JF2079: Money in Low Income Housing With Johnny Andrews

TTJohnny was an emergency room nurse turned real estate investor. He was able to build his portfolio to 114 single family homes with his brother in 7 years while working full time. He focuses on lower-income housing and shares why property management has been a key part of his success in this niche.

Johnny Andrews Real Estate Background:

  • ER nurse turned real estate investor.
  • Currently owns 114 single-family homes with his brother
  • Was able to create his portfolio in 7 years while working full-time as a nurse
  • Based in Baton Rouge, LA
  • Say hi to him at john@redstickbrothers.com    

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Best Ever Tweet:

“Management, management, management. If you’re not hands-on in management, and you don’t stay on top of your game, it will bite you in the butt in the end.” – Johnny Andrews


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. 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, Johnny Andrews. How you doing Johnny?

Johnny Andrews: I’m living the dream man. Thank you for asking.

Joe Fairless: Well, I’m glad to hear that. A little bit about Johnny – he’s an ER nurse turned real estate investor, currently owns 114 single-family homes with his brother, and was able to create his portfolio in seven years, while working full time as a nurse. Based in Baton Rouge, Louisiana. So with that being said, Johnny, you want to get the Best Ever listeners a little bit more about your background and your current focus?

Johnny Andrews: Yeah, man. I would like to amend that number… Just signed a purchase agreement on another six more this weekend. So we’re going to be at 120, and I’m pretty excited about it… But I just want to do amend that number. Basically, this is my full-time gig now. I was working part-time as a nurse and I got injured in November of last year, so I can’t be a good nurse. I just get to ride around with my cane and crutches at the moment. My main focus is single-family homes in the Baton Rouge area, and the bulk of them all lower-income houses. We’ve got a bunch of Section 8, but we cater to a crowd that’s working class, and it’s done very well for me and my brother.

Joe Fairless: Well, we’ll go with what you’ve acquired so far. So in seven years, you acquired 114. That is 16 a year, which– it’s weird that math, it would seem like it’d be more a year, but 16 homes a year times seven years, 114. So what have you and your brother been doing to acquire so many homes? I heard you when you said they were lower-income, so I believe that means they’re also a lower price point, but can you just talk about your business?

Johnny Andrews: Yeah, man. So I think in 2006, 2007, I was working like a dog in an emergency room, not making too much money, and I knew there would be something different, there’s got to be something else out there. So I was looking at some houses. I was going to buy one for $100,000, put some money into it and flip it. And this might sound a little hyperbolic, but the housing market seemed to crash overnight, and I would have gone bankrupt if I would have bought that house. So I ended up not doing anything, and a couple of years passed, and I just was looking around for houses. I saw houses around me that were selling for $30,000, $40,000 of a rent, and between $700 and $900 a month. So everybody thought I was crazy. Nobody wanted to do anything with me. Everybody tried to talk me out of it. So I went and bought my first one by myself.

Joe Fairless: How much was it?

Johnny Andrews: I think it was 33k. I put a renter in it for $750 a month, and at the end of the year, I had a pile of cash. For me, I was making $45,000 a year. A third of that is a pile of cash to me. So somebody had four more houses. I went to buy these four houses. I told my brother about it. My brother’s like, “Let’s do it.” So we pulled the $25,000 that we saved up our entire lives together and we bought those four, and we’ve just been rolling ever since. It was a struggle at first. What I’ve learned about the low-income housing is that it’s management, management, management. If you’re not hands-on in the management and you don’t stay on top of your game, it will bite you in the butt in the end. So we ended up starting our own little management company, too. Now, we don’t manage anybody else’s properties, but we have an office in the area and we do our own management.

Joe Fairless: Did you ever try to hire that out to a third party?

Johnny Andrews: Oh, yeah. We learned our lesson.

Joe Fairless: [laughs] Crash and burn?

Johnny Andrews: Yes, we did, man. We did. My ability to explain – it sounds smooth, but it didn’t go smooth. We bought them from someone who was turnkey. So we bought from him, he’d managed it for a discounted rate. He would find the properties, fix them up, turnkey, here you go, we’ve got renters in them. Well, we didn’t do our due diligence, and these were nightmares, and they were terrible homes, they were empty. Our collections were in that low 60%. We were barely making the taxes and the mortgages.

So the only way we could avoid bankruptcy was we bought a tax sale house on the main drag in Baton Rouge, put a sign out front and took over our own property. We took them from them. At that time, we had 19 of them, and my mom is coincidentally retired; she used to run hospitals. So she does her books and she’s in the office, and ever since then, it’s been a fantastic move on our part to open up our own office and do our own management.

Joe Fairless: What must you enjoy doing in order to be successful managing these types of properties?

Johnny Andrews: I like the people. I like my tenants. I grew up in Baton Rouge. I like the culture. I like the area. Some of them are my tenants, and not only that, they were also my patients. So I have a relationship with a lot of them. I like helping out. There’s a lot of single moms. We have a lot of Section 8 properties which are my favorite, hands down. I love Section 8 properties. And just being my own boss, working with my brother, working with my mom is fantastic. I couldn’t imagine my life without doing this actually now. I’m glad I stumbled into it.

