JF1474: Build Wealth & Live Off Of Your Wealth #SituationSaturday with Chad Carson

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Chad has been on the show in the past, and he’s back to tell us a few ways that people can retire early through real estate, which is also the subject of his new book, Retire Early With Real Estate. If you want to know how to build wealth with real estate, and then be able to live off of what you have built, grab pencil and paper and hit play! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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.

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment called Situation Saturday. Here’s the situation – you want to build wealth, and then you want to live off the wealth. Fortunately, we’ve got a returning guest to come talk to us about this. He just wrote a book called “Retire Early With Real Estate: How Smart Investing Can Help You Escape the 9-to-5 Grind and Do What Matters More.” How are you doing, Chad Carson?

Chad Carson: Hey, I’m very good, Joe. Thanks for having me on again!

Joe Fairless: My pleasure. I enjoyed our first conversation, and looking forward to this conversation. Congrats on the new book! A little bit about Chad, just to jog your memory… He began investing in 2003 at the age of 23. As I mentioned, he just wrote a book on retiring early with real estate, and you can say hi to him and learn more about what he’s got going on at coachcarson.com. There’s also gonna be a link to go check out the book too in the show notes.

With that being said, Chad, our conversation today is going to be tactical ways for how to build wealth, and then after we’ve built it, how do we live off of it. First, can you give us some context about your background and why you’re an expert in this particular topic?

Chad Carson: Sure. When I first started – you mentioned I started when I was 23, and I think like a lot of people, and everybody has their different life points, but when I was starting, it was all about putting food on the table. I was a full-time investor… “Alright, how can I flip a house? How can I make some income, just so I actually paid my bills?” That was always first and forefront in my mind, but as I moved forward, as I kind of stepped back from the business a little bit, it became more than a job. It was a wealth-building vehicle, which is something that is actually gonna grow over time. I’m gonna grow my network from something really small when I first started, to something bigger, and then eventually kind of hit that magic point, some people say, where you can actually live off your rental income. It’s not completely passive, I don’t believe anything is ever 100% passive, but you’re to a point where you’re not spending 40, 50, 60 hours a week grinding at it; you maybe spend a couple hours a week, paying a few bills, but you actually still have that rental income coming in consistently.

That’s been my journey as well – I started off flipping houses, I got started after a few years, saving up a little bit of money, started buying rental properties, and then evolving to the point about 16 years later where I am now… Mainly, with a business partner, the two of us have rental properties. We still do a flip here and there, and we’re more stable; we have rental income in a small college town, so a lot of student rentals, some single-family houses, and we’ve kind of gotten to the point where we have other people managing most of the day-to-day stuff for us, and we can use that rental income to do other things, which for me is travel. My family and I went to Ecuador for the last 17 months, and so we were able to use that rental income to pay the bills on the other side of the Equator.

Joe Fairless: That’s incredible. The first time – and the only other time – we’ve talked on this show is episode 457; that was over 1,000 days ago. The episode is titled “How to stay local and dominate.” At that time you owned 57 residential units in Clemson, South Carolina. Where are you at right now?

Chad Carson: We’ve got around 90 now. Since that episode we bought a value-add multi-unit property that we raised the rents on, and did some improvements to, and that was actually just before I went to Ecuador. We were in a dilemma point where we had a lot of capital that we were either gonna use it to pay off a bunch of debt and just sort of ride into the sunset that way and just chill for a while, or if we find a really good deal that we’d know we could add some value to and increase our cashflow, we’ll do that. We used the capital for that big project, and it turned out pretty well. We’ve raised the rents from $375/unit, which was super low, to about $650/unit, and it’s cash-flowing nicely, it’s stabilized. That’s what we’ve done since then. But still in the Clemson area.

Joe Fairless: Okay. In order to increase those rents, how much did you put into each unit?

Chad Carson: The total investment was 250k, so we’ll say approximately 10k/unit, or a little bit under that.

Joe Fairless:  So you’ve got approximately 90 rental units – congrats on that. On average, how much do they cash-flow each?

Chad Carson: With that stabilizement? I think between my business partner and I, with all units, it’s about $100-$150/month/unit, somewhere in there.

Joe Fairless: Okay.

Chad Carson: We have some that are a little bit more leveraged than others, and some are free and clear. It’s a pretty low rent market. Some of the stuff we had left over from pre-2007/2008, we have little mobile homes that rent for $400, and that kind of thing… So your margins are pretty tiny on those, but over time it’s gotten better and better.

Joe Fairless: And you have a business partner in most of these deals?

Chad Carson: Just the two of us. I had one guy that we started 16 years ago, 50/50 partners. I would be the acquisitions guy, private money guy, finding the money; he would manage the remodels and manage either selling them or renting them. That’s evolved a little bit since then. He’s got another business that he spends a lot of time on, but we’ve kind of maintained that old structure where we’re 50/50 partners, and it’s worked out really well.

