JF1530: Broker, Flipper, Landlord, & Syndicator Tells His Best Stories with Carlos Gutierrez

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Carlos is a broker and has been flipping houses since 2010. He also owns over 40 units and has syndicated 20 of them. He shares some great stories with us of how he’s gotten to where he is today. From his syndication deal to why he is no longer flipping much. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Carlos Gutierrez Real Estate Background:

  • Realtor since 2010, flipped about 20 properties from 2011-2017
  • Purchased 20 units raising $200k to close, rehabbed and paid investors back after 14 months
  • Owns another 41 units
  • Based in Charleston, South Carolina
  • Say hi to him at cg4properties@gmail.com or 843.934.4250
  • Best Ever Book: Best Ever Apartment Syndication Book by Joe Fairless

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Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help. See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


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, Carlos Gutierrez. How are you doing, Carlos?

Carlos Gutierrez: Good, Joe. How are you guys doing?

Joe Fairless: I’m doing great, and welcome, and looking forward to our conversation. A little bit about Carlos – he has been a realtor since 2010; he flipped about 20 properties from 2011 to 2017, purchased 20 units, raising $200,000 to close; rehabbed and paid the investors back in 14 months. Owns another 41 units. Based in Charleston, South Carolina. With that being said, Carlos, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Carlos Gutierrez: Yeah, how’s everybody doing? As Joe and I were speaking earlier, we are safe here in Charleston, from the hurricane. It wasn’t that bad. We got a little bit of rain and some wind.

A little bit of my background – I’ve started flipping houses in about 2010-2011. I flipped about probably over 15 to 20. When I first started, I got my real estate license, became a realtor, and at the same time that I was flipping houses I was also doing the brokerage side of the deal, so I was buying and selling houses with buyers and sellers. I did that from 2011, and I still do it now. I don’t concentrate as much on it.

Joe Fairless: Why not?

Carlos Gutierrez: Just because it’s like multifamily – it’s gotten harder to find good, solid deals. I’ve always been of the model that I’d rather keep my money than lose money.

Joe Fairless: Ditto.

Carlos Gutierrez: So if I get a solid deal, then I’ll go after it, but they’re just hard to find, especially locally here in Charleston; we’ve gotten a lot of investors – not only local investors, but national investors – just buying stuff up left and right. They’re essentially buying for yield, so they’re kind of overpaying, in my opinion, for properties that I was buying for 20%-30% less two or three years ago.

Joe Fairless: And you purchased 20 units raising $200,000 to close. Can you talk about that?

Carlos Gutierrez: That’s a little bit of a cool story. My wife and I, we moved from the DC area from Virginia, down to Charleston. She’s from Virginia, I’m from Florida. I didn’t wanna be in Virginia, she didn’t wanna be in Florida, so I said “Pick somewhere in the middle.” So we ended up in Summerville, South Carolina, a submarket of Charleston. We’d come visit a couple of times, to look at houses and see where we wanted to be.

One day we were down here looking at new construction, and I have a five and a three year old, and my wife wanted to stop and get some food, and we looked at our phones and we’re like “Oh, let’s go to a Subway.” When we actually got to the Subway, there was actually no Subway there. The Subway had closed down and it became an office building. But while I was in the parking lot I had looked across the street; there was an 8-plex that was empty, and it was a pretty solid-looking building. It was all brick, a little bit of siding… But other than it being empty, it looked pretty decent. I’m like “I’m wondering why that thing’s empty.”

I wrote the address down in my phone, and about a year later we moved down to Summerville, Charleston, and I said “You know what, I’m gonna write this guy a letter.” I wrote the guy a letter and said “I’d like to buy your apartment if you’re interested.” He called me back and he said, “Not only do I own eight, I actually own 20 on that street. Are you interested in buying all 20?” I said, “Sure, if we can come to an understanding.”

Back and forth – he’s an older gentleman, so everything was done over the mail.

Joe Fairless: Mail, like…?

Carlos Gutierrez: Yeah, literally. I talked to him on the phone, and I said “This is how much I can give you.” Then he’s like “This is how much I want.” We were kind of back and forth. We finally agreed on a $750,000 price. He’s like “Alright, send me the contract.” I was like, “Yeah, what’s your e-mail?” He’s like, “I don’t have an e-mail. Mail it to me. I’ll have my lawyer look at it, and if it’s good, I’ll fill it out and send it back to you.” About two weeks pass… [laughter]

Joe Fairless: Did you at least overnight it?

