JF1512: He Quit Teaching To Grow A Real Estate Investing Business with Scott Hollister

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Scott watched his family lose their home, and that pushed him to learn more about real estate. Now as a full time investor and real estate agent, Scott wears a few different hats. He knows how to grow an investing business from scratch, and with a part time job. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Scott Hollister Real Estate Background:

  • Full time real estate investor and agent
  • Investing in single family homes since 2012, transitioning into commercial investing in 2018
  • Strives to achieve financial freedom for his investors, family, and himself
  • Host of Book Club Interview Podcast
  • Based in Vernon Rockville, Connecticut
  • Say hi to him at http://www.davidwesleyrealestate.com/
  • Best Ever Book: The Banker’s Code

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best ever 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, Scott Hollister. How are you doing, Scott?

Scott Hollister: I’m doing well, Joe. How about you?

Joe Fairless: I am doing well, and nice to have you on the show. A little bit about Scott. He is a full-time real estate investor and agent. He began investing in single-family homes in 2012. He has personally done five rehabs himself. He is also transitioning now into commercial real estate investing. He has a podcast called Book Club Interview Podcast, and he’s based in Vernon Rockville, Connecticut.

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

Scott Hollister: Yes sir, Joe. I started as a Connecticut teacher for our years. I graduated college in 2012, I mostly did health education and PE, and all the while — to rewind a little bit, my parents lost their house during the crash, so that was kind of my drive to get into real estate. With my first paycheck I purchased two single-family homes on one lot; I rented out one, lived in the other, so I knew if I ever lost my job, there was no way I could lose my home as well.

So that pushed me into real estate, and then as a teacher, I also started being a personal trainer, training in the summers and after school hours, and coaching as well, but all that led to really developing more jobs. So I took a reflective approach, and I was doing a fix and flip at the time, and it really changed my mind that when I turned it to a rental, that income was running around the clock no matter what… Whereas if I was being a personal trainer, I only got paid for the time I was there, and the same thing with being a teacher. It was active income.

Fast-forward to last year, I left teaching full-time to pursue real estate investing full-time, and I wear currently three hats – as an agent, moving more towards the commercial in Connecticut, and as an investor full-time, looking for passive income investments, buy and hold, and the third is a broker of private and hard money… So finding creative capital sources for people’s investments.

Joe Fairless: How do you make money on the third thing, finding creative capital for other people’s investments?

Scott Hollister: Typically, it’s points. My mother has been a lender for 30 years, mostly residential for the first 25, but the last seven in the hard money and private… So she had a broker she connected me with, we had dinner, and he kind of taught me – [unintelligible [00:05:26].21] secrets of the trade, but how to follow the path of money and how to add value to other people’s lives. Typically, a lender is gonna want points for their administration and office fees, and then as a broker, you would charge your points in addition to that, providing the capital, putting the deal together, and fitting the right lender with the right borrower.

Joe Fairless: Is there a license that you have to get in order to do that?

Scott Hollister: Not in the state of Connecticut, and that’s the great thing about it. As opposed to being an agent, you’re given splits, and as a broker, you get to keep 100% of that point. So I kind of like it a little bit more… A little bit more freedom. Again, it’s easier to work from home, as opposed to being out and showing properties, and things like that.

Joe Fairless: You did five rehab projects, personally. Can you talk about that?

Scott Hollister: Yeah, my father [unintelligible [00:06:15].01] worker. He dropped out of high school, so he’s pushed me to go to college, but he was always tinkering at home, so I kind of learned the trades through him… Whether that’s hanging drywall, refinishing floors, painting, trim crown, doing kitchens, tile work… My philosophy was always if I really messed up something, and as long as I could watch a YouTube video and kind of figure out how to do it, worst-case scenario I just had to hire someone on the back-side… But I knew if I gave it a shot, I could probably pull it off.

Joe Fairless: Let’s talk about the fifth one, so the last one that you did personally. Can you give some numbers and just the business plan?

Scott Hollister: We purchased that in town. This one was a partnership, my friends Ryan and Jake, and we used private financing for that; that was 110k purchase price, and ARV was 200k. We put about 20k of rehab work. We did all the work ourselves, from start to finish, so this was more of a job than an investment, because it was active income. We gave our lender 10% fixed, paid at closing, so no carrying costs during the project, and we were in and out within nine months.

It was another tough project, because I was working full-time as a teacher, so trying to be there on nights and weekends made it difficult.

Joe Fairless: The areas of focus that you have right now in real estate – which one makes you the most money?

Scott Hollister: I’d say the investor, because out of the other two, they’re still active income. So I try to allocate as much time as I can to take (again) a reflective approach… And this is what I’ve learned from reading books and going to events, and listening to great podcasts such as yours – really focus on those big dollar activities and what you can allocate the larger chunk of your day towards.

Joe Fairless: When you say the investor, because that’s more passive, can you give an example of the last deal that you bought?

Scott Hollister: The last deal that I bought was still a single-family rental. I love the B+/A- class rentals, tenants that really care about the property, have good credit scores, good income… And moving forward, the commercial aspects were underwriting smaller multifamily deals in the 10 to 25-unit range currently.

Joe Fairless: Alright, well let’s talk about that single-family that you bought. How much did you buy it for and what does it rent for?

Scott Hollister: This one was purchased for 100k, I did the rehab myself for about 16k worth of material; it appraised at 185k, and then went to the bank, refinanced out 80% of that, so I was able to pull out some tax-free cash on the refinance, and was able to pay off a hard money lender, and then also the HELOC I used for the down payment.

Joe Fairless: Wow, that’s incredible. You bought it for 100k, you put in 16k, so all-in 116k, and it appraises for 185k. That’s quite the find. How did you find it?

Scott Hollister: That was an MLS REO. It’s really tough right now, I’m sure, in most areas; anything that’s listed on the MLS has a lot of eyes on it, there’s gonna be multiple bids, banks like to use a certain period (10 days) before any offers are even looked at… So that was about a year ago, and my philosophy then was being the first person in the door as fast as possible, with a very good offer.

Joe Fairless: You used a hard money lender and a line of credit, so that leads me to believe it was an all-cash offer that you were able to close really quickly.

Scott Hollister: Yes.

Joe Fairless: What were the terms of closing?

Scott Hollister: That was 12%, three points, and back then I was doing a ten-day window inspection. That was the only contingency I wanted, just because I wasn’t comfortable taking things cash as is. Now I’m a little bit more comfortable, but it’s still that unknown of — we have a huge thing in the North-East right now with failing foundations, where there’s bad concrete poured, with a certain [unintelligible [00:10:02].17] of Connecticut… The foundation costs about $150,000 to remedy that.

Joe Fairless: That would be a problem.

Scott Hollister: Yes. [laughter]

Joe Fairless: That’d be a big problem.

Scott Hollister: Quick way to go in the negative.

Joe Fairless: Yes, yes. You’ve got a podcast called The Book Club Interview Podcast. Why did you start it?

Scott Hollister: Well, thanks to you, Joe. I have the best returns on investment this last year. It’s been tough being a full-time entrepreneur. It’s a total mind shift. You’re in control of your own day and your own schedule… That led to me starting a goal of reading a  book a week, and as a former teacher, I love that education, and just reading and reading… And I came across your best ever advice volumes one and two, and I love it; it was great, because you can get in the minds of professional real estate investors and learn from them. And in the back of the book I think you said “When you read something, like an article or something, reach out to that author.”

So what did I do? I reached out to you, and we had a great conversation, and you said along the lines of building some credibility and combining a couple of your passions, and at first I was thinking about a YouTube channel, but then the podcast had better hits, and I read a book a week, and now I’m lucky enough to talk with that author for about an hour. I owe a lot to you.

Joe Fairless: Well, you approach it in such a smart way… You didn’t just reach out to me, because I personally can’t have conversations with everyone who reaches out to me. My investors and my apartment communities would fail, because I would be just on the phone all day long. What you did is you reached out to me and you said “I wanna pay you for your time”, and you paid me for my time for us to talk 30 minutes or an hour (I don’t remember how long it was), and then we had a conversation. That stood out to me, and that’s the type of mindset that sets someone like you apart from other people, because you recognized that an investment of however much it was to have our conversation was likely – although not guaranteed – to have a good return, both on your time and also your money.

