Best Real Estate Investing Advice Ever Show Podcast

JF1118: Helping Out-of-Country Investors Grow a Real Estate Portfolio in America #SkillSetSunday with John Carney

Listen to the Episode Below (21:51)
Join + receive...
Best Real Estate Investing Crash Course Ever!

John always wanted to be a real estate developer. He succeeded in that goal, and now he also helps Australians invest in the USA and grow real estate portfolios. He has a lot of great advice in many area of real estate to share with us today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

John Carney Real Estate Background:
-Real estate entrepreneur, author and speaker
-Founded America Property Source in Melbourne, Australia to enable Aussie investors grow USA real estate portfolios
-Wrote the book Real Estate Is A Team Sport. The 9 Players You Need To Profit.
-Host of the Real Estate Locker Room
-Based in Cleveland, Ohio
-Say hi to him at johncarneyonline.com

Made Possible Because of Our Best Ever Sponsors:

Fund That Flip provides short-term fix and flip loans to experienced investors. If you’re looking for a reliable funding partner, their online platform makes the entire process super easy, and they can get you funded in as few as 7 days.

They’ve also partnered with best-selling author, J Scott to provide Bestever listeners a free chapter from his new book on negotiating real estate. If you’d like to improve your bestever negotiating skills, visit http://www.fundthatflip.com/bestever to download your free negotiating guide today.

 

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 that fluffy stuff. With us today, John Carney. How are you doing, my friend?

John Carney: I’m doing great, Joe. Thanks for having me back on your show.

Joe Fairless: My pleasure. Best Ever listeners, John is a returning guest, so you can go search his name at BestEverShow.com and you’ll hear his episode where he gave his best ever advice. Because today is Sunday, we’ve got a special segment called Skillset Sunday where we’re gonna talk about a specific skill; that way, by the end of the conversation, Best Ever listeners, you will be able to implement the skill or perhaps hone a current skill that you have, and that is how to build the right team.
John has gone from a five million dollar project to a 23 million dollar project, and his team building along the way has gotten him to that point.

A little bit more about John – he is a real estate entrepreneur, author and speaker. He founded America Property Source in Melbourne, Australia, to enable Aussie investors to grow US real estate portfolios. He wrote the book “Real Estate Is A Team Sport. The 9 Players You Need To Profit”, so clearly there’s a theme here. Now he’s based in Cleveland, Ohio, and he’s the host of Real Estate Locker Room.

Before we dive into building the team, John – or maybe you can naturally segue, because I know you are a smooth operator – do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

John Carney: Sure, that was a great segue into it. I was living in “Melbourne” is how they would say it…

Joe Fairless: Did I mispronounce it? Is it Melbourne [Melbehn]?

John Carney: They say Melbourne [Melbin], like throwing it in the bin… But anyways, I might start speaking in Australian and I have to correct myself when I get into real estate vocabulary. But anyway, this is a love story. A lady brought me over to Australia in 2009 due to the economic differences between Australia and America at that time – strong currency, high property. I saw an opportunity to put what I’d learned in my real estate investing career to date to use, and I started enabling Australian property investors to invest in the United States and increase their cashflow, and it was all about safety and minimizing risk.

What I learned from that, really briefly, was that you have to have the right team; we put a lot of time and effort into making sure we have the best operators possible for every step along the way, and I also learned that just because we provide someone with a great team and a great property in a good location, it comes down to operation. So our real estate investors really do have to build the relationships with their team players and keep those active, and be an active participant in your investments, whether it’s one single-family home or a hundred, it doesn’t matter; each one is a business, and we really promote having investors understand that the team comes first and the property comes second.

Joe Fairless: Okay, I like it. So let’s talk about how you’ve built the team, so that the Best Ever listeners can implement some of the tactics that you’ve implemented in your business. I mentioned earlier the five million and 23 million dollar project – let’s talk about that, maybe talking about what those projects are and how you scaled your team, that way we’re using a real example.

John Carney: Sure. When I was in Australia I was out on my own. I met some people, I had my wife’s network and built a small business team, but my long-term goal was always to be in real estate development, and I tapped into those relationships three or four years down the line and asked for help. I wanted to be a property developer, and I started with something small and manageable, which was finding a lot that we could subdivide and build two new houses on.

The key players on that team were my business partner and my mentor in Australia, Brad, who was a large scale developer in Melbourne. He had a finance company, he had a real estate company… He was a great operator, and I learned a lot. The other component was having a builder; we brought a builder into the partnership, a custom home builder that could design, build and manage these projects.

Joe Fairless: And what was your role?

John Carney: My role was the developer. I was the person that put this together; I found the sites, I negotiated the purchase and sourced the team. With the help of the builder we vetted, for example, what company was gonna sell the property.

Joe Fairless: So you shared the role with your mentor, who was a large-scale developer.

John Carney: I like to look at it — he was a sounding board, that if I had a question and before I made a decision that would impact this partnership, if I had a question, he was on hand to answer that and give me guidance. So at the end of the day, it was running that, from the accountants, to contracts, to lawyers… I did pretty much everything.

Joe Fairless: Had you done any development previously?

John Carney: Not on my own, no.

Joe Fairless: Okay, not on your own. And what did you develop in this example?

John Carney: We found a vacant lot and we subdivided that and built two single-family homes. A gross sale price was about 1.1 million on this deal, and we got out with an acceptable margin. But right after we had made a deal on that lot, we had found another opportunity that we ended up getting in a bidding war. It was a quarter-acre block on a corner, and it was a $980,000 acquisition, and that was the project that we ended up selling for just under three million dollars to another developer because I was already in motion to move back to Australia. But had we continued the buildout, it would have been close to a six million dollar total project.

