be so involved in the day-to-day. So that was part of it.
A part of it is it can be challenging to work with family, and especially your mom, so there’s definitely those dynamics as well. Then just having the ability — because I definitely had a say in things, but having the full say and direction of how you want things to go is pretty powerful. You don’t realize that until you’re out of it. The transition was tough; I was making a salary there, and it was consistent. But I left with some investment property, so I had some kind of stable income.
My wife has a job and now we have benefits through it. I bought my house pretty cheap in LA, so low overhead… It’s been challenging, though. It’s kind of like you starting this new business and you kind of start from the beginning when you’re kind of on top of this other business. It’s definitely humbling; it kind of puts you learning new things, learning new markets, dealing with new people. It’s been challenging, but fruitful, and I enjoy it and I have a lot of passion for what I’m doing now. And I feel better, too.
Theo Hicks: There you go. Well, there is something else I wanted to ask you, too — because usually whenever I talk to people who are either doing real estate with family or a significant other… So for you, you said you’re doing it with your brother right now.
Jonathan Barr: Yup.
Theo Hicks: Would you recommend that if you’re going to get a partner, do it with someone that you don’t know or do it someone that you do already know and have some sort of relationship with? What are the advantages of what you’re doing? Are there any challenges you have to go through?
Jonathan Barr: I worked with my brother at the other business for about eight years, so I really knew how he worked already. I kind of knew what to expect, and I trust him with my life. That’s pretty important to have in a partner, that I could trust them fully, which I think is very important. I think that’s a huge plus about dealing with someone that you know and trust, because that’s very important in business.
The downsides, I would say, is maybe one person ends up doing a little bit more the work, because they know more, or they’re just a little bit more motivated for whatever reason, and you kind of let it slide because you know them and you let it happen. So I think the good part about if you found someone new that is doing what you’re doing is maybe there could be more of a motivation in a different way like that… But I think the trust thing kind of outweighs a lot of that.
Theo Hicks: You brought up a really good point about the balance of the time each partner is spending on the business. I imagine that’s even more so when you’re first starting off, because depending on what your roles are, if someone’s supposed to be finding the deals and another person’s supposed to be asset managing when there are no deals to asset manage, what is that person doing? Was that a challenge? Maybe also talk about how you guys decided to break up the various duties involved. Was it that you both were kind of doing the same things? Or did you immediately say, “Okay, brother, you focus on this, I’m going to focus on this”? How did you make that decision?
Jonathan Barr: Right now, we’re just kind of splitting everything 50/50; we’re sort of 50/50. We’re still kind of figuring that out. Now that we do have a couple of assets and there is some asset management — and I think we each have our own strengths, and I think we’re leaning towards certain directions. I think my brothers probably leaning more towards the acquisition side, and I’m leaning more towards the asset management, investor relations, that kind of stuff.
Theo Hicks: How much money have you raised so far?
Jonathan Barr: About half a million. But the good thing is we have properties in LA that we’ve been selling, so we’ve mostly self-funded right now.
Theo Hicks: Okay. Is the plan to continuously self-fund, or is the plan to eventually start focusing more on raising money?
Jonathan Barr: We’re focusing more on raising money now, by putting content and putting that all out there.
Theo Hicks: Perfect. So you’ve raised 500k so far. You’re in the beginning stages of raising capital. This is perfect, so let’s talk about that. Also, you’re the guy who’s doing it, so what’s your current thought process on raising capital? What type of things are you doing? You already mentioned content, so maybe you can dive into that. Anything else you’re doing to start to raise capital? In addition to that, you can either answer that separately or with this, but I also want to know – do you have like a certain amount of goal of money you want to have in verbal commitments? Or are you just kind of seeing how much you can get? The amount of money you can raise, does that determine what types of deals you’re looking at? Or are you still going to look at any deals?
