JF2387: Diversifying Your Portfolio By Investing In Multifamily Properties With Karen Oeser

Karen spent over 25 years in the traditional investment business. Her specialty was helping clients with fixed income. Since interest rates have plummeted in the past decade, Karen started looking for new investment opportunities for her clients. That’s why she left the traditional business and turned to the real estate market.

She started with single-family properties. But since her focus was on helping people mitigate risk, she went on to pursue multifamily property investment. She had the right skill set, so the transition was easy.

Karen Oeser Real Estate Background:

  • She left 25 years of traditional investing experience to pursue real estate
  • Have been investing in single-family for a few years and recently transitioned into multifamily
  • Portfolio consist of 3 single-family rentals and seeking new multifamily deals
  • Based in Greenville, SC
  • Say hi to her at: www.eastlightinvest.com 
  • Best Ever Book: Hidden Investing – Holly Williams

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I started with single-family, and that is a really great way to get your toe in the water ” – Karen Oeser.


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel, and I’m here with today’s guest, Karen Oeser. Karen is joining us from Greenville, South Carolina. She left 25 years of traditional investing experience to pursue real estate. Karen started out with single-family deals and has transitioned into multifamily deals. Before we get started, Karen, can you tell us a little bit more about your background and what you’re focused on now?

Karen Oeser: Yeah, definitely. Thanks for having me. So glad to be here today. I was in the traditional investment business for nearly 25 years. My area of specialty within the traditional investment business was fixed income. I spent many years helping clients add income to their portfolios, but what happened over the last 10 years, as you well know, the interest rates, they’re hitting rock bottom. So to be able to find the kind of income for our clients, it was very difficult.

I was continuing to scour the markets and look for different opportunities and I just wasn’t pleased with what the options were out there. Because first, you go to your banks. What do you do? You go to your banks, and at these interest rates, you actually owe your bank money by the end, so that’s not a very good option. One of your other options is the traditional Treasury market, and that’s less than 1% in today’s market. That doesn’t work very well, especially when you’re looking as a traditional financial advisor, you’re charging one percent or so. Where’s your client going to make the money in that option?

Then there are corporate bonds – you have that, and you can make a little bit more money but then you add risk, because you’ve got corporate risk, and especially pre COVID… My goodness, it was pretty difficult. So people traditionally go into fixed income because they think it’ll be fixed income, and it’s safe. But the market actually wasn’t bearing that out, and you don’t feel very good about bringing your clients into that. So I decided, “You know what? There’s got to be a different way.” That’s when I left the traditional business, just a little bit over a year ago, and I jumped into the real estate market.

Now I started out with single-family as you said in the introduction, and that is a really good way to get your toe in the water. It’s a really good way to understand how the real estate market works and learn a lot of the terms of discussion. But one of the things I realized pretty quickly, again, my heart is to help people to mitigate risk. And with single-family, especially in this environment, because COVID was just starting to come in, and as soon as that starts to happen, you can have your tenants and they leave.

So if you have a portfolio of one, one tenant leaves for three months, well, that doesn’t seem like a very risk-free option. So that didn’t feel very good. So the next thing you do is maybe let me own two or three houses, but still one tenant leaves, you lose 33% of your portfolio; that doesn’t feel very safe. That’s when I was introduced to multifamily. A good friend of mine came in and said, “Look, you have a very good skill set for going into multifamily, because you understand how to talk to investors.” You know, investor relations is obviously the area that’s a natural fit for me, and I do love to look at the valuations and that as well. That’s all very easy for me to understand. So what I had to do is I had to learn about the markets themselves. That’s when I started looking closer and closer and I thought, “Man, this is amazing. Who’s been keeping the secret all these years? This is a perfect thing.”

It’s very interesting, because in the traditional market, your real estate is considered “other”. It’s usually the home that you own, which is a different asset in itself. So there’s this new asset class that’s growing, and it’s called alternative investments. That’s where this fits perfectly into it. So I’m not here to completely disparage stocks, or bonds, or any of that. You can have a very well-diversified portfolio, but you’re really selling yourself short if you don’t have a broader diversified portfolio. Multifamily is a fabulous asset, because as the demographic there is shifting, it becomes actually a safer and safer market to go into… Because people always need a place to live; it doesn’t matter if you have COVID, doesn’t matter if the economy’s going up or down, people still need a place to live. If they can’t afford to own a home, they have an apartment that they can move into. So we’re actually doing them a service giving them a place to live.

Ash Patel: Karen, what a transition from the exciting world of fixed income to real estate… So you were blown away by the returns that you can make in real estate. Why did you not know about this in 25 years being in the fixed income world?