Joe Fairless: With Section 8, you said you love it. It’s probably because you get the payments on a consistent basis, but then there’s the flip side of that, as I know you’re much more aware than I am, of if you get an inspector who is having a bad day, then that could hold you up for a long period of time, or if there’s a grudge. Have you experienced any of the bad side of Section 8?

Johnny Andrews: I didn’t know inspectors could have good days. [laughter] So I have definitely experienced it, but I have the inspectors’ phone numbers. We talk, we communicate… And it’s hard at first to establish a relationship, because there’s a lot of carpetbaggers and scalawags that go in and out of these neighborhoods, and that are truly skullduggerous landlords. And they’re bitter, probably just like police officers, sometimes; they think everybody’s a criminal. But they finally over the years– I’ve developed a relationship with them, but don’t get me wrong, they will still break me in half when they have to, but I have good properties and I have good tenants. So the last five inspections I had, I didn’t have to do anything. So it hasn’t been terrible the last couple of years.

Joe Fairless: What’s been the biggest challenge that you’ve had within the context of managing lower-income housing?

Johnny Andrews: On our cash clients, collecting rent in a timely manner. I would say, maybe, 25% to 30% of our cash clients pay rent between the 1st and the 5th. Again, not being hyperbolic, it is crazy. We get the bulk of them between the 10th and the 15th, but a lot of that has to do with when the government sends their social security checks or disability checks out. Our cash clients, they make it complicated, but the hardest thing we’ve ever had to deal with was in the 2006, they had a gigantic flood, North Baton Rouge, and it flooded 20 of our properties, and it was awful. Those people were in a bind, and we were in a bind, but we pulled through… But collecting money from the cash clients is very hard. I went to eviction court today, by the way.

Joe Fairless: Okay. What are some tips that you have for solving that?

Johnny Andrews: Oh, you have to stay on top. You abide by the lease and force them to abide by the lease. I think that a lot of the landlords’ take what they can get in the area that I am in, and if you sign the lease, and you say you’re gonna pay between the 1st and the 5th and you don’t, we file evictions. Over the last few months or years or however long we’ll have to work on it, we’ll get the bad ones out and get the good tenants in, and right now, we are doing fantastic. Of all those properties, we have two vacancies. That’s it. I’ve never had anything like that. This has been an amazing year and a half.

Joe Fairless: If someone were to buy homes at that price point and work in similar areas that you’re working in with your properties, what are some tips that you’d give them before they start out?

Johnny Andrews: Subway is hiring. No, I’m joking. You have to stay on it. You’ve got to be hands-on. You got to be willing to knock on doors, and you have to hold people accountable. And finding a decent management company in such a labor-intensive market is really, really hard. I’m under the impression it might be different in other parts of the country, but where I am, you need to be the one knocking on the doors. They need to know who the owner is. That’s just what I’ve experienced.

Joe Fairless: So that’s not a scalable model, or is it?

Johnny Andrews: No, I wouldn’t think so. We have to be geographic, and that’s just where I’m willing to go. The good thing about it is the cashflow will allow me and my brother to diversify, which we’re looking forward to doing. Just right now, we bought a big package in October of last year that we’re trying to get settled in, and once I get settled in, we’re going to start broadening our wings.

Joe Fairless: Why diversify? I know I’m going against what I was just saying, where it’s not that scalable, but on the flip side, I’m going to be devil’s advocate for myself… Why go into other things if you’ve clearly had success with this?

Johnny Andrews: Of course, we’re going to continue to expand to doing exactly what we’re doing, where we’re doing it, but it would also be nice to have other income streams where we don’t really have to worry about too much. If we could put up a pile of money together with me and my buddy or families and maybe buy an apartment complex in a higher-end area, maybe even in another city somewhere in Florida, somewhere in Oklahoma or Kentucky and have a property management company run that bad boy, I’d like that a lot. Plus, I like staying busy, so that’s why I’m gonna keep doing what I have around. I live a mile from my office; it’s fantastic.

Joe Fairless: What’s a typical day look like for you?

Johnny Andrews: I lay in bed at night, wondering how I’m gonna pay all my bills. Then I wake up really early in the morning, and I make my rounds, I check out all the properties that might be vacant or where I sent somebody to go clean, or maybe I set my maintenance man to go patch some holes or hang some doors. I go check out all the stuff that was done the day before, and then I go in the office, check my Dropbox answer my emails, and then I just feel phone calls all day long. As soon as I get off with you, I got to go check out a tree fall on the house last night. So I got a bunch of properties that’s just got to babysit constantly.

Joe Fairless: How do you and your brother divide responsibilities?

Johnny Andrews: Well, my brother is in the oil business and he’s pretty busy. He runs a company. If we have to get financing or if he needs to wrangle emails or– he does office stuff every once in a while, but I’m the hands-on guy. He’s still running a company right now. We’re not to the point where he’s going to come on full time.

Joe Fairless: Okay. How much on average, factoring in expenses and vacancies and your gas to go knock on their door and all that, how much on average does a home of yours make per month?

Johnny Andrews: Cash flowing, between $250 and $275.

Joe Fairless: Okay, got it.

Johnny Andrews: I have a secretary, I have a full-time maintenance man, I’ve got some expenditures… And then these are all C class home, so it’s a lot of maintenance.

Joe Fairless: So that $200 to $275, does that factor in those other expenses, or you’ve also got to factor those in too?

Johnny Andrews: No, no, no, that’s what I put in the savings account.