Joe Fairless: How much did you have to put into it, if anything, to sell it to the other developer for a little under three million?

John Carney: We had a lot of money into it, with all the planning and engineering.

Joe Fairless: How much?

John Carney: You know, if you take a 20% deposit, we probably each had over $100,000 of our own cash in there. So I was using my own cash; I was leveraging assets in the United States on a HELOC, and loaning myself money. Obviously, having your own skin in the game makes you pay attention to every penny spent.

Joe Fairless: But you sold it to a developer for a little over under three million – how much in total did the project have in it when you sold it for a little under three million/

John Carney: I don’t have that right at the tip of my tongue.

Joe Fairless: Roughly…

John Carney: We got out of this with pocket change.

Joe Fairless: Okay, so you basically broke even.

John Carney: We broke even. We got our money back and we broke even. The reason why we decided as a partnership that this needed to be solved — so we did all the development: we did all the subdivision, we did all the engineering, we got the plans approved of council… We had a shovel-ready site. The reason that we decided to sell that to someone who could just basically come in with our drawings and our plans, whole permits and build it — so we basically sold it to an engineering company/builder/developer because I was moving back to the US and I was the driving force behind this partnership, so there was no project manager taking care of the whole big picture with my absence.

Joe Fairless: What did your partner say about you moving back, knowing that they’ve spent all this time on the project, but they’re basically breaking even because you have to move back to the United States?

John Carney: Well, we’d exited our first deal together just ahead of the second deal… We were behind on some timeframes – that was true, and then that was, without getting into it, a long story… I won’t say we weren’t all getting along, but it would have been —

Joe Fairless: It was time to break up?

John Carney: It was in everybody’s best interest, without the team leader there, that this just wasn’t gonna fall [unintelligible [00:09:05].03]

Joe Fairless: Makes sense.

John Carney: Nobody lost money, that’s the number one key in my opinion. And when I say we made pocket change, that’s subjective, Joe. It wasn’t horrible, but it wasn’t what we projected. But when you’re in a real estate deal and there’s a lot of moving parts and you’re managing two deals like this, and it’s all new, it really was the team player. Take me out of the equation; I got a lot of help from our accountant, we got a lot of help from our lawyer… There was a lot of different sounding boards, and at the end of the day, when you’ve got a difference in personalities, skillsets and expectations in something that’s complex like this, when a lot of real money is on the line, and your capital is on the line – that was a collective decision.

We talked about that well in advance of the move; I was very upfront when the opportunity that was gonna bring me back to Cleveland came up. I notified my partners that this is what I was doing, and it wasn’t’ taken as something that was bad; there’s always an opportunity to work with people again in the future, and we left that open.

Joe Fairless: Cool, alright. Now the 5 million to 23 million dollar project – I think you’ve set the state perfectly to talk about that now.

John Carney: Sure. The project that my father and his business partners are working on in downtown Cleveland is in Public Square, and it’s setting the stage, because three years down the track we still don’t have a contract. So the project that I moved over here a year ago is still in limbo, but other opportunities have come and gone.

The deal that I’m talking about right now is a class A waterfront asset in Cleveland. It’s 160 units, with an opportunity of value-add to build another 29; that’s why we’re attracted to it. The landmark companies, which is the downtown development and property management company that my father, John Carney, and his partner, Bob Reines, started in the ’90s – that’s their niche in the market. They develop and manage historic buildings in Cleveland and Indianapolis, and then they manage that. These are complex — that’s what the Public Square building will eventually turn out to. We’re always positive that that’s a different story.

This building came to us in September. We looked at it, it was on the market, and we were working with investment bankers; they’re a big component of the team, which is new to us, on the capital stack. But we went through our due diligence, we made our bid and it wasn’t accepted… Just after the new year’s. So let’s go back to January – we’re mid-April right now – this building was back on the market and the broker called us because we were in the second position. So we made some decisions, we got the team back together – at least the big decision-makers – and we went back in with a new offer. It was slightly different based on conditions in the financial market at that time.

Joe Fairless: Was it higher?

John Carney: Well, interest rates were slightly higher, so we came in a little bit lower. That’s the condition I’m talking about. So here we are – this was the learning curve for me, because this was my first time involved in a project of this size.

Joe Fairless: And is this the 5 million or the 23 million?

John Carney: 23 million.

Joe Fairless: Which one was the 5 million? The one you described earlier, in Australia?

John Carney: Correct.

Joe Fairless: Okay, I’m with you. Cool.

John Carney: Yeah, so now we’re over in the States; the project I moved over here for is still not happening, but we’re working towards that. And by the way, we’re about to take over in the year three of working towards a deal on this. We’ve got this class A asset on the lakefront just East of downtown Cleveland, and it’s ticking a lot of boxes.

Just to get from “Yeah, we’re gonna take it. You don’t have to go back on the market. Here’s our offer” to getting to a PSA (purchase and sales agreement) – that took the better part of five weeks. Then we got  into our due diligence period and we’ve had to ask for an extension, so there’s a lot of action happening this week, because the pointing end of the negotiation is happening today, tomorrow, and decisions have to be made by Friday.

In a perfect world, we’ll end up owning this property, but we’re prepared to walk away. The important part is the team… To circle back to that, if you take the numbers out of the equation, I’m working with people who are very familiar with these numbers, and to some degree they consider these small numbers. So we’re learning about different ways of financing with private debt and private equity to cover the gap, to stretch investors – you can call it what you want.