Joe Fairless: Very cool. So $13,500, 50/50 partners… So you’re bringing in about $6,700/month on this rental portfolio.

Chad Carson: It might be a little bit more than that. It’s probably for each of us 8k-10k/piece. But we’ve reinvested a lot of that money; I don’t take all that money out. Some of that money is dividends, some of it we reinvest in paying down debt or buying new properties, that kind of thing.

Joe Fairless: Yeah, asset management, baby… Right? [laughs] Okay. So 8k-10k/month. For our Best Ever listeners, now that we’ve got context for where you’re coming from, the outcome of our conversation is to help the Best Ever listeners with some tactical things or ways to 1) build wealth, and 2) once we’ve built it, live off the wealth… How do we wanna approach our conversation?

Chad Carson: There’s different camps within the real estate investing world. There’s no right or wrong here, but I think the voice that I speak for a lot is somebody who’s similar to me. I’m gonna talk about smaller business, and people are gonna hear 90 units and think “Yeah right, that’s not really that small”, but it’s all kind of relative. There’s people who have businesses where they go out and own a thousand units, there’s people who have rental businesses where they own three units, and I sort of lean towards the smaller, kind of do-it-yourself type landlord. It’s something that resonated more with me. We have our own little management business, we stay small, in one market.

So in terms of building wealth, real estate for me is a really simple game, in some ways. It’s not easy, but it’s simple. There’s a couple major paths that I write about in the book that you can use to build wealth. One of those that I think we all are pretty familiar with is just a simple buy and hold rental property. But what I try to get into the tactics is when you buy a rental property and you say “I’m gonna hold this for 10-20 years”, how are you actually building wealth? What are the mechanisms to take that rental property that you buy, which maybe has a little bit of cashflow upfront, but then turn that into wealth, turn that into increased cashflow that you can actually live off of and use in your day-to-day life? What is that?

And one of those, which we don’t have a lot of control over, is just sort of passive appreciation – you know, buying in a good location, the property tends to go up in value… I have benefitted from that, for sure, because I bought properties 12 years ago, 15 years ago, that just by holding on and a good location, over time, we’ve kept up with inflation or better… So that’s absolutely a mechanism. That’s something that if you’re just patient, and you hold, and you buy strategically in good locations, where jobs are increasing, where people are moving into, you’re gonna give yourself a chance to have that benefit you.

So I think that’s part of it, but then there’s also some more active tactics that I’ve always tried to use. Some of those – I’ve mentioned that 28-unit property that I was talking about in the beginning – one of the ways we can add value to a property to find an opportunity to use your entrepreneurship… I like properties where somebody has mismanaged that, and there’s a lot of vacancy, and you can fill up those vacancies and increase the value of the building that way; I like buy and hold properties where I see some  opportunities to build something on the property, like add a washer and dryer building that you can make some coin laundry money from, or… There’s a ton of different ways. This is like the multi-unit investors like you, Joe – you all are so good at finding all these hidden income opportunities.

When we think about buy and hold, it sounds kind of simple and boring in the beginning, but when you think about it and say “I’m right here with this property. What’s the way I can maximize the value, maximize the income?” and think about that as your wealth-building mechanism. That’s been a big part of my own success, is sort of using that entrepreneurship, and not just sitting passively, but doing both – benefit passively, and also benefit from your entrepreneurship.

Joe Fairless: What are some other ways you’ve increased income at your properties?

Chad Carson: Washers and dryers, as I’ve mentioned, is a pretty basic one. I’ve allowed pets, which was kind of a dilemma for me. My property manager is like, “Yeah, we could get a lot of these students who want pets”, and I’ve just had mixed experiences in the past, but I have found we can add pet rent to that. I’m keeping track of the numbers on whether that’s gonna be a net win or a net loss, but that’s certainly been one for me.

The other has been changing use. Let’s say I’m renting to a family who sort of sees themself as one unit, and they have one set of income coming in, and instead of doing that, you have a 2-bedroom unit – I could rent it for example in a niche like student rentals, which in my case is sort of my niche [unintelligible [00:12:29].12] I have two students who think about each of their rooms as sort of a separate income unit. So they think about it per bedroom, whereas a family thinks about like this one rent for  the whole unit.

So just by transitioning it from a family unit to a student rental unit, I’ve been able to increase the rent as well, because of that different mentality, that different demand, that different marketplace.

I think shifting who your tenant base is – whether that’s students, whether that’s group rentals, whether that’s medical students… If you can find some kind of niche, and find out whatever that tenant needs, find a way to serve their needs really well – that has a huge increased income opportunity.

Joe Fairless: That concept is fundamentally sound when you’re talking about changing the use… Because what that reminded me of is when other investors buy a plot of land, and then they subdivide it out, basically it’s the concept of multiplication, right? You multiply your income streams through some creative method… In your case, you’re changing the use.

