investing wedding money

JF1240: Using Wedding Money For Their First Deal with Mark & Hayley Davidson

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Mark and Hayley both knew they wanted something different, found mentors, and jumped all the way into real estate investing. They hit a home run on their first deal, but quickly learned that not all deals are that easy. Tune in to hear an inspiring tale of starting out in real estate and keeping the grind going. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Mark and Hayley Davidson Real Estate Backgrounds:

-Owners of Marley Investments, LLC – a premier real estate solutions company

9 projects deep in 7 short months including wholesales, prehabs, rehabs, and what we like to call close sales.

-Family built a resort in the Philippines from the ground up that employees 4 families, to give back to the community

 where Mark’s mom is from.

-Took on an adventure of a tiny house that they bought and finished for $20,000 and are now flipping for $57,500.

-Say hi to them at https://www.mihomesolutions.com

-Based in Grand Rapids, Michigan

-Best Ever Book: Who Moved My Cheese?

 


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Best Real Estate Investing Advice Ever Show Podcast

JF1152: Adding Value To Assisted Living Facilities with Joe Pohlen

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Going from self storage to assisted living facilities is quite a jump to make. Why would anyone ever want to make that jump? Joe Pohlen is here to walk us through how he made that decision. He’ll also explain how to get the most value while providing the best care for the residents. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Joe Pohlen Real Estate Background:

  • ‎Co-Founder at Cardinal Senior Management
  • In 2012 formed a group and started buying apartment complexes, self storage and senior housing
  • Started buying single family homes while in college and renting them to fellow students
  • Began work as a court appointed receiver and became specialized in turning around struggling bank assets
  • Based in Grand Rapids, Michigan
  • Say hi to him at http://cardinalseniormanagement.com/
  • Best Ever Book: Modoc

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluff.

With us today, Joe Pohlen. How are you doing, Joe?

Joe Pohlen: Doing well, Joe. How are you doing today?

Joe Fairless: I am doing well, nice to have you on the show. A little bit more about Joe – he is the co-founder at Cardinal Senior Management. He also does apartment investing. He started buying single-family homes while in college and renting them to fellow students, and in 2012 formed a group that started buying apartment communities, self-storage and senior housing.
He’s based in Grand Rapids, Michigan, and he is currently on the road right now, he pulled over to talk to us, and he’s in Lancaster, Pennsylvania, where he said he has a bunch of apartments.

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

Joe Pohlen: Yes. I went to college in Grand Rapids, Michigan. While in college, I got into student housing, where I bought a single-family home, rented out the bedrooms to my friends, and then after a year we moved to another house and have roommates, and kept doing that for about seven years and built a student housing portfolio.

After college I was a court appointed receiver for a couple of years – that was during the economic recession – and got into buying distressed and turnaround opportunities in apartments, both student housing and traditional apartments, and also sell storage. Recently, in 2015, I sold off our self-storage and used the funds to get into senior housing, and senior housing has been my primary focus since 2015, where me and a partner own and operate about 550 beds of what’s called in Pennsylvania “personal care”, but what most of the listeners in their states would probably recognize as assisted living. That’s a little about my background.

Joe Fairless: So you sold off your self-storage and used the funds to get into senior housing… I’d love to focus our conversation on what you’re doing now with senior housing, but without talking up senior housing for this question, why did you get out of self-storage?

Joe Pohlen: Well, to be honest, I actually was offered a price that I couldn’t refuse on the complexes that we had. There were groups that were moving into our area that were regional players who were really hungry to get their hands on some self-storage assets that we had, and it just made sense at the time to sell those.

Joe Fairless: So now you’re focused on senior housing – what were the reasons why you wanted to get into senior housing?

Joe Pohlen: You know, honestly I had a moment where I was sitting around, looking at what we did and I was really drawn to the caring compassion side of the senior housing. I always enjoyed spending time with my grandparents and I felt every time I was in any of my friends’ senior housing buildings a sense of purpose, in that there was something more than just the financial side of it, and the financial side of it was really strong.

I specialized in purchasing struggling assets, and the senior housing assets that we purchased were in need of a turnaround and I felt I could be of value, and that’s what drew me to senior housing.

Joe Fairless: I’m very much looking forward to digging in to the senior housing aspect of things, so tell us about maybe a deal that you bought that was struggling, why they were struggling and what you did to turn it around?

Joe Pohlen: I’ll give you an example of one of the senior housing buildings that we bought, the first two that we bought. It was a second-generation owner; I don’t believe the person who inherited the business their real passion was ever senior housing. A lot of the senior housing operators who are mom-and-pop operators are second or third-generation business owners, and they don’t view sales and marketing in senior housing as like a bad connotation. A lot of the operators don’t really believe in a really stout sales and marketing department; they don’t partner with third-party referral sources like A Place For Mom or Caring.com.

The building that we saw was an older building, but the staff was really, really strong; the staff interacted with the families and residents well, but was only about 78% full. We felt there was a huge opportunity there to implement some really strong sales and marketing procedures such as just a script, doing assessments on-site before taking an application.

We went ahead and implemented a couple of those sales strategies and now our building is over 95% full, and that turnaround drastically increased obviously the value of the business, and has been good for everyone involved.

Joe Fairless: In addition to a script that you provided the staff, there has to be some other things, from maybe like cap-ex improvements or some other operational things that you did that have helped it.

Joe Pohlen: Well, one thing I think is kind of a secret for senior housing – and some of your listeners might have experienced this when they’ve been looking for one of their loved ones – is they’ll come in and they’ll ask how much the apartment costs, how big is the apartment, but that’s not what they’re trying to find out; what they’re really trying to find out when they come in looking for assisted living care is “Are you going to love my mom?” That’s what their true focus is, and I see a lot of people who get into senior housing, they really focus and they try to take an approach that’s similar to self-storage or apartments, where you add the dancing waterfall and the granite countertops and it looks like a country club, but in reality what you’re doing is you’re serving individuals who it’s the last few years of their life; a lot of time their hearing is gone, their eyesight is bad, they can’t even appreciate those things that you think as a business owner or a building owner that you’re really investing in… Whereas what the families and the residents are really getting and looking for is that caring compassion from the staff, and unfortunately, the line of work that I’m in in senior housing is notorious for treating staff like human sausage and just really not providing the tools and the dignity for the staff to succeed, and you see it when you go in the buildings, you can just feel that energy.

I’m a big believer that if you’re gonna turn around a senior housing building, focusing on the culture and the way the staff interacts with the residents is more important than large cap-ex projects. That’s something that I am quite a bit different than a lot of other senior housing investors, and I believe that, frankly, has lead to my success in the industry in buildings where a lot of others have not been successful.

Joe Fairless: How do you create a culture? You said you inherited some good ones, but you still have to perpetuate that, so how do you do that?

Joe Pohlen: I believe you have to practice a system of open finance where everyone in the building understands what the rent roll is, how many residents are in the building, and each department understands how much money that they are spending. And you really treat your staff as partners of yours in the business, and you create a team environment by which it’s obvious how [unintelligible [00:08:57].19] increases are awarded, and showing your staff that as your building succeeds, they can succeed as well.

Joe Fairless: Wow, that’s something I hadn’t heard before. How do you communicate the finances to your staff?

Joe Pohlen: What we did is we created a dashboard system, and the dashboard system, when our staff meets – and just to give you an idea size-wise, most of our buildings are around 100-120 beds, so on any given day you’ve got anywhere from 100-120 residents, and you grow on a staff of about 50-70 in a building of that size, where you’d have one executive director, and then we have seven departments. Each department – maintenance, nursing, dietary – has a department head.

So what we do is we meet every morning in a standup meeting and then each department has access to their dashboard, which shows what their budget is to spend on labor and supplies for the coming month and where they are at that time during the month. With that information, they can make decisions on who to hire, who to give merit-based pay increases to, and how to move and take full control of their department.