Basically, I’ve been astute of this project since September. I have my limited experience that I can bring to the table, but making sure that we have the right team members, from the accountants, to the lawyers, to the insurance agents, to the property management, to the builders, to the people that are doing the inspection that needs assessment – it’s all a critical part about making a good decision. So there’s not one decision being made lightly or that isn’t on an e-mail that’s copied in to every team member. And because we’re at the pointing end of this transaction right now, the sink or swim part, there’s daily phone calls with multiple team members, and everybody’s opinion is taken on board.

Joe Fairless: On those daily phone calls – who’s on those calls and what are the roles? You mentioned some team members, but I know not all those team members, like insurance agents etc. are on those calls, so who are the main players?

John Carney: We have the representatives from our property management company, which most of the time is my brother, who works hand-in-hand with our director of operations, because they know what it will cost us based on current leases to operate this building. They’ve been doing this for 20 years, they know what it costs to operate this type of asset in this market. So those numbers are fixed.

We have our builder, who will be doing the new unit buildout and who will be fixing up the immediate needs on this building… And there are some – there’s some deferred maintenance that wasn’t in the budget for the current owner. That’s not their business model, by the way.

So we have to make sure that this isn’t a class C asset, this isn’t something where you can fix things on the cheap. It has to be done right. We’ve got a 20-year-old roof; it’s a brick building, a 1920-built building. It’s a fortress, but it’s got brickwork and deferred [unintelligible [00:15:15].23]

Joe Fairless: If it’s a 1920 building what about it is class A?

John Carney: The interior fit out is class A, the tenants are class A, the amenities are class A, the views are class A, and the price point is class A. Back in the day, this was where the cargo ships would bring cars in from Detroit, along the Great Lakes; they would pull up here. It was a concrete-floored bunker house to receive cars… So it’s neat when you see those photos.

A little less than 20 years ago it went through a historic renovation, and we would potentially represent the third owner since then.

Joe Fairless: So on the daily phone calls you’ve got your brother, who represents the property management company, the builder who’s gonna do the building of the new unit, the 29 additional units, plus fix up the 160 units with whatever they need. Anyone else on those daily calls?

John Carney: We generally have my father, who’s running the partnership side of things, and his partner, who he’s worked hand-in-hand with his whole life. They started out as attorneys together, and then they went into real estate development… So a 40-year relationship working together. They work well together, it’s a good team, and a proven team. They represent the ownership and the majority shareholders in this building.

Then we have our investment banker group – the money people. We’re representing two different types of money here – the first three-year loan is a private loan. Then we don’t have enough of a down payment to cover their criteria, which I believe is 85%… When this went out to the market, the private money wanted to put more money in. Maybe you can explain that to your audience better than I can… So we had to come up with a group to fill the debt. So one of the investment bankers is generally working with the big money lender, and the second is the smaller equity partner. And the company that we’re working with, they also happen to have a real estate division that owns 9,000 doors.

Joe Fairless: The company that is providing the equity, or debt, or…?

John Carney: No, the investment bankers.

Joe Fairless: Right. The investment bankers have 9,000 doors?

John Carney: Yeah, they have a real estate division, and their director and his partners structure deals, and they generally buy class C assets where they can make improvements and raise rents. So this is a little bit new to them too, because they’re tweaking their models and their capital stacks slightly differently. So when you look at my role in this, I’ll say I’m a student and I understand who all the team players are, but like I said, this is at the tip of everyone’s radar right now… So anyone can be on a call within 30 minutes with a text message or an e-mail.

So that is right now the team we’re working with – our in-house property management, and right now we’re just trying to make where we are now and the negotiations work. Does that make sense?

Joe Fairless: It makes a lot of sense, and I’m glad that you talked us through that… Basically, you’ve just outlined the key team members for a 23 million dollar development, a mix — I don’t know what you call it, but it’s an established property plus development opportunity (additional development opportunity). That’s something that’s useful for everyone to know… Especially you didn’t just outline the people, but you outlined the responsibilities as well.

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

John Carney: The Best Ever listeners can find me at my website, which is JohnCarneyOnline.com, or shoot an e-mail directly to me at John@JohnCarneyOnline.com. I’m on Facebook and Twitter, and I have a new podcast out – The Real Estate Locker Room Show with John Carney, which is on iTunes and Stitcher. I’m still learning the podcasting game, but it’s a great way to learn more about the craft of being a real estate professional.

Joe Fairless: Some of the takeaways I got from our conversation on the Australia stuff – know when to exit, know when it’s time to break up the team that you’ve established and focus on other opportunities that are of interest… And the Cleveland deal – as you said, it’s been a three-year work in progress. We have a 30-minute or so podcast episode and people talk about their experiences, so frequently it can be assumed that it all happened very quickly, but when we actually dig in deep to timelines, you’ve been working on this one project [unintelligible [00:19:50].20] for three years, and… It takes time, in some cases, especially development deals.

But on this other one, the 23 million dollar project, you all put a bid in, it didn’t get accepted, and then they come back to you later and you lower the price – because of interest rates, that’s what your reason was, but I’m sure there is a little bit more meat on the bone for you all, as a result of them coming back to you… And then the team members that you have on these daily calls for the 23 million dollar project – that is 160 units plus the opportunity to build 29 additional ones – and that is a representative from the property management company, the builder, your dad and his business partner, and the people who are supplying the debt and the equity, which are the investment banker group, and yourself.

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

John Carney: Alright, thanks for having me, Joe, and I look forward to tuning in and learning more from your podcast, too.

Best Ever Real Estate Show Banner

JF988: Why FREE Advice Could be the Most EXPENSIVE Advice

Listen to the Episode Below (30:35)
Join + receive...
Best Real Estate Investing Crash Course Ever!