So your focus and recommendation for building wealth is buy and hold deals, and you’ve got a couple ways to do it. One is passive appreciation – let’s cross our fingers, hopefully we buy in a good location and all is well. But it might not, so therefore the second thing is the adding value to the property, mismanagement, adding washers and dryers, you’ve allowed pets and the jury is still out on that, changing the use from family to student rentals. Anything else that you can think of that you’ve done?

Chad Carson: There’s one that’s sort of a hidden opportunity that I find a lot of investors don’t pay attention to, and that’s similar to use, but it’s looking at the zoning of a property. I think this is very relevant in urban areas. Typically the most competitive areas often are the areas where everybody wants to live, or land is really at a premium, or it seems hard to find deals, and the best deals are often hidden below the zoning. What I mean by that is if you study your zoning — and I learned a lot of the zoning, because I was on the planning commission in my little town for a couple years; I learned a ton. I had no clue upfront about how the development process and the zoning process works… But I started looking at maps of all the zoning, and you’ll start noticing trends. You’ll notice that there’s little single-family houses sitting on this one parcel that’s zoned RM4, which in my town is the most dense multi-unit zoning. Or you might have a single-family house, but it’s on a duplex zone.

When you start studying the zoning, there’s all sorts of nuances. For example, you might be able to carve that lot, cut it in half, build another duplex on the back of the lot, with a driveway. I think those are things that developers really study, and people who go from the ground-up and build from the dirt, but we – I say “we” as people who are smaller, do-it-yourself kind of landlords, or people who buy rental properties to buy and hold – don’t really study that as much as developers do… But it has a huge benefit.

Just for an example, you might be negotiating with a seller of a property, and they say “I want 300k for this property”, and you run your numbers and look at your cap rate, you’re like “No, there’s no way. That’s like a 4-cap, or that’s a 5-cap. That doesn’t meet my numbers”, but if you have those hidden opportunities, you look at it and you say “You know what, the back half of this property, the dirt there is worth another $50,000.” If you knew that, and if you knew you could go build another duplex on the back and increase your income that way, that could turn a deal that on the surface looks like nothing – it can turn it into a deal, just because of understanding zoning, city development processes and that sort of thing.

Joe Fairless: I love it. So now there’s two parts to this process. One is building wealth; anything else as it relates to building wealth before we move on to living off wealth?

Chad Carson: Yeah, I would just add your use of leverage is another point that a lot of investors think about. I wrote about it in the book – there’s not a right and wrong way to think about it. It’s like a spectrum of people who say “You should be extremely highly leveraged”, and then on the other extreme they say “You should have zero leverage”, like Dave Ramsey style.

I tried to show that there could be success within that spectrum. My personal preference has tended to be a very conservative use of leverage, but definitely using leverage. Make sure the cashflow is very strong, make sure I have mortgages that don’t have balloons on them the next 2-3 years, always long-term mortgages… But then I’ve also profiled people and found people that use zero debt and have 35 single-family properties producing 15k/month in cashflow, and never used debt in the entire process.

As you’re thinking about building wealth, amortizing your debt is a big part of that, but reinvesting your cashflow if you didn’t have any debt or if you had little debt, and just doing it that way – it takes a little longer to get going, you might have to choose markets where the prices allow you to pay cash, or you and a  partner to pay cash… But I guess I would just add that to your wealth-building stage. You’re gonna have to choose what you’re comfortable with and what your risk tolerance is, but there are strategies that can still work, whatever you choose to do.

Joe Fairless: So we built ourselves a portfolio, and now we want to live off that wealth… How do we build it to the point where we can now live off of it, versus we’re still trying to acquire that magic financial freedom number?

Chad Carson: So this is the point where — just some basic math. For example, for me – I started looking at saying “What are my expenses every year? What are the basic, basic, basics that I need to cover for me and my family just to feel basic comfort, so I’m happy with it?” I had a couple different numbers. I had just “Alright, here’s my bare bones… I could do this, this fine if I had this much per month.” Let’s just say that number was $3,000/month. If I cover that, we do okay. I don’t have enough for the trips and the fun stuff that I wanna do, but we’re okay.

Then I might take another number – in my case, I’m in a smaller town, lower cost to living, but $5,000/month. With $5,000/month I can do all the extra things I wanna do. That’s fine, $60,000/year. So I just started working it backwards from that, and saying, alright, how many properties would I need – and in my case, this kind of goes back to that debt leverage and what I’m comfortable with… How many properties would I need if they were free and clear of debt, if I had these things  paid off? I’ll lean towards that in a  moment… So how many properties would I need?

For example, you might say “Alright, I have a duplex that rents for $1,200/month total, and…” — let me make sure I make my math kind of simple here, so I can do it in my head… That’s $600/month net, after I pay all my operating expenses. So $600/month times 10 is $6,000, so $7,200/year is what that one property would bring in.