Joe Fairless: Okay, about $250 a house?

Johnny Andrews: Yeah.

Joe Fairless: Okay.

Johnny Andrews: $250 to $275. Yeah, some really good ones out there do better than that, but across the board, that’s what I’m averaging.

Joe Fairless: Okay, got it. It’s a very profitable business, because 250 times 12 times 114, $342,000 a year. What would you say the homes are worth right now?

Johnny Andrews: On average $38,000 to $42,000.

Joe Fairless: Are you getting financing?

Johnny Andrews: Yes, sir.

Joe Fairless: What kind of financing do you get on it?

Johnny Andrews: Five year balloons, 20 year amortization. We don’t really have to put too much down anymore, because I have an investor that lets me borrow. I buy in cash, do some work to it, go to the bank and finance it, so I don’t have to put money down. And it’s all on a 20-year. We would love to have all this under one big portfolio loan. We’re in a process to try to figure out how to do that. We’re in the infancy stages in knowing what we’re doing. You’ve got to bear with me on that one.

Joe Fairless: Yeah, I get it. So the elephant in the room that probably is keeping you up more so than the bills and stuff, which they are obviously making money, so I know that was tongue-in-cheek a bit… But it would be the five year balloon, because that’s probably the biggest financial focus of yours, I would imagine, is getting these out of the five year balloon payments.

Johnny Andrews: Yes, sir. It’s still really not that bad, because if the banks ever come to it, they don’t want to take over 114 homes, especially where ours are. So we’ve got leverage, and we’ll make it work, I’m sure. We’ve already had to resign on the dotted line. So it’ll be not that stressful, I guess.

Joe Fairless: Okay, and what has been one of your favorite properties and why?

Johnny Andrews: How about favorite package? Because we’re buying packages now.

Joe Fairless: Sure. Yeah, package. Alright, cool. Let’s go with that.

Johnny Andrews: Okay, I guess in October of last year, we came across 38 houses from a couple of guys out of California that just got in over their head, and my brother and I were able to buy these. These are all ten year old houses. It had every appliance, central air and heat, planned houses, only ten years old. We bought all 38 of these for $1.1 million. Out of pocket, $250,000 for the down payment, which my brother and I had to squeeze together, by the grace of God, and some blood banks, we were able to do that.

Joe Fairless: [laughs] Sell your plasma. You get more money for that.

Johnny Andrews: Yeah, it’s good to know man [unintelligible [00:15:51].01].

Joe Fairless: My roommate in college would do that on a weekly basis or as frequently as he could.

Johnny Andrews: We would save money too back when I was in college; we’d go give blood, and then go to the bar. [unintelligible [00:16:00].10] so much to get drunk. Three beers and we were laying out in the grass to cool off. The good old days.

Joe Fairless: [laughs] That’s $29,000 a door. That’s pretty good. $1.1 million– Yeah, 38 homes, right?

Johnny Andrews: Yes, 38. It is absolutely amazing. Our cash on cash return is 70%. I got lucky. I was severely injured in November. We bought the houses in October, and I was working part-time as a nurse to pay the bills, and I guess I lucked out. I picked a good time to get hurt, because me being able to buy those packages, I now can afford to not be a nurse anymore, or work a second job. Not that I couldn’t before, but now I could comfortably do it, keep the lights on and my wife won’t leave me. So it’s been a blessing, this last package, and we’re super proud of it, and we got very lucky. The timing was impeccable.

Joe Fairless: So that one, you and your brother got the down payment out of your own pockets.

Johnny Andrews: The only time we ever did it.

Joe Fairless: The only time you did it. Okay, so now the business model for you, if I heard you correctly, is you borrow from one investor, then you do the work, and then you refinance it with the bank so that you have no money in.

Johnny Andrews: Yes, sir. That’s exactly what we’re doing.

Joe Fairless: Does the money for the rehab come from the initial investor who’s fronting the money to buy?

Johnny Andrews: No, sir. We have cash reserves just from our business, from cashflow, and we don’t take money out. We live very frivolous lives.

Joe Fairless: What are the terms for that one investor who you’re borrowing money to buy the homes?

Johnny Andrews: I don’t want to say it out loud because everybody listening is gonna be jealous, but it’s only 6%.

Joe Fairless: Okay. Any points?

Johnny Andrews: Nothing. 6%.

Joe Fairless: There you go. Yeah, so if the property takes you, say, six months to do a refinance, then it’s six months annualized. So really, you’re paying them 3%?

Johnny Andrews: That’s it. Yes, sir. The longest we’ve ever held any money for him was probably 60 days. We’re so lucky. I embarrassed myself for about six years trying to get him to do it, and finally, he did and I love him for it.

Joe Fairless: What do you mean by that?

Johnny Andrews: I wanted to do it this way. I wanted to be able to buy houses cash, because I know it gets better deals. I just didn’t have access to it. So I kept begging the investor to just lend me. He didn’t want to do it. He didn’t want to do it, he didn’t want to do it, and then finally, he sat me down at breakfast one day, me and my brother, and said, “Okay, I’ll give you $250,000. You can do whatever you want with it,” and then we got the $250,000 and we immediately paid him back within a few weeks and we just kept rolling since then. It’s how we built up to [unintelligible [00:18:33].03] we were able to do that way.

Joe Fairless: Wow.