With over 30 properties under his belt and starting at a young age while being a firefighter, our guest started his real estate career buying duplexes. He took the advice that was free from his friends and family and ended up paying a fortune in expenses, mistakes, etc. He talks about what his buying criteria is and a unique county hack when purchasing property.

Best Ever Tweet:

Jack Petrick Real Estate Background:
– Licensed real estate agent and full time real estate investor for over 15 years
– Currently have 32 buy and hold properties
– In the process of transitioning into commercial multi family deals
– Started building new homes, rehabbing, flipping
– Additionally he is a FireMedic at Strongsville Fire Department
– Based in Cleveland, Ohio
– Say hi to him at petrickbuilders@yahoo.com or 440-552-8483

Click here for a summary of Jack’s Best Ever advice: http://bit.ly/2rwk5A6

Made Possible Because of Our Best Ever Sponsors:

Want an inbox full of online leads? Get a FREE strategy session with Dan Barrett who is the only certified Google partner that exclusively works with real estate investors like us.

Go to adwordsnerds.com/joe to schedule the appointment.

 

 

 

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 podcast. We only talk about the best advice ever, we don’t get into any fluff.
With us today, Jack Petrick. How are you doing, Jack?

Jack Petrick: I’m doing well.

Joe Fairless: Nice to have you on the show. A little bit about Jack – he is a licensed real estate agent and full-time real estate investor for over 15 years. He currently has 32 buy and hold properties. He’s in the process of transitioning into commercial multifamily deals. He started building new homes, rehabbing and flipping them. Additionally, he is a fire medic at Strongsville fire department. Do you wanna give the Best Ever listeners a little bit more about your background and what you’re focused on?

Jack Petrick: Yeah, absolutely. About 15 years ago I started off going a couple different directions. I had an interest in being a firefighter paramedic, so I went to school and got through with that at about 22 years old. I also had an interest in real estate, so I kind of kicked off both at the same time. I started off as a general contractor, building custom homes. Nobody in my family had this background or necessarily interest. I just basically went on Amazon and purchased every book imaginable. I went on OwnerBuilder Forum and I just kind of [unintelligible [00:03:28].02] myself into it, and pretty much spent the next year going to every single model home, [unintelligible [00:03:32].29] homes, and going to every construction site possible. By doing that, I would just pick up phone numbers from various subcontractors.

I did that for a number of years until the housing market kind of wiped out. In about 2006, that’s when I first picked at my first buy and hold property. Didn’t really have any interest in rentals… I just heard all the free advice from friends and family and I’ve come to learn that free advice is sometimes the most expensive advice, and just talking about the [unintelligible [00:04:00].20] the tenants, the six month evictions… Everybody trying to play down at this area, when in fact they’d never experienced it before.

So I started off, did my first deal – it was a duplex, and from there I just did about seven houses, took a break… I did a lot of remodeling during that time. Then the housing market near me – I’m in Cleveland, Ohio, and the housing market in a couple of suburbs completely wiped out. I’ve been picking up houses for like $5,000. The cap rates are insane.

Having that back on it, I go into these houses, we completely rebuild them and run them out, and I’m making like 25%, sometimes 30% cap rates on the returns on these properties. That’s kind of how I got into where I’m at right now.

Joe Fairless: You have piqued my curiosity about these homes that I’m buying. $5,000 – some of them, perhaps not all… Well, first off, before we get into a specific example, what are the acquisition prices, low to high, that you’ve done?

Jack Petrick: In my market – I’ve got a really unique market, but I like to have an all-in number between 35k-40k – that’s purchase and renovations. There was a period where I was able to pick houses off of the HUD Homes store for like $25,000, maybe $30,000. These houses were completely rehabbed, and prior to the mortgage meltdown, these houses were selling for 120k, 130k. So we’re talking completely new on the exterior, interior, new garages, new driveways… But the we lasted for a short amount of time.

The HUD Homes store is definitely still an option for picking properties off, but the deals aren’t quite as aggressive. There’s still some stuff on [unintelligible [00:05:45].16] which is our real estate listing service. There’s a lot of deals off market, but I’ve been picking up a lot of deals off of the county LandBank, and there’s actually a website – I’d have to look it up, I don’t remember it right now, but there is a general LandBank website that will locate every LandBank throughout the entire country. These are properties that I’ve been able to pick up very inexpensively. They were completely wiped out, but as long as you hold to the specifications, you rebuild them, it provides years of passive cashflow without the capital expenditures that you would normally have to do on a typical property you would buy.

Joe Fairless: Now, educate me on the LandBank, with what you’ve just said as far as years of passive income from what you typically buy. When I hear LandBank, I’m thinking it’s just vacant land, is that not right?

Jack Petrick: No, that’s not correct. Basically, LandBank is a government nonprofit entity that receives Federal funding. As there are properties that are bank-owned, they’re distressed, they can’t sell them, they can’t turn them over for whatever reason, these are properties that are then donated to the LandBank. Say bank XYZ has a property and they can’t sell it. They will donate that property to the LandBank, but they’re on the hook in the event that that property does not sell, they would have to participate towards the demolition cost of that property.  So during that time, the LandBank will go in the house, they’ll clear it out, they’ll gut it out, and they’ll build a specification sheet of everything that that house needs, all the renovations.

So generally, I’ll go through the house and I’ll take a look at the renovations spec sheet, and 90% of the time they’re straight on point for all the renovations they want. They sometimes want the whole house to be rewired, but that’s not necessary. So knowing this now, I’ll scratch off a few things off the list to kind of get my rehab price down, and I’ll go in there and do a full rehab, top to bottom.