And who cares if it’s with me or with someone else? I’m not saying “Reach out to me and ask me to work with you and pay me for it.” I don’t care about that. The point of this is that you did something different from what the masses do. One, you read the book, and then you actually followed up on the advice, but then two, you did something above and beyond that. It’s similar advice that I give when you’re wanting to reach out to brokers and you don’t have that experience that other investors might have in the commercial space. Offer to pay them for their time, and I can almost guarantee, unless they’re a listener of this show, they’ve never been offered that, to be compensated for their time, and that will set you apart from other investors. Props to you on that.

What are some takeaways that you’ve learned from the author conversations?

Scott Hollister: Being surrounded by some of the top authors of even all time. Thanks to you I’ve got about 17 episodes out right now, and if it wasn’t for that and putting them in the spotlight a little bit, there’d really be no incentive for them to sit down with me for an hour. It’s a great and unique way to just sit down with such a knowledgeable person such as yourself. I’ve got to interview  Jay Papasan with The One Thing, and David Allen, Getting Things Done. Having that conversation, and ever before and after the podcast – there’s small talk that goes into it, and just being able to pick the brains of someone that’s been ahead of you or where you wanna go, you can kind of shorten that gap and see what’s a reflective approach… “Okay, I’m here. I wanna be there. What steps do I have to do in-between?”

Joe Fairless: Any particular interview – and you can’t name mine; not that you would, but just so we’re being objective… Any particular interview that really stands out as one that you got a lot from?

Scott Hollister: Yeah, I’d say the first one, Dave Van Horn. I had this [unintelligible [00:14:12].12] I messaged him and I said “Hey, I’m thinking about starting this idea… Would you be interested?” We jumped on a call, and he said “Yes, absolutely.” And he said, “You know what, this guy, about — I don’t know how many years ago, Joe Fairless, who called me and asked me to be on his show… That reminds me of the same thing.” So I’d have to say just the first one. I was still nervous about it, but great experience.

Joe Fairless: And then how have you applied those lessons to what you’re currently focused on, which is finding a commercial property?

Scott Hollister: Just the networking aspect of it I think works the best, and being surrounded by other people that, even though they might not be in my region, once you have that network of investors… You might be looking at a region, “Oh, I have so-and-so to call, or I can connect to”, because there’s a few e-mails going back and forth, a few phone calls… So once you have that person on the show, it makes it really easy to establish a relationship and keep that going forward.

Joe Fairless: What type of properties are you looking at?

Scott Hollister: Buy and hold multifamily, B class, working class… Buy and hold long-term.

Joe Fairless: And what team members do you need in order to find that first deal? I’m sorry, poorly worded question. What team members do you have in place so far? I meant to ask that question.

Scott Hollister: There’s been books out there that go through the whole process, of setting up the brokers, finding the property management team, getting a good lender or broker that’s going to set up the terms so you can underwrite your deals to them… And I think the last piece to the puzzle is getting in those few small circles that as you move up in the commercial world, those brokers do the bulk of the multifamily deals. It’s a little bit different than residential. They have a list of x amount of buyers that they can call first, and typically work the transaction that way.

Joe Fairless: What’s your best real estate investing advice ever?

Scott Hollister: Invest in yourself. I’d say the best returns on investment the last year have been buying every book someone’s recommended me, two, going to live events, and three, conversations with investors like you and authors like you.

Joe Fairless: What’s the best live event you’ve been to?

Scott Hollister: Jake & Gino’s.

Joe Fairless: What did you learn?

Scott Hollister: Don’t be afraid to ask. I think we are surrounded by such an amazing group… As a teacher, you’re put int this — “What kind of area do you teach? Oh, you’re a health teacher. Okay, that’s great.” But as an investor, it’s different. And that aspect – I know that’s kind of vague, but you’re never really judged; you’re thought of as an equal, you’re an investor, and anybody I’ve ever asked something of has been more than happy to give time. I think it’s just asking. All you’ve gotta do is just ask and provide value.

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

Scott Hollister: Yes, sir.

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

Break: [[00:17:20].23] to [[00:18:10].13]

Joe Fairless: Best ever book — how relevant is this question for you… Best ever book you’ve recently read?

Scott Hollister: Recently read… That would have to be The Banker’s Code by George Antone.

Joe Fairless: Best ever deal you’ve done?

Scott Hollister: Probably that BRRRR strategy I did – purchased for 100k, it appraised for 185k, with a 16k rehab.

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

Scott Hollister: Due diligence wise… Trusting but not verifying.

Joe Fairless: Can you tell us the example? What happened?

Scott Hollister: Making sure that what is listed on the MLS is the same that’s listed in the town records, for instance. If it’s a well, make sure it’s hooked up to a well. If it’s not city sewer or city water… Big ticket items like that scare me. We have a lot of septic systems and wells up here, and foundations. Those are the three that can get you.

Joe Fairless: Did you get burned on one?

Scott Hollister: Not necessarily. Caught at the last second. Asbestos was another thing. But my agent I was working with at the time – that was three years ago – did his due diligence. I think partnering with a very strong person that has that resource and that education is key.

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

Scott Hollister: Two favorite charities. One is Jamie’s Run, which is a non-profit here in Connecticut for children’s cancer. The other is The Whole in the Wall Gang Camp, which is Paul Newman’s. It’s in Ashford, Connecticut. Those are my two favorite charities.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on and listen to the Book Club Interview Podcast?

Scott Hollister: On the podcast, and the Facebook page Book Club Interview. I’m starting to build the Instagram page for more of quotes and photos for motivation, and my website, DavidWesleyRealEstate.com.

Joe Fairless: Well, Scott, thank you so much for being on the show, talking about one of the rehabs that you’ve done; an incredible deal, buying it for 100k, putting in 16k, and then it appraising for 185k and doing a cash-out refinance on it, getting all your money back… As well as how you’ve gotten to this point and where you’re headed… It’s clear that you’re someone I would bet on to continue to achieve your goals because of the way you approach it. Robert Kiyosaki says “The richest people in the world build a network. Everyone else looks for work.” You are adhering to that, you are building a network the right way, and best of success to you and looking forward to continuing to hear how things go.

I really enjoyed our conversation, and thanks again for being on the show.

Scott Hollister: Thank you so much, Joe, for everything you put out, and everything you’ve done for me. I really appreciate it.

JF1387: Taking The Mystery Out Of The Commercial Bank Process with John Matheson

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John was (and still is) an investor like the rest of us, who was struggling to understand and prepare for everything that came with getting a commercial loan. One day he went to a consultant who put his info into a program, tapped his fingers on the desk for a couple minutes, and said “you’re a go”. John’s life was changed now. John and the consultant teamed together to bring this program to more people, which is how commercial loan success was formed. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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John Matheson Real Estate Background:

  • CEO of Commercial Loan Success
  • Commercial Loan Success is a Business Loan and Investment Property Analysis Software and Education Platform.
  • Based in Colchester, CT
  • Say hi to him, get a free chapter of their upcoming book, and a free demo of their software at http://web.commercialloansuccess.com/Best  
  • Best Ever Book: Think and Grow Rich

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TRANSCRIPTION

Joe Fairless: Best ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, John Matheson. How are you doing, John?

John Matheson: I’m great, Joe. Thank you.

Joe Fairless: I’m glad you’re great, and welcome to the show. A little bit about John – he is the CEO of Commercial Loan Success. Commercial Loan Success is a business loan and investment property analysis software and education platform. They’re not a lender, a broker, they’re a software program. Based in Colchester, CT. John is also a real estate developer. So he’s got a software company, and also he is an investor/developer.

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

John Matheson: Oh, I’d love to, and Joe, thanks for having me on. It’s all kind of funny – my wife has a ball with this, because I’m one of the founders of Commercial Loan Success software, and I’m also a commercial real estate developer and property investor, like you and like many of the Best Ever listeners… So how do you elevator script that? It was so easy when I was just a developer.