Johnny Andrews: Yeah, we got really lucky. We’ve got some good people in our lives, that’s for sure; couldn’t have done it without them, or it would have taken a lot longer.

Joe Fairless: Well, based on your experience as a very hands-on real estate investor, which I love talking to hands-on investors, because just completely different perspectives from people who are not, what is your best real estate investing advice ever?

Johnny Andrews: Just stick with it, and the numbers don’t lie. You’ve got to be consistent, have a plan and stick to that plan. Know that sometimes you’re gonna have overages for your remodel and sometimes things will be a lot cheaper than you thought, but you need to stick to your plan and absorb and talk to anybody you can that does this, whether it’s somebody that’s been doing it for 30 years or whether they’ve been doing it for 20 minutes, everybody has something to offer, you just got to listen. Read that book Rich Dad, Poor Dad. It got me started on it. Not so much real estate, but it just gets you in the right mindset. Just stick to a plan and always listen to advice. Just try to get knowledge from investors or builders or whomever.

Joe Fairless: So you mentioned that numbers don’t lie. I do remember you mentioning the turnkey seller that you’re buying from, it ended up being 60% of collections, and I can guarantee that you did not think it would be only 60% of collections. So if a Best Ever listener is considering buying it from turnkey provider, what are some questions that knowing what you know now, you’d make sure you would ask him or her, the turnkey provider?

Johnny Andrews: All the questions I had were all answered concisely and precisely. I didn’t put my eyes on the property. I didn’t crawl under the house and climb in the attic. I just saw the numbers that coincided with a picture. I didn’t get my knees dirty and my fingernails dirty looking around at the product, and I should have, especially in the market that I’m in. I guess I can understand if you’re buying $200,000 homes in Orlando, where snowbirds are moving to, but where I am, in particular, you have to go look at the houses and make sure there weren’t termite damage, make sure that it’s not the 80 year old galvanized pipe. And then when they say they did a roof, they did a roof; just don’t take a man at their word. You’ve got to go check. That’s what I would recommend, in my situation.

Joe Fairless: Noted, and thank you for that. So I’m putting myself in someone’s shoes who is looking at turnkey properties, and they’re likely not the type of person who is going to want to and/or have time to go get under the house that they’re potentially looking at, and that’s why they’re using a current turnkey provider. So perhaps for them, they could pay someone locally to go look at it for them and just give an objective perspective on the area. So we just wouldn’t take the turnkey providers word on face value. Instead, we’d have an objective third party go physically look at it and just give a report on the area itself.

Johnny Andrews: I could never argue with that. Yeah, having a relationship with a broker or a realtor out there… Maybe you can take pictures and you could send them that– and you said objectively can look at something. That would be fantastic actually. I think you talked me into doing it.

Joe Fairless: [laughs] No, no. You keep getting [unintelligible [00:21:49].16]

Johnny Andrews: You’re pretty good, Joe.

Joe Fairless: No, it makes for more entertaining interviews. So you keep being the hands-on. I like it.

Johnny Andrews: I got your back man. Call me. I’ll have tales from the hood every three weeks for you.

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

Johnny Andrews: I am, man.

Joe Fairless: Alright, let’s do it.

Break: [00:22:12]:07] to [00:22:55]:03]

Joe Fairless: Alright. What’s the best ever resource that you use in your business? Something that you couldn’t live without because it really helps you get the job done.

Johnny Andrews: MLS, actually. The MLS that everybody and their brother uses. I find fantastic deals on the MLS.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about already?

Johnny Andrews: Buying sight unseen. I’m gonna stick with that one, even though we talked about it. That clearly bit me in the butt fairly significantly.

Joe Fairless: What’s the best ever way you like to give back to the community?

Johnny Andrews: I’m not as quick with my ambitions as I should be. No, I’m joking. My brother and I, we give to his church and his school for his son a lot of money. I wish it was less, but it’s a really good school and they take really good care of his two kids. I don’t have any kids, so I live vicariously through him. And then I’ve been a nurse forever. I love people. I’ve been taking care of people for a long time. I guess that’s how I give back. Just being me.

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

Johnny Andrews: They can email john [at] redstickbrothers.com or call me at 225-227-2512, and I’d love to talk shop. I would enjoy it immensely.

Joe Fairless: I enjoyed this conversation. Thank you for talking about your business model, how you are buying packages of homes, the financing from the equity. Well, actually, I guess it’s the double debt. One is you do a loan from a private investor, then you refinance it out and you put a longer-term loan on it once and you cash out the original investor. And the tips that you have for managing lower-income properties, as well as the focus for where you see the financing headed and how you’re looking to get ahead of that with a larger loan that encompasses all the property. So thanks for being on the show. Hope you have a best ever day and talk to you again soon.

Johnny Andrews: Yes, sir. Thank you, Joe.

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JF2032 : Creating a Win-Win-Win With Sterling Chapman

Sterling is the President at Crestworth Capital, a new venture into syndication. In 18 months he has built a $1.5 million portfolio consisting of 26 small multi-family units. Sterling shares an example on one of his deals with a duplex where he was able to get creative and develop a win-win-win strategy. 

