JF1497: Leaving Insurance Sales For More Secure Real Estate Income with AJ Osborne

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AJ has built up a $100 million portfolio in real estate. He took a lot of the skills from his previous job as an insurance salesman. Hear why he decided to leave that job behind and venture into real estate, and how he built up such a large portfolio. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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AJ Osborne Real Estate Background:

  • Built a $100 Million real estate portfolio then became completely paralyzed for months
  • Turns under-performing storage facilities around by focusing on operations, policies and procedures
  • Based in Boise, Idaho
  • Say hi to him at www.cashflow2freedom.com
  • Follow him on Instagram @ajosborne
  • Best Ever Book: Ego is the Enemy

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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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, AJ Osborne. How are you doing, AJ?

AJ Osborne: Doing great.

Joe Fairless: I’m glad to hear that. A little bit about AJ – he built a 100 million dollar real estate portfolio. He turns underperforming storage facilities around by focusing on operations, policies and procedures. He’s based in Boise, Idaho, and you can say hi to him at his website, which is in the show notes page.

With that being said, AJ, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

AJ Osborne: Yeah. It’s actually funny, I haven’t grown up in the real estate world; I actually grew up in the insurance world. I ran a brokerage firm, and sold health insurance. It was through that experience and a lot of events that happened that led me to say “I need to change our model, I need to change what we’re doing, and get into something more secure, reliable, but more importantly, something that can compound, something that I can build”, so I got into real estate in a big way. It was from there that I really started (about five years ago) to really get into real estate.

Joe Fairless: And what was the first foray into real estate?

AJ Osborne: How I happened to transition is when I was working in insurance, I thought that I was secure, I thought that my income was secure, because I was supposedly my own boss. I went out and sold to clients, I got revenue from that, and I could spend my own time doing what I wanted, and it was actually a great life. I got paid really well. But at the end of the day, what really happened is I just got a lot of bosses. Instead of having one, all my clients were my bosses.

I had an experience where we’d made an acquisition of a company, and they came back and stole all that revenue, and we lost a lot of money. I realized “I’m not in control. I don’t own this revenue source.” And where I thought that I was living independently, I realized actually I wasn’t. I just had a lot of bosses.

It was from there that I thought “This isn’t providing any security. In fact, I’m on a treadmill, just like anybody working a 9 to 5. The only difference is my treadmill is going really fast.”

I came up with a plan. I really thought “I need to get off this treadmill. I’m running in place, and I’m running as fast as I can, but I’m just not going anywhere.” With real estate, I found that I can apply what I learned in business and consulting clients, and improving their capital expenditures – I could apply that into real estate and I could take underperforming facilities and turn them around. That’s why we went into storage, because storage is a little more active management. It’s not as passive as one might think. There’s a lot of things going on, but yet I still own it; I own that revenue source, and once I put my systems and procedures and policies in place, I don’t have to actively do anything. So it truly could become passive, yet it held an opportunity for me to increase the value, increase the cashflow in a way that I could never do consulting or working in a job 9 to 5.

Joe Fairless: And you said “we.” Who’s “we”?

AJ Osborne: It’s actually my father and I. We were the ones that were running the business. Then of course, when I started up my real estate company, we hired a lot of people to come on and help us as we’ve grown, to build what we have today.

Joe Fairless: What was your first one?

AJ Osborne: Our first entryway into the storage world – it was actually a very small facility. And it’s funny, this is a great lesson on learning and growing from your mistakes, and not giving up. Our first entry into real estate made us no money. We bought it, it was full, it was great, there was revenue, but then as with a lot of people, the financial crisis hit, we lost a lot of value, and we got out of it at breakeven. Actually, it was about $20,000 less than we’d put into it… But we took that and we rolled that facility and we learned from our mistakes, and said “We need to get a little bigger, we need to have a little more volume”, and we rolled that facility into another facility in a bigger metropolitan area that was not doing very good. We turned it around, and in six months we netted a million dollars.

We took that million, threw it into another facility, we turned it around, increased rates, policies, procedures, hired new people, and immediately that today is now — we have about 4-5 million dollars of equity in that, and it cashes over $150,000/year net profit to us.

Joe Fairless: So the original one, you 1031-ed two times on, and the last one is the one you currently have, where the sale netted a million… So now how much does it spit off in cashflow?

AJ Osborne: The equity in it is around four million, and the net cashflow is over $150,000. It generates about $300,000+ a year. We like to hold everything we own for the long-term, but sometimes there’s opportunities to really take that capital and deploy it in a way that is more efficient, and this was one of those times. But we still hold that asset, but we did 1031-exchange it twice, and essentially took $200,000 for the first one, and rolled into the second one, took a million, put it into the third one through a 1031 exchange, and now we have 4+ million dollars of equity in that one.

Joe Fairless: What are some of the policies you’ve put in place that enhance the bottom line?

AJ Osborne: This is a really important issue for people that are trying to move into real estate investing, to really get into financial freedom and really create passive income that is meaningful. You have to go from investing in a duplex into having 40-50 doors, and in order to do that, you really do have to act like a business. As you’re expanding and as you’re growing your portfolio, you have to create – especially in self-storage – policies and procedures and systems that are automatic. You don’t wanna be running it.

For example, we have an entire book of policies and procedures, and we train our managers that they have to use certain technologies; they can never give away rent rolls. We have certain targets and points that we need to hit, we’ll also bonus them… But when we go into an underperforming facility, we’re looking for a few things; we’re looking at low rent rates, that’s within its own market. We’re looking at inactive managers or owners that have neglected it, that have kind of walked away from it and are just living off of the cashflow, and then we look for good areas.

We’ll go in and we’ll almost always — we’ve only kept I think two managers; we probably had almost 100 managers and we’ve only kept two of them, because they have bad habits. They need to wear a uniform, they need to present well, they need to be good at sales… We upsell everything, from boxes to all sorts of different items that they can use in assistance with moving, and including insurance, which we get paid on. So when a person comes into our facility, we always invest usually about $100,000+ into making it look nice. We’re changing the entire customer’s experience.

From there, they walk in, they see a professional, someone that’s dressed nice, that has our logo, and they come out, they greet them, and they walk them through the whole process, and they treat them — it’s [unintelligible [00:10:54].06] We’re looking for the right product to fit them, and what their needs are. Then we provide them with the supplies that they need to do so.

There’s multiple lines of revenue in most facilities that we buy in, that the current owner – he’s just not using, he’s not even asking the tenants for… And that is such an easy thing, to walk in and switch on. We have property management systems, we have online auctioning systems, so we take that out of our manager’s hands… We really try to streamline the customer’s experience to the use of technology and allow our managers to be hands-on with them, and we see a massive, massive jump in revenue for that quality.

We bought a facility at an auction for around 4 million. We came in, we changed everything about it, we completely redid the office, we repainted, we added a robust online marketing system, we changed the auctions process, we used a new property management system, and we trained the manager really well, and we upped prices within three months by an average of 70%, but in some cases up to 120% or more, and we are more full than when we purchased that facility today… And essentially doubled the revenue on that asset.