So I guess for context, just to let the audience feel like I am one of you guys in Best Ever Listener Lan, for context, I’ve been a real estate property developer and been investing in properties for 30 years now. I’ve survived three recessions in my career, and along the way I’ve probably completed over 50 million in transactions as a principal or a professional.

I’m currently involved in ownership as a principal or JV partner in properties that are permitted or in due diligence that when they’re fully built out would value at another 70 million or so. So it’s not gonna surprise any of you that I have arranged for myself along the way many millions of dollars of commercial bank financing and private financing either… And after listening to you, Joe – and I’m a big fan of the show – I figured you’re gonna ask me and your audience is gonna wanna know how did I get to this place in my career? Well, as a real estate developer I also have a software app.

Joe Fairless: Yeah, you took the words out of my mouth… So how did you do the transition?

John Matheson: Like a lot of us in this business, I started at a young age. I had a background in real estate sales I started in my twenties. But I had a goal of specifically wanting to be a real estate developer. So my goal was specific – I didn’t wanna just own investment property, I wanted to be the developer. And to do that, I knew that I had to learn the business inside and out to learn how to get financing, both institutional and private. You know this as well as anybody – you have to be able to do both in our space.

So I learned by doing… My first transaction as a principal was small, and like many of how you in the audience started, it was for a building lot of $30,000 on which we put a new house, and it sold for $225,000. Back then you’d just think that’s the world, that you’ve just completed… And it was great though. I got my construction money from a commercial bank back then at Prime Plus Two, but what’s funny is back then the rates was 7,5%.

Joe Fairless: Wow, okay…

John Matheson: [unintelligible [00:04:04].04] Small transactions, as we all know, are fantastic and they can form the foundation of your business, they can be the stepping stone to increase your portfolio over time… But as we also all know, to advance to the next level and to get into the larger properties, which is something most of us in this business aspire to, you do need to level up into legitimate commercial financing space as well.

I remember when I sold that house, I then bought some building lots and I just kept moving and I kept getting into the bigger properties each time… And I realized at a young age that to level up you need capital, which for me meant the commercial banking relationship in earnest… And you find out along the way it’s really nothing to be afraid of; if you haven’t done it, it’s probably more scary than once you have. The process is not as difficult as many people will think it is, and if you have done it, you start to understand better how to navigate it… But like anything, you need to understand how it works, and then how you fit in.

Along the way though, what always frustrated me when I started, all the way up to a few years ago, was the unpredictability of the commercial bank process. It seemed to me like the banking process by bankers was always kept kind of a mystery, and you and I both like the same book – Commercial Mortgages 101 by Michael Reinhard…

Joe Fairless: Oh yeah, yeah.

John Matheson: …and one of the things he does a great job for all of us trying to just simplify it in his underwriting analysis where he just comes right out and says, for all of us doing just regular cashflowing properties, on the property underwriting side there’s only three things that the bank really needs – that’s the property’s NOI, the capitalized value, and the DCR; that’s generally all they need to complete the property underwriting exercise, and then they all know they’re gonna review everything else in the due diligence file, as well as the sponsor… But that’s all they really need.

Sure, we can all learn ratios and formulas and the like, but the pain was – and I’m sure the people in the audience have experienced this, too – how come we never really know if they’re gonna do the transaction the way we need it? Let’s face it, if you can work with a commercial bank lender in the regulated banking space, they are the source of the best rate and terms today, especially when compared to the expense of if you’ve got all private money for a deal, or you were online getting a lender. But you really can’t afford to be out the due diligence time, the money, the deposits, only to find that your regulated banker can’t do your deal or that you need to put in more money to make it work… And if you’ve done this long enough, we’ve all been there, and you know the absolute pain that I’m talking about.

Joe Fairless: Absolutely. Yeah, you’ve piqued my interest, that’s for sure.

John Matheson: Right? In an actual really earth-changing moment in my career I found that a lot of it had to do with how the conversation started that mattered most, and I’ll share with you now if you like a story of how I got into the Commercial Loan Success software.

Joe Fairless: Sure.

John Matheson: So coming through the last recession – and I got an acquisition and development loan back in 2009… I was one of only three people in this banking institution I was with who actually got an acquisition and development loan that year. So if you lived through the early parts of that recession, getting commercial bank money was very difficult. I ended up on a five-year term with it, and we made a decision — it was a fairly good-sized project, it was about a 20-million-dollar build-out, and we decided that we’d wait for the market to return before we actually did it, so we landbanked it, and it ended up being a great decision now, but at the time you just wonder if you’re making any sense with what you’re doing.

Joe Fairless: What’s landbank mean?

John Matheson: In other words, we just put it on our books and decided to carry it. We hadn’t pulled the permit, so we weren’t paying taxes yet at any level other than the raw land part, and we had a very low cost to carry to the bank, so we just figured we’d put it into our balance sheet and let it sit there until we were ready to build.

Joe Fairless: Okay.

John Matheson: So I’m coming up on a maturity date, which is normal in commercial developer space; if you come up on maturity, you call your bank six months ahead of time and you ask for an extension, and I had always gotten it with this bank… So I call in and I say “Hey, I’m up in June (this is like a January/February call), I’m gonna extend it and we’re gonna start to build it probably at the end of this year.”

The bank says “That’s nice, but we have decided that we’re gonna merge with another bank, and we would like you to move the acquisition piece off our books.” [laughs]

Joe Fairless: That’s one sentence that’s pretty darn cold.

John Matheson: Right?! And it’s like “Really?!” It’s like “We know you can do it, we know what you’re capable of. We know you can do it and we want you to do it, and we need you to get it done before the maturity date.” I’ve never defaulted on a bank loan in my life; I don’t even know what this means at this point in my career of as many years as I was in then… So I said to him, “Well, what happens if I don’t get it off the books in that time?” He says, “Well, I guess we have to do a foreclosure.” I said “Well, that’s nice!” It makes you feel real warm and fuzzy that day, right?

Joe Fairless: Yeah… At the same time, if it’s due in June and you’re calling six months prior and you’ve had how many years?

John Matheson: I’d been for years with it.

Joe Fairless: You’re four years — it’s also their right to do that, and they’re probably like “Well, you should have developed it for the last four years…”

John Matheson: Yeah, and of course, we had them in the discussions… They actually were in favor of the landbanking, so it was more my words, but it was more to it than that… But you’re right, they have a point, so I’m like “Alright.” So now what am I gonna do? So I start to call other lenders that I have relationships with and everybody is kind of giving me the “Well, it’s a nice project, but I’m not sure how we feel about it right now”, and I’m like “Oh, wow… So now what do I do?” I’ve actually gotta go online and google for a resolution and find a lender I don’t know and pitch my deal.

I’m sitting here and I’m looking at what’s out there, and I’m like “I’m not gonna put my social security number and financial statements online for a lender to look at…” It was around 1-2 million deal, so it was a reasonable size, and I was like “I’ve gotta find somebody for a solution.” So I started to network for a resolution, like you do everything as an entrepreneur; you’ve gotta find it in your network.

I start to call, and people start referring me to this guy named Dan Crowley, who is now my partner in Commercial Loan Success. And they say “Crowley will help you out, he’s got instant access to several banks. You’ll like him, give him a call.” So I call him and I end up getting him as “Voicemail is full.” I’m like “This is great, if the guy’s voice mail is full.”

All of a sudden, he calls me back. I say, “I didn’t leave you a message” and he says “Yeah, I always call people back when the voice mail is full off the number. What can I do for you.” So I explained him what I had – I had the proformas for the buildout, and he says “Alright, I’ll meet you. I’ll see if I can help you.” So I meet him down at this local diner, and neither one of us at our age should be in a diner, but there we are, and we were gonna have breakfast, which is the eggs and bacon, all that stuff.

He pulls out his laptop, and he’s got the back of the laptop screen that I can see, and he’s got it facing him. He says “Alright, give me your income, give me your expenses on the project” and he starts putting everything in, and we were gonna do the construction piece.