Carlos Gutierrez: I did. [unintelligible [00:07:04].12] where he would have to sign for it. We’re used to technology; I send you a contract today, and it’s gotta be settled in half an hour. So it took about a month before we finally got all the paperwork.

Joe Fairless: How does it work when he has markups to a printed out contract? How are those updates communicated?

Carlos Gutierrez: What I did finally was — because he was an older gentleman and I don’t know if he’s never dealt in real estate or just happened to have this property, but I wanted to make sure that everything was okay, so I said “Why don’t I just have my lawyer contact your lawyer? And that way we can have no miscommunication.” Because I would call him and be like “Hey…” His name was Skippy, by the way. [laughter] I could write a  book on this whole deal, literally. And finally, back and forth, the lawyers kind of agreed and put an actual contract together. But it was still like a residential contract, it wasn’t like a LOI type of thing.

Joe Fairless: Okay, so a $750,000 purchase price, all 20 units… What was the reason why you did not contact him when you first saw the property? I know you weren’t living there, but…

Carlos Gutierrez: Yeah, I wasn’t living here at the time, and I knew that it was gonna be  a heavy construction type of a deal, so I didn’t wanna buy it and be in DC and have to fly back and forth.

Joe Fairless: Okay.

Carlos Gutierrez: And at that time I had a three-year-old and a one-year-old. You know about that, I think you said your wife was pregnant–

Joe Fairless: Yeah, she’s due in a couple– well, by the time this airs, hopefully we have a baby girl.

Carlos Gutierrez: You’ll have a child, so you’ll understand that. All that time that you had in the world, when you start having kids, you’re like “I had so much time before. I literally have no time right now.” So that’s the reason why I waited.

Joe Fairless: Okay. So you got the contract agreed upon… High-level, besides the purchase price, what were some of the terms?

Carlos Gutierrez: It was basic terms. I gave him a $10,000 earnest money deposit, I put 90 days to close… I did it on no contingencies, because I had already walked around the buildings, I looked through the windows… I knew I was gonna do heavy construction, so other than having an appraisal contingency or things like that, there was no other contingencies in the deal.

Joe Fairless: Okay. Was your earnest money non-refundable day one?

Carlos Gutierrez: No, the lawyers agreed that it would be non-refundable (I think it was) 30 or 45 days.

Joe Fairless: Okay.

Carlos Gutierrez: Kind of after we got the appraisal and all that stuff.

Joe Fairless: Okay.

Carlos Gutierrez: And I wanted to put that in the paperwork, because I knew it was gonna be one of those things where it’s too small for the big banks, and too big for the local banks. It kind of fell in between, so I had to get a local credit union that wanted to see that area move forward. I had 30%-40% occupancy.

So there was a lot of things that a Fannie Mae/Freddie Mac type of thing or a local Bank of America would be like “No, we’re not gonna have it.” So I’ve got a Heritage Trust Credit Union which is a local person, he got me a pretty decent loan; it would amortize over 20 years, 20% down, instead of 25% down; 4,9% or 5% interest rate, which was a little bit higher at that time, but still it was decent for the occupancy.

Joe Fairless: What was the loan term?

Carlos Gutierrez: Five years.

Joe Fairless: Five years, okay. And then what about your construction?

Carlos Gutierrez: So the construction was — I estimated about $100,000, because it was gonna be about $10,000/unit for the building that was empty, and then about another 20k-30k in the other units that needed to be either turned, or put another roof on another building… There was a total of four buildings, and two out of the four buildings got new roofs.

Joe Fairless: How did you estimate that?

Carlos Gutierrez: I had experience with single-family flips, and I literally just went into an apartment and said “Well, I need (from A to Z) plumbing, electrical, roof flooring”, all that stuff… And I just put a budget together from my experience in single-family, and I also had experience with apartments, because I had a old-time job as an apartment manager/maintenance guy.

Joe Fairless: Okay. Did you plan on doing that work yourself?

Carlos Gutierrez: No. Since I first started, I said “I’m never gonna be one of those guys that buys the house and does everything and it takes him six months to flip.” The name of the game, in my opinion, is being fast. So other than maybe like demoing a house or pressure-washing something outside just to keep me a little bit busy, other than that I never did heavy construction.

Joe Fairless: Okay. In the loan that you got, did that $100,000 — was that included in your loan?