Karen Oeser: It’s called a silo. [laughter] We live in a silo and it’s like an us and them world. Because like I said, I’m a CFA, I’m a Chartered Financial Analyst, which is the highest designation you can get in the investment world, so I’m not here to disparage my brethren. But at the same time, I’m actually educating them as well. I live in South Carolina and am on their National Public Radio show because they were interested in learning more about it. Traditionally they only have people coming in and talking about traditional assets on there, and people are hungry to learn about more.

Ash Patel: I want to deep dive into this. Back to your investing career… What were your typical clients that were looking for the fixed income returns? Is it elderly people? People that already built their nest egg and they just want to preserve capital?

Karen Oeser: That’s a very good question. To answer it, they’re primarily people that are just going into retirement. Over these cycles, what’s happened, and it yet even feeds into why this is an interesting asset across no matter where you are in your demographic… Because what has happened is, first I came into the market you have the dot-bomb. So you had people that have put their entire nest egg into that. Then you had the real estate crash, that primarily hit the single-family as we know. So people keep having to rebuild their portfolios. So it’s actually those same people that keep coming back, and they’re like, “I don’t really want to put my assets at risk again.” So they’re really people who are saying, “I have been burnt so many times, and I know the mattress probably isn’t the answer either. But I’m feeling better about that than what my options seem to be.” So it seems like there’s this huge secret that nobody tells you about.

That’s actually one of the things that I’ve been doing, is rather than saying I’m a competitor to the financial advisory market, that’s one of the areas that I’ve gone through, and I’ve talked to several financial advisors and I said, “Let us partner. This is a beautiful partnership.” Because this is a way to diversify your client’s portfolios, as well as a way to add a lot of oomph and a lot of power into the returns that your clients really need… Especially those that are trying to rebuild their portfolios.

The stock market has really had a really nice turnaround. People were surprised, actually, by how well the market’s done this past year in the world of COVID. But the fact remains, the vast majority of people didn’t put their money back in there and it stayed in their mattresses.

Ash Patel: Especially the older people that were jaded from a couple of market cycles. So were you able to retain a lot of your clients through this real estate transition? And are you able to get them investing in real estate?

Karen Oeser: You know, I had a non-compete within my company, so we couldn’t do that. But I am reaching out; they’re finding out through LinkedIn and through other ways. But the fact is, I know how to speak to clients like this, I know how to hold our hands through, I know the questions they have, I know how to look at the portfolio in a very broad and diversified way, so they can feel good about it.

One thing about it – I’d really like to go back to the risk, because that’s really where people want to camp out on there as well. It goes back down to — let’s say you’ve got 100 doors, you’ve got one tenant that’s missing… That is going to be a fraction of your portfolio. It will not even be a blip on your return. So when you’re going back into the traditional markets and you say, “Okay, I’ll have one fixed-income fund, I’ll have one particular fund”, you can have one company that could go down and it can wipe the whole thing out. That’s why it’s so important to have such a broad diversity within your holdings, both in terms of when you’re buying your properties… Because it’s not healthy just to buy one property as well. You want to diversify it as well.

Ash Patel: Do you think one of the reasons that your typical financial advisor isn’t promoting real estate is because it’s difficult for them to get paid on these types of investments?

Karen Oeser: Yeah, I think that’s fair.

Ash Patel: How do you find a solution for that? You’re looking to bridge these gaps, so what can you do to innovate a solution where they can be rewarded and their clients can get exposure to real estate?

Karen Oeser: These advisors get paid on a percentage of the assets under management. Some are commission-based. But where this really can add some value is to those that are paid as a percent of their assets, because you’re looking at particular properties now that you’re getting 12% IRR on it… Well, if you’re going for 1% of assets under management and you’re going up to a 12% return, the return they’re getting paid for their clients is on their total assets under management. So when you’re helping their clients, you’re helping them as well, so it’s actually a symbiotic relationship.

Ash Patel: So it’s a win-win-win.

Karen Oeser: It is. Absolutely.

Ash Patel: Good. So are you looking to partner with some of these financial advisors in the future and get their clients to invest in some kind of vehicle that you’re putting together?

Karen Oeser: Exactly. That’s what I’m in the process of doing. As you know, I’m fairly new to this whole multifamily, but what I’m finding is I’m developing a lot of relationships… Because with my CFA, a lot of people will take my call. So I’ve developed a lot of relationships with the local banks here, and different financial advisors, because I am part of that club, so they’ll take my call. Whereas if you don’t have any experience, they won’t take your calls. So I’ve got a real big leg up in terms of developing that client base and that investor base.