We really see each building as the head administrator is the CEO, and each of the department heads are a vice-president who are in charge of their department. By democratizing that kind of power and decision-making down to the department head level, then the department heads can see the effects of their decisions, and even though a lot of our department heads don’t have a business background or even thought that they were ever gonna be in a business situation, if we can make our P&L’s and our budgets simple to understand, then in that situation they can take ownership of those decisions.

Joe Fairless: So help me understand the potential profit opportunity for senior living, and maybe within one case study… Because when I hear 50-70 staff members for 100 beds, I’m thinking “Wait a second, I have five staff members for 100 apartments”, and you’ve got 50 for 100 beds, and I’m thinking the expenses gotta be through the roof, not to mention everything else… So what are the numbers on a deal like a 100-bed community?

Joe Pohlen: For example, one of our buildings, our goal is to run and our budgets are all based off of running at a 35% margin, so that’s our goal. If everyone follows their budget, that’s where they end up.

On a 120-bed building – and I can only speak for my buildings, of course – we have a rent roll of, let’ say $750,000. So then 35% of that would be like $262,000 would be your NOI for that month, if everyone hits budget. The rest of it is used in expenses. It’s a sizeable operation running each of these senior housing buildings.

Joe Fairless: Yes, it is. Is that a typical range? Because when I do $750,000 divided by 120, I get $6,250/bed/month.

Joe Pohlen: That would include their levels of care. The way senior housing is built in our area and how we build it is you pay an amount for your room and board rates, and then based on your care level needs – if you’re a two-person transfer, or if you need extra assistance – you would pay [unintelligible [00:12:46].04] each month, and that amount could be as high as about $2,400/month.

Joe Fairless: And what type of expenses are the largest variables for you on a monthly basis?

Joe Pohlen: One of the things when I talk to people who are thinking about getting into it, the largest expense is labor, and it’s the one that can get the most out of control. You have to find a way to manage your labor. In this line of work you’re dealing with life and death; we’re averaging across all of our buildings probably close to a dozen deaths per month, and it’s really easy for people to kind of lose track of their time and what they’re supposed to be doing, and it’s labor.

The whole business that we’re in is make sure you have good occupancy, you’re keeping up on your levels of care and you’re watching labor. Everything else tends to take care of itself; you obviously have utilities and property taxes and raw food costs, but the biggest most variable cost that will make or break you is your labor.

Joe Fairless: I wanna ask a question about the overall costs and come back to labor. For the overall costs, is one of them rent or do you own the buildings?

Joe Pohlen: We rent our buildings from a landlord. That’s pretty common in this line of work. A lot of REITs participate in that model, where they’ll own a lot of these facilities and then they’ll rent them to you on a triple-net lease. We currently are using a private landlord, we’re not using any REITs, but if someone wants to get involved in this line of work, that is a strategy, where you identify a building for sale, you do all of your underwriting, you do all your negotiations, and then you bring it to a REIT. You can just type into Google “REITs that specialize in healthcare”, there’s a lot of them out there.

You can actually bring the deal to them and they’ll purchase it, and then at the day of purchase turn around and sign a triple-net lease back to you.

Joe Fairless: Because of your background as a real estate investor, does not owning the building – is that like an elbow in the side?

Joe Pohlen: You know what, I know the guys that own our building pretty well and I am so thankful to them for getting us in the business. There’s obviously huge benefits from building ownership from the depreciation and the tax benefits of it, and down the line that would be a goal of mine to own some of these buildings.

One of the things I do like about the triple-net lease option is after you’ve shown yourself to be a quality operator, really how far you wanna grow your company is almost limitless, because there are a lot of real estate investors out there looking for quality operators.

Joe Fairless: Now I wanna ask another question about the labor… So with labor you said that’s the largest expense and can get the most out of control; what are a couple ways  – and perhaps you’ve mentioned them, but a couple ways that you don’t allow it to get out of control?

Joe Pohlen: We use ADP as our payroll provider, and we use a program called MakeShift, which is through ADP. What it allows you to do is make your schedules, and it will show you exactly how while making your schedule what your spend will be for the coming week.

One of the issues you have is monitoring who and who will not be on over time… In situations where you can use a med tech, which is kind of a lower cost employee who’s certified to pass medications, where you can use a med tech instead of an LPN, which is someone who’s got a higher certification. So we use that program, and then also most importantly is making sure the people in your building take ownership for the payroll spend.

Those two systems I found to be most helpful, but also, like I said, it’s the biggest part of our business and we are constantly looking for ways to control labor while not sacrificing our culture, and obviously, the level of care that our residents are receiving.

Joe Fairless: And just running the numbers, if you’ve got a property or a community that’s $750,000 monthly rent roll and you’re making 35% of that, times that by 12, that’s over three million dollars in profit a year. Is that around where you’re at?

Joe Pohlen: Well, here’s the thing that’s really exciting about senior housing – if you run it well, it is very profitable. If you aren’t running it well, those numbers can change quite a bit. But yes, that’s our goal and that’s where we’re tracking towards.

Joe Fairless: And where are you at now from an expense ratio standpoint? Are you around the 35% or does it take a little while to get there?

Joe Pohlen: The buildings that we’re talking about – we purchased those back in 2015, and when we took them over, they were running at about a 12% margin, and we’ve gotten those up to about a 28% margin. The big thing about when you’re looking at the margins obviously is those last 7% of occupancy, those last 20 residents are by far your most profitable residents, because the fixed cost of the building rent and the fixed cost of the insurance and the property taxes and the utilities – those are already relatively taken care of.

So the buildings become really profitable once you get up in that 95% to 100% occupied area.

Joe Fairless: But then you’ve still got the variable of the labor, which would increase with that, but the bulk of the expenses, the fixed ones will cover up to 100% occupancy.

Joe Pohlen: Yeah, your biggest labor expenses salary-wise is gonna be your executive director and all of your department heads, so obviously as you go from 60% full, you’re still gonna need a head director or if you’re 100% full you’re still not gonna add another director. So the extra staff that you add to get from, let’s just say, 80% to 95% full, that extra staff is usually at your PCA level or your dietary level. It’s not kind of your upper management level at the property level.

Joe Fairless: Are all of these residents – is that what you call them, patients/residents?

Joe Pohlen: We call them residents.

Joe Fairless: Are all of the residents privately out of pocket, or are you working with the government on getting reimbursed?

Joe Pohlen: Our facility is all private pay. [unintelligible [00:19:18].13] We do have residents who get an aid and attendant benefit; it’s like a tax-free pension from the federal government if you’re a veteran. There’s a whole side to that, but that check goes directly to the families and then they use that to pay for our services. And then a lot of other people have purchased long-term care insurance, so we do sometimes get checks from long-term providers.

Joe Fairless: Got it. So the typical monthly amount – is that about $6,000, would you say? Is that the average?

Joe Pohlen: We have buildings in three different areas, and that’s kind of like the higher end areas. It will go as low as about like $3,500 on the lower end.

Joe Fairless: Got it. Based on your experience as an investor who is focused on senior living, what is your best advice ever for real estate investors?

Joe Pohlen: This is the best advice I have for senior housing and it also is true in the apartments and the student housing – this is a customer service business; these are customers, they’re not tenants, so they are to be treated as customers. I think if you look through the lens at whatever you do, whether it’s self-storage or senior housing or apartments, and you look at it as “What am I providing for my customer and how can I do a great job at that?” is the best advice, in my opinion.

Joe Fairless: Yeah, you’ve done such a wonderful job of explaining the ins and outs of this in the short amount of time that we’ve been talking about it; lots of lessons, and I’ll summarize some of my takeaways at the end.

Are you ready for the Best Ever Lightning Round?