 

Sterling Chapman Real Estate Background:

  • President at Crestworth Capital
  • Finance degree from LSU
  • Over the last 18 months, he has built $1.5 million portfolio
  • 26 small multifamily units
  • The host of REI podcast “The Rent Roll Radio Show”
  • Based in Baton Rouge, LA
  • Say hi to him at https://crestworthcapital.com/

 

Best Ever Tweet:

“I typically try to stay away from buying rentals in flood zones because it does hurt your cash flow.” – Sterling Chapman


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, Sterling Chapman. How are you doing, Sterling?

Sterling Chapman: Doing great, thanks for having me, Joe.

Joe Fairless: My pleasure, and glad to hear that. He’s the president at Crestworth Capital. He’s got 26 small multifamily units. Over the last 18 months has built a 1.5 million dollar portfolio. He’s got a finance degree from the national champions, LSU, in football, and he’s the host of the podcast the Rent Roll Radio Show. Based  Baton Rouge, Louisiana. With that being said, Sterling, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Sterling Chapman: Sure. Like you said, I went to LSU for finance, and then I started off as a financial advisor, doing retirement accounts and stuff, and then transitioning into the telecom world, where I shot up the corporate ladder, and I’m actually still there today; I’m a  regional sales director at one of the largest telecom companies in the world.

About 18 months ago, making more money than I ever thought I would, trying to figure out what to do with it. I got into personal finance. It got a little shaky in the corporate world, because they’re always shifting things around and surplusing people. I read Rich Dad, Poor Dad, got into financial independence in real estate investing. I started off with a couple single-family houses, then started getting some duplexes and fourplexes, and used some creative strategies, borrowing other people’s money, fixing them up, cash-out refinancing, creating some partnerships… I got a lot of seller financing… And then I guess I got up to the 26 units that I have and  manage today, that are cash-flowing me just under 7k/month. I think that all the properties are probably worth close to two million at this point.

Then a few months ago I read Joe Fairless’ book on apartment syndication, and decided to start a  podcast and create Crestworth Capital, and kind of switched gears going into 2020, looking to move into the large multifamily space.

Joe Fairless: Alright, well let’s talk about that. The 26 units – that is one heck of a portfolio to acquire in that period of time… And you mentioned you had some creative ways of doing it… What’s a deal that stands out to you among that portfolio?

Sterling Chapman: The first creative deal that I put together really made me, I feel like. The first thing I did was I went and bought a couple of single-family  houses. I did those in a pretty traditional manner. I put 15% down, and I rented them out. They’re cash-flowing about $500/month each; little $80,000 houses that have rented out for about $1,100/month.

Then after buying two houses in two months, I was out of cash, but I was just hooked on the real estate bug… So I started reading and researching ways to expand my portfolio without putting a lot of money down, and I ran across the BRRRR method, so I started looking for beat-up properties.

I’ve found these two duplexes, side by side. One of them had been flooded and the bottom half was gutted out. The other one didn’t flood, it was just slightly more elevated, but it was trashed from a previous tenant… And I didn’t have any money, like I said, but I had a friend who flipped houses. He was always interested and approached me about — he could flip houses up to me for rentals, and I could get them under market value, because it would save him money having a guaranteed buyer right when he was done, and not have to worry about marketing and all that kind of stuff.

So I found the two duplexes, got them under contract for $190,000, brought them to my friend who used his investors’ capital to purchase them and fix them up. His investors were a little short, because they had some money tied up in other deals, so I also got my brother to invest 40k and to cover the difference.

He bought them, he added me to the title, he fixed them up, and put about 60k into them. Like I said, they were purchased for 190k, and then I did a cash-out refinance at 80% LTV. They appraised at 390k, so I was able to pull out 312k. I was able to pay back his investors, pay him 50k for all his work, and pay my brother back with a significant amount of interest. When I walked away, I had 78k in equity, and was cash-flowing $2,000/month.

Joe Fairless: [laughs] Bravo! How did you find those two? You said you found them…

Sterling Chapman: I was driving all over Baton Rouge, looking at properties, and one of the duplexes across the street was listed on the MLS, so I went  and drove by it, just curious about kind of buying it in a traditional manner. And when I drove over there, I looked across the street and I saw these beat-up properties that had a little bandit sign stapled to the front door, with just a phone number on it. So I called the phone number and it ended up being a wholesaler who had it, but he was out of town. The properties had been handed down to somebody in an estate type of situation, and the kids I think were on drugs or something, and had taken out money about it, and it was in the process of being repo-ed by the bank… And they just needed enough to bail them out of trouble.

Joe Fairless: So you had a connection with someone who had a connection with investors. They then bought the deal; you were on title, with the intention of buying them out once the refi was complete. Did you say your wholesaler friend…?

Sterling Chapman: Yeah.

Joe Fairless: Okay, your wholesaler friend also oversaw the renovations – did I hear that correct?

Sterling Chapman: Yes. The wholesaler whose number was stapled to the door knew the previous owners. I didn’t know them at all. I just called him and locked up the contract to buy them. Then I had initially approached one friend about putting up the money and going in with me, and he saw the conditions of the property and kind of ran away… And then I called the other friend of mine, who was an experienced house flipper, who had investors who were funding his house-flipping projects.

So I positioned it to him and said “Hey, I have this deal under contract. I don’t have any construction experience. You do this all the time… I’ll give you the contract if you promise to let me cash-out refinance at the end and you can walk away with 50k for putting the money together and overseeing the construction and all that stuff.