Joe Fairless: Wow…

AJ Osborne: And that all happened within a six-month period of time.

Joe Fairless: That is incredible. You mentioned some of the income streams… you said one of them was upselling boxes, another is insurance; what are some additional income streams that you put in place that some owners don’t have in place?

AJ Osborne: When we view income streams, we can also partner with move-in companies, and negotiate percentages, work on business for special use of the product… Or, like one of our facilities that we just purchased – we bought a bankrupt  Super Kmart, and we turned it into a storage facility where we blew out the walls, and you can drive through the middle of the Super Kmart; there’s two-lane automatic doors that come up and down, and there’s a pull-off period… And everything is completely automatic. That individual can go online, rent a unit in California, come to our facility in Nevada, open it up with their app (the doors), walk in, and then they can open up their unit, open up all the doors, have complete access all by an app on their phone. The door is controlled by their phone. So the customer experience has been extremely streamlined.

With that, we automatically issue insurance into that, and we charge a much higher price per square foot for that ease in use for the customer, particularly businesses that need to get in and out and use quickly, and they can give permission on the app to all of their workers.

You may have a company that has five guys that have the app on their phone, and they use that as a business. We get a much higher price per square foot. Then they come in and they buy boxes, locks, [unintelligible [00:14:11].18] wraps, insurance… We basically mandate [unintelligible [00:14:14].09] and we increase the price per square foot of our storage; it’s double on some of our facilities that don’t have that, and we have people lined up to get in.

Joe Fairless: What is that called, that feature?

AJ Osborne: That feature is called Nokē. It’s by a company that we use. The company that we use is called Nokē, and they’re teamed up with [unintelligible [00:14:36].24] They’ve come in and helped us build this out. We’re actually only the second one in the United States to ever do this. It’s been an absolute incredible feature that people can use.

It’s best when you are doing a conversion or a new build to put in this, because for existing facilities you have obviously tenants already, and this is built into the facility. So if you’re converting something into a storage facility, you’re doing a remodel or you’re building one from ground-up, this is a fantastic way to do it.

It’s also a fantastic way for those that have some money, if they’re wanting to get into storage facilities, but they really can’t get into a large facility. They need to start like we did, in a small facility; maybe they have $200,000 to put in. Well, at that level, you can’t hire a manager because it’s not big enough where the economics don’t work… So it’s not big enough to really drive any revenue with a manager, because you’ve gotta pay him. Well, with these kinds of features, you can have a fully-automated small facility where you don’t need to pay a manager. Well, right there you’re adding $30,000 on the small facility’s bottom line. That facility now becomes economically viable, whereas before it was really not.

Joe Fairless: This is really good information, thank you for sharing your approach. This will be very helpful for not only self-storage investors, but just value-add investors in general. Earlier you mentioned you look for three things – low rent within its own market, inactive owners, and good areas. Can you quantify each of those three, just so it gets a little more specific in terms of what type of low rent you look for? We’ll start with that, and then we’ll go into the other two.

AJ Osborne: Yeah. In self-storage, this is a little of an art and a science. I’ll approach it from the science point… And this is very important — I don’t care if you’re in self-storage or any other kind of real estate asset class… It’s being able to really quantify your change. Let me elaborate. So when I go to look for a storage facility, if I like the location and I see it looks beat down, so the [unintelligible [00:16:55].18] so I know I can come put some more money into it and I can make the curb feel better; I don’t care what the cap rate is. I don’t really care about any of those things, because what I do if I take the facility, the amount of units that it has, the square footage, and I apply that to my model, and that spits out a total revenue for me, then I take that revenue and say if I’m trying to get a 20% IRR, this is what I can pay. Then I go and say “This is what I’ll pay.”

What the buyer is selling it for or what a broker says it’s worth means nothing to me. Brokers and bankers don’t tell me what I can buy and what assets are worth; that doesn’t even make sense… Why do they even matter? Because what it’s worth to you and what it’s worth to a REIT or what it’s worth to a mom-and-pop or whatever it may be – those are all different. I only care what it’s worth to me.

I never let bankers or brokers tell me what I can buy and what something’s worth. I overlay my financial models, so what I know I do and how I can perform, over their overall square footage and the rent, and that shows me how much revenue buying this asset or business will produce, and that’s what I pay for it.

So when I go into a market, I look for a good location, because I can’t change that.

Joe Fairless: How do you determine if it’s a good location?

AJ Osborne: Now, this is different for everyone. For me, I specialize in second-tier markets. I don’t go into L.A., because I don’t believe that I can compete as well in that market. So I’m in second-tier markets, like Boise, Reno, Tri-Cities, up in the North-West, Spokane – those kind of areas where I can come in and deliver a great customer experience that they may not have.

I’ve been in really third-tier markets, and when there’s no growth, anybody can build a facility and it will decimate your performance… So I don’t like to go into third-tier markets. I want a good, healthy, glowing market, so there needs to  be economic incentive for people to move there, and the numbers have to show that that’s happening, that there’s actually people moving to this area, they have standard growth. That means I’ll get growth increases in my tenants’ rate over the long haul.

I also look for areas that cannot be over-saturated very easily. So I’m gonna come into a market and look for an area where they couldn’t build five facilities in my two-mile radius. So there’s already infrastructure there. That protects me from things that I can’t control. So when I’m buying, I look for the things that I need to protect me that I can’t control, and then I overlay what I can control; that shows me where I should be and how much I should pay. Does that make sense?

Joe Fairless: It does. It absolutely does. In terms of inactive owners, how do you quantify that, if you can at all? Is that just finances?

AJ Osborne: It’s all about the experience. I look at the financials, but I also walk in. When you walk in, there’s nobody there… They may have a website, but it’s a crappy website; there’s no marketing strategy… The manager’s sitting there, they’re just like “What do you want?” and you can just tell nobody’s running this thing. We’ll ask “Where is the owner?” Lots of times for us it’s out in Southern California; that’s an immediate green light for us.

You look at the shape and the feel of the office. Then we go in and we ask for just the amount of units that they have and what their standard rate is, and that can tell us what the financial performance is usually gonna be. Then once we dive in further – this is very important – we look at what their street rate is, and their actual real rate.

Lots of times you may come in and say “Oh, this 10×10 is worth $60”, but when I look at their overall financials, half of their 10×10’s are at $40, because they never increased those tenants. So they don’t have an active strategy for rental rate increases. That’s what I look for as immediate potential. I can walk in, I can change the existing rates to the street rate, and immediately take that unrealized revenue in for me, yet I’m not paying for it. So that’s where it’s really big. The unrealized rental potential is huge.

There’s another way we find unrealized revenue, and that is through — people will let non-paying tenants sit. So they won’t send them [unintelligible [00:21:36].09] and they may have a 10% in their facility which they show is occupied by people that aren’t paying. We immediately evict those people. We get them out, we put new people in, and we capitalized on that unrealized revenue.