Carlos Gutierrez: No. They treated it as a — I wouldn’t call that a performing asset, but they knew that I was gonna get to that level, so they just treated it as stabilized, 70%-80% stabilized…

Joe Fairless: Even though it was 40% and you were probably kicking those 40% out, I imagine.

Carlos Gutierrez: Correct, yeah. It was a huge obstacle, because like I said, “nobody really wanted to touch it” type of a thing; they couldn’t see past the numbers. It had to have been somebody that was local, that knew that area, and knew that that area was starting to turn around.

Joe Fairless: How long ago was this?

Carlos Gutierrez: 2016.

Joe Fairless: Okay, great. About two years ago. Perfect. What have been the major milestones that you’ve accomplished from then to now?

Carlos Gutierrez: In that particular deal?

Joe Fairless: Yeah, with that particular deal.

Carlos Gutierrez: When I did the ARV on that deal, I thought it was gonna be around a million, a million fifty. So I knew I didn’t have that much spread, but I knew it could be a nice performing asset once it gets stabilized… And we estimated the rents, once it was rehabbed, about $750 to $775. With so much demand in the area for rentals and so many people moving down to Charleston, we were able to rent all those at $850.

Joe Fairless: Uuh…

Carlos Gutierrez: And I’m talking about my phone was ringing off the hook. And I could probably push it higher, but I just thought that at that level I didn’t need to push it anymore. The biggest milestone when we actually finished the rehab, I was able to refinance it at a valuation of 1,2 million. I was able to get a new loan, longer amortization, close to the same interest rate (4.84%), amortized over 25 years, 10-year call… I was able to pay the first loan off, plus the investors, plus give me back my initial investment in the deal.

Joe Fairless: When you paid off your investors, did you buy them out, or are they still owners with you in the deal?

Carlos Gutierrez: No, I bought them out. We came into this deal — we gave them promissory notes. I had a partner at 40% equity, and he brought all the money from investors. We gave them 10% return on their money, and I gave him a 40% equity, and I was able to pay everybody back, including him, his equity. So I’m the sole owner now of the 20 units.

Joe Fairless: Wow… If you hadn’t got a favorable appraisal of 1,2… Let’s say you execute the business plan but the market just went South – what’s your plan for having those investors at that 10% promissory note?

Carlos Gutierrez: Even at a million dollar ARV, I knew I was able to pay at least the investors off. I was planning to keep the partner with his equity in, and my initial investment. I knew that it was gonna be a longer-term play. But this time, when I refinanced it, I knew I could pay at least the 2-3 investors back.

Joe Fairless: And how did you know that?

Carlos Gutierrez: Just by doing the math on the ARV, and working backwards.

Joe Fairless: Okay.

Carlos Gutierrez: I factored that into the business plan and into the underwriting that I did.

Joe Fairless: How much monthly income does it net you in your bank account?

Carlos Gutierrez: It’s about $125 to $150/door right now. That’s factoring in the management fee, escrowing the taxes and insurance… Because when you buy a multifamily, especially small ones, they don’t escrow all that, so at the end of the year you’ve gotta pay $15,00-$20,000 in taxes, and you’ve gotta make sure you escrow that monthly… Which I see a lot of investors not do that. When they net out cashflow, I’m like “Did you net out vacancy rate? Did you net out taxes, insurance, all that stuff?” They’re like “No.” Well, [unintelligible [00:16:03].13]

Joe Fairless: Why do you think the property was still for sale one year after you looked at it?

Carlos Gutierrez: It actually was never for sale?

Joe Fairless: Oh, I missed that.

Carlos Gutierrez: Did I not say that?

Joe Fairless: I don’t think you said it was for sale, I just thought it was.

Carlos Gutierrez: I’ve always been a guy that’s always kind of looking for a deal. And when I see empty places, I’m like “This is for the taking.” So I just sent the person a letter. I’ve gotten my best deals from dealing straight with owners, from sending them letters. Instead of doing a massive 2,000-3,000 fliers, I’m kind of bird-dogging, I guess you’d call it

Joe Fairless: Sure.

Carlos Gutierrez: Yeah, and I look for places that are empty, and then send them out letters.

Joe Fairless: What does that letter say that you sent to the gentleman who had the 8-unit that then grew to a 20-unit portfolio that you purchased?