Joe Fairless: That’s a win/win/win/win/win. Everyone wins.

Sterling Chapman: Yeah. Even my brother that put in the last 40k – he ended up getting 15% on it. It was a 6-month project,  so it was a 30% annual return for them as well. So yeah, everybody came out [unintelligible [00:07:16].29]

Joe Fairless: And I imagine there’s a lot of those opportunities in your area. Is that an accurate assumption?

Sterling Chapman: Yes. There was a massive flood in 2016 for the Baton Rouge area, and it must have covered a third of the city. It left so much opportunity for this type of situation, where people were just walking away from their properties because they didn’t have flood insurance.

Joe Fairless: Do you?

Sterling Chapman: Yes… I have flood insurance on all my units.

Joe Fairless: How much does it cost for those two units?

Sterling Chapman: It’s four units. It’s two duplexes, and each duplex is $1,700 a year.

Joe Fairless: That’s not a lot at all.

Sterling Chapman: It varies though. It can get expensive. It varies based on your flood level, elevation, and where you are, and how  much the properties are… But yeah, I typically try and stay away from buying rentals in flood zones, because it does hurt your cashflow… But there was so much meat on that bone. I just worked the flood insurance into the numbers and it still came out great.

Joe Fairless: How much of Baton Rouge is in the flood zone?

Sterling Chapman: Probably 30%-50%.

Joe Fairless: Okay. And you mentioned that there’s a lot of those types of deals, and I know you mentioned that you’ve read my syndication book, and now you’re going that direction… But why? If you’ve got a tried and true approach here and you’ve got a lot of opportunities locally, and you’ve done it before, why not just focus on that?

Sterling Chapman: I plan on simultaneously going in both directions. I wanna continue building up my portfolio locally, but I definitely want to go into raising larger deals, that are less labor-intensive.

At this point I have a rather demanding W-2 job, I have a five-month-old baby…

Joe Fairless: Congratulations.

Sterling Chapman: Thank you. And I have 26 residential units that I personally manage. So it’s just becoming a time crunch, and I just started evaluating other options. Having a much larger property and using other people’s money just seems like a  less labor-intensive, easier, faster way to scale.

Joe Fairless: Let’s talk about some other units that you purchased in that portfolio. You said you started out traditional, 15% down on a couple single-family homes.  You talked about those two duplexes… What deal have you lost the most amount of money on?

Sterling Chapman: I don’t know that I’ve lost money on any of them. I will say that the first single-family house I bought didn’t perform quite as well as I had anticipated, because I have $500/month cashflow on it, and on a spreadsheet that comes out to a 37% rate of return based on the 15k I spent to buy it… But I didn’t know what to look for, I wasn’t experienced. There were a lot of hidden plumbing issues, there was an HVAC issue, there was siding that had to be redone for the insurance company… So all the unforeseen repairs and issues that I just didn’t think to look for, because it was my first time, ended up probably taking the first year and a half or so cashflow out of it.

Joe Fairless: Have you had to replace the tenant?

Sterling Chapman: No, I’ve had the same tenant there…

Joe Fairless: Wait till you have to replace the tenant… [laughs]

Sterling Chapman: Yeah. I’ve had to replace tenants in other units. But both of my single-family houses have had the same tenants since I got them a year and a half ago. They’re great tenants, and I think in the long run it’ll have worked out to be a great deal; it’s just the first year’s cashflow got wiped out by those unforeseen things, that I look for now.

Joe Fairless: Are you self-managing?

Sterling Chapman: Yes.

Joe Fairless: How’s that going for you? You’ve got a full-time job and a five-month-old baby…

Sterling Chapman: It’s escalating quickly… Between November and December of 2019 I’ve picked up 14 units. They’re lower income compared to the other properties that I have… So up into that point, all of my properties rented for about $1,100/month. And these last 14 properties  I picked up, they’re renting for $600 and $700 range, and they’re older properties. So it’s kind of coming to a head where there’s  a few different avenues…

I’m looking for professional property management, although you don’t get the same type of professional property management on the scattered out duplexes as you maybe would with a large multifamily, where you have more of a professional group… The kind of people that — what I’ve seen is the type of property managers that wanna chase down all those kind of low-income duplexes, I just haven’t seen where they’re performing as well with them as they would with me.

Another option that I’m evaluating is having my wife and possibly my  mother run the property management, and kind of building out a property management company. My wife works retail, and she hates it, and we’ve entertained her quitting and us just buying a commercial office, and her running all the properties out of the office, as well as getting her real estate license, so we can just make it more of a family focus.

Joe Fairless: What’s your least favorite part of self-managing right now?

Sterling Chapman: I think showing the units. I’m good at closing the leases; I’ve always been a sales guy. I’m a regional sales director during the day… So when I first got the properties, I was so excited, because I was like “Man, I closed five leases today! I rented out 21 units in 36 days”, or something…

Joe Fairless: That’s impressive.

Sterling Chapman: And I got high off of it. But now, just getting stood up over and over and over again… 80% of the people don’t show. It’s just me driving back out to the same property over and over.

Joe Fairless: How far away are the properties, typically, from where you live?

Sterling Chapman: Not far. They’re all in Baton Rouge. But the last 14 I’ve bought – which I’d like to talk more about, because they’re all seller financed…

Joe Fairless: Oh, we will.