So those are the two ways that we look for how we can immediately come in and raise the revenue, and that is subject also to what we can do in the market. If I look around and say, if you’re at 50 cents/square foot, but all your competitors in the market are 80 cents/square foot, that’s the revenue that they’re driving out of that – I immediately know I can change, and capitalize on that revenue.

Joe Fairless: This is not only helpful for self-storage, but also value-add investors in general. What is your best real estate investing advice ever?

AJ Osborne: Know your numbers, start small, and grow into it. Build a strategy around what you’re doing, and then move up from there. Don’t go all-in on a big project and cross your fingers and pray. That’s a strategy that never works.

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

AJ Osborne: I’m ready.

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

Break: [[00:22:52].14] to [[00:23:31].03]

Joe Fairless: Okay, best ever book you’ve read recently?

AJ Osborne: That’s a good one. There’s lots I’m currently reading. I think Ryan Holiday’s books. I’ve been diving into them, and any books that he has, like Ego Is The Enemy – that’s a fantastic book that mentally puts you in check and make sure that you’re in control, and realizing what you’re good at and what you’re not… That’s a huge, huge part of success, I believe.

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

AJ Osborne: That I like to give back?

Joe Fairless: Yeah.

AJ Osborne: I had a bunch of health issues that left me paralyzed, and things like that, and I like to spend a lot of time with other people that went through the same things that I went through, because I can relate to them and really help them out. That, and me and my wife are very active in our church and giving to church.

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

AJ Osborne: My website, it’s my blog. I put up information, my contact information is up there, and I’m trying to help other people build residual income that they can get off the treadmill, just like I’ve been fortunate enough to do myself.

Joe Fairless: And the website is in the show notes, so Best Ever listeners, you can just click through and check out the website.

AJ, thank you so much. You gave us a crash course on self-storage… I mean, such detailed information… I am so grateful that you were on the show and talked to us about what you look for in a property, and then how you execute on the value-add business plan, and having a plan, and being able to execute on it, first and foremost… And then also how you built your portfolio, from that first property to now… Thank you so much for being on the show, really grateful. I hope you have a best ever day, and we’ll talk to you soon.

AJ Osborne: You too. Thanks, I appreciate it.

JF1336: From Being Kidnapped By The Russian Mob To Managing 13,000 Units Nationwide with Andrew Propst

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If you need some Best Ever Advice about how to manage your properties, who better than someone who manages 13,000 doors? Andrew has seen thousand of situations come up and has a solution for most of them. Oh yeah, he was also kidnapped by the Russian mob. Briefly hear about that story and more importantly for us as investors, hear some excellent tips for managing properties. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Andrew Propst Real Estate Background:

  • CEO of HomeRiver Group
  • Over 18 years of experience both in residential and commercial real estate investment management
  • Past National President of NARPM (2015)
  • Kidnapped and held for ransom by Russian Mob.  Movie made about his ordeal. – The Saratov Approach
  • Based in Boise, Idaho
  • Say hi to him at http://www.homeriver.com/
  • Best Ever Book: How to Win Friends and Influence People

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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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Andrew Propst. How are you doing, Andrew?

Andrew Propst: Great, man. Thanks for having me on the show.

Joe Fairless: My pleasure. I’m looking forward to our conversation. Andrew is the CEO of HomeRiver Group. He’s got over 18 years of experience in both residential and commercial real estate management. He’s the past national president of NARPM (National Association of Residential Property Managers). Oh, and by the way, he’s been kidnapped and held for ransom by the Russian mob… Apparently, there’s a movie made about his ordeal. Is that correct, first off?

Andrew Propst: Yes.

Joe Fairless: Okay, good. Alright, I just wanna make sure that someone didn’t sneak that in for a late April Fool’s day or something, I don’t know.

Andrew Propst: That would have been epic.

Joe Fairless: Yeah. And he’s based in Boise, Idaho. With that being said, Andrew, do you wanna give the Best Ever listeners a little bit more about your background and what you’re focused on?

Andrew Propst: My primary focus is residential property management, multifamily and single-family, nationwide. HomeRiver Group is a third-party property management company; we’re based in 14 states, I believe it’s about 18 markets, and we service investors  managing their properties in multiple locations throughout the country, and our purpose is to offer them great service etc. and find our investors opportunities to invest, so we can obviously manage more properties.

Along with that, obviously, I have my own portfolio of properties that I’ve purchased over the years, commercial and residential. I’ve been in the business — obviously, member of NARPM, member of IREM (Institute of Real Estate Management) and CCIM (Certified Commercial Investment Member).

I’ve known a lot of folks in the industry nationally, I’ve seen a lot of good things in the business, and bad things, and learned a lot, made a lot of mistakes, and occasionally I do something right, so it’s nice to be able to talk to you about a little bit of that today.

Joe Fairless: Yeah, we’ll talk about the good, the bad and the ugly… Since I brought up the kidnapping thing, would you mind just telling that quick story, if it is a quick story?

Andrew Propst: Yeah, the best part about the whole kidnapping thing is that they made a movie about it, and that I can refer people to watch the movie, so I don’t have to tell the story anymore… But your listeners would be pretty bummed if I didn’t give at least a highlight. I was serving as a [unintelligible [00:03:04].22] missionary in Russia; I was approached by some Russian mobsters basically who owed some gambling debts, and they asked us to come over and talk to them about the church. We walked in there, we got beat up pretty bad, we got held for ransom for five days, and then they got scared and let us go. 13 years later, we had a director reach out and wanted to make a movie about the ordeal, and actually did make a movie, which is crazy…

It’s available on Amazon Prime. You can watch it for free on Prime, or Netflix. It’s called The Saratov Approach. You can watch me get kidnapped on TV.

Joe Fairless: There you go… And is it okay if I laughed about you saying “You can watch me get kidnapped on TV”? I don’t want you to be like “Wait, he’s totally just not taking it the right way.” Alright, got it. So real estate wise, you have been in the business for over 18 years, and you’re a past president of the association that organizes property managers… What are some best practices that you’ve learned over the years? Feel free to choose residential or commercial, whichever direction you wanna take it.

Andrew Propst: Well, I definitely have a love of the residential side. There’s a lot of people out there that either have a third-party property manager or manage their property themselves, and obviously I am on the camp of delegating that out, having a professional do it… But either way – if you’re doing it yourself, or have a third-party manager – you want to utilize the lease in your day-to-day operations of your business.

A lot of people get very emotionally involved in what’s going on with their tenants, and allow the tenant’s situation, emotional state, whatever they’re dealing with in their life to dictate the tenancy, and that’s just not how you do it. You obviously want to stick with the lease. The lease is your best friend if you’re an owner or a property manager, and we do a good job of saying “Hey, this is something we’ve agreed to from the beginning. This is what the lease says. I understand your dog died, whatever happened, your paycheck got lost in the mail, but this is what the lease says.” We always just refer the tenants over to the lease, and that’s something that unfortunately the people we manage – almost 13,000 doors nationally; we collect almost 100% of the rents on a monthly basis… But I’ll have a property owner come in with six properties that all six of them are three or four months behind, and it’s because, again, they don’t lean on the lease, and they let the situation happen, whatever it is, with the tenant, and they get taken advantage of. So on a very high level, make that lease your best friend. That’s some of the best advice I can give. Everything that comes up, have something in your lease that addresses it, and when it happens, just point the resident back to the lease.