Most people, when they’re looking to pick up an investment property, they don’t actually take a look at simple numbers like return on investment, or what’s the cap rate that that property is gonna produce. Just a couple simple calculations – most people won’t run those numbers, and they will buy based on how they feel about the property, they feel about the area, and we can’t purchase based off our feelings; we have to make purchases based off of numbers.

Joe Fairless: So going back to the LandBank, you find the properties through your county LandBank – the county meaning the county that you’re in or that’s close by. You find the property through your county LandBank, and… What does the process look like? Let’s say you’re online, you find the property, it looks good – now what do you do if you wanna buy it?

Jack Petrick: Most LandBanks have an application period for you to submit your information, and it takes 1-2 weeks to get approved. Once approved, you can just go off the website and you can e-mail the main coordinating party for the houses you wanna see, and generally they will have an inspector meet you at the property. There will be a renovation pack that you will have and you’ll go through and you’ll agree or disagree with the specs of work that you’re gonna perform; I’m able to negotiate to some extent some of those larger ticket items to bring my acquisition price into a target range that I’m trying to achieve.

Once I have that done, I’ll submit the debt on the property. Recently, there was one house they were asking $45,000 for and the numbers didn’t justify and I offered $6,000 on the house, and we picked that for $6,000.

Once I actually have the property in my possession, it’s a deed in escrow program, so the title company holds my purchased funds check, and they will also hold the deed of that property. Once the house went through a four-month renovation and the house is completely rehabbed and all inspections are passed, at that point it will allow the money to transfer and the deed to then transfer to me.

Joe Fairless: Simple as that, huh?

Jack Petrick: Yeah, that’s it.

Joe Fairless: Once the deed transfers to you, you’ve now got a property. Do you then go post on Craigslist and try and get a tenant, or do you have a different approach?

Jack Petrick: Great question. A variety of options. For a while I had my property manager putting ads out on Zillow, Trilio, Craigslist. For a period a while ago we were also running to some CMHA section 8 tenants, but our market in this area improved to a point where I’m able to receive significantly higher cash offers and I can with a [unintelligible [00:10:20].11] voucher. I’ve just recently hired a gentleman to come in and least out the properties, like a leasing agent. He’s been able to push some extremely high rent values. For example, CMHA for a period of time was getting us anywhere from $770-$850 for a three-bedroom one-bath property, and this leasing agent has been able to get us to the point of almost $1,100 for this fully rehabbed property.

Joe Fairless: What’s CMHA?

Jack Petrick: CMHA is our local section 8 in the Cleveland, Ohio market. That’s just called CMHA, which is just short for basically the HUD section 8 program in Cleveland, Ohio.

Joe Fairless: Okay. So you hired a leasing agent to lease out your rentals.

Jack Petrick: That’s correct. For a while I was resisting against that, because a lot of them will charge one month’s rent to lease a property out, and I thought that I could save money by having it done in-house, but there was a term that was taught to me a while ago that a lot of times people bend over a pick of nickels while dollars go over their head. That was so true. That full month’s rent for a leasing fee is worth every penny if you can find a reliable and efficient and aggressive leasing agent. They’re worth every dollar.

Joe Fairless: So I’m guessing that you don’t have a third-party management company managing your rentals, but instead you have an individual property manager managing your rentals?

Jack Petrick: Yes, that is correct. I have that service in-house, but the leasing side of it, we were able to get much higher rent offers and faster turnovers utilizing a third-party service.

Joe Fairless: Okay, how did you find the third-party service?

Jack Petrick: Just with networking. Just finding other investors in my area that do deals and just asking to take them out to lunch and just talking to them… It’s amazing the wealth of knowledge that other investors have, and I’ve just really been blessed by how open other investors have been to actually sit down and meet with somebody like myself… Meaning, the gentleman that I met with, Paul, he has a thousand units, I have 32, so I’m pretty small in comparison to his achievements, but I think a lot of times guys that have a lot of success will take the time to meet the people that are up and coming, because they never know when somebody like myself will bring a bigger deal to them to partner up on.

Joe Fairless: Yeah, it’s interesting… That’s a different approach, where you have your own property manager for your properties, and then you contract out a third-party company to do the leasing… And you pay the first month’s rent to the leasing agent?

Jack Petrick: Yes, that’s correct. They take care of the lease and they’ll lock us in anywhere from a 12 to a 20-month lease. It’s just a little bit of a different strategy. Starting off, I never had a mentor so I did everything wrong when I started, and I initially took on all those headaches on myself, and a lot of other individuals do… But it burns a lot of people out. Money really isn’t made managing the property, the tenants, the phone calls, it’s made finding capital, doing deals and focusing your time and effort on that.

Joe Fairless: You said 12 or 20 months – why 20 months?

Jack Petrick: I misspoke, I meant 12 or 24 months. My mistake.

Joe Fairless: Okay, cool. I was wondering if there’s a method to your madness there. [laughs] On the note of finding capital for your deals, you’re all-in price on average is 30k-40k, you’ve got 32 of them… That’s $960,000 valuation – how did you buy these places?

Jack Petrick: I started off in the beginning like most people do, where they’ll have equity in their private home and they’ll just pull an equity line out. That’s the starting point for most new investors. Once again, a few properties that are then paid off free and clear, you can pull equity lines against those. You can do that for a period of time, and the benefit to going that route is your rates are low, your costs are low… Generally just paying a couple hundred-dollar application fee with your local bank. Then as you get larger, you have to start expanding into private investors, the reason being most local banks will only allow you to do so many buy and hold single family properties, until you reach that cap. Then you have to start looking at private lending, hard money lending and also portfolio lenders, too.