Sterling Chapman: But those are about 5 minutes away from my house. So that’s not a big deal. The duplexes – I ended up buying a third duplex where those first duplexes were. It was actually the first one I went to go look at; I ended up buying it later. Those are about 20 minutes away from me. And then the first house I bought is in Baker. That’s about 30 minutes away from me, though I haven’t been out there in probably a year. And then I have another house that’s about 30 minutes away, that I haven’t been at in a year either.

But when I say I self-manage, I don’t fix anything. I have handymen, I have sheetrockers, and painters, and plumbers and electricians. I just kind of coordinate it all, and show the units, and fill the units, and do the accounting, and all of that. But I don’t actually go repair anything myself.

Joe Fairless: There’s gotta be some way to improve the attendee percentage for showing up for your showings… Have you looked into that? I don’t have any ideas off the top of my head, but there’s gotta be something in the process. I know I’ve interviewed people in the past who have optimized the process.

Sterling Chapman: There’s a few things I do. There’s group showings…

Joe Fairless: Yeah, that’s what I was thinking of.

Sterling Chapman: I have zero vacancies, and I’ve had very little vacancies from the beginning. I have evicted two people and had the unit filled within a week both times. Those four units on Meadow Park that we had fixed up – I got those leased out, all four units, in four days.

A big thing that gives me comfort with me managing it is the sense of urgency that I handle it. The second somebody sends me a message, I’m like “Oh, where are you at? I’m gonna meet you over there right now.” And I don’t think a third-party property manager would necessarily have that sense of urgency.

And I hate to make this general statement, but the renter base that I’m dealing with there – they seem to get easily distracted. So if they call me on Thursday, I’m like “Well, I’ll meet you there tomorrow at 3 PM.” They’ll have disappeared off the face of the planet by tomorrow at 3 PM. But if I say “I’ll be there in 15 minutes”, they’re there.

So I do group showings… If I’m at the office, if I’m doing my day job, I won’t. I try my best not to leave. I try and set it to where it’s convenient for me in group sections. But if I have 5 or 6 people that say they’re gonna meet me there tomorrow at 3 o’clock, I’ll be lucky if one shows up. But I do have a lot higher attendance rate if I say “I’ll be there in 15 minutes.”

Joe Fairless: Let’s talk about those 14 units. Tell us the story about it.

Sterling Chapman: Throughout the process of just kind of networking around the area and just calling and asking everybody that was listing stuff, I ran across this older gentleman who had been collecting properties for 30 years, 40 years… And he had been 1031-exchanging for all these years, so he had a pretty sizeable portfolio. He was looking to sell, he was trying to retire, but he didn’t necessarily want to take the big tax hit of this tax that he’s been deferring his whole life… So he was open to the idea of seller financing it. Also, what was he gonna do with the cash? Obviously, he trusts his money in real estate.

So we negotiated to do 10% down seller financing. The first one was a 130k duplex that rented for $1,500/month, and I put $13,000 down. We did 10% down, 30-year amortization, with a 10-year balloon, at a 6,5% interest rate. So I’m cash-flowing $600/month on that one.

Then he had a fourplex… My brother actually had some cash and he wanted to get involved, but he doesn’t wanna actually be involved; he just wanted to invest the money. So we had him put down the 10%, so him and I split the cashflow on that fourplex. Then we picked up four more duplexes. Two are with my brother, and then two are just in my name.

Joe Fairless: All with the same percent down?

Sterling Chapman: I think two of the duplexes I got 0% down, because I was buying so much from him.

Joe Fairless: Wow. Okay, so you said you met this person through the networking you’d been doing… Can you trace back more specifically how you came across this person and their properties?

Sterling Chapman: This particular individual –  he was a realtor at some point; he listed the properties himself. I called him to ask him about one of the duplexes he had listed. I asked him to go out to lunch with me, and we just sat and talked. He said “Well, actually I have all these other properties, too.” We stayed in touch over a six-month period until finally he said “Look, I’m 75. I’m trying to get out of this thing”, and I said “Alright, I’ll start taking them off your hands.” Like I said, over a couple month period I ended up getting 14 of them.

Joe Fairless: And what’s the structure? You said the percent down, but what are the terms of the seller financing?

Sterling Chapman: Yeah, all of them are 30-year amortization, on a 6,5%, with a 10-year balloon.

Joe Fairless: Okay. Very reasonable for both parties. 10-year balloon – you’re not in any rush…

Sterling Chapman: Right. And that area I feel is in the path of progress a lot. Some of the property he had — it’s right by LSU, and they’re building up $300,000 condos all around that area. He had somebody come and give him $50,000 for a half-acre lot he had next door to the properties that I’m buying.

Joe Fairless: Tear down your properties, make it a vacant lot. [laughs]

Sterling Chapman: Right… Well, they’re 60-year-old units; there’s no doubt that somebody’s gonna come along and pay me for the land. In the meantime, I’ll just enjoy the cashflow.

Joe Fairless: Speaking of the cashflow, what do they cashflow? Because someone might listen to this and they think “Well, okay, 30-year am  – that’s fine.” But 6.5% – is he making monthly income from it?

Sterling Chapman: Sure. Like I said, the first duplex I got from him is cash-flowing $600/month; the fourplex I got I think is cash-flowing $1,000/month, and then the last four duplexes we got cash-flow about $600/month each.