Joe Fairless: What if I’m living in a property that you’re managing and it’s the very first time I’ve been late, and I will be able to pay in two weeks? What do you do?

Andrew Propst: Typically — again, if you’re two weeks late on your rent… It’s very different from state to state, but typically we would give them, after rent was due, a three-day notice to pay or quit, and if they’ve had a great paying history in the past, we would still send that notice to get them on a promise to pay note. That is basically “Hey, this is the conditions that you’re agreeing to if you don’t pay. If you don’t deliver the rent by this time, then you’re forfeiting the property back over to us.”

So again, if they didn’t pay, we’d proceed with the eviction. If they did pay, then we would be fine; we would still collect the late fee.

Joe Fairless: Is that promise to pay note mentioned in the lease at all?

Andrew Propst: No, because this would be an addendum to the lease. Basically, whatever state you’re in, whatever the laws allow in your promise to pay note, you can put in there. There’s some states where you can get away with exercising those notes, and some states where there’s just a lot of fluff and you still have to go through the rigmarole of the eviction. But if you allow the tenants to pay late once, they’ll pay late forever if you don’t have these kinds of things in place.

Joe Fairless: What’s another policy that perhaps you didn’t have before, but now you make sure is in place?

Andrew Propst: I think that the many years of managing properties — when I first started managing properties, we had a lease that was three pages long. Our lease now is probably 12 or 13 pages long, so putting these things in place… One thing I really liked that we started doing about two years ago – if you own investment properties and you have central air in those investment properties, tenants, just like homeowners, are horrible, horrible at changing their air filters, and this is a huge expense. The furnace filters etc. are easy to change, but nobody remembers to do it, so we implemented an awesome product called Filter Easy, where a new filter will get sent out to a tenant on a regular basis, in the mail; [unintelligible [00:07:57].09] they put it in the furnace…

If  we go out to the property and they’ve got an old filter in there and the points are dirty because they haven’t changed the filter, then our lease says that we charge the tenant for that, versus the owner getting the bill. So I love the Filter Easy program, or regular filter delivery program, because just like homeowners, tenants forget to do it, and it’s a huge mess; owners do not like getting $500, $600, $700 HVAC bills because their tenants never changed their filters. Before we had this in place, we saw some of the nastiest filters you could even imagine.

Joe Fairless: That’s a good business model. I just went to their website, Filter Easy. I hadn’t heard of them before.

Andrew Propst: It’s great, and they integrate with our property management system, so the second a tenant moves in. The other thing that owners typically like about it is we charge the tenants for it. It’s a tenant charge, versus an owner charge… So they get billed a small monthly fee – once a month or once a quarter, depending on which part of the country they live in – and they’ll get a filter automatically delivered to their door… And they change it, because people just don’t remember it. It’s crazy.

Joe Fairless: And who pays for that?

Andrew Propst: The tenant.

Joe Fairless: The tenant pays for the ongoing filters?

Andrew Propst: Yes, that’s right.

Joe Fairless: And how much is it?

Andrew Propst: It just depends. You have to talk to Filter Easy about that, I’m not 100% sure. It just depends on how regular the filters go out, whether it’s monthly or quarterly or bi-annually…

Joe Fairless: You make sure that they have that set up, but you’re not managing that process…

Andrew Propst: No, Filter Easy. Once we put them in our system, Filter Easy automatically starts sending them the filters.

Joe Fairless: And they give Filter Easy their credit card information, or however they’re paying?

Andrew Propst: We bill them. If their rent is $1,000 and they get billed $10 or whatever, they would pay $1,010 dollars.

Joe Fairless: Is there a profit margin for the landlord on that?

Andrew Propst: It depends on how you set it up and how you negotiate with Filter Easy, but I think there are some property managers that probably make some money doing that, or owners that are probably making some money doing that. I can tell you that the owners are saving a lot of money by having their furnaces properly cared for.

Joe Fairless: What’s been a challenging property that you’ve taken over to manage?

Andrew Propst: On the third-party level, the most challenging properties are properties where owners don’t wanna give up control – “This is the way we’ve always done it”, blah-blah-blah. So we have very, very clear systems, and those systems when followed, things go great. When we have owners that are very specific as to how they want things done because this is how they’ve always done it, and then we deviate from those systems – that’s when those properties go the wrong way.

So in general, an owner that doesn’t wanna give up control of their property – which is the whole reason you hire a property manager, right? So this stuff will get done and taken care of without having to bother you, and there’s a statement and a check that shows up on a monthly basis; that’s the whole idea. If the property owner feels like they have to continually manage the property and manage the manager – that’s tough for us, and it’s probably not a good fit for the property owner… So those are tough.

As far as tenants in the property that are just difficult – we’ve dealt with them all. We’ve got pretty good processes on how to deal with most of them. I think some of the best deals out there right now are the most poorly managed deals. When there’s owners that are just desperate to sell, it’s because they have done a really bad job managing their properties, or their property manager has done a bad job managing their properties; they’re under-rented, they’re not collecting the way they should, and if you can identify those opportunities, there are some major buys out there for investors who probably listen to this podcast on a regular basis, some great opportunities. All the best real estate deals I’ve ever purchased are the ones that are the poorly managed ones.

Joe Fairless: That’s a perfect segue, I’d love to talk about your portfolio. You said you have your portfolio of commercial and residential properties… What are you actively buying right now? What type?

Andrew Propst: Right now mostly small multifamily, which is 100 units or less, single-family… I’ll look at anything on a commercial; I’m pretty bearish on office space and retail just because of what’s going on in those spaces, but… If you can get a good deal on multifamily, I think multifamily has some very, very long runway. I think one of the best plays right now is to go vertical, do a build to rent project in certain markets, because their margins are there, the need is there, and it seems like everything I’ve read, all the conferences I’ve attended and the statistics are saying multifamily is here to stay.

We have about three million multifamily properties that should be in the ground, being built right now, or [unintelligible [00:12:25].13] and they’re not there. Somebody’s gotta fill that void, and I think that is a good play and obviously I’m trying to take advantage of that as much as possible. Since 2010 I’ve helped investors put about 4,500 brand new multifamily doors in the ground, mostly in the Boise market. We’ve got a couple projects in Kansas City, also Memphis, but primarily those are in Boise… But there’s many opportunities, especially in the secondary/tertiary markets in this country, where build to rent is an amazing option. There’s some really good financing out there for that, and if you can find the right builder and maybe find the right partner too, there’s some major opportunities to take advantage of the huge need for multifamily.