Joe Fairless: $600/month times 12?

Chad Carson: Yeah, times 12 would be $7,200/year.

Joe Fairless: Okay, got it.

Chad Carson: So how many of those properties would I need to do that? I don’t think I made my math easy enough there, but… Basically, when I did the math, I looked at it and it was not a lot of properties. I said, if I had had these paid off, I’d have eight properties, ten properties maybe for me personally; they would produce enough that I would have enough income to pay all my expenses.

So I guess my point there is in this transition point from building wealth to actually living off your income, is a very different animal. When you go from having a salary, or you’re working at a job and you have that income coming in from another source, that’s a different animal from you having to produce it yourself and make sure your rentals always pay your bills.

I like to go from a more leveraged portfolio to a more conservative portfolio. That could mean having them all free and clear – that’s what some people choose to do. Hey, I’m just gonna do it like a debt snowball, where I use all my income for 3, 4, 5 years, I accelerate the paydown of my mortgages to the point where they’re all free and clear. That’s one way to do it, and I’ve mentioned earlier that we had a lot of capital a few years ago, and we thought about going that route, “Let’s just pay a bunch of stuff off.”

But we actually went to another decision point where we said, you know what, right now we’re about 70% loan-to-value; let’s just get to a safer place, like 40%, 50% loan-to-value, but not necessarily paying everything off, because long-term living off your rental income there’s a lot of different risks that you need to think about. One is just having enough money to live off of, but you also have to think about inflation, you have to think about deflation… You’re gonna live off these things for a long time.

So what we decided was kind of a happy medium – having some of our properties free and clear, meaning they’re lower risk, they produce a lot of income, they’re stable; other properties – highly leveraged, with good, safe leverage, but those are kind of our growth properties, which are gonna continue paying the loans down, and if we have massive inflation, we have some good, low-interest leverage, then it’s gonna benefit us in that case.

That’s sort of the decision point that all of us, if we’re transitioning to a more passive state with our rental properties, need to think about – what does our portfolio look like? How many properties do I need? Do I need 150 units, or could 10 or 20 units be enough to do what I want? Because the other side of that is the more properties you have and you’re trying to be more passive with it, the more potential management issues there are. You can definitely hire more people to take care of a lot of the day to day stuff, but my philosophy is the simpler you can make it with your portfolio and still meet your financial needs, the better, because it’s just more efficient.

Joe Fairless: So identify your number and the amount you need to bring in monthly, and then reverse-engineer that to see how many units you’ll need to do that. You mentioned earlier your units cashflow around $150 – it sounds like a little bit more, based on the 8k-10k/month cashflow… So what numbers should we use to ballpark that, to determine how much we need?

Chad Carson: I think it’s market-driven. I always use $1,200/month as like  a gross, round number. If you could look at a local duplex in your area, or a single-family house, and that was the median rent for you… In a lot of Southern metropolitan cities where I am, that’s sort of a realistic number. I like to work it backwards from there and just say, alright, $1,200/month; if I had 50% expense ratio, which could be a little conservative, or it could be more to some people, or it might be right on… But you’re gonna net about $600/month. I look at it that way – if you’re going to go the free and clear route, if you’re gonna say “I’m just gonna pay these properties off”, I would just look at it that way: about half of my rent is $600/month, so how much do I need? If I need $6,000/month, that’s 10 properties, and I would just work it backwards.

For me, my numbers are a little bit more leveraged still, at this point; that’s just the decision we made. So maybe you look at it and say “Alright, on average I make $200/unit on the properties that I have. I just need to acquire and stabilize this many units to $200/month and work it backwards that way.”

Joe Fairless: Anything else as it relates to building wealth and then living off wealth that we haven’t talked about that you think we should?

Chad Carson: I would just say over the long run diversification is something else I’m thinking about a lot. I’m a real estate investor through and through. I love owning assets, I love the control you have with real estate, I love the influence you can have on your returns, but over the long run, I think when you’re taking like a 30-40 year view, and this is your nest egg that’s gonna support you, and not your kind of aggressive “I’m gonna go after it” entrepreneurial money, I’m thinking more about beyond real estate a little bit, too. I still have a heavy portion with my properties, but within real estate I’m thinking about being a lender a little bit more, not just the landlord… So being a hard money lender, owning some notes.

And even beyond real estate, I’m thinking about equities and index funds, particularly in my retirement account, because I don’t wanna spend as much time on those, focused on those as much, but I like this idea that if the real estate market did really poorly in your area, you have kind of a 3-legged stool – you’re supporting yourself potentially with equities, you’re supporting yourself with rental properties, maybe you have some notes here that are not as correlated with your rental properties, and not just depending on one source, or maybe even one location. I’m very concentrated in one market, so having properties in multiple markets, having your money in multiple markets and having that diversification is a pretty smart move in the long run, because nobody can really predict exactly what’s gonna happen… So spreading your bets out a little bit can make a lot of sense.