Joe Pohlen: Let’s do it!

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

Break: [[00:21:08].20] to [[00:22:09].06]

Joe Fairless: Best ever book you’ve read that has educated you on senior housing, if you’ve read any at all?

Joe Pohlen: I’ve never read any books on senior housing. Pretty much everything I’ve learned in senior housing has been from other operators, so that’s how I learned about senior housing.

Joe Fairless: Best ever book in general that you’ve read?

Joe Pohlen: The best ever book I’ve ever read is a book called “Modoc: The True Story of the Greatest Elephant That Ever Lived.” It really has nothing to do with business at all, but it’s just a story of a young boy who travels the world, chasing after a circus elephant that he grew up in and around. It’s just a great story of if you just follow your heart, you can live an amazing life. It’s almost like a book about Forrest Gump.

Joe Fairless: Best ever senior housing deal that you’ve done?

Joe Pohlen: I would say it’s the first deal that we did. That was the one that we bought and it was around 75%-78% occupied and we were able to get that building currently North of 95% full… And it got me into senior housing.

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

Joe Pohlen: A mistake that I’ve made is when we’ve taken over buildings and there were employees that it was obvious that they weren’t gonna fit our culture. They didn’t have the attitude that we looked for. We tried to mold positions around them, as opposed to just going ahead and parting ways with them. That I learned from our first deal, and now whenever we take over new deals, if it’s obvious someone’s not gonna fit, we get rid of them immediately.

Joe Fairless: What’s an executive director’s salary range, and then what’s a department head salary range?

Joe Pohlen: The executive director salary range is gonna be anywhere from like $70,000 to $100,000, and then the department head range is usually in the $40,000 to $55,000 range.

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

Joe Pohlen: I’ve been a part of Big Brothers, Big Sisters for about 11 years now, and I really enjoy the one-on-one mentorship with younger people. I believe if you are thinking about doing Big Brothers, Big Sisters and you’re not committed to doing it for longer than five years, I think you probably shouldn’t do it. But if you’re ready to be there for the long-term, I think you can make a real impact on a young person’s life.

Joe Fairless: And what’s the best place the best ever listeners can get in touch with you?

Joe Pohlen: Probably e-mail is the best way. My e-mail is Joe@CardinalSeniorMgmt.com.

Joe Fairless: And you can go to CardinalSeniorMgmt.com, or just click the link in the show notes page and you can see their community in York, Pennsylvania and Kulpmont, Pennsylvania.

Joe Pohlen: Those are the three — we’ve actually just closed the last month on two more properties in Lancaster, Pennsylvania. Those just haven’t been updated on our website yet, but hopefully they’ll be updated soon.

Joe Fairless: Thank you for educating us on senior housing, things to look out for, like the number one expense and the number one variable – labor; how you mitigate the risk or you attempt to control that as much as possible, and that is empowering the staff, so that each department knows how much they’re able to spend, and then empowering them to do their merit-based pay increases, as well as using a good payroll system like ADP.

As you said when you so succinctly summarized the business, you’re looking for a good occupancy, a high level of care, and have good labor. If you’ve got those three things, then you’re gonna be doing pretty well, and then from a high-level business standpoint, running the community at a 35% margin is the goal. When you took over one of them it was 12%, now it’s to 28%, creeping to that 35%.

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!

Joe Pohlen: Thanks, Joe.

Best Real Estate Investing Advice Ever Show Podcast

JF1149: Find Foreclosures In Your Market with Brandon Krieg

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The first thing that Brandon does for more success is shift his mindset. Rather than think of people as “motivated sellers” he prefers to think of them as “people that need help”. He has just about every form of finding deals; driving for dollars, direct mail, skip tracing, bird dogging, and SEO, but says that the best deals often times come from word of mouth and his network. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Brandon Krieg Real Estate Background:

  • Real Estate Investor at Honeybee Homes, LLC
  • Specialize in fast closings, and pride ourselves on being honest, hard working, caring, responsive, and reliable.
  • Went from performing on America’s Got Talent to flipping houses
  • He made $11,000 on one deal that he sold in 3 days
  • Based in Grand Rapids, Michigan
  • Say hi to him at https://thehoneybeehomes.com
  • Best Ever Book: The Traveler’s Gift by Andy Andrews

 


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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 www.fundthatflip.com/bestever


TRANSCRIPTION

Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.

With us today, Brandon Krieg. How are you doing, Brandon?

Brandon Krieg: I am doing great. My life is wonderful.

Joe Fairless: Well, I am glad to hear your life is wonderful. You will hopefully sprinkle some of that wonderfulness onto us as well. A little bit about Brandon – he is a real estate investor who specializes in fast closings and prides himself on being honest, hardworking, caring, responsive and reliable. He does everything from fixing and flipping to wholesaling, to all sorts of other tactics within that sphere. He made $37,000 on one deal that he sold in three days. He’s based in Grand Rapids, Michigan. With that being said, Brandon, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Brandon Krieg: Absolutely. So I started real estate in 2011. Prior to that, I had done a whole host of things; I was a professional musician for a while. I toured around the country, I was on America’s got talent a couple times, and a bunch of other jobs on top of that, but I wanna keep it quick and to the point. So when I first started with real estate, I really just was bootstrapping everything, from the ground up. It just took a lot of grinding, and I started really small and built up to where I am now.

Joe Fairless: With America’s Got Talent, I imagine that it’s a competitive process to get to that point; is that true?

Brandon Krieg: Well, it wasn’t for us…

Joe Fairless: Really?

Brandon Krieg: Yeah, actually it was kind of crazy… We were already a touring group. We played Vegas, to Miami, to Connecticut, so the producers of the show actually contacted us and said “Look, all that beginning part – you can just jump right past that. We’re gonna stick you right in front of the celebrity main judges.” So we were pretty fortunate in that. I know a lot of people aren’t so lucky as to be able to do that.

Joe Fairless: Well then scratch my question, never mind… [laughs] I’m gonna take a different approach then. Alright, so just so we have an idea of the type of deals that you’re doing, what’s the last deal you closed on and can you get into the specifics on it?

Brandon Krieg: Sure. The last one was a wholesale deal. It just varies on whatever comes on, which method I decide to use with it. This one was a house that was in the redemption period for a foreclosure. This family was just in a really tough spot, and obviously the Sheriff’s sale had already happened, so they really needed to close on the place quickly. So what we were able to do — this wasn’t a house that I wanted to take on particularly; Grand Rapids is a very hot rental market right now… It’s a hot-everything market, frankly, for real estate, so everybody’s really hungry for deals, so I wanted to wholesale this particular one.

After a lot of back-and-forth – it’s obviously a very emotional thing when somebody’s looking at a foreclosure, walking away from their house. We structured it so they’d have a really great package to walk away with and start their next part of their life with. Got it under contract, the next morning I sent it out to probably 10 or 12 good investors that I know and had a check in my hand later that afternoon. That all closed out, and it was a good day.

Joe Fairless: What are the numbers?

Brandon Krieg: The numbers on that – let’s see… I got the house under contract for $85,000, which depending on the amount for the property, I gave the sellers something around $15,000 to walk away with, and then I wholesaled that for seven to somebody who was pretty happy to have it. So yeah, it was a good deal for everyone.

And the back-end, what they’re gonna get out of it – they can either rent it for anything like $1,500/month or so… It’s already in pretty good shape, so it doesn’t need much rehab; probably less than 10k of rehab. And if they wanted to sell it as is, they’re probably looking at about 115k-120k. If they really wanna fix it up and hit the top of the market, more like 145k-150k, something like that.

Joe Fairless: I wanna make sure I was writing down those numbers correctly… You got it under contract for 80k, and what was the 15k and 7k part?