Carlos Gutierrez: I did basic letters. I remember wholesalers back in the day in Maryland used to send out those yellow letters… Real basic. “My name is Carlos Gutierrez. I own Cg4Properties. I would like to purchase your property at 123 Smith Street. I can buy it in cash in 30 days or less. Call me at this number.” I don’t even put an e-mail, because most of these people don’t do e-mail.

Joe Fairless: So Skippy called you, and he says “Oh, great! Buy my place for cash, 30 days”, but then you ended up financing it, so how did that conversation go?

Carlos Gutierrez: I said “Listen, Skippy… Usually I buy properties in cash, but this property has significant amount of construction, so I need to keep that capital that I was gonna pay you cash for, and try to finance it. I’m gonna try to finance it, and then with the capital that I was gonna pay you, the straight cash, for the property – I’m gonna need it for the construction.” And he was actually really nice to deal with, and open, and he knew that to have 20 units and to have a 30% occupancy — and he had a mortgage on; it’s not like one of those guys that has owned a property for 30-40 years and it doesn’t matter if it’s 40% occupancy, they’re still making money.

Joe Fairless: What was the main challenge you had turning the property around after you closed on it?

Carlos Gutierrez: The hardest challenge was to actually get contractors to work. Again, Charleston has been an area where there’s been so much new construction and so many people moving in that they actually have a shortage in blue-collar type of contractors. For the roof, I had to call like four roofers to do a roof on this property, because all the roofers were doing new construction… They’re not gonna leave new construction where they can do 2-3 roofs a day, to come do my roof.

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

Carlos Gutierrez: In the short time that I’ve been doing this, I’d say a couple of things. I’d say – as cliché as it sounds, finding your big WHY. I always say, the fun times when you actually make money or when everything’s going fine, your big WHY is not that big of a deal; but when you have a fire at your property, or when the tenant is calling you in the middle of the night and there’s a toilet backed up, or something, you’ve gotta have that big WHY of looking past tomorrow, or next year. You’ve just gotta know why you’re doing it. If it’s just for the money, like people always say, you’re just gonna get tired; it’s just gonna mentally drain you. So your big WHY – you’ve gotta have that.

And the other advice I would say is build relationships with people and always go into the transaction or relationship with a win/win attitude. Again, as cliche as that sounds, and I’ve sure people have read it in books, it’s the truth. Most of the times that I’ve gotten the best deals through contractors or through people that send me deals, or relationships that I’ve built over time, they 1) trust me, and 2) it’s always gonna be a win/win when we do a deal or a transaction.

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

Carlos Gutierrez: Yes, I am.

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

Break: [[00:20:24].04] to [[00:21:17].08]

Joe Fairless: Best ever book you’ve recently read?

Carlos Gutierrez: Other than your book… [laughs]

Joe Fairless: Which one? The syndication one?

Carlos Gutierrez: The syndication book, yeah. I’ve been trying to get into syndication for the last two years, and I find your book to be actually very informative and very easy to read. There’s a lot of books out there that have a lot of information, but they’re difficult to read. When I say difficult, I mean boring. [laughter] They’re putting you to sleep.

Joe Fairless: I’m a very simple-minded person, so it’s easy for me to…

Carlos Gutierrez: [unintelligible [00:21:45].26] myself. I call myself the Forrest Gump of Charleston. [laughter]

Joe Fairless: What’s the best ever deal you’ve done that you haven’t talked about during this conversation?

Carlos Gutierrez: Okay, I’d have to go to single-family flips. Probably the most money I’ve ever made on the deal, and the reason why it’s my best deal is because 1) I’ve made the most money, and 2) it was the happiest buyer that I’ve ever seen in my life. She had struggled for a long time, husband left her with two kids, he was the breadwinner, she was down and out… This was in [unintelligible [00:22:25].15] Virginia. I bought the property through a HUD, and got a real good deal because it was back in 2013, so they were pretty much giving you houses back then; 2012-2013. I made the most money, but I also felt really good, because I sold her the property and left her with some good equity, meaning that I didn’t sell it to her at top retail. And she was able to move into a home and have a good future for her and her kids… And I was able to get her a good loan, and she really didn’t have to come out of pocket too much. So not only did I make a lot of money, but it felt good to help somebody else.

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

Carlos Gutierrez: A mistake I’ve made on a transaction? I guess I’m an old-school guy, and I used to go a lot on people’s word; unfortunately, in real estate you cannot do that. I went on somebody’s word, and it came back to bite me in the butt. Monetarily, as well.