Joe Fairless: And portfolio lenders are those private banks and credit unions locally, right?

Jack Petrick: That’s one option, and there’s also Lima One Capital. I just closed a deal with them. I believe they’re actually funded by a hedge fund. They will take a group of properties, appraise them and then put them into a blanket mortgage. A lot of times, you have to do some creative financing to get a package of houses worth $350,000 – $500,000, and then at that point turn that into a larger refi or a blanket mortgage.

Joe Fairless: Lima has been a sponsor on the podcast, and for anyone who wants to talk to someone at Lima, you can e-mail cortney@limaonecapital.com, and he’ll talk to you about some of these programs. Because I had a guest on the show a while ago, and they talked about how they worked with Lima and did some wonderful things, so I was like “Well, I’m gonna reach out to them”, and they ended up being a sponsor.

Let’s talk about your hard money or your private lenders. How do you structure that with those individuals, since you’re doing buy and hold properties?

Jack Petrick: Great question. On hard money lenders, the terms are pretty similar if I’m flipping a property or if I’m holding it for a buy and hold until I can eventually work myself into a position to refi. But the hard money lenders in my area are around 15%. I have one hard money lender that does not charge points, I’ve got another hard money lender that does – that’s pretty aggressive funding, and it works for a short-term solution. On the private lending side, I’ve been able to contact a number of family and friends that have money in a 401k and it’s not really doing anything, it’s barely keeping up with inflation. Most people, once they get into their 50s and especially 60s, they just have to be very conservative to protect that principal, but yet they want to be able to grow interest and protect their yield. So what I will do is I will structure a note with that private lender, and I will provide a 10% annual interest rate and I will pay principal and interest over a five-year period. We’ll sign the note that we’ll turn into a mortgage to secure the note against the property; we will file that with the local county so we secure that investment with that investor. It’s a very safe way for the investor.

The other thing that I do personally, once I have my properties completely renovated, they have an after-repair value of anywhere from $60,000 to $70,000, but I’m only pulling $35,000 of equity out of it in that loan, to protect them and to leave equity into the deal.

Joe Fairless: Did I hear you right, you’re doing a five-year period with those private lenders?

Jack Petrick: Yes, that is correct.

Joe Fairless: What happens after year five?

Jack Petrick: After year five the loan and the total interest – everything has been paid back during that time, so we’ll just basically use a mortgage calculator and we’ll determine what the payment will be to pay during a 60-month period, with principal and interest.

Joe Fairless: So they get 10% interest rate over five years, and after five years you have it all paid off. How do those numbers look on a property? I guess the more direct question is does that property stand on its own two feet to pay all of that, or do you have some of your 32 properties pay off that one property?

Jack Petrick: Only about half of my properties are leveraged right now, so I leave plenty of cashflow just for evictions and for just when life doesn’t go as planned. But it’s almost like a 1-2 ratio. For example, I’ve got a house right now that’s completely paid off free and clear, and it’s cash-flowing. My gross rent right now is like $1,050 a month. So I will secure a private loan against that property, and then by the time you factor in my income versus expenses, I’m pretty much at awash at that property, but I now have secured $35,000 of capital, which allow me to purchase and renovate my second house.

In this example, I’m now making $1,000/month again. I’ll make $1,000/month as gross income on two properties, but at the end of five years, that number will double then to $2,000/month plus rent increases. So it’s like a 2-1 ratio, that’s how it works out.

Joe Fairless: How did you come up with the idea of doing the five-year period, 10% interest and then paying it off over that period of time with the help of some other properties?

Jack Petrick: This is kind of creative financing, because I have a lot of options to finance flip and funds. When you structure a flip, generally you’re paying interest-only payments up until the 12th month, and then you’re returning all the capital back. And because these are buy and hold properties, I just had to get creative on a scenario because there’s not many options in this field for expanding on single family rental properties; there’s not a lot of funding options, so it’s just being creative, I guess.

Joe Fairless: Yeah, that’s really interesting. Based on your experience, what is your best real estate investing advice ever?

Jack Petrick: Wow, best advice ever… I think I mentioned this earlier, but free advice is expensive advice, and there’s a lot of people that have opinions on what we do. I would just really vet out the experience of those people that are providing that advice, because there’s just a lot of naysayers that don’t have necessarily the experience to be able to provide an input or opinion [unintelligible [00:20:15].27] “This is what you wanna do.” This isn’t easy; if it were, everybody would do it. But once you figure out the systems, the processes, the procedures, this is the best career that you could possibly do, in my experience.

We’ve done quite a few things, other businesses, and it’s really provided the unlimited amount of cashflow, depending on how large you wanna grow your business, but also the quality and the time freedom that you generally cannot get as a physician, attorney, sales rep or any other high six, seven-figure producing positions.

Joe Fairless: I like the line “Free advice is often the most expensive advice”, and it’s certainly not one that I will repeat too often, because my podcast is called The Best Real Estate Investing Advice Ever… But I do agree with that, because the advice from someone can be very good advice for you, or it can be very bad advice for you, depending on what stage of the process you’re in. So you can get the same advice, but it can be either good or bad depending on where you’re at in your business cycle. Additionally, some of the worst advice I’ve gotten is from family members, people who should know me the best (but maybe not).