Joe Fairless: Chad, how can the Best Ever listeners learn more about what you’re doing, and check out your book, and get in touch with you?

Chad Carson: I hang out at coachcarson.com. I write a weekly newsletter there, so you’re welcome anybody to come over there; I have a lot of free information that you can check out, along the lines of what we talked about today, using real estate to retire early, financial independence, a lot of case studies, so feel free to visit me there. I also have links to my book there. It will be on Amazon and Bigger Pockets as well.

Joe Fairless: Thank you again for being on the show and talking about building wealth, and then also living off the wealth. Once we’ve gone through the acquisition stage of getting our properties, then it’s transitioning that into actually living off that wealth. The way you suggest to acquire those properties is to do buy and hold deals in good areas, where you can get that passive appreciation, hopefully, but don’t rely on that.

Focus on adding value to the properties, looking for mismanagement, building washer-dryer buildings or putting in those units, in your case allowing pets, changing the use from families to student rentals, or just looking at the zoning and seeing what type of opportunities there are for zoning. Then also taking a look at the leverage too, and optimizing it for the accumulation – that’s the word I was looking for – stage, and then when you transition into the living off wealth, then perhaps optimizing it for something else, and you walked through the process for how you do that… So thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

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JF1246: Meet The Physician Who Builds Medical Offices In His Spare Time with Jason Blasenak

Listen to the Episode Below (24:31)
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Jason was a practicing doctor who wanted more. He started investing in real estate by developing residential homes. That venture didn’t work out too well. Years of experience have taught him how to develop medical offices while being a full time physician. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Jason Blasenak Background:

-CEO of Emergency Pavilions, LLC, a medical office development and holding company

-Their main focus is creating urgent care centers that also include other medical office developments attached

-Formally trained Emergency Medicine Physician with over 15 years experience

-Became interested real estate development 10 yrs ago, focus on residential construction building & flipping houses

-Has developed two 14,000 sq ft, multi-tenanted medical facilities with construction of a third currently in their portfolio

-In preliminary discussion with a regional hospital system as a consultant to spearhead development on  another urgent care property.

-Say hi to him at 864-991-6156

-Based in Greenville, South Carolina

-Best Ever Book: 7 Habits of Highly Successful People

 


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TRANSCRIPTION

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

Jason Blasenak: I’m doing great, Joe. How are you?

Joe Fairless: I’m doing great as well, and I’m looking forward to this, because, well, Jason is doing medical office development. He is the CEO of Emergency Pavilions – I love that play on words – and their main focus is creating urgent care centers that also include other medical office developments that are attached to them. He is based in Greenville, South Carolina… So we’re gonna be talking about medical office development.

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

Jason Blasenak: Sure, absolutely, Joe. I graduated residency – because I’m also an emergency medicine physician – back in 2006; that was about the time that all the flip shows were on TV, and I started to get a  real interest in real estate investing as my income went up, so I figured I would try to invest in real estate.

I started back in 2007, building new residential construction houses. My initial plan was to just do flip houses, but I talked to one of my acquaintances from back and high school and he convinced me that I needed to do new residential construction. As you can imagine, that didn’t turn out so well.

I built five houses, I sold one, and thank goodness for my medical income, that I was able to continue the mortgage payments on those through about 2011, 2012, until the market improved.

At that time I figured I didn’t wanna be as active as a real investor, so I started moving into private loans. So I would have real estate investors in the Greenville area reach out to me and I’d provide them with funding for their flips and buy and holds. Then in 2014 one of my co-workers decided that he wanted to open up an urgent care center and he felt that with my real estate background he could operate the urgent care center and then I could operate the real estate aspect of the business.

So we’ve built two medical centers that are anchor tenanted by the urgent care that he runs, and they also have auxiliary medical tenants, which include pharmacy, dental, physical therapy, and then aesthetic medicine as well. We’re getting ready to start building on our third facility around the Charlotte, North Carolina area, and that should be completed by fall of 2018.

Joe Fairless: Wow, that is incredible. I wanna take a step back… In your bio it says “Emergency medicine physician.” Does that mean an emergency room doctor?

Jason Blasenak: Correct, yes.

Joe Fairless: Are you still actively an emergency room doctor?

Jason Blasenak: Yes, I am. I practice at the urgent care center which is basically focused on emergency medicine patients. We advertise ourselves as the ER alternative; so I still practice 3-4 days a week working clinically, in addition to the time that I spend as a real estate developer.

Joe Fairless: So how are you an emergency room doctor and also developing – the most risky and time-consuming and stressful part of real estate you’ve chosen, and you also have a profession that is highly demanding, both mentally and physically? How do you do it?