Joe Fairless: Oh, literally?

Carlos Gutierrez: No, no… [laughs] Something didn’t literally bite me, but losing money felt like [unintelligible [00:23:36].24]

Joe Fairless: Sure, of course. Best ever way you like to give back?

Carlos Gutierrez: What we’ve done lately – and when I say lately, I mean probably back in 2013-2014 – when a big hurricane or a storm would ravage either a country or a state, we would partner up with local non-profits, and even collect food and supplies and stuff. We collected a lot of supplies for when the storm hit New Jersey, and when the storm hit West Virginia… Through Keller Williams we were able to raise a lot of funds and collect a lot of items.

And also in Puerto Rico – I’m originally from Puerto Rico, so this one kind of hit close to home – we collected over 2,500 pounds worth of food and water and all that stuff. We sent probably 3-4 pallets to Puerto Rico from Charleston.

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

Carlos Gutierrez: The best way is probably e-mail, or a phone number. Cg4properties@gmail.com, or you can call our offices at 843-934-4250. Myself or my wife Christina will answer.

Joe Fairless: Carlos, thank you for being on the show. Thank you for talking about your deal with Skippy and how that’s netted you now $30,000/year in income. Now that the dust has settled, you don’t have any money in the deal; you own it 100%, and you make $30,000 as a result of it… And it sounds like you didn’t put any money in the deal initially, because you partnered with a private equity partner who then got bought out… So here’s a case study right here – how do you replace your $30,000 job income (if you’ve got $30,000), well, do one deal, and here’s exactly the step-by-step process for how to do it.

Thank you so much for sharing that story. I hope you have best ever day, and we’ll talk to you soon.

Carlos Gutierrez: Alright, Joe. Thank you for the opportunity.

best ever real estate pro advice

JF961: House HACKING Bay Area to a $1MM Commercial Building

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His total out-of-pocket after house hacking in the expensive bay area of California was $400. Not too bad! He put his life savings into it, then eventually purchased a 1 million Dollar commercial building with six units. This is a rare case but definitely turn up the volume and take notes! Best Ever Tweet: Get your mindset right and believe your purpose.

Danny Randazzo Real Estate Background:

– Owner of Randazzo Capital
– Took every available liquid dollar to buy my first primary residence in San Francisco Bay Area
– First purchase was a $1 Million dollar commercial building
– His portfolio holdings are focused on commercial and multi-family properties
– Based in Charleston, South Carolina
– Say hi to him at http://www.randazzocapital.com/
– Best Ever book: Mistakes Millionaires Make by Harry Clark

 

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Commericial Building Real Estate podcast

 

 

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, Dan Randazzo. How are you doing, Dan?

Dan Randazzo: I’m doing well, Joe. How are you?

Joe Fairless: I’m doing well, and nice to have you on the show. Danny is the owner of Randazzo Capital. His first purchase was a million-dollar commercial building. He took every available liquid dollar to buy his first primary residence in the San Francisco Bay Area. He’s now based in Charleston, South Carolina. His portfolio holdings are focused on commercial and multi-family properties. With that being said, Danny, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dan Randazzo: My background is in financial consulting. When I graduate from college, I was working for a small local company and started within the corporate world working a financial consulting job, traveling around the country, landing a project overseas in Abu Dhabi, United Arab Emirates, where I worked for about a year and then came back to San Francisco.

When I moved back home, I was kind of ripe with cash from my job living overseas and not having living expenses to pay for, so I took all of my savings and dumped it into my first primary residence purchase, in which I rented out two of the bedrooms and lived pretty much free (with the exception of about $400) in the Bay Area in cost of living.

I held on to that property for just over two years and came out with tax-free gains, sold it and that really created my equity nest egg (as I like to call it) to relocate across the country, start investing in commercial property. You mentioned my first property was a million-dollar purchase that I did on my own. So I put in about 200k that I had in savings to purchase the six-unit commercial office building which has currently five of the six units occupied and I’m in the process of getting a long-term 3-5 year lease in place with a national mortgage lender to fill up my six-unit. Once I have that six-unit filled, I’ll then look to refinance the property and get my initial investment back out, but also build up some equity in that property. So that deal should be a pretty good one for me.