It’s important, as you said, to get advice from people who have been there and done what you’re currently doing, and are currently doing that. When we get advice from people who are close to us and who love us dearly, on stuff that they’re not doing or haven’t done, then it certainly falls into the category of “free advice is expensive advice”, because it might be the worst advice you’ve gotten. I’ve experienced that, and fortunately I didn’t take some of the advice that I got from those who were closest to me, and that’s how I got to where I’m at. But I took advice from them on other things, and it helped out. It is important. So we’ve gotta pay attention to who’s giving that advice and if they’re doing what we’re doing.

I wanna touch really quickly on these properties that are $30,000-$40,000 all in. You don’t manage them, you have a property manager manage them, but the main stigma about properties at this low of a price point is the quality of tenants, and you get a lot of turnover, you get a lot of maintenance issues that come up… What have you experienced?

Jack Petrick: Good question. In the market that I’m in we have a couple different types of properties. We have properties that are built in 1910/20/30, and we have properties that are built in the ’40s and ’50s. I own both of them, but today I will only buy properties that are built in the ’40s and ’50s, because there’s just 30-40 years of less neglect in those properties.

The properties that are built newer, we’re dealing with drywall instead of plaster and lath. The [unintelligible [00:23:20].20] are in better shape, the foundation walls have less stress to them… The properties are just overall smaller to rehab and renovate. That house that I’m referring to might be 1,200 square feet, versus the properties built in 1920 that might be 2,000 square feet. They’re both three-bedroom houses, but one’s considerably  more work to renovate and repair versus the other. So that’s the first thing – I look for properties that are newer.

Joe Fairless: …relatively speaking. [laughter]

Jack Petrick: Relatively speaking [unintelligible [00:23:51].09] Secondly, I have a background as a general contractor and I only purchase distressed properties, because that allows us to go in, gut the mechanicals, gut the roof, windows, bathrooms, kitchen, and put everything in new. That way I’m not having to be nickled and dimed with deferred maintenance as time goes on. We also will only put really the highest quality product in the houses, and that throws people off; like, it’s just a rental property.

For example, you could put a Moen faucet in, which has a lifetime guarantee, or you could get something from Lowes and Home Depot out of China, it’s made out of plastic. One’s gonna last for decades, one’s gonna last six months. When you put the extra money into the property, you’re not gonna get nickeled and dimed over the years.

Then as far as your question as far as the location, every area has areas which are just war zones, and I will not go into a war zone. There’s no future, there’s no hope, the turnover is horrendous… It’s just not a good situation. I like to get into suburbs that are beat up. The outer ring suburbs of Cleveland is where I’m at right now, and I’m able to be in a community that’s like a C- community possibly, but by the time we go on with your full renovation on these properties, they go from the worst houses on the street to the most desirable houses on the street.

So one option for us for years was to rent out, to subsidize tenants, and it provides extremely stable cashflow. Your sacrifice is your cashflow is gonna be a little bit lower than necessarily cash-paying tenants. But as the market improves, which it does in areas as the market income and households improve, then it will allow you to start to be able to tap into the higher-paying cash tenants as the area improves, which is the transition I’m in right now.

I think you have to know your market cycle where you’re at, and you really have to know the market, the economies in the area that you’re in, to determine “Are you in a completely beaten down war zone, or an area that’s just going through some hard times?”

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

Jack Petrick: Please do.

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

Break: [[00:26:06].01] to [[00:26:49].22]

Joe Fairless: Best ever book you’ve read?

Jack Petrick: There’s so many of them… I’m gonna start off where my first personal development book was Rich Dad, Poor Dad, which really opened my eyes to the difference of a liability versus an asset, and that really was what kind of stirred things off for me. I’ve read better since then, but that was the starting point for me.

Joe Fairless: The best ever deal you’ve done?

Jack Petrick: A lot of them. Really, honestly, the last ten houses I’ve picked up for like 4k and 5k each, I would say they were pretty much the best deals I’ve ever got.

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

Jack Petrick: Teaching knowledge. I have so many people that I’ve mentored and I’ve provided my playbook, my handbook on how to do this, where it took me 15 years of mistakes to get to those points. My brother right now has done a second house, a total rehab in two months, and right on budget… I just love being able to mentor and provide those services to others, and be able to help people have  a better lifestyle.

Joe Fairless: What’s a notable mistake you can think of on a deal that you did?

Jack Petrick: Bending over to pick up nickels when dollars go over your head… Meaning trying to save money, but in the end you’re really hemorrhaging out more money than you’re saving by trying to do work yourself, by trying to bring in your own crew to do all the work at $10/hour labor versus getting professional tradesmen in. That’s a mistake. Hire the right people to do the job and get it done right, because in the long run it’s gonna cost you less money and you’ll have a better quality of like and experience. Pay for it when you need to.

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

Jack Petrick: I will give my cell phone, and that’s actually how I came across you, because in the podcast you had with Michael Blank…

Joe Fairless: I’ll never do that again, by the way… [laughs] I gave out my cell phone three years ago, and he still plays that podcast episode… I’m all about people reaching out, but I can’t do that anymore. [laughs]

Jack Petrick: Well, at the time of that podcast you were I think at like 167 units…

Joe Fairless: Yeah… Different.

Jack Petrick: Yeah, when I came across you again you were at like 1,500 units… I’m like “I don’t think he’s gonna take my phone call.” [laughter] My e-mail address is PetrickBuilders@yahoo.com.

Joe Fairless: What’s your cell phone? I didn’t wanna scare you off…

Jack Petrick: I’ll go for it… 440 552 84 83. And hopefully I can have your success, Joe, in three or four years and have the same problems.

Joe Fairless: There you go! This is how you get 100 million dollars right here in real estate – you give out your cell phone on podcasts.

Jack Petrick: Absolutely!