Joe Fairless: You said three million units that should be up that aren’t. Where did you get that stat from? What’s the source? I’m just curious…

Andrew Propst: The source – it would be coming from the National Multifamily Council. Like I said, the three million unit delta, to where we and where we are. In some of these markets we’ve seen national historical vacancies of 7%. A lot of markets, especially on the West Coast – there’s 2%, 3% vacancies. That’s major. Even in Los Angeles, people aren’t building a lot of apartments because it’s just too expensive – vacancies are zero. There’s a huge need for multifamily housing, and it’s just not out there.

Joe Fairless: What was the last property you purchased?

Andrew Propst: The last property I purchased was on Friday, and it was a single-family home in Memphis, Tennessee.

Joe Fairless: What are the numbers?

Andrew Propst: It was $50,000, rented at $850. I think it’s between 1,100 and 1,200 square feet. It’s in a B area, probably a C property. It already came with a tenant in it, and it was sourced by one of our property managers there in Memphis; he brought it to me, and it was a very good deal.

Joe Fairless: That’s a whole lot of cashflow for a $50,000 house.

Andrew Propst: Buy those all day long in Tennessee, if you can. They’re harder to find than they used to be, but those deals are still out there. I couldn’t buy a cardboard box on a lot in Boise, Idaho, but I can buy a really nice C/D property in a C/D neighborhood in Memphis all day long. I love Oklahoma City, there’s still great buys in Indi, some good buys in North Carolina… Those are areas that we manage. If we’re there up and managing, I feel very comfortable buying outside of my home state, and having our property managers take care of it.

Joe Fairless: For a listener who’s attempting to vet a property management company – let’s assume you don’t own one for a second – how would you vet a property management company?

Andrew Propst: That’s a great question. Typically, I would say 90% of property owners that are looking to potentially buy an investment in a market would start their search online. I would look to see how transparent that property management company comes across online. First of all, are they members of any local associations or national associations in regards to property management or real estate? The question is, when you’re looking at their website, what do they have to lose? If they don’t have a lot to lose, then maybe you wanna stay away from that one. But if you can go onto that website and see that they’ve got a good management system by clicking the Owner Portal login, to see if you have full transparency into your statements, into what’s happening on your property – that’s huge.

If you can see the owner’s name and you can see how to call that person and they have a biography there about what they’ve done, if you can see their employees… Are they putting themselves out there so if something goes wrong they’re gonna fix it? Those are things that I would start my search with.

Then, obviously, make a couple calls. Find the ones on there that have been there for a while and seem to be doing it right, and give them a call. I think obviously looking at the reviews too, but a lot of the times – I’m just saying this for my fellow property managers – property managers get a lot of bad reviews, but a lot of those times those bad reviews are from tenants that aren’t getting their security deposits back, which is the property managers stepping up and taking the heat for the owner, because that tenant has done a bad job being a tenant.

So I would try to weed through a lot of those bad reviews and look for owner reviews, see what the owners are saying specifically, versus how much are the tenants complaining because they’re not getting their security deposits back. That’s kind of the difficulty of being a property manager – you’re stuck in between doing what’s right for the owner and doing what’s right for the tenant, and you have to kind of be in the middle there. And sometimes, when you do what’s right, it makes one of those people very upset, and then they go to Yelp or Google and let you have it.1

Joe Fairless: When you make those calls to the property management companies and you’re attempting to determine if they’re (as you said) “doing it right”, what questions do you ask to determine that?

Andrew Propst: Hey, if it was me, I would wanna talk to somebody that understands investment property, and not just a toilets and tenants property manager. A T&T property manager — hey, I deal with tenant problems all day; “if you’re toilet’s leaking, I fix it”, that is not the kind of person that I personally wanna work with. I’m not saying that they’re good or bad, but probably not the best partner long-term to work with. I wanna be able to talk to my property manager about “Hey, what’s the market doing? What kind of cap rate can I get if I sell this or want to buy more properties?” More of an investment property manager, versus a property manager. I want them to understand what an IRR is, and understand how to put together a budget on my property, send me budget comparison to income statements, and basically manage it like a true asset, versus just sitting around and waiting for problems to happen.

Joe Fairless: Most businesses wanna compete based on value, not price. I get that. But just from a price standpoint, what are the fees that an investor should expect to come across for a high-quality property management company?

Andrew Propst: On the property management fee I would expect to pay anywhere between 7% and 10%. I can’t say specifically what people pay in certain parts of the country. If you say “We’re gonna start charging this fee” [unintelligible [00:18:30].20] but what I typically see across the country, shopping other property management companies – if it’s a single-family home, you’re going in and you’re buying one single-family home, you should be looking at a 7% to 10% management fee.

Joe Fairless: Based on your experience, what is your best real estate investing advice ever?

Andrew Propst: Diligence. When you’re making a buying decision, get all the information that you can. I’ve seen investors do this – they’ll go in and buy a single-family or a multifamily, a commercial, and they won’t even look at the leases, they won’t look at the tenants, they won’t look at the applications; the real estate agent won’t even put in the contract to transfer the deposits at closing… So just understanding “What does the actual income look like? What are all the expenses that are associated with that property? …not just what the owner says.”

There’s so many resources out there where you can go and get the right answer the first time and put it into your proforma and get it right, so you understand specifically what you’re buying. Who the tenants are paying the rent – that’s so important and gets overlooked all the time – and then what do the applications look like, and putting together a planned budget for that property and then having your property manager execute that plan.

I can’t think of better advice to give to folks… Because when I’ve done that, my investment is awesome; when I haven’t taken the time, I get surprised, and things happen that are outside of my vision for that property – that’s because I wasn’t looking. So just let the facts determine what’s going on and do your best to try to put the emotions aside, because you have an agent or a family member or a friend saying “This is the best deal of all time.” It could be, but make sure you check all the boxes before you execute on that decision.

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

Andrew Propst: I am so ready!

Joe Fairless: Well, I am so ready to it, too! First, a quick word from our Best Ever partners.

Break: [[00:20:32].13] to [[00:21:18].12]

Joe Fairless: Okay, best ever book you’ve read?

Andrew Propst: How to Win Friends and Influence People, Dale Carnegie.

Joe Fairless: Best ever deal you’ve done that wasn’t your first and wasn’t your last?

Andrew Propst: A 42-unit apartment building in Nampa, Idaho.

Joe Fairless: Do you still own it?

Andrew Propst: Just sold it.

Joe Fairless: What were the numbers on that?

Andrew Propst: I paid 1,750,000, sold it for 3,050,000, held it for two years… Increased average rent from $435 to $715 in two years.

Joe Fairless: 50k – was that in reference to how much you put into it?

Andrew Propst: No, I bought it for 1.7 and change, sold it for $3,050,000.

Joe Fairless: How much did you put into it?

Andrew Propst: 250 cap ex. It goes to show – one of my favorite quotes: “You never know how important a property manager is until you hire a bad one.”

Joe Fairless: So true.