So he puts it all in, and he comes back and he says “Okay, you’re a go.” Now, he’s been tapping for like two minutes; he goes “You’re a go.” I said “What do you mean I’m a go? I’ve been working on this for a month before I met him, [unintelligible [00:11:20].09] What do you mean I’m a go? And he says “Yeah, I’ve put you through my software, and my software vets your transaction against today’s common commercial banking guidelines and tells me if you’re likely a stop or a go to commercial bank application.”

Now I’m looking at him, Joe, and I’m saying “Wait… What?!” Now it’s getting beyond me and what I have for a transaction need, and I’m more interested in what he has on the other side of that screen. So I said “What do you mean your software vets against commercial bank guidelines and tells me if I’m a stop or a go?” He goes “Yeah, if you’re a stop, it will recommend corrective action before you apply. It saves the bank a lot of time and money. This way here, when you go into the bank you are communicating in bank language crystal clear, and they like that.”

I said, “Okay… I’m a go – what does that mean?” He goes “Oh, what that means is I’m going to take your one sheet (which is my one-page print-out), I’m gonna download, print and share it with my lenders, and in a couple days you’re gonna have a proposal to do your loan” which is exactly what happened.

But in the meantime, I’m looking at him saying “Hang on a second… This is your software? How do I get this?” How do me and everybody else, and the Best Ever listeners get this, right? He goes, “Well, it’s mine. I have had it in my consultancy for over 25 years. I wrote the code, and I vetted over billions of dollars of commercial real estate and business credit line transactions with this.” I said, “I’m still stomped here… What do you mean it’s your code?” and he goes “Yeah, I wrote it.” I said, “Well, I want it.” He goes, “You can’t have it.” [laughs] I said “What do you mean I can’t have it?” He goes, “No, it’s mine.”

I said to him “Do you realize the angst you just took off of me?” He goes, “Yeah, it happens all the time. People hug me.” I’m like, “Oh, my goodness.” I said “So you just solved a critical issue for me, and this is how easy it is for you?” He says, “Yeah, I do it all the time.”

I said “Do you realize how many people out in the world of commercial real estate investment property and in commercial lines of credit for businesses could be helped with this?” He goes, “Yeah, and also commercial realtors, anybody who’s in the service sector for a property, realtors, CPAs…” and he’s got a whole list. I said “So you’ve thought about this…” He goes “Yeah.”

I said, “Well, have you decided to distribute this anywhere?” He goes, “No, I’m so busy in my banking consultancy I’ve not gotten to it.” I’m looking at him and I said, “Well, would you like some help with this?” He says, “Yeah, sure. Why not? The timing is right.” So we became partners now in this software, and from that day, since then, our collective goal with the CLS software has been to take the mystery out of the commercial bank process and to empower every real estate investor and entrepreneur with the knowledge and the likelihood of their transaction and loan request being deemed a stop or a go by a commercial bank before they ever speak to the lender. So think about that fun for a second.

Joe Fairless: How detailed does it get?

John Matheson: The software he’s built in — as a commercial banker, he wrote the code; he built in the carve-outs, he built in the standard DSCR computations of 1.2 or better, and it’s basically viewed by the bankers on the other side of it as such a preparatory tool for the borrower coming in that the bankers love the thing. It prints out a one-sheet – we call it the CLS one-sheet – that is a complete analytical profile of your transaction that’s written in banker language. You download, print and share it with your banker and it’s become for our users the ultimate conversation starter.

You can imagine the empowerment that people have when they walk into the bank and they say “Hey, I’ve got a goal result from a software transaction that I now wanna show you to determine if this is something you’d like to go forward with me on.” It changes the entire way that we now can speak to the banker about our transaction versus the way that I always had to do it, and probably everybody has to do it – it’s still you walk in with all of your stuff prepared, and you hand it to the banker and you wait for them to answer you… And how long do you wait?

Joe Fairless: It depends.

John Matheson: Now you walk in with CLS, with the one-sheet and your goal validated condition on your loan request, and you put it on the desk and you say “Let me know now. Look at it.” The bankers look at it and they go “Okay, let’s do it.” They view it as you’ve just saved them a lot of time and money in that initial process of getting to know the transaction numbers, providing of course that you’ve actually given real numbers for what you’ve just submitted to them. So no more wasting time and money on the deal for all of us that can’t get fair financing.

Joe Fairless: You the scenario I was gonna mention – I was thinking, what’s the difference between this print-out and submitting financials to one lender, and then keeping that in a folder or a jump drive or something, and then the next lender, they ask and you say “Here. Here’s the information.” The difference that you mentioned is that it’s a one-sheet written in their language, so it has all the pertinent information on a one-page document. Is that right?

John Matheson: Right, and it becomes the ultimate conversation started now in that NOI capitalized value space and DSCR space, where we’re starting off the conversation giving the banker the metrics that they wanna see going in. So now what happens, like any transaction you do – think about if you’re doing it with a seller of property and you’re making an offer and you’re making a fair offer; you’re expecting that seller to be receptive to you because you’ve just made a fair offer. It’s the same way with a banker. You just gave them transaction terms on a computerized print-out, right up front, for them to look at, for their appetite to now be enticed to say “Wow, this is a transaction that we would do at the bank.” So now begins the rest of the dialogue. Now you’re in a lot more control of the discussion, and you’re empowered.

I don’t know if you’ve seen that credit score commercial where the girl goes in and puts her feet on the banker’s desk and says “Hey, I know I’ve got a 780 credit score.” So you’re more empowered than the traditional mystery of walking into the commercial bank until you have a relationship, let’s say, and being able to say “Hey, can you take a look at my transaction and see if this is something you can do?” and if you’re anything like me, I am a big due diligence guy and I like to eliminate as many problems in a transaction in the front-end as I can, and being able to eliminate the banker as a boogeyman in the transaction on the numbers is key.

Joe Fairless: Well, they still can be the boogeyman after they get that paper and then retrade on interest rate, or proceeds, or something like that.

John Matheson: Yeah, they sure can… The real world out there. But at least you have a document now where you can argue and defend, because a commercial banker gave you a portion of their code that you can now use to be able to say “Wait a minute… In your own terms, this works.”

Joe Fairless: Yeah, it sounds really useful. What’s the cost for t?

John Matheson: We wanted to price it down to where it was affordable for everybody. When we started to run it by the bankers, the bankers were saying “It’s software. It’s like $1,500 for a particular piece.” So what we did is we said “No, we carved it into seven different applications” which we call screeners; they’re loan screeners. We have one for apartment properties, one for mixed use commercial, and one for commercial property. Then we have a compatible refinance addition for everyone who already owns property who wants to refi for each one. Then we have a business loan screener. Our baseline pricing starts for $147 for an annual subscription to one screener.

Joe Fairless: So you are a principal or joint venture partner on – when the dust settles – 70 million dollars of development right now, correct?

John Matheson: Yes.

Joe Fairless: And the cost that you’ve just mentioned is $147 for an annual subscription…

John Matheson: Yeah.

Joe Fairless: So why are you focusing any amount of time at all on a $147 product when you’re on 70 million dollar developments?

John Matheson: You know, I’ve heard you say it a lot — some of it you get to where you wanna give back… And you’re sitting there — and I know the pain I was in trying to place that loan, and I know there are a lot of people out there who go through that every day with either private lenders… Our software has a space in it for the private lender to show where they fit in, even if you have a bank loan.

It’s the type of thing where “How do you get it to the 3-6 million property investors that are out there, that are running around on a fair price? How do you get it to the 17 million small business owners for the business credit side?” You know, a lot of us who are property investors, we also own other businesses and we try to apply for credit lines for our business, and we don’t know what the regulations are. We just have a simple business loan screener that starts that conversation.

So when you start to say “Well, how do we price it for the masses?”, you just put it down to a number where you just want as many people to get this in their hands as they can, and influence a different behavior where instead of all of us having trepidation as young investors or even as people in mature business, thinking about the commercial bank, or going for that financing on a deal, now let’s know we qualify before we apply on a DIY basis. We do it ourselves, right out of our desktop. Then when we call the banker, we’re  empowered. It’s no longer “Oh, I’ve gotta call the banker…” and dread the process.