Ash Patel: You’ve got me excited about all the potential opportunities in front of you. Where is this going to be in three years? Let’s say two years – what are you going to be doing in two years to leverage all of your experience, all of your contacts, your relationships, and your knowledge of both the financial world and now the real estate world, where everybody gets to benefit?

Karen Oeser: One of the big areas that I’m really focused on as well is on financial literacy. That’s financial literacy across the board, and that’s even financial literacy for the experts in the financial markets… Because it’s about knowing what your opportunity set is. Once advisors get a taste of this, it’s very, very exciting… Because literally, it blows my mind that I hadn’t even been introduced to it. The closest we get to it in the traditional markets is in the REITs, but that’s still a completely different animal, and the assets are so diluted by the time that they get to the clients, it’s not the same thing.

The other beautiful thing about this is their clients are actually getting a piece of a physical asset. They could actually go and drive by these apartment buildings. It’s different than a nefarious stock that’s over here [unintelligible [00:14:21].21]  something else. But these are physical assets that are real; this isn’t funny money.

Ash Patel: One of the challenges, when I try to explain to people what it is that I do, is to get them to understand the returns. Have you had those moments where people just don’t believe that these returns are possible?

Karen Oeser: Every time. They think you’re nuts.

Ash Patel: Okay. So you’re talking the same language to people that you’ve been in the same industry for 25 years. How do you overcome that? How do you get them to actually believe, “Oh, my god, wait a minute. I’ve had blinders on. How do I take them off and do what you’re doing?” How do you explain to them that this is a real thing and these double-digit returns are real?

Karen Oeser: Well, it’s my case study, quite honestly. You have to go by case studies. Obviously, now that I’m an owner myself, I’m a passive owner in some real estate now, I actually can speak from experience… Because I can actually talk about the process and what it takes. These deals are so well-vetted… And as you know, in this market, it is really hard to get deals through with managers that don’t do a good job at that, because it’s a very small universe, and income is very self-selecting. People know what it takes to get — what returns are real. They’ll know the markets if they square, because as you know, there are different asset classes. So if you go out there and sell a Class A, for example, with class C numbers, people know that that doesn’t square.

So that’s one of the things you do, depending on how sophisticated your investors are. The more sophisticated investors want to get into the weeds a little bit more, and then you can educate them what’s the difference between a class A, class B, Class C. But that’s no different than talking about when you’re in the traditional investment world and you’re saying, “Well, we’ve decided to go more defensive”, and the type of stocks you buy for that versus high aggressive growth; there’s no difference. This just happens to be an apartment building that’s different. So there are different classes and industries within that.

Ash Patel: That’s a great explanation. You spent a lot of your life mitigating risk. Now, listen, our real estate cycle, we’re up there, we’re up high…

Karen Oeser: Yeah, we are…

Ash Patel: What’s your mind doing knowing that there could be some risk around the corner? And how do you leverage that or how do you remediate that?

Karen Oeser: Well, remediating is vetting the managers you choose to work with and looking at their track record and who they’re working with. And again, for example, that’s one of the reasons I intentionally chose to own a couple of passive investments before I decided to be an active investor. Because if I just went and jumped into it without getting the proper training and knowing who I’m working with, well, that’s one of the things that you look for. You look for managers that have good experience, working with people that know what they’ve been doing, and also have worked through several cycles. Some people can jump on the bandwagon, but if they haven’t been through cycles and know how to manage them, that’s no different than going with a brand new portfolio manager in the traditional stock market and say, “Hey, where were you for that bubble? How did you handle that bubble?” These are the questions that you teach, that build confidence. When you go and talk to the manager and they say, “Yeah, we’ve been through this last cycle, we know what to do.” Understanding what vacancy rates mean, because vacancy rates, obviously, in this market are one of the big measurement tools for how well-managed the property is.

Ash Patel: So what I’m hearing is you’re not terribly concerned with a downturn in the economy as long as there are good operators that you’ve put your money into.

Karen Oeser: Yeah, that’s exactly right. And knowing how they invest, because this is a speculative investment… And if you want a speculative investment, all the power to you to do that, but you need to understand that you’re investing in that. So yes, there’s some risky stuff out there, and if you’re especially going in the class As in the top tier markets, you can get yourself burnt, because that’s getting pretty toppy right now.

Ash Patel: Yeah, that’s getting rough.

Karen Oeser: It is. Would I advise clients to be jumping into that? I don’t think so. Because that’s how you mitigate risk.