Jonathan Barr: Yeah, right now we kind of have verbal commitments around the 2 million range. That’s kind of where we want to be for the next deal we want to do. But yeah, I would say my recommendation would be to start as soon as you can. Our mistake on the last deal is we thought just with our inner network we could raise what we needed to do the deal. We kind of came short, and we ended up funding most of the deal ourselves, which we didn’t want to do. So I’d say the sooner you start…
And a big thing to do is just ask the people in your inner network who they know that might be interested in something like this. I have an ebook on our website. If you go to jb2investments.com/lower, it’s a taxes kind of thing where I talk about 1031s, accelerated depreciation, and investing with retirement funds as well.
And then I have a blog, so I put out a blog once a week to people on our list. I’m very active on Twitter, where I have a couple of thousand followers. I just talk about what we’re doing in the business and what I’ve learned, and I get a lot of feedback that way and a lot of people coming through our funnel through that. I’ve also set up some automation with emails, and being on podcasts, and doing little events where we do a deep dive on the last deal we did. So just a bunch of content, a bunch of networking, a bunch of just putting things out there as well. I think with the experience that we have, it’s pretty powerful. Doing that many deals, making that amount of profits, good returns, and over a decade is pretty rare out there, for people starting in this at least.
Theo Hicks: Sure. I’d be interested to know more detail a little bit on the Twitter… This is something that we particularly focus on. What’s your strategy there? You have already mentioned what you’re posting, but how frequently are you doing this? Are you making sure that you’re on there at a certain time of the day? Or you’re always checking your notifications and replying to people’s messages? What’s your strategy on Twitter? Walk us through maybe like a week on Twitter and what you do.
Jonathan Barr: First I’ll start with the reason why I went on Twitter. Another syndicator I know in LA raised $20 million from one person he met on Twitter. I was like, “Okay, I’m going to be on Twitter.” My strategy is I post something every day, and it just has to do with interesting things that I’ve learned on the deals that we’re working on. I’ve also been on a weekly basis just posting a really cool flip deal we did in the past. I’ll post all the numbers, pictures, I’ll do a thread of a story of how the deal happened, and what was unique about it. So I do that once a week.
Then I also just interact with a lot of people on there. I try to spend 30 minutes a day commenting on different threads that I find interesting, or other active people on there. I’ve also networked with a bunch of people on Twitter and I also did a Zoom multifamily Twitter event where there were a lot of active people on Twitter that I got all in a group, and we all talked and connected and we’re all trying to help each other out now.
Theo Hicks: I hope we get to interview you again in like a year from now when you raise 40 million from one person on Twitter.
Jonathan Barr: That would be amazing.
Theo Hicks: Yeah. Alright, Jonathan, what is your best real estate investing advice ever?
Jonathan Barr: I would say just start bigger sooner, because it took me 10 years to get into larger multifamily and I could have probably done that five years ago. But I think at the time, you get comfortable doing what you’re doing or you’re just afraid… Just kind of taking the bull by the horns and doing it; it’ll work out.
Theo Hicks: Are you ready for the Best Ever lightning round?
Jonathan Barr: Let’s do it.
Theo Hicks: Alright. First, a quick word from our sponsor.
Theo Hicks: Okay, Jonathan, what is the Best Ever book you’ve recently read?
Jonathan Barr: The Psychology of Money. I like that because it talks about compounding, how different people look at money… Kind of our investment thesis – they’ve really drilled down to it and it’s really readable. I actually listened to the audiobook, so it was great. Morgan Housel is the author.
Theo Hicks: I already asked this earlier, but is that one of your apartments behind you on the video?
Jonathan Barr: Yes. That’s the 72-unit, Norman Creek Apartments.
Theo Hicks: Okay. If you’re listening to this, you probably have no idea what I’m talking about. He has a green screen behind and behind him is his apartment. It’s not a green screen, he’s actually sitting in the parking lot right now of the apartment.
Jonathan Barr: Yeah. And that’s a rendering too, so that’s a new signage we just put up. We designed it ourselves and everything.