My current focus nowadays is still on the commercial acquisition side, as well as multi-family properties. I’m really looking to get into some of these larger deals, as I feel that there’s more ability to control and scale your business having fewer properties to oversee and manage. That’s kind of been my strategy, to really go for the larger properties that generate more cash flow in order to build the lifestyle that my fiancée and I wanna have.

Joe Fairless: You took every available liquid dollar and you put it into your primary residence in San Francisco, and you’re basically house-hacking – you had some people renting out the rooms… Repeat what you mentioned earlier, will you please? How much did you actually pay after the rents were coming in every month?

Dan Randazzo: After the rents were coming in, I paid out of pocket about $400; part of that went to cable and internet, part of that went to heating and cooling, and part of that went to an HO A/C, because it was a condo. But for the Bay Area, I call that a win if you can live off $400 between all of your housing expenses and everything included. That was a big one.

Joe Fairless: How much were the rents?

Dan Randazzo: The rents were 900 for a basement room and 1,100 for an upstairs room.

Joe Fairless: How much would the room that you were living in had rented out for, if you had rented it?

Dan Randazzo: I probably could have rented it out for about $1,300-$1,400.

Joe Fairless: So you’re fiscally responsible, and I know because we know each other outside of just this interview… So I know you’ve had a budget ever since high school, to the penny, of the in and out of money in your checking account – is that correct?

Dan Randazzo: Yeah, that’s correct. I really enjoy tracking and understanding where all of my money comes in from and where it goes out to. I can see over the course of time “Am I spending a lot in areas where I don’t really need to be spending?” There was a period in my life where I was buying clothes and I played a little bit of golf, so I would buy some golf shorts and some golf shoes, and during the summer months during the golf season my spending was pretty crazy, and I was really getting no value out of purchasing some new golf shirts when I had several in the closet or in the dresser that would work just fine.

Having the ability to track to the penny of what comes in and what goes out was really important for me. As I look at my history of tracking my budget, if I didn’t save every single nickel, dime and quarter over that span of my life, I might not have been able to afford that down payment that ultimately got me into that single family house, which then ultimately lead me to build that equity nest egg, which then allowed me to purchase my first commercial property.

Joe Fairless: I’m glad that you explained that, because that’s what I wanna ask you about. You put every liquid dollar into that primary residence in San Francisco. Knowing that you do count your budget to the penny, it almost seems counter-intuitive – although I understand it, but an outside might think “Wow, he’s so focused onto the penny, but yet he’s going all-in on a primary residence in San Francisco.” What did you think through in order to actually pull the trigger in going all-in, where every liquid dollar was in a primary residence in San Francisco?

Dan Randazzo: Well, what I evaluated was the opportunity to purchase that property. As I moved back to the U.S., I had a pretty decent stockpile of money. I purchased my primary residence at $475.000, so the 20% down payment – 80k, 90k, almost 100k dollars was sitting in my bank account and I was thinking, “What is the best use for this money? Because I don’t wanna go out and buy any silly golf clothes, I don’t wanna buy a new car, I don’t wanna buy anything that isn’t going to generate some positive value and income for my life.”

Looking at the property that I was going to purchase, it was previously trading at almost $800,000 back in ’06 and ’07, so I figured that it would be a relatively safe play. The California market, and specifically the neighborhood that I was in within the Bay Area was just really stabilizing. From 2012 to 2013 it had a little bit of market appreciation, but over 2013, 2014 and 2015 there was some significant appreciation and growth in that specific neighborhood, just because the Bay Area was rapidly growing and the neighborhood that I was in was in the path of growth. So I was able to really buy it at a good discount, compared to the ’06, ’07 peak, and realize some of that upswing as the market continued to rebound and strengthen over the last three years.

Joe Fairless: And what did you sell it for?

Dan Randazzo: I sold it for 585k. On top of that, I had $400/month in living expenses, so the house – I was able to build a good amount of equity in it, but also pay down the principle interest and taxes really without using any of my own money.

Joe Fairless: You sold the property in San Francisco, and then you went East to Charleston, South Carolina. Why did you go from San Francisco to Charleston?

Dan Randazzo: Well, my fiancée and I were getting a little bit more serious and she was my girlfriend at the time, so we were having some discussions about life and lifestyle and what we wanted to do with our time and how we wanted to live, and one of my conversations with her was “Hey, I remember reading Rich Dad, Poor Dad back in school. I’ve studied and really enjoyed real estate. Let’s look at buying some rental properties here…” Just really using basic math, if you can buy a property and you get paid rental income that’s greater than all of your expenses, you’re doing pretty well. That’s kind of how I instilled the bug into my girlfriend and now fiancée.