Brandon Krieg: 85k was what we got it under contract for. The 15k was what was over and above what it took to redeem the house from the Sheriff’s sale, so that would be the cash that the sellers would walk away with. And the 7k was the fee that I got on top of that, so we wholesaled it for 92k.

Joe Fairless: Okay.

Brandon Krieg: That gap was my cash on this deal. Then those other numbers were what the end buyer could eventually go and rent or sell it for.

Joe Fairless: Okay, I’m with you. Let’s talk about that $37,000 profit you made on one deal where you sold in three days… Tell us about that one.

Brandon Krieg: Well, I wish it was exactly 37k… That was what we sold it for. In it we had about something like a little over 11k, so it wasn’t quite 37k, but that was my first deal, actually. So when it comes to the Lightning Round this is my favorite one, too.

This was a small condo flip. I’d been looking for a very long time to find something, and this was somebody who was about to lose theirs to a tax foreclosure; they hadn’t paid their taxes in a couple of years at least, and by Michigan law, they were gonna lose it on a Friday.

So I first talked to this person on Tuesday, and to this point I had done no deals, by the way. Zero. No flips, no wholesales, no nothing. So I talked to this person, I ran the numbers, I thought “Okay, there’s no way I can lose money on this.” But at this point in my career, I had nothing; basically no money, I was bootstrapping everything, so I called up a really good friend of mine who had been a landlord who had been a landlord at Eastern; I was in Ann Arbor, Michigan at the time.

He had a house and he said “Site unseen.” “Yeah, I trust you. Let’s do this.” So we pulled it off for the closing; the title company was fantastic. We were able to close in, like I said, two or three days. We closed Friday morning, got them the cash that they needed [unintelligible [00:07:03].18] and some moving money as well.

We got it fixed up. The total rehab cost for that place was $4,200, so all-in we were just over 11k for our costs, and then it was only on the market for about three days, and we sold it for 37k or 37,5k, something like that.

Joe Fairless: How did you structure it with your friend in terms of profit sharing?

Brandon Krieg: With him – he provided the funding, I did a lot of it… We actually pitched in and worked together, and then we just split the profits 50/50.

Joe Fairless: Okay. What was the funding? Was it 70/30?

Brandon Krieg: Oh, he did all the funding. Basically, we had a good background; I had known this guy since we were both eight years old, so that drastically helps when you’re trying to put something together like this at the last minute. So he had 100% funded it, both the purchase and the repairs, and then we walked away 50/50/

Joe Fairless: And that was in 2011 when you got started?

Brandon Krieg: Yeah, that was in 2011, maybe 2012. Yeah, I think 2012.

Joe Fairless: I’ve noticed a pattern so far in two deals, and that is foreclosure. Do you still get leads through foreclosures?

Brandon Krieg: I do.

Joe Fairless: And how do you get them?

Brandon Krieg: It’s interesting. I know a lot of people that look for foreclosure lists, things like that. Really, the ones that I’ve found that end up working have either come through my own direct marketing or from other people that have found them, like networking leads that come through, and obviously those people always get a piece when something comes through that, they get a nice chunk. But that’s how I find them. So not from a bank list or anything like that, but from marketing.

Joe Fairless: When someone shares an opportunity with you and they get a piece, what does that piece look like?

Brandon Krieg: It really depends on the deal. Say it’s a little wholesale deal where in the end I just help the buyer, help the seller, make it happen and I make $1,000, then I might just split it with them, something like that.

If it’s something where I have to put weeks and weeks of effort into it, I’ll usually take a larger portion… Say something was a flip deal where they bought it for me, I make 25k on the flip but it took me two or three months to do it. Well, in that case maybe only 5k for them, something like that… Just due to the balance of work and time and risk involved.

Joe Fairless: That is pretty (I’d say) generous of you to structure it that way.

Brandon Krieg: Yeah, that’s an important thing for me. I really want to make sure that everybody wins, everybody comes out happy. Because if you do that, you form these great relationships and everything you do in real estate becomes a whole lot easier, not to mention everybody’s happier. So I wanna focus on how do I maximize every individual dollar for myself in a business where you really and truly can create win/win situations for everybody.

Joe Fairless: Have you had one person provide you with multiple leads that closed?

Brandon Krieg: I have. A good friend of mine here in the area. We have a nice, good standing relationship; if he brings me something, this is the percentage, the chunk on that, and we go from there. Usually it’s a split. If it’s an easy wholesale lead and he provides and I end closing it, we’ll just split the profits on it.

Joe Fairless: How are they finding the leads?

Brandon Krieg: They do a lot of different marketing things. They do a lot with search engine optimization (SEO) online. I do that as well. I also do direct mail, phone, driving for dollars – if you’ve heard of a method, I probably have done it or am doing it. [laughter]

Joe Fairless: But the two that have been most effective is 1) your direct marketing, which I took that as being direct mail, and then 2) from other people.

Brandon Krieg: It could be direct mail, but I sort of lump that in with everything.

Joe Fairless: Oh, okay.

Brandon Krieg: That’s me either reaching out to people that have — so with any lead generation, any deal finding method that I like, there’s two sides of it: there’s houses that will work great, and there’s people that need help. Different marketing methods work better depending on which set of problems you wanna deal with. I like to switch those up based on what I’m looking for at a given time.

Joe Fairless: Will you elaborate on those two categories and a tactic or two within each of the two categories?

Brandon Krieg: Of course. So if you are looking for — people will call it “motivated sellers”; I prefer to think of it as people that need help. So this would be something like you have your website with a contact form. They go online and they google search “I need to sell my house” or whatever your term is, and then your site comes up. They submit their information to you, and then you have it, and then you contact them and follow up. Methods like that where they reach out to you – I consider those inbound marketing. Other methods – you could do billboards, bandit signs, TV ads or radio, depending on what your budget is… All of those will create people that come to you, typically sellers in rough situations. You then have to figure out if the house fits, because the seller is typically motivated enough to make it happen.

The flip side of that is more outbound marketing methods. That would be direct mail, that would be targeted lead lists, things like that, where you think “Okay, I love this neighborhood. This is a great spot, it’s a great rental area or it’s got wonderful appreciation potential. I wanna buy a house in this neighborhood”, so I’m gonna send it to a lot of people, knowing that their house will probably work if they agree, but I don’t know if they’re motivated or not. Those are sort of the two branches of marketing as I see it, and depending on what I wanna do at the time, I just pick which one to focus on.

Joe Fairless: How do you know which one is better to focus on?

Brandon Krieg: Neither one is better, they both work. It’s really what kind of problems do you wanna deal with? With any business really, you’re solving a problem, that’s your value add, that’s where your money comes from, it’s by adding value or helping people. So you can either help people by — if you’re doing the inbound marketing methods, you’re dealing with people in a rough spot. Do you wanna deal with those kinds of problems?

Otherwise, if you don’t wanna deal with those kinds of problems, you might have to have a ton of skill in rehabbing and getting everything perfect – the timing, the market and the analysis, but the people will probably not be too much of a problem if you’re focusing on a specific neighborhood.

Joe Fairless: With the two options – I guess they are options, because you said you make a conscious effort to decide which one to focus on… With those two, 1) people who need help – I hope how you said it’s not motivated sellers, it’s people who need help; great shift in mindset. And then 2) more outbound – what is the number one tactic for getting leads in each of those, for you personally?

Brandon Krieg: For me personally, the number one tactic for inbound marketing is my website. I spent years really building it up, so it ranks well, it’s very helpful, it’s an informative source for people… So that’s become really a self-rolling machine for lead generation. The flipside of that is you can’t build that overnight. It takes a lot of time and effort and writing and engagement in all kinds of things to make that happen, so it’s not a quick fix. But for me it’s the website.

And then for outbound it’s still direct mail. You find a lot of tire-kickers, but it’s still a great source, even in today’s modern day and age of e-mails.