Jason Blasenak: Very little sleep, Joe. No, I think it just comes down to your desires and your goals in life. I thoroughly enjoy practicing as an emergency medicine physician, but I also realized that I wanted something more, and I wanted income that was basically gonna be passive income as I started to grow throughout my career, because I just can’t see myself working as hard as I am now when I’m 55, 60 years of age. So it kind of melded into a good combination by being able to work as the emergency medicine physician in an office where I own the building and get residual income from that.

Joe Fairless: How did you learn development?

Jason Blasenak: On-the-job training.

Joe Fairless: Are you serious?

Jason Blasenak: Absolutely. I was blessed with a good general contractor, who kind of guided the way for me. But basically, it’s all de novo learning. When we first developed our first center, we were just gonna plan to do just the urgent care, and then I spoke with my partner, we figured that if we put tenants in there, it would lessen our risk in case something were to happen with the urgent care that wasn’t as successful as what we anticipated. So it just grew from there after my first building; then you kind of get your feet wet and know exactly what needs to proceed to keep developing these centers.

I won’t say that I’m a huge developer; both of the centers are 14,000 square feet, so we’re not developing 100,000 square feet medical centers, but it’s just enough risk in there to make sure that the reward is worth it.

Joe Fairless: What are some on-the-job lessons that you learned as a first-time developer?

Jason Blasenak: I’ll preface this back — usually, as a physician you’re pretty trusting of people, and I have noticed now with real estate investing and development that you can’t take most of the subcontractors, general contractors or any of the auxiliary personnel at their word, and you have to do the utmost due diligence to make sure that, especially as a physician, you’re an easy financial target that they like to take advantage of you.

Joe Fairless: Oh, yeah. What happened?

Jason Blasenak: Initially, our first general contractor that we had on the project was taking funds from our draws and applying them to other construction loans, and then he was advancing the draws initially ahead of his timetable of completion, so when we got to the end of the project he got to the point where he said “We can’t completely finish this project as we intended initially, because we’ve run out of funds.” That was a little bit of a life lesson there, and a costly one at that.

Joe Fairless: How much did it cost you?

Jason Blasenak: Thank goodness it was only about $85,000, because it could have been significantly worse from what some of the other medical providers that I’ve spoken with, who have run 300k-500k over. So we kept a pretty tight budget, but initially, when he started taking draws, he went above and beyond for the first two or three draws, so we’ve limited it at the very end; otherwise, it could have been that 300k-500k overage charge.

Joe Fairless: Oh, yeah, relative to others, that’s not a lot. But in real life, it also is. It’s a good lesson to learn, that’s for sure, and thank goodness it was on a 14,000 square foot project, versus a 50,000 square foot project.

Jason Blasenak: Absolutely.

Joe Fairless: That was one lesson, don’t take contractors at their word. What’s something else that you’ve learned?

Jason Blasenak: The best thing that I guess I would have learned is that you can’t rely on other people to do a task for you. You may think that you’re paying someone, but if you don’t have direct oversight over exactly what they’re doing, whether it be the architect, the engineers, and you don’t have any input into it, they’re gonna over-charge you, they’re gonna over-run you, and basically you’re gonna end up with a project that you’re gonna be unhappy with.

Joe Fairless: So you’ve gotta be actively engaged throughout.

Jason Blasenak: Absolutely.

Joe Fairless: And how do you balance — because I asked you earlier how you do it, and you said desires and goals in life; let’s get a little bit more tactical – how do you balance having a full-time job and then also being available to not get rail-roaded, because you’re a physician, and people will try to do that, just for the stereotype, in real estate. How do you protect against that and make sure you’re involved in every step of the process?

Jason Blasenak: I try to separate my clinical days from my administrative days when I’m just focused on real estate. On the days that I’m working as a physician, I really limit the amount of contact that people can have, and I make it so that we have basically protocols in place that if I’m not there or can’t directly answer the phone, that my contractor knows what needs to be done.

As I said, we’ve learned our lesson on the first case, and now I have a good general contractor who I trust inherently, so I have less of those interruptions at this point, but really separating… Because initially, in the first development, when I was working clinically and managing the development, that’s when there was less oversight and that’s really when things tactically went wrong.

Joe Fairless: How did you find your first general contractor that didn’t work, and how did you find your second that does?

Jason Blasenak: The first general contractor – we scrambled… So we initially had a general contractor — we had a budget number, had a general contractor tell us we can absolutely meet that number; he refused to give us the budget. Three weeks before closed, his numbers were 25% higher than what we could afford on the budget. So we went scrambling for the general contractor the first time, and that was by not being prepared and not doing your due diligence.

Joe Fairless: So you basically fired the first one before it started, and then you went scrambling and had to find the first one? Okay, got it. So how did you end up finding him?