So we eventually said and realized in the California market that returns were not very good, and capital was a high barrier to entry in that market, because most of the properties are quite pricey in the Bay Area. So we evaluated a few markets – Florida, Texas, a couple of cities in each of those, and then Charleston.

We settled on Charleston because the real estate market, first and foremost, is doing very well there, and we felt very comfortable in knowing the market. My fiancée is originally from Charleston, so she knows some of the ins and outs of the neighborhood, she had a built-in network there, her brother is also in the real estate industry, so we were a little bit more comfortable going there versus any other city, because we already had a network of people set up to help us. In addition to that, I was still travelling and still am traveling for my full-time job as a consultant, so going to a new city and me flying out for the week and leaving her there didn’t seem like the best option, versus going to Charleston where she has some people in the area to support her and support our real estate needs. It seemed like the best move for us.

Joe Fairless: So now you took the money that you had saved up, as well as earned tax-free from the sale of your primary residence to Charleston, and you purchased a million-dollar commercial property that is a six-unit office building. Tell us about how you found that and what is the business plan for you.

You mentioned that you’re gonna refi the property and get your initial investment back out, but is this a long-term hold? And any other details that you think are relevant.

Dan Randazzo: The property was identified, it was an on-market deal. Timing just seemed to be right. The property, when it was originally listed – probably about six months earlier – I think it was about 50% occupied and nobody was really interested in paying what the seller was asking with only 50% occupancy. So by the time that we had moved to Charleston and really got settled in the area, I started exploring and looking at properties, anything and everything that I could get across my desk around the computer. It happened to come up, and I looked at it and I thought, “If this property was fully occupied, it would be a pretty good deal.”

We contacted the listing agent, got the financials, and the property had actually gone up from 50% occupancy to 85% occupancy. Basically, one out of six units was vacant. We did some negotiations with the seller, we got a great deal on the purchase price coming into the deal, and then also the seller leased back the vacant unit for three months, and that gave us some time to do some marketing for the vacancy, generate some interest, and we should be signing a lease for that unit in the next couple of weeks, and we’ll have it fully occupied.

The property is currently generating about 30% cash-on-cash return. Again, it was just a great deal, great timing, and being open to analyze the numbers and think outside of the box a little bit.

Joe Fairless: What aspect did you think outside the box on this one?

Dan Randazzo: Well, having the property on market for about six months and going back to the listing agent and getting some more information on where it was currently at. The other piece that is a good tip for all of the listeners – the owner was the developer of the property and of about 10,000 single-family residences. They were a mid-to-luxury homebuilder, and this homebuilder had finished up their entire development project, so in that area there was really nothing left for them to do. They were trying to liquidate and close their LLC books on the development, but they were kind of burdened by having this office professional unit still on their books… So they were able to cut a really good deal where they were coming down off of their asking price by almost $250,000, because for them that property was a little bit of a burden to keep their business operating and functioning when they had sold off their main asset, which was the home development portion.

One thing that I learned is if you know a developer is selling and it’s towards the end of the month, it’s usually in their best interest to close or sell as many deals by the end of the month, so they don’t have any additional accounting or legal fees from their teams, because the developers have large fees and teams that are required to close those deals and close the books. I just had some good success with buying direct from developers, and if it’s towards the end of the month, they’re usually a little bit more motivated to sell.

Joe Fairless: You said the seller leased back the vacant unit for three months… Did they actually sign a lease, or did they just give you the equivalent of three months’ rent credit at closing?

Dan Randazzo: They did sign a lease for that unit, and they did pay monthly installments or monthly lease payments for that unit. The agreement was if I fill the space before their three months was up or due, that they wouldn’t have to pay anymore, so it was kind of a “pay as you go” piece, and we utilized all three months leaseback from them, and they paid on time and in full.

Joe Fairless: What did they lease it for and what’s the new prospective tenant going to lease it for, if you can share that?

Dan Randazzo: They leased it at market rent, which was $15/square foot, which is annual, so they leased it for — breaking down their square footage, they were paying $1,25/square foot/month in base rent. They also covered the utilities, real estate taxes, insurance and association fees, so it was a true triple net lease for that short period of time, but all of the tenants that I have in the five other units are all paying about $15/square foot and they’re all triple net lease setups.