Joe Fairless: It’s a proven technique. Well, Jack, I’m so grateful that we had a conversation. Holy cow… It really interest me about how you are structuring it with your private lenders on buy and holds, where you do the five-year period, 10% interest rate, where you pay the principal and interest and then use other properties and that property to just pay it down; it’s just a snowball effect… As well as your $30,000-$40,000 all-in price and your very thoughtful approach on why you’re going about it this way, versus other ways.

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

Jack Petrick: Thank you for your time.

Subscribe in iTunes and Stitcher so you don’t miss an episode!

https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

JF525: The 5 Questions You MUST Ask for the Best Tenants

He does it all! He invests, he’s a licensed real estate agent, and an insurance agent on top! He jumped into real estate by first investing in the lower class areas of Cleveland where someone stole stuff from his car! He now is more seasoned and is about to purchase a 4 Plex while waning his own commission through the transaction and insurance, this is an entertaining show you cannot miss!

Best Ever Tweet:

Kevin Hoag real estate background:

  • Real estate agent with Holton Wise Property Group based in Cleveland, Ohio
  • Has leased over 75 rental units since becoming and agent in 2015 and is also a licensed insurance agent
  • Real estate investor who has purchased and sold several turnkey rentals
  • Say hi to him at: holtonwisepropertygroup.com
  • His Best Ever book: The Property and Casualty Insurance Book

Please Take 4 Min and Rate and Review the Best Ever Show in iTunes. 

Listen to all episodes and get a FREE crash course on real estate investing at:http://www.joefairless.com

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

Have you tried REFM’s Valuate software yet? It makes investment analyses a breeze, and makes you look like you spent all week on them. Go to app.getrefm.com to sign up today.

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

Listen to the Episode Below (31:08)
Join + receive...
Best Real Estate Investing Crash Course Ever!
Best Ever Show Real Estate Advice

JF318: The Key Things Ya GOTTA Do to Keep a Rental In Good Shape

Today’s Best Ever guest knows Cleveland like the back of his hand…basketball and real estate! He shares with us his Best Ever practices in order to make sure a rental is kept in good shape, how to determine a good market to invest in and why it is SO important to do your due diligence.

Best Ever Tweet:

 James Wise’s real estate background:

–          Co-founder of The Holton Wise Property Group based in Cleveland, Ohio

–          Real estate broker and his company manages a portfolio of about 250 rental units where they own about 100 of those units

–          Say hi to him at http://www.Holtonwisepropertygroup.com

–          Huge Cleveland Cavaliers fan

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

Made Possible Because of Our Best Ever Sponsors:

Patch of Land – Want to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

Valuate – Tired of spending HOURS running the numbers on deals that don’t work? Former Best Ever guest, Bruce Kirsch has the solution! Go to http://www.app.getrefm.com to get your FREE version of his software to evaluate deals.

Listen to the Episode Below (32:18)
Join + receive...
Best Real Estate Investing Crash Course Ever!
Best Ever Show Real Estate Advice

JF241: I’m All In…on Flipping Houses

Fear may be the ONE thing holding you back from investing success. Our Best Ever guest today, took a leap off the corporate ladder into the world of investing, and hasn’t looked back since. We discuss the importance of private lending, how to find your next flip and how beneficial having a good contractor is. Don’t be afraid, because we step by step guide, so that YOU can leave the corporate world and dive into real estate.

Best Ever Tweet:

Jared Lichtin’s real estate background:

–          He has flipped over 4 properties in 2 years while having a full-time job as a lawyer

–          Host of the popular podcast, Flip

–          Based in Cleveland, Ohio but is moving to Houston, Texas

–          Playing in first World Series of Poker Tournament in about a month

Subscribe in iTunes  and  Stitcher  so you don’t miss an episode!

Made Possible Because of Our Best Ever Sponsors:

Norada Real Estate Investments – Having a hard time finding great investment properties?  Unfortunately, the best deals are rarely found locally. Norada Real Estate’s simple proven system provides you with the best deals across the U.S. to create wealth and cash-flow.  Get your FREE copy of The Ultimate Guide to Out-of-State Real Estate Investing

Patch of LandWant to learn more about crowdfunding? Let the leading expert in the crowdfunding space, Patch of Land, give you all the info you need to get started. Grab your FREE copy of Top Ten Answers to the Top Ten Crowdfunding Questions athttp://www.PatchOfLand.com/bestever

Mascia Development – Do you need an equity partner or know about a great deal and want to get paid for finding it? Mascia Development can help you make that retail or medical office deal happen. Email them at jv@masciadev.com

Listen to the Episode Below (23:00)
Join + receive...
Best Real Estate Investing Crash Course Ever!
Best Ever Show Real Estate Advice

JF156: Discover the Hidden Rules of Raising Private Money

Learn how the mantra “funding = freedom” has catapulted today’s Best Ever guest’s career in real estate. He shares with you a ton of tips on how to raise private money and busts up some myths about private money.

Let’s go!

Best Ever Tweet:

Josh Cantwell’s real estate background:

–        Chief Executive Officer at Strategic Real Estate Coach based in Cleveland, Ohio

–        Bought and sold almost 700 properties in 25 states

–        Strategies include rehab, rental, foreclosure, pre-foreclosure and short sale

–        Primarily focused on raising capital and doing larger real estate deals

–        Say hi to Josh at http://joshcantwellcoaching.com/

Subscribe in  iTunes  and  Stitcher  so you don’t miss an episode!

Sponsored by Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com

Listen to the Episode Below (28:55)
Join + receive...
Best Real Estate Investing Crash Course Ever!