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

John Matheson: Well, for me, after going through, like I said, three different recessions, as far as real estate goes, if a real estate transaction doesn’t work on the back of an envelope, it doesn’t work.

Joe Fairless: What numbers do you write down on the back of the napkin?

John Matheson: Say we’re just gonna purchase a property that we’re going to build out. So we’ve got the acquisition price, we’ve got our construction numbers, and then we’ve got what we can sell it for. If we can’t make enough margin in that as at the ultimate exit, then we can’t do it. If we’re buying a cash-flowing property, and as you know and you do, you’re looking at the numbers and then you’re gonna figure out what’s the rent, the expenses, you’ve got your expectation of cap rate or your valuation, and if you can’t do it on the back of a napkin and make it work, for me it’s usually something I pass on.

Joe Fairless: And as you what the numbers that make it work, what type of profit do you look for?

John Matheson: I grew up in a world where as the builder or developer, you were always trying to get 25%. It was just a classic, old-school formula that I don’t know if it came — my grandfather was in construction, my father was a builder… It’s just things you learn as you come along. So you’ve got your land that you wanna keep at 25% of the deal, you’ve got your construction costs and you wanna have a gross margin of 25% in the deal for yourself. Now, how many of us ever hit 25% is another story… [laughs]

Joe Fairless: Out of the deals you’ve done, over 50 million in transaction, what percent of those would you say have you hit 25% or more?

John Matheson: Oh, probably 25%. The running joke on any of it is even when you’re building houses and you get into a development, sometimes the minute you go to build a development is the minute you can lose money. You can actually make more money sometimes off your land and selling your lots than you can when you decide to build. But the running joke for some of us (I remember) in the ’90s would be “Well, we’ve just built this 300k house (let’s say in 2000) and we only made 30k on it.” If we went into any restaurant or bar in America and sat on the bar stool and said that with lament in our voice, somebody would knock us right off the stool.”

Joe Fairless: Yup. Yes, they would. I don’t know why I just pictured a bar in Boston, like an Irish pub… For sure, you’d get punched.

John Matheson: Yup. But you know what goes into all of that, so you say “Gee, we really should have made more on it”, but sometimes you don’t. Sometimes, as you know, in this business you end up with a cup of coffee, sometimes you end up with all the coffee beans to make enough.

Joe Fairless: 25% of the deals you’ve made at least 25%. What percent have you lost money?

John Matheson: I’m very lucky, because I think my due diligence coming in has me real prepared. I will sit here and say to people all the time “I’ll go 20 and 3 in a season.” So if I was in major league baseball [unintelligible [00:24:22].17] and I’m gonna sit at the podium and I’ve won 20 games and nobody is gonna ask me about those 3 losses. I could have given up ten runs in each one of those games, but no one will ask. So most of the time we’re lucky.

We’ve been fortunate – our balance sheet has actually grown every year, so we’re lucky; we just continue to win in that space, so that’s the good news.

Joe Fairless: The difference in your analogy is that in baseball every game is considered equal, whereas in real estate if you have one of those three losses, they can be more than any of the 20 ones combined, too.

John Matheson: Sure, sure.

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

John Matheson: I’m ready.

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

Break: [[00:25:12].09] to [[00:25:49].00]

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

John Matheson: Think and Grow Rich. I’m an old guy.

Joe Fairless: Best ever deal you’ve done that we haven’t discussed already?

John Matheson: Let me just talk to software for one second, because I know how much you love to influence people too, and affect lives. Just real quick, this will take 10 seconds tops. I had a friend who was in the health services business who I helped with our Business Loan Screener, and he’s now a property investor, which is how he connects… But I helped him get the origination capital to start his health services business. This was 4-5 years ago.

And I get a text from him… I hadn’t heard from him for months, and he sends a text in – “My fat pants are loose” is all it says. I call him, I’m like “What do you mean your fat pants are loose?” This guy is in a rock solid shape, I’m like “What do you mean your fat pants are loose?” He goes “That’s from a client.” He goes “Because of you and helping me with your software, I was able to get the loan to start my business, and now I’m affecting people’s lives at the core.”

Joe Fairless: I love it.

John Matheson: Ain’t that fun?

Joe Fairless: Yup, that is fun. That has a very positive ripple effect. What’s a mistake you’ve made on a transaction?

John Matheson: Oh, you’ve heard this before – getting under-funded. This is one of the things I love about the software – it doesn’t allow me anymore to get under-funded, because we’ve been able to use the software in our private consultancies as a private developer, as a client [unintelligible [00:27:05].13] for years. Now it’s available this year for everybody… But getting under-funded in a transaction, as you know, can be just terrible to deal with, and the bank makes you put in more money, or you’ve gotta cover cost overruns, and that’s how you start to lose when you’re under-funded. You either haven’t raised enough equity or you haven’t taken enough bank money and you just said “Oh, I’ll make it work” and then it doesn’t. That’s never a good day.

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

John Matheson: I love to mentor, and I know I’ve heard other people say this on your show before, but it’s great. I have the high school kids; once a year I take one of them out of the civics class… They come around with their little project, I let them shadow me, I take them around, and then they call back a few years later “Hey, I’m in this…” Some of them will get into real estate, some of them don’t, and it’s really good stuff.

Joe Fairless: How can the Best Ever listeners learn more about the software and get in touch with you?

John Matheson: Sure, so for the Best Ever listeners, CommercialLoanSuccess.com is our URL. CommercialLoanSuccess.com/best is where we’re giving away some of our best ever advice, chapter 2 of our new book… Commercial Loan Success is out, and I’ve given chapter 2 to your listeners for free, which is everything you need to do to prepare for a commercial loan, before you speak to the banker. It’s got a nice link to our software in it for them, and we did especially for the group today, the Best Ever listeners.

Joe Fairless: Excellent. Well, John, thank you so much for being on the show, for telling your story about how you got into the software business as a full-time developer, and the problem that it solved for, and why you’re so passionate about it, as well as touching on some of the development learnings you’ve had over the last three decades of being in the business.

I’m really grateful you were on the show, so thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

John Matheson: Joe, thank you.

JF1296: How To Acquire & Control Over $100 Million In Property with Maureen Miles

Listen to the Episode Below (30:14)
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Maureen was frustrated with her corporate job, which led to quitting the job and buying small multi family properties to provide for her family. The smaller apartments were okay, but she still wanted more. Now a very successful multifamily syndicator, hear how she says anyone can do what she has done! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Maureen Miles Real Estate Background:

  • Frustration and instability with her corporate job drover her to find another way to provide her family
  • When small multis didn’t produce enough, she knew she had to go big
  • 3.5 years after closing on her first +100 unit apartment complex, her and her business partner’s portfolio just hit the 100M dollar level
  • Has invested in 1,700 units with a portfolio valued at $100 million.

  • Based in Hartford, Connecticut
  • Say hi to her at www.tudormcleod.com
  • Best Ever Book: Think and Grow Rich

Maureen’s Demo Sequence:

Basic demo sequence –
Demo
Exterior doors/windows
Mechanical rough (linesets – if needed)
Framing for closet
Install interior doors as needed
Sheetrock
Baseboards
Paint
Cabinets
Countertops
Sinks
Faucets
Light fixtures
Plumbing fixtures
Vent covers
Door knobs
Mirrors
Closet shelving
Bath accessories
Retouch paint
Flooring
Water heater
HVAC tune/clean/replace
Appliances
Cleaning


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Trevor is my real estate, business, and life coach. I’ve been working with him for years. Spots are limited, so be sure to apply today!


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, Maureen Miles. How are you doing, Maureen?

Maureen Miles: Great, great! Hi, Joe.

Joe Fairless: Nice to have you on the show. A little bit about Maureen – she’s invested in 1,700 units and she has a portfolio valued at 100 million dollars. Three and a half years after closing on her first 100+ unit apartment complex, her and her business partner’s portfolio have now hit that 100 million dollar mark.