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

Dan Randazzo: My best advice is to get your mindset right and believe in your purpose. It took me some time to figure that out, and really believe in it deep down inside of myself. I had always wanted to be an investor, and the want was just not enough to drive someone to take action on the little things that are required to ultimately create a good deal. Once my mindset was there and deep down inside I believed in my purpose, my want really transformed into a need, and it really makes me unstoppable. I’m willing to do any little annoying, painstaking task to get deals closed, and it just doesn’t matter, I’ll get it done.

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

Dan Randazzo: I am.

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

Break: [[00:19:54].10] to [[00:20:36].21]

Joe Fairless: What’s the best ever book you’ve read?

Dan Randazzo: I’m currently halfway through it. It’s called Mistakes Millionaires Make, by Harry Clark. All too often I think people get a little bit overconfident in themselves, myself certainly included in that mix. Harry’s book really talks about some brilliant business men and women, some in real estate and some in just general business, who have amassed fortunes, lost fortunes, and even maybe rebounded some of their fortune. It’s a great read with tons of lessons on how to protect your business and your personal assets from any sort of risk that’s out there or financing, personal guarantees of that sort. It’s been great.

Joe Fairless: Who’s the author again?

Dan Randazzo: Harry Clark.

Joe Fairless: Best ever deal you’ve done?

Dan Randazzo: The best ever deal that I’ve done was that first primary residence purchase that really created the equity nest egg. I bought a three-three condo in the Bay Area for about 775k, rented out two of the bedrooms, which covered all but about $400 in living expense for me. I then sold the property about a little over two years later with tax-free gains in 2006 for 585k, and with those proceeds my fiancée and I started building our real estate empire.

Joe Fairless: So we should all move to another country, earn money, save it, move back to U.S., live on the West Coast, buy a primary residence, rent out one side or two sides, live there, and then move somewhere else that’s more affordable and then use that money to buy a commercial property…?

Dan Randazzo: That’s not a bad way to do it, but another option that some people might think they’re open to is if you have a relative, live with the relative cheaply for a couple of years, save up some money, live with your parents if that’s a possibility… I’m all about understanding and tracking your personal finances, so whatever income’s coming and whatever as expense they’re going out, really try to optimize how much you can save and how much money you can generate.

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

Dan Randazzo: The second deal that I did was a $960,000 commercial property. It was four office professional spaces and I syndicated that deal and raised about $200,000, which was just enough money to close the deal and make some improvements to the property. The mistake I made was forgetting to include startup funds for marketing and office professional furniture that we needed for that deal to be successful. So I had to go back to my investors and get more money from them, which wasn’t a problem… However, the investors only wanted to put additional funds in based on the equity share that we had agreed to, so I had to come out of my own pocket to cover my equity position in that property, which in hindsight, if I would have included those startup costs upfront, it wouldn’t have been a big deal to the overall return on investment for the investor, and I would have kept a little bit more money in my pocket.

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

Dan Randazzo: The best ever way I like to give back is through what I like to think of as random acts of kindness. The other week I was traveling through the airport and there was this lady who was just struggling with holding her child, trying to put her stroller and all of her luggage down the plane, down the jet bridge and get on board in a reasonable time fashion to keep everybody else happy, and nobody was helping her. So I pulled off to the side of the line, helped her get her stroller, put away, helped her get her kid on board, and then notice that she was seated in the row behind me. I happened to be in first class, so she was in the middle seat and there were two larger gentlemen to both sides of her and she was very uncomfortable in her seat, so I gave up my seat in first class for her to be comfortable with her child, and for her kid to have some space on that flight.

So random acts of kindness, buying people cups of coffee when they least expect it, and just making people smile on a daily basis.

Joe Fairless: I love those stories, thanks for sharing that. Where can the Best Ever listeners get in touch with you?

Dan Randazzo: You can check out my website, RandazzoCapital.com. You can find me on Bigger Pockets, you can find me on Facebook at DannyRandazzo, you can find me on YouTube at Danny Randazzo.

Joe Fairless: Danny, thank you for being on the show and sharing your incredible start, as well as how your approach has evolved from house hacking in San Francisco to then moving to a more affordable market and buying a commercial property, getting at right now 30% cash-on-cash return on your million-dollar property, and it’s not even fully rented… Along with the lessons you’ve learned along the way.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Dan Randazzo: Thank you, Joe!

 

 

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