Andrew Propst: That was a situation where there was bad property management, you had owners that didn’t care about what the rents were… The average rent for that property was $435; in two years we had it to $715. If you understand how to calculate cap rates, I think we bought it with a projected cap rate of about 15, and then we sold it just over a 6, so that’s why we almost doubled our money in two years.

Joe Fairless: And by “we” – it’s you and investors, or…?

Andrew Propst: I have partners.

Joe Fairless: Got it. Are they passive investors, or did you all joint venture together?

Andrew Propst: It was an equal partnership. We sold that building a month ago. We’re in the middle of a 1031 exchange; we’re buying a property in West Memphis on the exchange because of that. But after all the real estate etc. was paid, we had 1.5 million in equity.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Andrew Propst: Just going back and not doing all the due diligence. I’m trying to think of something specific that I’ve done that was pretty dumb… I’m a pretty picky investor, man [unintelligible [00:23:09].23] I bought a portfolio of properties in Memphis, Tennessee, and because there was a portfolio, I didn’t get to look at them all the way I normally would – when I said a portfolio, it was nine single-family homes – so there were some surprises that popped up, and I should have looked a lot closer. Not that it’s gonna hurt; it’s not gonna hurt too bad, but it hurts, for sure.

Joe Fairless: What was the biggest ticket surprise?

Andrew Propst: Just the amount of rehab as we moved the tenants out to either re-tenant or flip… The amount of rehab that came along with the properties; all these properties were A properties, nothing was older than 2007, so we assumed rehab numbers, and some of those assumptions were not right.

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

Andrew Propst: Best ever way I like to give back… I think it’s pretty easy to give money; I think the best way to give back is to get involved and volunteer your time. I’m very involved with the Boy Scouts of America, and so when there’s opportunities to jump on an Eagle project or serve the local community with Boy Scouts, that’s something that’s awesome, just because of what Boy Scouts has done for me. Individually, if I can figure out a way to help out locally, that’s pretty powerful.

Joe Fairless: And how can the Best Ever listeners get in touch with you?

Andrew Propst: Probably through our website, HomeRiver.com. It’s very easy to get to. I’m the current CEO, so if you click on the company profile, you can see me and you can message me there. If there’s anything I can do to help with the property management, investment questions, build to rent, that kind of stuff, I’d love to help any way I could.

Joe Fairless: I really enjoyed our conversation, from some fundamentals with sticking to the lease – the emotional state shouldn’t dictate the policy at that point in time; it should be the lease.

Andrew Propst: Very well said.

Joe Fairless: I pretty much wrote down my notes by what you were saying, so we’ll credit you to that, because you were the inspiration behind it. Then also the due diligence that’s important – you talked about what we should do, and then what happens if you don’t do it (on that portfolio in Memphis). And then congrats on the recent sale with the apartment building, and best of luck with the 1031 exchange into the one in Memphis.

Andrew Propst: I really appreciate that.

Joe Fairless: Thank you again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Andrew Propst: You too, thank you so much.

Best Real Estate Investing Advice Ever Show Podcast

JF994: Investing with Your Mastermind Network, Leveraging REALTORS, and a Road Trip with Contractors

Listen to the Episode Below (21:27)
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Those mastermind events are extremely valuable, so you better start attending! Our guest was able to find investors for his projects through masterminding! Hear about how he leverages realtors and other real estate professionals, and yes, he took his contractors on a road trip.

Best Ever Tweet:

Kevin Carroll Real Estate Background:
– Kevin and his team have sold 1000 units, and flipped almost 100 homes
– Specializes in REO and investment properties with nine years of real estate business experience
– Recently released his new book “A Journey To Financial Independence”
– Based in Boise, Idaho
– Say hi to him at http://idahoriverrealty.com
– Best Ever Book: Rich Dad, Poor Dad

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fixer-upper investment advice

 

 

Joe Fairless: Best Ever listeners, 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. We only talk about the best advice ever, we don’t get into any fluff.

With us today, Kevin Carroll. How are you doing, Kevin?

Kevin Carroll: I’m doing outstanding.

Joe Fairless: Nice to have you on the show, and looking forward to diving in. Kevin specializes in REO and investment properties, with nine years of real estate business experience. He recently released his new book, “A Journey To Financial Independence”, and he and his team have sold 1,000 units and almost flipped 100 homes. Based in Boise, Idaho… With that being said, Kevin, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Kevin Carroll: We started out nine years ago selling bank-owned properties, and two years ago we realized that those banks have taught us how to flip houses… So I raised a bunch of cash and reached out to my friends across the country that I knew, and started looking at deals. If anyone wants a copy of my free flip sheet, they can go to AJourneyToFinancialIndependence.com and get my free flip sheet. It’s something I use every day to analyze these flip properties.

So I just kind of started looking around and trying to make a little bit better money, or doing things myself and controlling more of the process. We learned a lot along the way. You can’t do that many properties without having a few fumbles. So we’re learning as we go, and we’re definitely looking for more deals, but we’re being a little more specific. I know what I’m good at, so I’m trying to focus on that, as well.

Joe Fairless: Alright, well you’ve given me a lot to work with. I’ll approach it from a more chronological standpoint, because there are a lot of directions we can take this. You started working with banks, and you said they taught you the flipping process. Can you elaborate?

Kevin Carroll: When a bank gives you a property to list, it usually comes in an e-mail and they say “Here’s an address, go tell us what we have.” So we go to the property. If it’s occupied, we have to find out if it’s a tenant or it’s an owner occupant that got foreclosed on, and ask him to leave, and give him cash for keys sometimes. That means we give him a check for whatever the bank agrees upon, and then they leave the house in broom-clean condition. So they either do or they don’t, and then we get the house and get bids to clean it up and fix it up to a standard that we want, and to say like “If we do these things, we can get this kind of offer, and this is the price we think we should list it for, and this is the route we think we should go” and then we’ll give them repair bids to that effect.

Then the asset manager that works at the bank takes that and creates a marketing strategy based on our advice, and then also they may get a second opinion of value. So then they’re gonna make a marketing plan, and then they want us to implement that plan for them. “Okay, do these repairs, list it at this price, and present the offers back to us.” We’ve done that almost 1,000 times, and when you do it that many times, you have really good subs and contractors. I know exactly how much it costs to fix anything. Then we were able to take that knowledge and say, “Okay, well what if we do it for ourselves, what does that look like?” So that’s what we started to do.

Joe Fairless: Let’s talk about how much it cost to fix anything… What is something that surprisingly is inexpensive, and what’s something that’s surprisingly expensive?

Kevin Carroll: I can answer that a couple different ways. Our typical remodel is about $40,000. In that is kitchens and bathrooms, maybe a roof, maybe an HVAC system, something that makes a huge difference. Some of the banks have a lot of handcuffs where their investors say they can only do a certain amount of things or they can’t spend more than $500 [unintelligible [00:05:52].06] I don’t have any of those handcuffs, so it makes sense to me I’m gonna do it, and I’m able to execute it a lot quicker, because I don’t need to get three bids; I want you to pick your best contractor and use them and get it done fast. So I’ve kind of taken the best parts of what I learned, and then taken out some of the inefficiencies.