Joe Fairless: How many are you sending out?

Brandon Krieg: I’m not doing any direct mail campaign right now; I’m focused more on inbound, based on my market and what I wanna deal with right now. There seems to be more of a need here. But when I do, it’s anywhere from, say, 600/month to 4,000/month, depending on which markets I’m targeting and how likely I think I am to get a response. If you’re less likely to get a response, you need to send more to keep your pipeline full.

Joe Fairless: What services do you use to help with that process?

Brandon Krieg: I use Mail House – they’re some wonderful people. I can include some links in the show information – down in Texas. A guy name Jerry [unintelligible [00:15:26].21] runs a direct mail service and he’s the one that I use.

There’s a lot of great ones. YellowLetters.com – I’ve heard great things (Michael Quarles) and it’s another resource that I know a lot of people use. So I use a full-service mail house.

Joe Fairless: And how much does that cost?

Brandon Krieg: It depends on how much of the work you wanna do yourself. If you want it to just be not in your hands at all, anywhere from $1 to $1,5/letter. That’s with you never touching it. If you wanna do more, just have them ship it to you and then you can mail it off, it’s less… Something like $0,40 to $0,70.

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

Brandon Krieg: For somebody like me, who does all these different things and really started by just grinding through, by bootstrapping it through, rather than offer technical advice – because it’s not good real estate advice, it’s the best advice, that’s what we’re shooting for for our Best Ever listeners – it’s that we really need to focus on getting your mind right and keeping it right through really tough times.

A lot of people are in a really great situation when they start; maybe they have a really good job that they can pull income from, or they have a lot of experience, or a good reserve base… I didn’t have any of those things when I got started. I’m sure you’ve seen a hundred of them, people in your online forums, or local networking groups that say “I have desire, and a little time”, and you’re like “Well, good luck…” You know, that was me when I first started. [laughter] It’s brutal. It probably took me eight months to get my first property under contract, almost a year to actually buy that first condo.

So for me, that mindset at that point – and even now, six years into it – is incredibly important for keeping myself strong and able to look for deals, even after something turns South or a deal goes bad. So it’s find out what works for you to keep yourself in a good mental place where you can jump back in and just get ready to fight again and really be persistent.

Joe Fairless: How do you keep sharp, from a psychology standpoint?

Brandon Krieg: It’s a lot. I read so much of this stuff that I forget who — I apologize if I’m misattributing some of these quotes… I think it was Zig Ziglar who said “Motivation is like bathing; it’s not something you can just do once and then be done with it”, it’s something you should do every day. So a part of it is little things, like I try to not bury myself in the 24 hours news networks – even though I was a political science and history major and I love that stuff – because so much of it is so negative.

You want to be around positive people, you want to have positive health habits, you wanna try to get up early, read good books… All of these things on a little daily basis – 10 minutes here, 15 minutes there – make a huge difference on how you feel. Also, good breathing, meditation – I know some of this stuff sounds pretty new agey and I bet half of the Best Ever listeners are rolling their eyes, but at the same time it does help keep you calm in what can be sometimes a very tough industry to stay calm in.

Joe Fairless: Yes, especially when you’re on the frontlines with people who need help; they’re getting their places foreclosed on, and you’re experiencing a bit of what they are experiencing, because you have to empathize with them along the way.

Brandon Krieg: Absolutely. That’s what draws you in to do this kind of a business, it’s that desire, but at the same time it can just bury you with emotion, if you tend to be empathetic and sympathetic for people… So keeping yourself in a good spot is very, very important.

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

Brandon Krieg: Absolutely.

Joe Fairless: Alright. Well, we will absolutely do it. First though, a quick word from our Best Ever partners.

Break: [[00:19:23].05] to [[00:20:24].24]

Joe Fairless: Best ever book you’ve read?

Brandon Krieg: Keeping in line with the “keeping your mind right” theme here, I’m gonna with The Traveler’s Gift, by Andy Andrews. It’s not real estate-specific, but it has been a good helper to me and one I’ve re-read many times.

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

Brandon Krieg: That I haven’t mentioned already?

Joe Fairless: Yeah, I saw it coming…

Brandon Krieg: There was a 100-year-old house, a total mess in a neighborhood that was up and coming; I loved it, simply because it was such a challenge. I learned so much from it. We ended up making a little bit from it, not a ton, but just the challenge of diving into a house that’s 120 years old and turning it from a dump into something fantastic… And seeing how appreciative all the neighbors are when you do a flip like that is wonderful, so that’s probably my next favorite one.

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

Brandon Krieg: Most of my mistakes come from when I back off too much in a given deal. Because I care more than anybody else most of the time, I will happily pass something off, maybe pass it off to a realtor I haven’t worked with before, or another investor to close something and just make sure everything’s good with the title company. My advice for the Best Ever listeners to learn from is don’t do that. Mind your own business; it is your business, take care of it. Watch it, monitor it. If you have to be the squeaky mouse to get the cheese, so be it, but really make sure all the details are happening at the speed they need to, that you’re getting the quality of service, and his is if you’re working with realtors, contractors, other investors, sellers – anybody. Just be on top of it, because you can make or lose deals in a heartbeat if you’re not being careful.

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

Brandon Krieg: I like to be involved in the local community here in West Michigan. I run a networking group here, I’m part of the board of directors for the Rental Property Owners Association; I meet people for coffee, no matter if they’ve done a thousand deals or are just getting started, just to try to do whatever I can to help them a little further down the road.

Joe Fairless: You mentioned earlier the number one source for the people who need help is your website, and you’ve grown it, you’ve increased the search rankings – how did you learn that? Or did you pay someone to do it?

Brandon Krieg: I did it all myself. One of my many jobs before this was in tech, so I have some ability in website creation. So I did it myself, and mostly by hook or by crook, trial and error. I would build it, I read some different sources, really probably five or ten different books, several different blogs, and just synthesized it myself into what to do. But if I were to synthesize it for the listeners, it’s “Just offer value on your site.” Don’t just be somebody who’s there flash-bang, get it all fluff and no filter; really provide value for people, and then the dividends will come back to you multiplied.

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

Brandon Krieg: My website is probably the best place. It’s thehoneybeehomes.com. Drop me a line, shoot me a line, give me a call, all that good stuff. I love it.

Joe Fairless: Excellent, and that will be in the show notes page, thehoneybeehomes.com. Brandon, thank you for being on the show, thanks for talking about your experiences as a real estate investor since 2011. Some things that stood out to me, one was how you don’t call them motivated sellers, but rather people who need help; it’s a different mentality and it’s just a slight shift in the phrasing, but I suspect that shift has a large ripple effect, once you think of it as people who need help, versus motivated sellers. I suspect it tends to be a more win/win approach when you approach it that way, than you taking something from someone.

Two is the mail house that you use with Jerry [unintelligible [00:24:28].19] to do your direct mail, and then your overall approach, the inbound and outbound, as well as some of the case studies that we talked through, like the first deal that you did, and a couple others.

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

Brandon Krieg: Thanks!

Best Real Estate Investing Advice Ever Show Podcast

JF1092: How to Increase Value in Multifamily Buildings with Brian Hamrick

Listen to the Episode Below (27:57)
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With over 15 years of experience, Brian has done a little bit of everything. With a strong focus on multifamily, he has many great tips for increasing value in his buildings, and attracting better tenants. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Brian Hamrick Real Estate Background:
-Owner of Hamrick Investment Group Hosts the “Rental Property Owner & Real Estate Investor Podcast”
-Sold over $16 million in single-family, multifamily, and apartment real estate
-Syndicated three large apartment deals raising over $6 million from private investors
-Fifteen years of experience investing in single family, multifamily & apartment real estate.
-Based in Grand Rapids, Michigan
-Say hi to him at www.higinvestor.com
-Best Ever Book: 48 Laws of Power


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TRANSCRIPTION

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

With us today, Brian Hamrick. How are you doing, my friend?