Jason Blasenak: Word of mouth, and there were some other dental offices in the bank that we had acquired financing through, had had them manage a bunch of projects for them and were allegedly happy with their work.

Joe Fairless: Wow! You did the right thing, you did word of mouth, and it didn’t work. [laughs] Sometimes you can do the right thing and get the wrong results. What would you do differently if you could go back at that point in time? What questions would you ask or what things would you do?

Jason Blasenak: I think the minute that I felt that the initial general contractor was kind of beating around the bush and couldn’t get us a contract number within three weeks’ time, which would be sufficient to bid for a project of our size, and it delayed another week and another week, I think I should have walked away immediately at that time, and/or started looking for other general contractors by word of mouth, instead of delaying this until three weeks before closing for the bank financing, and then having to scramble.

Joe Fairless: So just so I’m clear – the first GC you did not end up going with, correct?

Jason Blasenak: Correct.

Joe Fairless: But the one you actually used is the one that was doing the advancing the loan stuff, right?

Jason Blasenak: Correct.

Joe Fairless: Okay, so the first one you did not go with. The second one that you just talked about, that you got through word of mouth, he’s the one who was advancing the loans and you lost 85k, correct?

Jason Blasenak: That’s correct.

Joe Fairless: Okay, so then the third one – the one that you’re with now, unless there are any more in-between… Hopefully there are not! [laughs] For your sake. For the third one, how did you find him/her?

Jason Blasenak: The second general contractor, the project manager over our project ended up leaving that company because he was not well-received, because he kind of knew what was going on… So he developed a relationship with another general contractor in the area, and they joined partnership and basically we went with their company on the second buildout, because we had a good relationship with him initially and felt that he was truthful and trustworthy on that first project.

Joe Fairless: So you got someone from the crook’s team and you partnered with that person and his new partner?

Jason Blasenak: That’s correct.

Joe Fairless: [laughs] And what did you do (if anything) to qualify that team before you were like, “Okay, fine, I’ll go with you”?

Jason Blasenak: We did not completely finish off the entire space when we developed the 14,000 square feet. We had 1,800 square feet of unfinished space, so we had that team finish off that 1,800 square feet of space, because we figured that would be a low-risk project, and if they overran, then we would go look for another general contractor.

Joe Fairless: Okay. You gave them a test drive.

Jason Blasenak: Yes.

Joe Fairless: Now let’s take ten steps back and let’s talk business plan and P&L. How do you evaluate if a project will be doable or not from a financial standpoint?

Jason Blasenak: We are very risk-averse… And when we say “we are” – my partner and myself are very risk-averse when it comes to building out real estate, so we try not to spec anything out; we try to have leases in place or letters of intent before we start building out our project.

The main thing that we do to prevent issues coming up is that we have ourselves as our anchor tenant, so basically from the bank’s perspective it’s owner-occupied, so we’re able to get a better loan rate, plus we can kind of control the amount of rent that we end up paying as the anchor tenant as well, and adjust (if need be), based on operations of the urgent care versus what we’re bringing in income on the real estate side.

Joe Fairless: Ideally, everyone who’s doing development has leases in place, or letters of intent at minimum, before they break ground… How did you do that?

Jason Blasenak: We knew that we wanted medically-related tenants, so initially we reached out to our contacts in the Greenville area, the brokers that we knew, to see if they had dentists, physical therapists, pharmacists, occupational therapists  – anybody that would be interested in joining in our building, because we think that the synergy of having all medical-related practices in one area enhances the product. So we were lucky enough between our brokers, and then we also went to a regional pharmacy recruiter initially, who also recruits for medical specialties, and they were able to give us tenants before we ended up breaking ground.

Joe Fairless: A regional pharmacy recruiter – is that someone who recruits an actual pharmacy, the store, or a person, a pharmacist, to existing pharmacies.

Jason Blasenak: She will do both, and as I said, she also recruits for dentistry and physical therapy, but she will place either a pharmacist in a building, or else she’ll bring in a pharmacist by themselves, or a regional or local pharmacy store into the facility.

Joe Fairless: Wow. I didn’t even know such position existed, and perhaps everyone else listening did, but I didn’t… So that’s one competitive advantage you would have over someone like me when you’re building this stuff.

Jason Blasenak: Absolutely. And then I will say, with the second building, it was basically word of mouth and we didn’t use any recruiters or any brokers at that time. We developed relationships with auxiliary medical specialties around the area, so they were more than happy when they saw our proof of concept had worked and it drove traffic, to come directly on site with us.

Joe Fairless: How active were you for the second building with the word of mouth, since you didn’t use brokers? How active were you in having conversations and e-mailing or phone calls to recruit people?

Jason Blasenak: I will say pretty active, to the point that we had narrowed down approximately 3-4 tenants for each space, and I spent a decent amount of time meeting with them face-to-face as well as e-mailing them… But most of the tenants that had come through for the second building had already seen that we developed a synergistic practice together because of our referrals we would send to them. So you didn’t have to go out there and convince them too much, but just laying down the numbers for them was the biggest concern, and the reason that I had to spend so much time with them.