Some things that make a huge difference are curb appeal. It might not cost much to paint the front door and put a new lock set on, but it makes a big difference. And some of the more expensive things, we’ve had some water mitigation issues where there was water in the [unintelligible [00:06:24].16] or something like that. That’s kind of a huge unknown. So we’ve had some things like that where I thought it’d be easy to fix, and it would cost $20,000.

Joe Fairless: Ouch!

Kevin Carroll: Things like that, that you didn’t account for along the way.

Joe Fairless: On the water mitigation front, anything that you look for now with homes that would be a red flag?

Kevin Carroll: Yeah, a wet crawl space. [laughter]

Joe Fairless: A bunch of standing water in [unintelligible [00:06:52].17]

Kevin Carroll: Yeah, I mean it was pretty obvious, but it was like “Oh, that’s gonna be easy” and it wasn’t. Sometimes it is, sometimes it isn’t, but stuff like that. Or we had one we had to cancel; it had a cracked foundation and it just wasn’t fixable. So there’s certain areas of the country that are more prone to… Like, Florida has sync holes. I live in Idaho, I’ve never even heard of a sync hole until I started buying houses there, where the house literally caves in upon itself, because there’s a hole in the ground, and like termites and things. So different areas of the country have different challenges, but a house is a house, and they’re all kind of built the same way.

Joe Fairless: Let’s talk about how you have evolved your business. You were initially taking properties that the bank had and listing them, right?

Kevin Carroll: Yeah, and I still do that quite a bit.

Joe Fairless: You still do that, okay. But then you said you were doing that for a while, you learned the process, and then you went out and raised a bunch of cash and started looking for your own deals. How much cash did you raise?

Kevin Carroll: 2.5 million dollars.

Joe Fairless: Okay, you raised 2.5 million… How many people put in the money to make up the 2.5?

Kevin Carroll: Not very many, just a couple of close friends.

Joe Fairless: About how many? Two? Five? Three?

Kevin Carroll: Three.

Joe Fairless: Okay. I guess when I said “About how many?” I meant exactly how many… [laughter] “About how many? Give me a specific number.”

Kevin Carroll: Yeah, and I’ve been doing business with these people for a long time too and they trust me. So that’s half the battle, but then it’s proven you can do it, and then working on becoming more efficient and getting better. And when you start buying stuff for cross-state lines, you have to register your business in these states… It got really complicated really fast. I’m buying properties in eight different states, and there’s accounting stuff, and attorney stuff, and different things that I didn’t even know we had to do until we started to do it… [unintelligible [00:08:43].01] where is this document?”

We’re learning as we go, but when you start doing it at a little bit higher level, you get introduced to new friends and new opportunities, and I’m not afraid now to look at properties. Now I’m looking at a piece of dirt with a couple duplexes that we could put 11 more in Indianapolis right now. I would have never even thought I could do that before, and now I’m just starting to analyze that. So I’m able to look at opportunities in other places and it opened my eyes up to a lot more opportunity.

Joe Fairless: The 2.5 million from three people – on average that’s $833,000 a person that they’re putting in. Not looking for names, obviously, but I am curious – I know the Best Ever listeners are curious, or I think some of them are – how you met these three people? You said you’ve been doing business with them for a long time, but tracing back exactly where you met them – where did you meet each of these three people?

Kevin Carroll: Well, one is my mother and one is my brother, so I’ve known them for a while… [laughter] And then the third lady I’ve known for about seven years. I’m in a networking group with her and she’s seen me grow as a person and she knows my experience, and it’s not a lot of money to her, so it was more of a test, really.

Joe Fairless: What networking group are you in?

Kevin Carroll: I’m in a couple different ones. GoBundance – have you heard of that?

Joe Fairless: I have, yeah. That’s with Pat…

Kevin Carroll: Pat Hiban, yeah.

Joe Fairless: Hiban, thank you.

Kevin Carroll: Yeah, he’s one of the founders of that. Super outstanding group. And then the real estate group is called ERN – Elite Real Estate Network. It’s a pretty tight-knit group of real estate agents that are in non-competing markets that we travel and network together and help each other get business… So it’s a pretty small group of close friends I’ve known for a long time.

Joe Fairless: Which of those groups did this investor who you’ve known for seven years come from?

Kevin Carroll: The Elite Real Estate Network. The GoBundance is an all-guys group.

Joe Fairless: Oh, that’s right, yeah. Dude fest. I remember now. Okay. So you raised the money… How did you structure it? Did you create a fund?

Kevin Carroll: No, it’s just an LLC that I don’t own, but I’m a member. So I’m a 0% owner/member. I have signing rights on those corporations and I have access to bank accounts and stuff like that. So I can encumber and sell properties in those corporations, so I became an authorized agent and a member of them, so I’m able to do that. I had a couple of documents I had to get notarized.

Joe Fairless: If you’re a 0% ownership member, then how do you make money on this?

Kevin Carroll: The way we structure it is say you’re a realtor in Chicago and I do business with you… I look at all my real estate agents as partners, so I don’t think of you as a real estate agent, I think of you as a partner. So we find a deal, we analyze it, we say “Yeah, it’s gonna make money”, so the real estate agent takes the property, and just like I do for banks, they do the same thing for me. They analyze it, coordinate the repairs… So I buy the house in that LLC, and then they coordinate the repairs, finish those, list the house and sell it for free, and then they get 40% of the profit of the deal, I keep 25% and the investor gets 35% for their time.

It enabled me to scale, because I don’t have to make all the small decisions; they do, because they make a large portion of the profit. So I’m not picking out paint colors and making all these little decisions, but when we list it, they say “This is the plan, this is what we execute” and we just move forward. If something needs to be fixed, they fix it; they don’t have to ask me for any small details, because they’ve now become more of a partner in my eyes than just an agent where they’re asking permission for things. It’s more of like, “Hey, what’s gonna make the most sense? Let’s do that.”

Joe Fairless: That’s an interesting structure, thanks for sharing this. How did you come up with that idea?

Kevin Carroll: I just thought of it, I don’t know. I just made it up. Real estate agents that are really good ones don’t get paid enough, in my mind… Especially for doing that much work. So I wanted to make a model that compensated them significantly, so that they start wanting to do more of this. Because a lot of people, if you just make a 3% commission and you have to manage all that work, and the contractors and all that stuff… Just selling a house is fine at 3%, but if you’re managing the renovations and stuff, you should be paid more. That’s what I believe.

Joe Fairless: What’s the last deal that you did?