Theo Hicks: Yup. There you go. Okay, if your business were to collapse today, what would you do next?
Jonathan Barr: That’s a tough question. I would start some kind of business. I don’t really know, probably if my real estate business collapsed, it would have to be a different kind of business. I’ve always wanted to open a breakfast joint. I might do that.
Theo Hicks: I love breakfast and brunch places. If you do that, I’ll come. What’s the best deal you’ve done? This can be one of your apartment deals or one of the fix and flips deals.
Jonathan Barr: I think the duplex that I sold in LA… So I bought it at an auction. The company I was working for let me borrow 300k for a week. I put 90,000 into the deal, and then I had a private party lend me the money a week later. Then I leased the property out, held it for about eight years, sold it for a million thirty, and 1031’ed that into a 14-unit in Kansas City, a turnkey, and I went from making 1,200 a month to about 5,000 a month. So it was huge.
Theo Hicks: Yeah. What about on the flip side? What about a deal that you or the business you used to work in lost money on? How much was last and then what lessons were learned?
Jonathan Barr: Going to the auctions, you have to do your own title. And sometimes second loans go to auction. We were getting our information from the title company in the morning for the deal, and what ended up happening is they gave us wrong information and we ended up buying a second loan. I think we ended up losing 250 or 300,000 on that loan because we had to sell the property, pay off the first, and then make up the difference.
What I learned from that is just making sure to have a due diligence list for everything. Especially in the auction situation, you have to triple-check everything; not even double-check, but actually triple-check. We created a bunch of checklists and different ways to double and triple-check any information we get, so nothing like that ever happens again. But out of 400 deals, to lose money on one auction deal I guess is not terrible.
Theo Hicks: What is the Best Ever way you like to give back?
Jonathan Barr: Actually, I like talking to younger people that are in college, thinking about getting into real estate and talking about that, helping give them direction. That brings me back to Twitter, because a lot of young people reach out to me on Twitter. I have conversations with probably one college kid a week about real estate, and what interests them, and what path they want to take.
Theo Hicks: Awesome. Last question, what is the Best Ever place to reach you?
Jonathan Barr: The best place would be at Jb2Investments on Twitter, or also on my website, jb2investments.com. You could also join our tribe to get in front of our deals. It’s just jb2investments.com/join. That will also prompt you to set up a call with me and we could talk more and get to know each other.
Theo Hicks: What was the backslash for the ebook?
Jonathan Barr: The ebook was jb2investments.com/lower.
Theo Hicks: Got it. Jonathan, thank you for joining us today and providing us with your Best Ever advice. We went over a wide range of topics, but you talked about the thought process you had about behind the transition from working –in a sense, but not exactly– a W2-ish type job in real estate, to doing your own thing. The thought process behind that, why you did that, and how you had a foundation before you jumped into that.
We talked about some of the things you want to see in a business partner, like trust. It was really nice that you were able to see how he worked for eight years, so understanding how they work in business is also a huge plus. You talked about how you’re doing things 50/50 right now, and eventually, you’ll start to naturally slide into your areas of expertise.
Then you went into a lot of detail on the different things you’re doing to raise capital, to start to get more verbal commitments from people. Although right now most of the deals you’ve done had been with your own money, and you are going to transition other people’s money in the future. We’ve talked about focusing on your inner network, but also not completely relying on them and assuming that they’ll be able to bring all the capital for that deal. We talked about your ebook, blogging, Twitter, the different types of events that you do, and a lot more detail on Twitter, going on podcasts, things like that.
And then lastly, your Best Ever advice, was to start bigger, sooner, not getting super comfortable with where you’re at and being afraid to lose that, and not taking that risk. Just trying to do that sooner rather than later.
Jonathan Barr: Have the golden handcuffs, for sure.
Theo Hicks: The golden handcuffs, yeah. Thank you so much again for joining us. I really appreciate it. 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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