Ash Patel: And would you consider doing a syndication of your own? You being the general partner, you forming the syndication?

Karen Oeser: Not solo. That’s part of risk mitigation as well. You mitigate through the minds you put together. So what you do is you put together people that have been through different cycles and that come in with different strengths. Because one of the mistakes people make when they come into the market is you’ll get somebody who has worked in construction, for example, and they say, “Well, I know how to do the rehab” but they’re having a value-add property, and you get a bunch of people only know how to do that, but you don’t have people that know how to manage the books, and you don’t have people that know how they manage the flow, how to manage your property management company… So that’s what you do. This is really how you can mitigate the risk in this market, is understanding who you’re doing business with, both on the operator side as an active investor, or on the passive investment side as well.

Ash Patel: I think that’s a great outlook, because over the last several years, syndication is hot, and everybody wants to be a syndicator. I don’t think one of the things that are in their mind is assembling this team of people to help me and do it right. I think individuals have goals where “I’m going to syndicate this deal, and I’m going to make money leveraging other people’s money”, not thinking about the burden that that bears on you, how much of a risk it is, and how difficult it is to do it all by yourself. So assembling that team is great advice.

Karen Oeser: In fact, for any of your listeners, I’d warn them. If you’re going to somebody that’s a one or two-man show, be wary. It’s one thing if you’re talking 10 doors, but if we’re talking about anything 50 doors or above, you really want to have a team that has at least three members on it, if not more, that they all have something unique and special that they can bring to the table. One my partners that I work with, my favorite saying is one plus one equals five. It goes for this teamwork. The more people you have on there, there’s a multiplication effect. But you need to have people that have a broad set of experiences, so they can say, “I’ve seen this movie before, and then when this happened, this is what we did to mitigate that risk.” And you’re so grateful for that experience.

Ash Patel: What are some of the other things you look at in vetting some of these syndicators?

Karen Oeser: I have to say ego is a big one. That’s part of my old school coming back into it as well…

Ash Patel: They have to have an ego, right?

Karen Oeser: Well, you have to have an ego, but you can’t have an ego. It’s a dance. The problem is, if this just becomes a one-person show, that team won’t be successful. Because you need to have a team that shares and values each member. I have to say, having come from the traditional world, I am very impressed with the level of camaraderie within our industry. I’m also impressed with accepting the fact that teams are important, and we welcome that. And the other thing is, we all know each other, and that’s another thing. So we bring each other into different deals.

Some people will assemble one single team and they’ll only invest with that team. I call myself the diversification queen, so I can’t do that by definition. I’d rather work with different people in different markets that have a team assembled for “Get a Class C, get a Class B.” Then you’re talking different size markets; you’ve got your smaller markets, your second-tier markets, third-tier markets… And you want people that have experiences in that. I don’t want to be in my B class in my second-tier market if it’s a Class C property. I need somebody with a different set of experiences for that.

Ash Patel: That’s a great observation. I’m going to assume from what little I know about the financial industry that your peers were a lot more competitive, versus in real estate, everyone’s more cooperative.

Karen Oeser: Yes, we didn’t share very well.

Ash Patel: Yeah. It’s amazing with real estate, you’re absolutely right. People will give away all their secrets, they’ll share their ideas, they’ll collaborate, and they’ll often find that that’s what increases your level of success, is the collaboration and sharing.

Karen Oeser: And that level of vulnerability, to say, “I don’t know what I’m talking about. Can you tell me what you know?” As you said, the other thing that blows me away is people’s willingness to share.

Ash Patel: Right. Back to your ego comment right?

Karen Oeser: Yeah. Exactly.

Ash Patel: Put that ego away, get out there, ask the questions, be vulnerable, get a mentor, learn from others. Hey, imagine if you had learned these lessons 25 years ago and you never got into the fixed income game, and started out right in real estate.

Karen Oeser: Oh, my goodness. I know, I know. And the life skills that you learn within this as well. The other thing I’m really touched by this industry is not only the level of cooperation and collaboration, but also people’s desire to contribute. One of the first things that they ask you in your classes is “What’s your why?” They don’t ask you that question in a traditional business. What’s your why? What gets you out of bed every day? Who do you want to be able to help? Who do you want to be able to serve? Everybody likes to talk about who they’re serving and how they’re helping them. It’s really uplifting. I still think that I’m taken aback by the level of generosity that our community has, and what we teach others, and that kind of behavior.

Ash Patel: I’m glad you transitioned and are able to experience that. With that being said, what is your why?