Joe Fairless: And you said at the beginning of our conversation $7,000 in cashflow a month is what your portfolio is generating, right?

Sterling Chapman: Yeah. And just to be clear on that, because I don’t wanna be  misleading… When I calculate my projected cashflow, I just do minus the interest, insurance and taxes. Mortgage interest, insurance and taxes. So of that – I think it’s up to $6,800 – there is repairs and vacancies coming out of that. Like I said, in the last year and a half I haven’t taken any vacancy hit. I’ve had a couple units vacant for a couple weeks, but the convert of their security deposit into revenue covered that. So I’m truly at 0% vacancy there. The repairs have eaten into it a little bit.

Joe Fairless: Repairs, vacancies and your time with management, too. Those are the three big variables.

Sterling Chapman: Right.

Joe Fairless: $84,000/year coming in, not factoring in those three. Bravo!

Sterling Chapman: Yeah. The whole goal at the time when I first got into real estate – I had my boss who had been at the company for like 17 years, got surplused. Big companies do that – they just move things around, and they say “Hey look, at the end of the year you’re not gonna have a job.” And I was engaged at the time, I was about to buy my first house, and I just envisioned me being 40 years old, with three kids in private school, and car notes, and a house mortgage, and the corporate faucet just randomly turning off… And it just terrified me. So I was like “I’ve gotta figure out a back-up plan.”

So that was my first goal, was to just create that cashflow in case something happened to my W-2 job. Since then it’s blossomed into so much more, and I have much larger real estate ambitions today… But that was my first goal, and I achieved it in a year and a half.

Joe Fairless: How much of the total of your  money do you have in these properties?

Sterling Chapman: Not a lot. I was adding it up the other day, and I wanna say it’s probably around 70k.

Joe Fairless: Well, you know what – that’s a really good ratio, money into annual cashflow…

Sterling Chapman: Right.

Joe Fairless: If I can invest 100k to make 100k in annual cashflow, then that’s a scalable venture that I’ll continue to do. Taking a step back, based on your experience, what is your best real estate investing advice ever?

Sterling Chapman: I would say it is to kind of work on your mindset. People don’t realize how important that is. I’m a huge Tony Robbins fan, and I know you are, too…

Joe Fairless: Yes, absolutely.

Sterling Chapman: And there’s so much noise out there, especially around real estate investing; there’s so much negativity… And it comes more from people you love than from people you don’t. Your family is concerned, and everybody — you just get so much pushback. “Well, the risk…” So you really have to focus on having the right mindset and putting the right stuff in your mind to combat that and to persevere through it. Today nobody tells me it’s a bad idea. A year and a half ago every single person I knew told me it was a horrible idea.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Sterling Chapman: Sure.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:21:57].29] to [00:22:47].22]

Joe Fairless: Alright, you know what’s coming… What’s the best tool you use to stay sharp from a personal development standpoint?

Sterling Chapman: Reading and podcast.

Joe Fairless: What’s a book that you’ve gotten some value from recently?

Sterling Chapman:  A book I’ve gotten a tremendous amount of value from recently was Joe Fairless’ apartment syndication book.

Joe Fairless: Oh, I know that guy.

Sterling Chapman: That’s why I started my podcast and that’s why I created Crestworth Capital.

Joe Fairless: What’s a mistake you’ve made on a transaction, that we haven’t talked about already?

Sterling Chapman: A missed opportunity… Trying to low-ball, when I could have just offered the full amount and gotten a great deal. But I was greedy, and just tried to save an extra few thousand dollars, and I lost a deal to somebody who wasn’t.

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

Sterling Chapman: My brother actually has a program called “Strong Men Academy.” He’s an assistant principal at a local middle school, where he’s dedicated to teaching — there’s a lot of at-risk youth that don’t have a lot of strong male father figures around, so he brings in strong male role models from the community to help coach these kids into growing up to be good, solid, well-rounded men. I spend a lot of time helping him with that program.

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

Sterling Chapman: They can listen to my podcast, The Rent Roll Radio Show. They can email me at sterling@crestworthcapital.com, or they can check me out on Facebook. My personal one is Sterling Chapman and my business one is Crestworth Capital. The Rent Roll Radio Show has a page as well.

Joe Fairless: You’re a very resourceful person, that’s for sure. That deal that you talked about, with the $190,000 to buy, and you didn’t have capital at the time, so you structured it in a way that everyone won… That’s just a microcosm of some of the other things you did that we talked about with the seller financing. Because there’s a lot of opportunity for Best Ever listeners who are low on capital, to go find deals, and then network with the right people, connect the dots, and then have a property of their own afterwards, and everyone wins.

One of the main things is to find the right deal, because there’s a lot of equity built into that, and you’re able to compensate everyone handsomely as a result of that… So finding the right deal is a major component of that. But then also, someone could come across that deal and not know what to do with it, and I’m glad that we’ve talked about what you did, because it’s a great case study for others.

I really enjoyed our conversation. Thank you for joining us. I hope you have a best ever day, Sterling, and we’ll talk to you again soon.

Sterling Chapman: Awesome. Thanks, Joe. I look forward to meeting you in person at the Best Ever Conference in Keystone in February.

Joe Fairless: Oh, nice. Alright, see you there, my friend.

Sterling Chapman: Thanks.

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