She started out with smaller multi’s, they didn’t produce enough, and then she went bigger, and boy, has she gone bigger. Based in Hartford, Connecticut. With that being said, Maureen, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Maureen Miles: Sure. I had a corporate job with one of the big telecom providers; I just kind of got frustrated there… We never knew if we were gonna have a job month to month with layoffs, and kind of all that crazy stuff that goes along with that. We just needed a better way out. My husband didn’t have any pension at his job either, so we originally got into multifamily just trying to look for something for the future, to kind of show our kids a little bit about business and that kind of thing, and just to kind of provide our own retirement plans for the future was the original goal.

So we started buying up the multifamilies, just looking at 2-4 units, rehabbing them, getting them to rent them out, keep them full… We learned a lot there, and I knew that there was more potential in this, because I learned I was good at it, I enjoyed it, and with the small stuff I just didn’t have enough time in a day to work my full-time job and to continue to grow. I think we got up to about 30 units in the smaller kind of local stuff in Connecticut.

I started attending different education seminars, kind of learning what I could about the larger multifamily buildings and eventually kind of put it all together. I happened to get a nice package at work that was kind of my escape after I was planning for years and years and dreaming of being able to leave my corporate job. With that package I got a couple month’s worth of pay, so I figured “Now or never…”

I met up with my business partner now, and we just started buying within Atlanta, and it’s where we invest currently. But we’re anywhere really in the South-East, looking at some other markets there. But yeah, we hit it fast, and it’s been wonderful. I remember one of my first checks was over what I used to make in a year at my job, my first acquisition fee tax. That was a great moment.

We’ve just crushed it, and it’s fun. You get to work with partners you like and people you like, and people you don’t wanna work with, you don’t work with. It’s really a great world.

Joe Fairless: How many 2-4 units did you buy prior to leaving and buying in Atlanta?

Maureen Miles: At our height I think we were at about 30 units, so it was probably around 10 properties or so. We had some 4-units, some 2-units… A mixture of them.

Joe Fairless: And did you sell them?

Maureen Miles: Actually, it was really nice – they were like little savings accounts. We did make some cashflow, but it wasn’t enough to really leave our jobs at that point. Connecticut didn’t really come out of the recession; a lot of areas in the U.S. are actually still kind of it in… It’s terrible in some of the locations there. I actually still have a few of those properties today. I have two kids that are in their early 20’s, and along with my husband, they kind of manage them from Connecticut, and they take care of those.

I think we have like 8 units left, so 4 properties, maybe 5. I forget now, it’s terrible. That’s how much I think about those. But yeah, I think we have six two-families left, so 12 units.

Joe Fairless: And I think you already answered it with “Connecticut hasn’t come out of the recession” part, but I’ll ask you the question anyway if you have something else to add to it… Why not buy larger stuff in your backyard versus going to Atlanta?

Maureen Miles: One thing I like about the Atlanta market is it’s quicker on a flight; I can do a direct flight and in two hours  be there, and back in the same day. So the distance wasn’t as much of a hurdle as you might think. Connecticut didn’t see the growth. When I’d go down to Atlanta, especially three years ago, each skyline in Atlanta that you saw, you were looking at cranes everywhere, and building was massive, and the jobs coming in. In this type of business of what we do, we really follow job growth. You wanna go where the people are. As long as there’s people going into that community, there’s gonna be renters, especially with what the millennials are doing now, and stuff. We didn’t have that type of growth in Connecticut.

Also, the buildings themselves… When I go down to Atlanta, an older property is 1970. In Connecticut, I rehabbed properties from 1860. So we don’t have the mass scale of 1970’s, 1980’s, 1990’s products like we have in Atlanta.

Joe Fairless: If you were forced to do what you’re doing – I assume you’re syndicating these deals, yes?

Maureen Miles: That’s correct, yes.

Joe Fairless: Okay. If you were forced to syndicate the deals in your backyard, what would your approach be?

Maureen Miles: In my backyard, if I had to buy in Connecticut and it was an older place?

Joe Fairless: Yeah.

Maureen Miles: I’d just make sure I have good product, good bones. Every property is a little different. I like to look for what I consider “a property with the right things wrong with it.” I have certain skills that might be different than what your skills are, and so a good deal for you might not be a good deal for me. That’s something to be aware of. But I would prefer those that are not too old, unless I had a huge amount of cap-ex that worked out into the deal to be able to do it.

So I would just get out there, I’d start meeting with the brokers or the owners, trying to get as close to the source as I could for these properties, and just start tenaciously networking and letting everybody know who I was and what I was there for.

Joe Fairless: Fortunately, you’re not forced to do that… You can hop on a flight and you go to Atlanta. You mentioned the demographics or the growth for Atlanta, but initially you had the whole United States to look at, so what other cities did you look at and what made you decide Atlanta over those other cities.

Maureen Miles: Charlotte was my original market that I was looking at, but that was probably going back now four and a half years, when I first was kind of poking around the bigger properties. I liked Charlotte. What attracted me to Atlanta is that I feel – and somebody might have a different opinion, but that was the last major market to come out of the recession, so there was a lot of growth. I think they were hit a lot harder than other areas, so you had more room to grow, as well. And I just liked what they were doing for their businesses. It seemed like they were doing everything they could to attract businesses and really be business-friendly, with perks. We saw a lot of Fortune 500 headquarters moving down there… It’s nice to be in an environment where they’re really making an effort to have businesses grow, instead of trying to kill them with taxes and things like that.

Joe Fairless: In three and a half years you’ve gone from a portfolio of 30 units that you owned by yourself (or with your family) and now to 100 million… You currently have how many units in your portfolio?

Maureen Miles: Right now about 1,500.

Joe Fairless: 1,500, got it. How many properties does that consist of?

Maureen Miles: Six right now. There’s six properties. Our typical deal is about just over 200 units. Our smallest one is 150 units, our largest is 280 right now.

Joe Fairless: How did you go about getting the right team members in place for the first large on in Atlanta?

Maureen Miles: Your team is so important. A lot of referrals, a lot of research already in the market… I like to really get to know people. We actually get information from the postman. They’re always a great source of “Is this a good property? What’s going on in the area? Is it growing? Is it rough? Are you scared when you come in the area?” I always try to hit that source, it’s really good.

And the first team members – just a lot of referrals. The brokers will refer you to property managers, they will refer you to attorneys, and once you set your zone on the area you want to get into, just keep asking everybody, interviewing different people. I’m always one — I like to learn everything I can. I figured we’re dealing with large amounts of investors money, we have to do that; we have to absolutely know everything we possibly can about not only deal structure and running the property, but also about the market, because what I’ve learned is when an investor invests with you, they don’t research any of that. They’re really going on your word 100%, so you really have to understand it. I would never at a whim just jump into a market and buy a deal. You really can’t do that. As you know, Joe, this whole business is really referral-based and relationships-based.

Joe Fairless: Are you using the same property management company on all six properties?

Maureen Miles: Actually, we went through some transitions with different property management companies, and we actually took it in-house this year. Our business – we went from 6 employees to 60 employees in 2017, so we actually grew a property management company as well as a construction company, and we have control over more aspects of it now, so that we’re able to really cut down on our cost.

I realized that I was spending so much time arguing with the property management company or trying to force them to do things the way that I wanted them done, that I figured the effort was better spent on developing our own property management company, rather than just being in this constant battle all the time with explaining why they need to do things this way, and trying to save money and cutting costs… But yeah, delivering a good product. So there’s a yin and a yang to that, but right now we took it in-house.

Anyone starting in a new area, for your Best Ever listeners, you definitely want to go with a reputable third-party management company, and a broker can refer you to them; they’ll know the good ones versus the bad ones, for sure.

Joe Fairless: What are some of the things that you wanted done that they weren’t doing?