Kevin Carroll: I’m in a couple right now that are kind of interesting. I bought a non-performing note up in Spokane Valley, Washington from a junk note dealer, and had to foreclose on it… I’ve never done that before. So I became the bank. And then I foreclosed on it, I set the foreclosure price at the auction, nobody bought it, so then I listed it in the MLS – and it’s in a kind of messed up state – for a month and no one bought it, so then I hired a contractor to fix it. He started working on it, and he worked on it for about two months and then stopped. Dude did nothing for two months. [laughter]

So I paid him about $7,000. Too much… But he was working. I gave him money, he did the roof; I gave him money, he did the siding; I gave him money, he fixed the inside. I gave him more money to order the cabinets, and then he just vanished. So I took my crew from here in Boise and we drove up there, we spent seven days there and we fixed the house.

I put it on the market on Friday, got four offers within a day and a half, and now it’s pending. So as I go and I learn, I’m able to kind of adjust, and I’ve got such great contractors here that I’m just so lucky to have them… And I think they feel the same way about me, so I try to keep them as busy as I can and make them as much money as I can. So that one we kind of repaired and fixed, and I’ve had another one like that one with the water damage in Seattle. It had the same problems, and I had to take my guys and we had to go there and fix it.

Joe Fairless: The non-performing note – what city is that in?

Kevin Carroll: Spokane Valley, in Washington. It’s right on the Idaho border.

Joe Fairless: How far away is that from Boise?

Kevin Carroll: It’s a seven-hour drive.

Joe Fairless: How many contractors drove from Boise to Spokane and did this…?

Kevin Carroll: Me and three guys.

Joe Fairless: What were your all-in costs? And when I say that, I mean what did you buy the non-performing note for…?

Kevin Carroll: I bought it for $6,000 and  then I got a hard money loan on it… It was supposed to go a lot quicker. A lot of it went sideways, but I had a contractor bid for $40,000 to fix the house, and I think he may have underbid it and that’s why he stopped… But I paid him 16k, and then I spent another 30k fixing it, or something like that…

Joe Fairless: Okay, so all-in a little under 100k?

Kevin Carroll: Yeah, but then there’s some hard money costs and loan fees… These are the ones you learn on, right? It wasn’t connected to the city sewer, and it was supposed to be, so I had to pay a $5,000 fine because it had three years of back-due sewer bills that weren’t paid because it wasn’t connected, so I had to pay someone to connect it to the sewer, and then to pay the $5,000 back-due penalties, and a couple years of back taxes… Some of those things I knew about, and some of those things I didn’t.

Luckily, when they have a surging market, some of those things are forgiven. But we’re gonna do okay… We’re not gonna hit a home run, but we’re gonna get our money back and lick our wounds and go again. You learn from these things, so…

Joe Fairless: What is it under contract for?

Kevin Carroll: We listed it at 130k and we got it a little higher than that, so… [unintelligible [00:16:07].17] That was probably close to our breakeven point when you think about all the numbers and everything like that… But luckily, I was able to save it, get our money back and make a little bit, and make our contractor some money and move on. But every time I learn a little bit, and a lot of it comes down to execution and speed and picking the right subs and contractors. For me now, any time I pay somebody anything, I have someone I know and trust verify they did the work [unintelligible [00:16:34].00] That’s my lesson – verify, then pay.

Joe Fairless: Yeah, that makes sense. What is your best real estate investing advice ever?

Kevin Carroll: I would say look into the real estate space and figure out what you like to do, and then find someone that’s doing it at a high level and study and shadow them and pay whatever cost to get around them and learn from them. That’s your fastest way to succeed, in my opinion. Get some new friends that are doing exactly what you wanna be doing, shadow them, do whatever it takes to get in front of them and learn from them.

Joe Fairless: And you are not just talking the talk, you’re walking the walk, because you’re a member of a couple masterminds, and one of them, The Elite Real Estate Network – one of your big time investors came from that network.

Kevin Carroll: Yeah. And the GoBundance groups, there’s tons of resources there. I’m building a 100-unit rental portfolio in Tampa, Florida right now with another GoBundance guy, so we’ve got lots of fun things happening in our world.

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

Kevin Carroll: Sure.

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

Break: [[00:17:25].10] to [[00:18:29].14]

Joe Fairless: Best ever book you read?

Kevin Carroll: Best ever book I read? Rich Dad, Poor Dad.

Joe Fairless: Best ever deal you’ve done?

Kevin Carroll: Double landed a piece of land here in Idaho, made an $80,000 commission check. That was pretty nice.

Joe Fairless: What do you mean “double landed”?

Kevin Carroll: We represented the buyer and the seller.

Joe Fairless: Okay. Best ever way you like to give back?

Kevin Carroll: By writing the book and doing podcasts like this, I really hope to show people, your listeners and people out there that this is an amazing industry that we’re in, and I think that we all have a responsibility to figure out a way to become what I like to call a “one hundred percenter”, so have your passive investments – have them pay more to you every month than you need to live. I wanna teach people how to do that so that they don’t have to work anymore.

Joe Fairless: What’s a mistake that you’ve made, tactically speaking, on a deal that you haven’t mentioned already?

Kevin Carroll: Usually, when we make mistakes we overestimate what we can sell it for; we think we’ll sell it for 200k and it really sells for 180k. And we underestimate what the repairs are gonna be – that’s probably the easiest thing to get away from you. If you have a $30,000 budget and you spend 50k – that’s obviously a problem. But it’s very easy to do, so that’s probably the hardest thing, to stay in budget.

Joe Fairless: Where can the Best Ever listeners get in touch with you?

Kevin Carroll: Go to AJourneyToFinancialIndependence.com and you can contact me, e-mail me there, get my free flip sheet, all that fun stuff.

Joe Fairless: Excellent. Kevin, I enjoyed our conversation, learning about your business model with the LLC and how you work with other agents who oversee the projects and how you structure that with your investors, and how you met one of your big time investors through a networking group… And then the case study of buying the non-performing note. I’ve interviewed non-performing note investors and I haven’t heard as detailed of a case study as you just gave when it didn’t work out. Previous guests certainly told me about when it didn’t, but I haven’t heard of anyone taking contractors on a seven-hour road trip…

Kevin Carroll: We lived in the house…

Joe Fairless: Yeah, living in the house…

Kevin Carroll: Lived in there and fixed it. I really have good friends here. You can’t do that with a regular contractor.

Joe Fairless: Right, yeah. Well, that’s a testament to the relationships and playing the long game and treating people right. Thanks so much for being on the show. I hope you have a best ever day, Kevin, and we’ll talk to you soon.

Kevin Carroll: Awesome, thanks Joe!

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JF24: I Screen, You Screen, We All Screen for Tenant Screen…ing Tips!

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Best Real Estate Investing Crash Course Ever!

Buckle up partner. Joanna Weber shares with you her best ever tenant screening tips. With the amount of money you save form lower tenant turnover after listening to her you’ll be able to buy your own ice cream store.

Get ready. She’s about to share with you her best real estate investing advice ever!

Joanna Weber’s real estate background:

  • Full time real estate agent in Boise, Idaho
  • Owner of 11 single family homes with a 12th under contract
  • Owner of a property management company in Boise Idaho

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