Brian Hamrick: I’m doing great, Joe. I’m a fan and a listener, and I’ve been looking forward to being on your show.

Joe Fairless: Well, I’m a fan of you too, and the reason why is because yesterday you interviewed me on your podcast, which is The Rental Property Owner And Real Estate Investor Podcast, and you asked me incredibly thoughtful questions that I hadn’t been asked before. Best Ever listeners, if you want to check out Brian’s podcast, I recommend you do so, because of the quality of interview style is what I experienced, and you’ve got a great thing going.

Brian Hamrick: Well, thank you very much.

Joe Fairless: A little bit more about Brian – he is the owner of Hamrick Investment Group. He has sold over 16 million dollars in single-family, multifamily and apartment real estate. He’s syndicated three large apartment deals, raising over six million bucks from private investors, and he’s got 15 years of investing experience in single-family, multifamily and apartment real estate. Based in Grand Rapids, Michigan… With that being said, Brian, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Brian Hamrick: Sure, Joe. My background is similar to yours in that I come from a marketing background. I have 20 years experience in motion picture, theatrical marketing. I’ve worked on trailer and TV campaigns for movies like Remember The Titans, Ocean’s 13, The Hangover, 8 Mile (the Eminem movie). So I come from a marketing background too, and I feel that that’s informed somewhat in the transition to real estate. Currently, like you said, I’ve got 360 units that I control, worth over 16 million, and I’ve been doing it for a while.

My current focus is really just asset managing what I already have, to make sure it’s performing at its peak.

Joe Fairless: Were you working in your industry that you mentioned and simultaneously doing real estate investing? Is that how you got to 15 years of experience?

Brian Hamrick: Yeah. At one point it was like having two full-time jobs, because I was working remotely from Grand Rapids, Michigan for a company in Los Angeles… So I would start work around 12 or 1 o’clock in the afternoon and worked till 9-10 o’clock in the evening. That gave me time in the morning to focus on investing locally, and I started doing that in 2008.

Joe Fairless: You started doing it in 2008… What was the first property?

Brian Hamrick: In 2008 I bought my first multifamily. Now, before that I had bought a bunch of single-families, but for the purposes of this question, I bought a 12-unit here in Grand Rapids. We moved to Grand Rapids, Michigan in 2005, and I knew I wanted to get into multifamily investing, but I also felt strongly that there was some sort of bubble happening. So I waited for that bubble to burst, and in 2008 I was able to pick up a 12-unit in Heritage Hill, which is the historic portion of downtown Grand Rapids.

I picked it up for about $380,000, and just refied it a second time and it was worth (I wanna say) around 740k.

Joe Fairless: You refinanced it twice… Can you tell us the timeline on that thing?

Brian Hamrick: Sure. When we bought it, it was managed pretty well, but the market had really shifted because the rental market was not as strong as it is today. I was able to bring in new management, bumped the rents up, improved the property (we put about 90k into the property) and then we refied it in 2010-2011, and that allowed me to pull some of that money back out, some of the money I had into it. I didn’t get all my money back out, but I refied, and then — actually, it must have been more recently… Like I say, I’m focusing on asset management right now, so I was looking at my assets and saying “Okay, what do I have…?” and as you know, commercial loans (especially small commercial loans) are five-year balloons…

Joe Fairless: Yeah.

Brian Hamrick: So I’m looking ahead to what could be possibly another bubble, but definitely a downturn in the market. With that kind of uncertainty, even though I had about two years left on that loan, I thought “You know, I’d better really lock this in”, so I was able to get another five-year balloon… Which is a little shorter than I would have liked, but at the same time, rather than pulling the money out, I turned it into a line of credit. So there was about $200,000 I could have pulled out. Instead, I left it in the equity of the property itself, but I put a line of credit on it. So I have access to that money, I’m just not paying the interest on it.

Joe Fairless: Right, until you use it. Did you get that line of credit with the same lender that you have the loan?

Brian Hamrick: Yes, the lender who I refinanced with previously, they refinanced me a second time and put that line of credit on it.

Joe Fairless: Okay. How did you increase the value from 380k to over 700k now?

Brian Hamrick: Well, a lot of it has to do with the market. It’s in a great location. At the time, the rental market was not very strong, and as you know, in 2008 values were plummeting. That had a lot to do with it, but also just getting the net operating income up, improving the rents pretty dramatically, partially through just improving the property.

When we bought it, some of the bathrooms had carpet on the floor, just to give you an idea of the type of property it was. But it’s also a historical property, so it’s got hardwood floors, a lot of historical character… It was built by a civil war veteran in 1870.

Without putting granite countertops in, we put nice countertops, nicer finishes and tile backsplashes in the kitchen, tile on the floor… That allowed us to get better tenants. We’ve got some medical students, some doctors, lawyers…

Grand Rapids has a lot of colleges and universities, so we definitely get a lot of more serious type of students there. That, as well as lowering our expenses; getting our energy costs under control… It’s a historical building, so we couldn’t just put in new vinyl windows; we ended up putting storm windows over the existing windows, we put in some energy-efficient devices that helped us control — it’s hot water boiler heat, and we’re paying the gas and the water for the building.

By controlling the temperature that can go to each unit and controlling whether or not that boiler kicks on depending on what temperature it is outside, that actually helped us save quite a bit of money on energy costs.

Joe Fairless: When looking at the property appreciation from 380k to over 700k (the appreciation that’s happened), what percent is the largest percent of being at the right place at the right time, what percent is the boiler heat control…? Maybe top three percentages for how you got that increase and appreciation.

Brian Hamrick: I think number one was timing. Timing was everything on this property. We bought it when it was a buyer’s market. It had been sitting there, there had been no buyers. Today if it were on the market you’d have 10 people looking at it the first day and probably five offers. So timing definitely made a big difference. I think the availability of financing is very important, too.

Joe Fairless: That didn’t have to do with the value, though.

Brian Hamrick: I’d argue that, but I think putting the 90k that we did up front, going in strong and really turning it around as quickly as we did – that had a lot to do with it. And then just keeping strong management on the property to screen the tenants, make sure we’re getting in the best possible tenants – I think that made a big difference, too.

Joe Fairless: And will you elaborate on whenever I mentioned that didn’t have to do with the value – please educate me, tell me your thought process.

Brian Hamrick: Well, in 2008 it was very hard to get a loan for these types of properties. Banks weren’t lending, they were going out of business, so there was a lot of fear on the bank’s part. That inability to get financing for a lot of people meant that there weren’t any buyers. And when there’s no buyers, you have to accept less as a seller for your property.

Now I think we’re back to the point where banks are lending like crazy and they’re very aggressive. Well, because of that and because you can get better terms, now people can afford to pay more for the properties.

Joe Fairless: What’s the total value of your portfolio right now?

Brian Hamrick: The current value of the portfolio is around 16 million.

Joe Fairless: So this is a small aspect of your overall portfolio. What makes up the largest chunk of your portfolio?

Brian Hamrick: Well, I’ve syndicated three larger apartment deals, and I’ve done that within the past three years. The first one we actually sold. If we had been talking a year ago, I’d have had 450 units. But we sold the 71-unit last summer, the one that we (again) brought strong management and gone in strong and invested some money into the property.

We bought it for 1.7 million – this property was in Lansing, Michigan – and we ended up selling it last summer for 2.375.

Joe Fairless: Outstanding, congratulations. Why did you sell? Obviously, you made a profit, but was there another reason?

Brian Hamrick: Well, the honest reason is because it was in Lansing, and it was the one property that I was in control of that was really outside of my neighborhood. Currently, all the properties I own are in Grand Rapids or Wyoming, Michigan. Wyoming is adjacent to Grand Rapids. What I’ve kind of determined is that I like having properties that are close that I can get to in 20 minutes. That allows me to really keep my finger on the pulse of what’s going on at that property..