Maureen Miles: Actually, I was just speaking with someone earlier today about this… For instance, I showed up on one of my properties, we had just taken it over, and there was a terrible drop-off to like some drainage overflow area that was there, and I was like “Okay, we need a fence there…”, so just out of the blue we have [unintelligible [00:12:31].26] wholesale pricing, and we have really good installers… But just out of the blue I show up one day and there’s this wood [unintelligible [00:12:37].28] fence. There was like a mile and a half of this fence… And I asked them, I said “Whoa, what is this?” Now it kind of blocks the view, everything was closed off; it’s something that’s easy to tag if somebody wanted to [unintelligible [00:12:51].03]

I asked the manager, “What is this fence thing?” She says “Oh, one of my contractors had extra materials so he did it for free.” I’m like, “What are you talking about? That doesn’t even make sense, that you would come down and fill like a mile and a half of fencing for free.” She’s like, “Oh yeah, he does that. Just, he had extra material”, and we find out three months later we get the bill in the mail for all the fencing that she got approved, but she was afraid that I would get upset… I would have, and I did…

Joe Fairless: How much was it?

Maureen Miles: I think they wanted about $11,000 maybe… But it was discounted, and all this funny stuff. For that kind of stuff they need to send approvals, but there is kind of an under–

Joe Fairless: Under the table type of thing?

Maureen Miles: Yeah, I think some of that stuff goes on with some of the management companies, as well. Not all, but sometimes that goes on. They refer their uncle or their buddy to do a job, and I think it was something like that… But I don’t like surprises with my investor’s money, I like to have control over that. It’s been better, but I wouldn’t recommend it to anybody coming out of the gate, for sure. You definitely want a professional third-party manager, because these 100+ units are a  little bit of a different beast than the two to fours.

Joe Fairless: That’s pretty ridiculous – she just lied to you, straight to your face.

Maureen Miles: That was the end of the relationship with them.

Joe Fairless: Yeah. Clearly, that rule you don’t want to break – don’t lie to your client. But what about from a process standpoint? Anything that they weren’t doing that you now can do? Maybe paperwork, or reporting, or anything along those lines?

Maureen Miles: Yeah, a lot of things, like for instance the most recent management change we had was due to a few specific issues. One was using a rent referral company, so they were using — now, Atlanta is a pretty hot market. There’s not an occupancy issue or anything like that. If you have a good-running property, it will stay full. And they were using like a $499 referral company. We were getting these referrals, and then they were paying out $500. They never asked for our approval of this. The management company had this relationship.

Again, there could have been a kickback for them involved or something, I don’t know… But we were spending thousands of dollars a month because they were hardly leasing, so I questioned, like “Why do we have a leasing agent if we’re just relying on this referral company to send us at $500 a pop?” That’s a whole salary and a half in itself, if you have enough referrals like that. So it’s just certain things like that, that they like to go ahead and do on their own, without running by you, and they’re unnecessary.

Another thing is one of the management companies was hunting our delinquent rents as rents collected, and then they would write it off as they chose to. What that did is as you look at the numbers, is hard to really read how the property was actually doing. I like as real-time as possible with delinquencies and collections, because the way that they were structured, they were getting a little bump on their management fees, which was probably the reasoning for it…

Joe Fairless: Oh yeah.

Maureen Miles: …but it was hard to really gauge on where I need to send extra support, or what properties I should be concerned with, because we couldn’t always tell in real-time. If there was a high delinquency at a property for some reason, it was kind of covered up for a while. That ended that relationship with that company. I felt like a horrible person, but I’m really hands-on and I really like to make sure that everything’s running as efficiently as possible, and those kinds of things just drive me crazy.

Joe Fairless: And the delinquent rent – was that rent that was not paid yet, or was it delinquent and then they said they collected it but it just was late?

Maureen Miles: No, it was rent that was not paid. In Georgia, depending on the season, it takes about two months to evict somebody, maybe six weeks… So if you’re showing the rent as collected, you really can’t see that there’s maybe five people that are waiting for eviction. It can add up to four or five thousand dollars in a single month, and then they were writing it off kind of as they pleased… So it wasn’t even like they would write off the $5,000 when somebody got kicked out; they might write off $1,000 one month, and $15,000 another month… It was insane.

Joe Fairless: That is insane, but it’s obvious why they were doing it – because their fee was based off of collected income every month, so they were just batching in money that wasn’t collected, and they were getting a higher fee, right?

Maureen Miles: Yeah, you got it. And it took the pressure off them too, because the numbers looked good, but the actual numbers were not so good… So it’s a way to fluff it, which is terrible. I mean, their job is to kind of be our eyes and ears, but… Except for those few things… I mean, in general — and there are some really good property managers out there and property management companies, but you do need to know what to watch for.

Joe Fairless: Six to sixty people in one year’s time… Did I hear that right?

Maureen Miles: Yeah, it’s been a pretty crazy year.

Joe Fairless: Please elaborate on that.

Maureen Miles: So we took management in-house. There’s between probably  four to eight employees for each property, and then also the construction company. We actually bought a property in May that was 40% occupied – also something I don’t recommend the Best Ever listeners do, unless they have a background in it… But it was a major, major rehab on this 280-unit property, so we’re going through that.

We ended up bringing a lot of the help in-house for the construction side. Going through that renovation just allowed me to save so much money on products across our whole portfolio. So having the construction company, we can really buy in bulk, so not only for the 1,500 units, but also for this major rehab… So it saved our whole portfolio quite a bit of money. We’re buying things like trim, and our paint costs have just — I think we’re paying about a tenth in paint than we were before the project started.

It’s been actually good for our whole portfolio, and then going forward now we’ll be able to look at renovations and upgrades at a much lower price point than we used to and than a typical buyer would.

Joe Fairless: With the 40% occupied property – a couple lessons that you learned with that property.

Maureen Miles: Oh, boy… There’s a lot of lessons–

Joe Fairless: Careful what I ask for, huh? [laughs]

Maureen Miles: Yeah. We’ve gotten our sequences in renovations down better. What have we learned–

Joe Fairless: What’s the sequence for your renovation?

Maureen Miles: Just as far as — you make sure that your upstairs units are renovated before your downstairs units… Some of them pretty obvious. We have almost 70 contractors show up every day at that project. We bought it in May, and we’ll have the whole thing completed by May. It was in one year – that was my goal, and I think we’ll be done in about ten months.

As far as our typical sequence in getting it down and eliminating hand-off – there was a lot of lost time at hand-off, when different groups would take over. So we have our demo, and then they go on and they do all the utilities kind of work, and then you have your sheet rockers, and at what point does your HVAC guy enter, how many times does he have to go in there…? Just all of those little nuances that we really had to get down cookie-cutter. You know, how many could a group handle at once? Do we give them four? Is that more efficient than eight or one at a time? So just all those things to really get everything done quickly…

Joe Fairless: Would we be able to just go through that sequence? I was writing it down. You said 1) make sure the upstairs units are renovated before downstairs, and then the demo crew, then utilities and sheet rockers, and HVAC… Do I have that so far correct?

Maureen Miles: Yeah, that seems about right. Then we go on with our sheet rockers. The HVAC people – they have to go in at a few different points. We had some [unintelligible [00:20:27].20] that were abandoned for a while, so they had gone in and stripped some of the copper and electrical out of them. Windows, too – we like to do windows; if we can get the windows done before the interiors are renovated, and the interior guys can do the trims and paint the trims consistently with the rest of the unit; you’re not going back afterwards to replace  windows… So we’re trying to keep the window crew ahead of everybody.

Then we go on with our painting, or final punch, which is putting in all the electrical fixtures, your faucets, things like that… I’m trying to think of the sequence here. Then you have the flooring and the cabinets have to be fit in there… I can send you something, Joe, if you want. I can write down the sequence of that. I don’t wanna leave anything out.

Joe Fairless: Yeah, we’ll do that, and then we’ll put a link to it in the show notes of this episode, so Best Ever listeners, you can just simply download the document.

Maureen Miles: Yeah, because there’s nothing worse than when — especially with so much going on at once, it’s hard to keep track of every unit… But I have some really good team members on site. My daughter is actually — she’s rehabbed since she was about eight years old; she’s lived in rehabs with multifamilies and everything else, so she keeps an eye on the guys…

The worst thing ever is when you go in and there’s brand new carpeting and flooring and somebody’s cutting out the sheetrock above it because somebody forgot to tie something in, or something… That’s just such a waste of time and money. I joked about it with my whole team, I said “Don’t worry, by the end of this project we’ll have a really good process down.” It was just kind of a joke, but we have the process down. It’s good. You know, when you order appliances – all that stuff is just so key.