Joe Fairless: Oh, yeah. If you were sending referrals to their company, then it’s a no-brainer for them to move right next to you, so it’s easier for everyone.

Jason Blasenak: Right. And I will have to say, Joe, that in medicine there’s a stark law violation where you just refer to just one place, and that’s not the case with us. We referred to multiple providers, it’s just these providers were able to see that it would be more beneficial to them to be on-site with us.

Joe Fairless: Your lawyer will be very pride of you right now. [laughs] So based on your experience as a real estate entrepreneur and developer, what is your best real estate investing advice ever?

Jason Blasenak: Well, Joe, my best real estate investing advice ever is to have patience and persistence. What I mean by that – most people want success, but they don’t wanna put in the effort or sacrifice the time that it takes to get there… And I’ll give an example – 99% of what I do today is not gonna pay immediate dividends today, but 6-12 months down the line, maybe a contact I made or a discussion that I had will end up coming back and either getting a tenant, or getting a real estate deal that I would have never had access to if I hadn’t pushed through.

And then persistence is that you basically need to embrace failure every day, and the faster you fail, the more you learn. Just like with developing the first building, I had a failure during that time – not a complete failure, but I learned my lesson and I moved forward. So as long as you can embrace that and move forward and learn from those mistakes, you are gonna be successful as a real estate investor.

Joe Fairless: What’s something that you learned on the second development deal?

Jason Blasenak: So the second development deal – despite the fact that it was easier than the first, you still have to be as diligent managing the project as you did before. So even though you expect it to move smoother, there are still gonna be road bumps, and if you don’t oversee that, then you’re project is gonna go awry.

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

Jason Blasenak: I am.

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

Break:  [[00:19:54].25] to [[00:20:44].02]

Joe Fairless: Best ever book you’ve read?

Jason Blasenak: The Seven Habits of Highly Successful People, by Stephen Covey.

Joe Fairless: What’s a mistake you’ve made on a transaction that you and I haven’t talked about yet?

Jason Blasenak: We initially bought our first plot of land where the first building sits, and when we closed on the land we had no means of egress out of the property, so it could have been landlocked and we would have had no access to build our medical center initially.

Joe Fairless: What happened?

Jason Blasenak: It was under a homeowner’s Covenants & Restrictions, and they were trying to play hardball to get us to pay a higher homeowner fee, so we kind of called their bluff and it worked out.

Joe Fairless: Will you please elaborate on that, how you called their bluff and it worked out?

Jason Blasenak: In the 11th hour they decided that they were — despite verbally granting us egress, they said that they were not gonna give us means of egress, which was only out through the road off of a very busy main road… So we ended up closing the property despite that, instead of trying to hold back and wait it out. Then they capitulated and decided that they would, for a higher homeowner fee per year, that they would grant us the egress at that time.

Joe Fairless: So you ended up having to pay a higher homeowner fee for access to the road?

Jason Blasenak: Correct.

Joe Fairless: Got it. What’s the best ever deal you’ve done?

Jason Blasenak: The best ever deal is the second project. We had built that and we started entertaining offers, and we actually had received an offer for a 6.7% cap rate, which is about two and a half times the value of what it cost to build the building… So we decided to back down at that time and start building a third. That by far is the best ever deal that I’ve done.

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

Jason Blasenak: The best ever way I like to give back is I donate money to scholarship funds for special needs children, and I also like to spend time mentoring undergraduate students at our clinic, who intend to attend medical school in the future.

Joe Fairless: Are you doing all this stuff with your own money, or are you bringing in investors?

Jason Blasenak: This is all done with our own money.

Joe Fairless: Best ever way the Best Ever listeners can learn more about what you’ve got going on, or check out your website or get in touch with you? Whichever direction you wanna go with that.

Jason Blasenak: Absolutely. They can reach me by cell phone. My cell phone number is 864 991 6156. Our website is currently just under development now, and it’s EmergencyPavilions.com Then they can also e-mail me at JBlasenak@Emergencymdsc.com.

Joe Fairless: And what’s the phone number again?

Jason Blasenak: It’s 864 991 6156.

Joe Fairless: Well, thank you for being on the show and talking about your medical development experiences, the challenges and the success stories, and ultimately the success story, but the challenges along the way, from doing the right thing, getting referrals from others for a general contractor, but it still not working out, because that’s just how development goes sometimes, I’ve  heard; I haven’t done it, but I’ve heard. And then still pushing through it and finding the niche that is very natural to you and your business partner, since you’re already in the industry, and leveraging those connections, and certainly having medium and long-term benefits as a result of it.

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

Jason Blasenak: Thanks, Joe.

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