And then also,  we got an unsolicited offer that really started me thinking “Hey, if I can get this much for the property and return right about 19% internal rate of return to my investors, then I would be remiss not to take that kind of offer seriously.

Joe Fairless: Two questions. One is how did the buyer find you, since it was an unsolicited offer?

Brian Hamrick: Well, the unsolicited offer came from a buyer who ended up backing off.

Joe Fairless: Ah… Punk!

Brian Hamrick: Yeah, so I got a call one day; the buyer was saying “You know, this could be worth 2.5 million.” They were sophisticated enough to know their valuation.

Joe Fairless: Okay. How did they find you?

Brian Hamrick: Public records.

Joe Fairless: Okay, alright.

Brian Hamrick: So they were sophisticated enough to know how to find me… And it got me thinking, even after they fell out, so I contacted a couple brokers in the area and I said “What do you think it’s worth?” I got their valuations, and all of them came in — brokers will give you a range of what they think you can get. One broker gave me such a wide range that I thought “Well, if I sold it at the bottom of that range, I’d lose money. If I sold it at the top of that range, I’d be doing cartwheels.

The other broker gave me a pretty decent range, and then he said “You know what? I already know who’s gonna buy it, and I’ll just come with an offer next week.”

Joe Fairless: [laughs] That’s like the analogy if you ask someone for a cookie, they might say no, but if you have a plate of cookies in front of their nose and it’s right there, “Here, take a cookie”, they’re like “You know what? I think I’ll have a cookie.”

Brian Hamrick: [laughs] Yeah, so I took the cookie, and it tasted good.

Joe Fairless: Did you notice a difference in performance? I’m thinking you did, to some extent, with the Lansing property being far away, because now you have kind of the rule of thumb, you wanna be within a short drive. Did you notice a difference in the overall performance of the property with you being remote?

Brian Hamrick: Do you mean performance in the other properties–

Joe Fairless: Well, the difference comparing the Lansing property to other properties in your area. Because you sold it because it was in Lansing and you could get a good return; now your rule of thumb is you wanna be close, so that leads me to believe that being close helps, in your mind, the performance of the property itself. So my question is “Did you notice that the Lansing property was slipping slightly compared to other properties, since you were far away?”

Brian Hamrick: At one point that was the case. Early on, things were going well once we acquired it – going strong, we put some money into it… But then about a year in I realized that things were kind of slipping. They were partly slipping because I wasn’t paying close enough attention. Working with the management company, they ended up changing the person on-site as the property manager and the leasing agent. That made a huge difference.

I remember having a meeting where we were really concerned, because this was somewhat of an in-between property. To the West were much more nicer houses and more of a B community; to the East it was not so nice houses, and sort of a C or D community. This was sort of in between, and it could go either way.

Every time we would get rid of a tenant who we weren’t happy with, another tenant would jump in to take their place to cause problems. So we realized we were having these issues, and we identified three things to do to turn this around. This was about a year in.

The number one thing was installing security cameras. That made a huge difference. The number two thing was additional exterior lighting, and the number three thing was to improve the landscaping even more than we already had. That was a tough conversation, because those three things required about $25,000 that we did not have in our budget.

Joe Fairless: So what did you do?

Brian Hamrick: Well, rather than do a capital call, which I know is something that you have to prepare your investors for, I turned that into a no. Basically, I got a loan from one of our investors for $25,000 (it was only at 7%, so it was a pretty good interest-only loan), and that allowed us to get those security cameras in. I’ll tell you, security cameras – I’ve done that on all three of the large apartments that we have… Because we invest in B-, C+ type properties. And when you do, you’re always gonna get those C-, D type tenants that you have to sift through in order to really turn the property around.

The security cameras let those tenants know, “Hey, you’re being watched, and you need to behave.” It lets the good tenants know that we are paying attention and it sends the signal both to the good tenants and prospective tenants that this is a safe community.

I don’t know if it’s all across the country but where we live, we can’t say this is a safe community.

Joe Fairless: Yeah, you can’t say that anywhere.

Brian Hamrick: But you can send that signal, and I think when someone walks into the leasing agent’s office and sees the monitor on the wall with the security camera footage, especially if they’re with their parents, it sends the signal “Hey, this is safe.” Also, if anything does happen, you have a recording of it.

Joe Fairless: Now let’s transition to the other two syndicated deals that you currently have. Tell us a little bit about those numbers and business plan.

Brian Hamrick: One of them was a pretty steady eddy deal. There was definitely upside, but we bought it, it was cash-flowing — actually, it’s two separate communities that we manage and operate as one community. This is in Wyoming, Michigan. 207 units, and it was part of a much larger portfolio that was under contract by a group out of New York. These two properties did not fit their criteria. They were more interested in the 1980s and the more recent type properties. These were basically 1970, 1980 properties. They were looking to peel them off, but they were closing within 30 days. So with my partner, we were able to get in there, find an investor to basically put up 2 million dollars as a bridge loan so that we could close on these, do our due diligence and be ready to close in 30 days.

Because we were able to step up and do that — and also, they were peeling these two properties off, they had already done all the third-party reports, they had already acquired the financing, so they also needed an investor with financial strength who could step into their shoes to just take over everything that had already been put in place as far as financing.

Because we were able to do that, we were able to pick up 207 units for 7.6 million, and we had an appraisal on them for 9.6 million.

Joe Fairless: Wow, I love that. When was this, and what have you done since then?

Brian Hamrick: This was about three years ago, and since then — like I say, we like to go in strong, which means we budget enough money to do everything that needs to be taken care of, and that sends a signal to the tenants, “Hey, new management… They’re taking care of things.”

Really with this property, like I said, it was a steady eddy property, so the tenants were actually pretty good, and it’s just been getting better, because that rental market is very strong in Wyoming. The location is good, it’s off of a very busy road… But we’ve done some capital improvements, put in security cameras – again, I think that has helped – and run it pretty well. Like I said, it’s steady eddy, so we haven’t really had to do anything too dramatic to turn it around.

Joe Fairless: The other property – is this the 207 units…? You just combine the two?

Brian Hamrick: There’s a third syndication deal that we did. This was a property in downtown Grand Rapids, 96 units, historical property again. This is a much longer story, so I’ll just give it to you in a nutshell… It had been somewhat undermanaged; we were able to acquire it off-market. The owner had passed away, and the property manager was kind of managing the sale part of it. We worked directly with.

Joe Fairless: How did you create that relationship?

Brian Hamrick: Well, my partner owns a property management company, and he had been working with this woman to kind of help her with some of her managerial duties with his properties, so he had sort of the inside scoop.

Joe Fairless: Okay.

Brian Hamrick: We paid the pre-payment penalty on the existing loan, rather than assume it. We were able to pick it up for about 3.2.

Joe Fairless: When does it make sense to do that instead of assume?

Brian Hamrick: Well, we sat down with the loan broker and really went over the difference in “Do we just assume the existing loan and then get secondary finance on it?”, which was a little tougher at that time, or “Do we just pay off the payment?” In the end, looking at what our strategy was, it made more sense to pay roughly about 300k to pay off the pre-payment penalty.

We budgeted 700k, but we put well more than that into the property. The exciting thing about this property is there’s vacant commercial space. Next week we’re going before the board of zoning appeals to get a use variance — even though this property has had restaurants and commercial business since it opened in 1923, in addition to the 96 apartment units, it’s zoned residential, so we have to get a zoning variance. We’re doing that next week.

We have a restaurant operator who’s excited to take over the space once it’s available, and we also have a fitness studio that’s excited to take over the other space. So this is kind of a mixed use residential and commercial that hopefully next week we get a zoning variance to allow the commercial to happen again.