Joe Fairless: That’s gonna be very beneficial for the Best Ever listeners, so I thank you on their behalf.

Maureen Miles: No problem, I’m happy to help out anybody I can. Like I said, there’s a lot of figuring out to do, but we gain experience by making mistakes, so I think if somebody does get kind of messed up while you’re in a rehab project, or even buying your first multifamily, or maybe you could have bought better, the important thing is you did it, and just try to learn what you can and keep going forward. You don’t really stale unless you give up is the way I look at it.

To be successful, you have to have a lot of plan A’s, B’s and C’s. We very rarely miss a beat in anything, because we already have a plan in the back of our head of what’s gonna happen if this doesn’t work or if that doesn’t work. I think that’s why we’ve been so successful.

Joe Fairless: And along those lines, and perhaps you just mentioned it, but what is your best real estate investing advice ever?

Maureen Miles: Best advice ever… I’d say don’t ever think you can’t do it, that’s one thing. Learn everything you can about the type of real estate you wanna go into, and then don’t let the haters ever keep you down. I guess what I can say — when venturing from kind of a corporate world to this, there’s a lot of people that don’t understand it, and I think they try to keep you safe, it’s just been risky to them, but… If this is stuff you understand and you enjoy, then go for it, and don’t let one deal stop you, don’t let a conversation with a broker that didn’t go well hold you back, or one investor not wanting to invest with you keep you down.

If you know this is right for you, just keep moving ahead, because it really is a totally different world. I can provide for my family now and the opportunities we have in the future because I made this leap. So have grit, be tenacious about it, and just don’t take no for an answer, because I started with no money. My first two large deals like this – I didn’t put a penny in; I didn’t have any money. And my 30-unit portfolio you talked about – I started with an investor who had to put up all the money, so it’s not like you need a lot of money to be able to do this… Just keep at it and it can be done.

Joe Fairless: We’re doing a lightning round… Are you ready for the Best Ever Lightning Round?

Maureen Miles: Uh-oh… Okay, go for it.

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

Break: [[00:24:15].29] to [[00:24:45].07]

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

Maureen Miles: Think and Grow Rich.

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

Maureen Miles: A 250-unit deal we bought for 6,8 million and sold 24 months later for 12.5 million.

Joe Fairless: How much did you put into it?

Maureen Miles: My own money was zero.

Joe Fairless: No, total renovations.

Maureen Miles: Oh, that was another mistake [unintelligible [00:25:06].27] we did that with 250k in cap-ex.

Joe Fairless: Well, that doesn’t sound like a mistake if all-in you’re at seven million and you sell it for – what did you say?

Maureen Miles: Well, I’d say it’s the best ever real estate deal. Did you say biggest mistake? I’m sorry…

Joe Fairless: No, I thought you just said “That was a mistake, we only put in 200k.” But if you’re all-in for seven million (6.8 + 200k = 7 million) and you sold for 20-something, then that doesn’t sound like a mistake, that sounds like a really good thing.

Maureen Miles: It was a really good thing, but there was a little luck involved with that. We should have had more cap-ex for that property. That was our second property, and you learn as you go along. We got lucky, nothing major happened. We went in and did some renovations, and the market went along with us, and we totally crushed numbers.

We laugh with our investors, because I think we were projecting a 20% annualized return over five years, and we ended up doubling their money in two years, and we laugh about how bad we were at projections back then. [laughs] So we have fun, but that was the best deal to date.

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

Maureen Miles: Probably not being confident in certain properties and being too cautious and too conservative, which again, our portfolio performs awesomely because of that, but we missed out on a lot of opportunity over the years, because it took a while to really know where we could be more aggressive. We were just cautious on everything in the beginning, so our biggest mistake is probably not moving forward on some of the deals that we just got scared on.

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

Maureen Miles: I get a lot out of turning the units and seeing nice, young families moving into our apartments. One of the reasons why I do this and why it kind of hits home and I’m very passionate about it is I remember when I was young — I’d just had my daughter at the time, and with my husband we were looking for an apartment… And remember leaving the apartments that we could fit in our price range and getting in my car and crying, because they were so horrible and dirty… I’m just like, “Oh, my gosh… People would live at this place?” It was horrible.

So that kind of just resurrects itself when I see the young families moving into my places… Because you don’t have to spend a lot money to have a nice, clean, safe place to live. So I feel that by caring about that, I’m actually giving back.

We do like to support the local community. Something I’ve found out in the last year and a half or two is when you really get to know the police force around and support them, they help you out; when you team up with the police – this is if you’re in a C area – that really is a win/win. They get really excited that they have owners willing to work with them, and it helps your efforts too, by them really looking out for you and your property as well.

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

Maureen Miles: They can send me an e-mail at Maureen@tudormcleod.com.

Joe Fairless: Well, Maureen, this has been a very informative conversation. I love it, because we were talking about your personal experiences, and you gave us stories and a lot of helpful tips along the way, so we’re very grateful for that… From a couple things that we should look for when working with a third-party property management company, to make sure they’re not trying to pull one over on us. One is if they’ve got a leasing agent, and then also are consistently paying a referral company to bring in people. Two would be something that’s even more egregious, and that is counting delinquent rent as rent collected, because they are getting compensated on what rent is collected (a percentage of that). So those are two things.

And then the sequence for a renovation. Best Ever listeners, you can download that document… And if it’s not in the show notes – for whatever reason we have a technical issue – then just e-mail info@joefairless.com and my team will personally send you that document once Maureen sends it over to me.

Then the last thing you mentioned with — I believe you mentioned the mail carrier, where you like to always talk to the mail carrier…?

Maureen Miles: I do. They know everything about the properties. They’ll know who has lived there, if they’re happy, if they’re not happy, what’s been happening, what owners have owned it, what’s going on on the street… They know everything.

Joe Fairless: Yeah, so there we go – put that on our due diligence checklist when we’re viewing properties and doing walkthroughs. Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Maureen Miles: Thanks a lot, Joe, I appreciate it. And thank you, Best Ever listeners. Keep moving forward! Thank you.

real estate pro advice

JF856: NASA Scientist Flips Houses to Fund Robot Project

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You read the title correctly, Ex NASA scientist ran out of money for a robotics suit that allows you to do extraordinary. Now he does real estate and flips houses just to get that paid for, he’s pretty passionate. Hear how he closed just a few deals but made some huge paydays.

Best Ever Tweet:

Jerryll Noorden Real Estate Background:

– Founder and CEO of Noorden Estates LLC, “We Buy Houses In Connecticut”
– Began investing as wholesaler in January 2016 and just closed on first flip deal
– Fortes are direct mail marketing, and SEO
– Formerly Scientist with NASA, IHMC and the Italian Institute of Technology
– Based in Wilton, Connecticut
– Say hi to him at www.webuyhousesinconnecticut.com
– Best Ever Book: Rich Dad, Poor Dad by Robert Kiyosaki

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Best Ever Show Real Estate Advice from experts

JF802: Google Adwords Aren’t Dead and In Fact Will Make You a BIG SHOT Over Time #SituationSaturday

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Google Adwords were extremely possible 10 years ago, and now with all these social media streams people veer away from them. That’s a mistake! Today you will hear from our guests who have tried and tested Google Adwords and have built many entrepreneur’s businesses through lead generation.

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Dan Barrett & Nick Perry Real Estate Background:

– Head Nerd at AdWords Nerds, which helps real estate investors get more leads and deals with paid traffic
– AdWords is Certified Google Partners, the highest rating Google gives out
– Partnering with Investor Carrot, 1800FairOffer, Investor Fuse, Joe McCall, Tom Krol, Alex Joungblood.
– Based in Middletown, Connecticut
– Geat a FREE strategy session from Dan at http://adwordsnerds.com/strategy
– Say hi to Nick at https://www.wanttosellnow.com/

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 http://www.adwordsnerds.com strategy to schedule the appointment.

Subscribe to Joe’s YouTube Channel here to learn multifamily and raising money tips: https://www.youtube.com/channel/UCwTzctSEMu4L0tKN2b_esfg

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