Joe Fairless: And what did you buy it for?

Brian Hamrick: We ended up paying about 3.2, and like I said, we put (I would say) at least a million dollars into it at this point.

Joe Fairless: And you said you budgeted 700k, but have put in more… How did you get the extra 300k?

Brian Hamrick: Well, when we purchased it, it was somewhat undermanaged, it was losing money. We’ve been able to increase the rents by just better screening, improving the units… The rent, by the way, includes all utilities.

Joe Fairless: Electric, too?

Brian Hamrick: Yeah, it’s probably one of the best bargains in Grand Rapids… So we’ve priced it accordingly for that. And because we control the utilities, we also control the expenses, so we’ve put in high-efficiency water heaters, and just on everything we can — we did a utility audit before we purchased the property to kind of tell us “Hey, if you spend this much here, you’ll have a three-year payback. If you spend this much there, it’s a 45-year payback.” So we had a pretty good plan to get the utility expenses under control.

Joe Fairless: So it made sense once you invested those dollars. My question is though, you budgeted 700k, you put in about a million, so there’s a $300,000 difference there… Where did that $300,000 come from?

Brian Hamrick: The rent increases. The rent increase and the occupancy increase. We’ve increased there by an average of 40%. We cycled out the previous tenants, who were placed under previous management, with the tenants that we put it.

We also got the occupancy up from 80% to — well, last month we were at 100%.

Joe Fairless: Wow. What’s the economic occupancy?

Brian Hamrick: Economic occupancy is pretty much in line with our actual occupancy.

Joe Fairless: That is outstanding. How many units?

Brian Hamrick: 96. 96 plus about 6,000 square feet of commercial space.

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

Brian Hamrick: I would say in this climate, patience. Like I said, I moved to Grand Rapids in 2005, I wanted to start investing, but I saw a bubble on the horizon. That concerns me now, too. I think in some markets – not all markets, but in some markets, people are definitely overpaying, and there is going to be something happening that I can’t predict when, that will cause a downturn in the valuation of a lot of these properties.

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

Brian Hamrick: Sure I am.

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

Break: [[00:24:10].29] to [[00:25:09].01]

Joe Fairless: Best ever book you’ve read?

Brian Hamrick: I listen to your show, so I’m gonna say a book that I don’t hear too often, and it’s called The 48 Laws Of Power.

Joe Fairless: I love that book, Robert Green.

Brian Hamrick: Yes, it’s a dangerous book, in my opinion, because it is somewhat of a handbook for sociopaths and con artists, but it’s a great book to use to kind of prepare yourself for negotiations, so you can understand why people do what they do or say what they say.

Joe Fairless: Best ever deal you’ve done?

Brian Hamrick: I’ve had a four-unit that we purchased for 21k, and put it in an LLC called Prospect Property Investment, because it was on Prospect street, sold it for 115k, and did a 1031 exchange into a five-unit that we purchased for 218k, also on Prospect street, so I got to keep it in the same LLC (the LLC makes sense), and it’s currently worth about 250k-270k.

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

Brian Hamrick: Well, hosting the Rental Property Owner & Real Estate Investor Podcast is one way. I do a lot of work with the Rental Property Owners Association. I teach a class for them on advanced financial analysis, and I also do some volunteering with Children’s Literacy. I’m doing some volunteering this summer helping some underprivileged children with reading.

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

Brian Hamrick: Letting legal fees get out of control. I’ve had deals where the legal fees have just spiraled astronomically due to negotiations, and that’s something I always work on.

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

Brian Hamrick: Listen to the Rental Property Owner & Real Estate Investor Podcast, and you can go to my website, which is higinvestor.com. You’ll find all of my information there.

Joe Fairless: Brian, thank you for being on the show. Thanks for talking about how you’ve done three syndications, what you experienced on the 12-unit that you bought in Grand Rapids – done two refinances on that – what you attribute the appreciation of over $300,000 on that property to: timing in the marketplace, but then also some operational enhancements that you’ve done.

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

Brian Hamrick: Thank you, Joe.

Joe Fairless's real estate podcast

JF907: How to Transform an SFR into a Duplex #SituationSaturday

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Abracadabra! Transforming a single family home into a duplex could bring in some magical returns! Hear how our guest saw a need in Michigan for housing and doubled his cash flow.

Best Ever Tweet:

Charlie Kao Real Estate Background:

– Owner of iBuyHousesMichigan
– Began real estate investing after moving to California and worked with clients who were investors
– Has purchased 19 homes since moving to Michigan in 2008
– Invests in variety of homes but his niche is non certified condos and homes off busy roads or next to graveyards
– Currently working on building wholesaling business and expanding network
– Based in Grand Rapids, Michigan
– Say hi to him at http://ibuyhousesmichigan.com/

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes.

Download your free copy at http://www.fundthatflip.com/bestever

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real estate pro advice

JF888: LOSING $60k, Graveyard Flip and Converting an SFR into a DUPLEX!

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Strange and dreary, yet there is always certainly a buyer at the right price. Our guest also converted a single-family house into a duplex for greater cash flow! Hear how he analyzes a deal and why he takes extreme caution before purchasing another investment.

Best Ever Tweet:

Charlie Kao Real Estate Background:

– Owner of iBuyHousesMichigan
– Began real estate investing after moving to California and worked with clients who were investors
– Has purchased 19 homes since moving to Michigan in 2008
– Invests in variety of homes but his niche is non certified condos and homes off busy roads or next to graveyards
– Currently working on building wholesaling business and expanding network
– Based in Grand Rapids, Michigan
– Say hi to him at http://ibuyhousesmichigan.com/

Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes.

Download your free copy at http://www.fundthatflip.com/bestever

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

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

JF466: Neighbors Misinform Your Potential Buyers and Drive Them Away #situationsaturday

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

Land deals…too simple to mess up a sale. You got dirt, length, and width. But then before you sell, the neighbors have a word about the land that they share with the buyers during the due diligence. UGHH! Our Best Ever guest went through just that! Hear how he turns it around!

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Seth William’s Real Estate Background:

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Made Possible Because of Our Best Ever Sponsors:

You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at http://www.fundthatflip.com/bestever.

What’s the Best Ever health plan for YOU?

Go to http://www.stridehealth.com/bestever and find a better health plan in 10 minutes or less. On average you’ll save $418 on coverage and care.

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Best Ever Show Real Estate Advice

JF 60: Flippity Flopping Land: Tales of a Land Flipper

How many land flippers do you know? Ain’t too many, right? Today’s Best Ever guest shares with us his advice on buying land low and selling it high. It’s a business model that isn’t discussed often but is working out very well for our guest. Learn about it right meow…

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Seth Williams’s real estate background:

–        Active real estate investor since 2008 located in Grand Rapids, Michigan

–        Nearly 10 years of experience as a commercial real estate banker – closed on hundreds of transactions

–        All of his investing has been done part-time and is Founder of http://www.REtipster.com, a real estate investing blog for part-time investors

–        Main line of business is buying and selling vacant land

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Sponsored by: Door Devil – visit  http://www.doordevil.com  and enter “bestever” to get an exclusive 20% discount on your purchase.

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JF 13: Learn the REAL Story Behind a Property

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Justin Bajema founded a property management company that has managed over 500 buildings. He tells us how to learn the REAL story behind how a property is performing. He’s also a Marine who received a Purple Heart and is a leading expert on the topic of veterans and entrepreneurship. It was an honor to speak with him for many reasons.

Justin’s real estate background:

  • Founded Access Property Management Group based in Grand Rapids, Michigan 
  • Purchased, rehabbed and managed homes across Western Michigan
  • Actively involved in multifamily and deal syndication 

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Listen to the show to hear his Best Real Estate Investing Advice Ever!