Karen Oeser: My why is financial literacy for women. Your viewers may or may not know that women control over half the investable assets in this country, yet many of them – it’s sitting under a mattress for a lot of the reasons we talked about earlier in this call. I’ve actually created an organization called Financial Literacy For Her. It’s a place where we come, it’s a place for both mindset development, as well as learning about investments. It’s more of a support group environment where women can come and ask their questions and talk about what is an interest rate, why does it matter? How do I put my portfolio together? What is a portfolio? To some people that’s even a little bit advanced.

So we’re setting it up so that we have an entry-level, intermediate, and more advanced… Because some people have a lot of assets and they just need some help deploying them. Some people don’t have two pennies to rub together and they need somewhere to start. That’s really where I want to help with the younger generation as well, is teaching them how to think about money.

Another thing I’m putting together – and again, this is where I’m taken aback by the generosity – is I’m putting together a scholarship fund to help fund scholarships for women who really want to step into this and get some help investing, and be able to have a support system to help them start investing and making these wise decisions. Because once you start making money and you’ve been able to get a taste of it, it’s very exciting. Then those women share with other women and it becomes a collaborative environment to help everybody grow and be wise with their money.

Ash Patel: That’s an amazing why, and you are the ideal person to lead a crusade like that. A question that that brings up is a lot of these women that you mentor – do you recommend that they manage their own finances and their own investments? Or you as a professional, like somebody that was in the industry that you came from?

Karen Oeser: That’s a very good question. It goes back down to the teams, and it’s very interesting. So that’s one of the things that is very important with us at Financial Literacy For Her, is we make sure that we have a team of advisors. Just like we do on the multifamily where you have accountants, you have lawyers, you have everybody within the whole ecosystem…  And that is something that I really want to let the women know as well, it’s like, “Let’s work together as a team”, because if any of those service providers are fixated or are working in a silo, they probably don’t have your best interest in hand. Because it’s not all about law, it’s not all about accounting, it’s not all about financial advising. We’re all here to help you grow your assets in your estate.

So my greater vision of where I want this to go, is I actually have this emblem, the Financial Literacy For Her, and my goal is I want to reach out to service providers where they have that, so our clients will know that this is someplace they believe in collaboration, they believe in a team effort, and they will help you grow your entire assets.

Ash Patel: That was an epiphany. You blew my mind, because we look at the team behind the syndications and we ask a lot of questions. But when it comes to somebody managing your entire portfolio, your entire net worth, you really don’t do the same research. It’s just not a thing. You could put $20,000 into a syndication, and oh my God, you ask questions, you get references, you visit their properties, you interview their managers… But you can give your entire life savings to a financial advisor and really not think a lot of it. It could be one person and not a team, as you mentioned.

Karen Oeser: That’s what happens. I saw that a lot over my years, is that people would be three years from retirement and no one would talk to them about estate planning.

Ash Patel: Yeah, you’re making me question a lot of things.

Karen Oeser: Yeah, that’s what goes on. Part of it is because there’s this  whole specialty mentality, and it’s back to the ego again… It’s “Let me keep my world in my silo.” That’s why a lot of these bubbles happen. Think about it like accountability groups. You get your team of accountability partners. They keep you out of trouble when you’re like, “Okay, my eyes are wandering and I’m thinking about jumping into this investment, or I’m buying this insurance policy, or thinking about playing around with this accounting rule.” Well, your team of collaborators is there to keep you honest and keep you accountable for where you’re going and what your goals are.

Everybody on your team should know what your goals are, they should know what your why is, where you want to go. That’s also like with the Financial Literacy For Her company – what we’re doing is we’re saying what are your goals? What are your dreams? Is everything that you’re doing in your life leading you to that road?

Ash Patel: You have an amazing outlook. You make people question a lot of things that are just done a certain way. Karen, what’s your Best Ever real estate investing advice?

Karen Oeser: Oh, that’s a good question. That is get a coach who you understand and apply everything I just said to the coach as well. Because if the coach is not coachable as well and the coach isn’t growing, you’re going to only go as far as that coach can take you. So you want coaches that are collaborators. One of the things that I tell the people I introduce to this market that say, “Where do I start?” I said, “Find somebody who has an energy level that matches yours, because you want to grow with that level.” Some people grow at different levels; some people are racehorses and want to go, some people want to be very slow, very methodical.

It’s very important to find people where there’s an energy match to keep up, because that’s also how you make sure that everybody’s contributing at an equal rate. Because if you have a couple of racehorses and then a couple of people behind that don’t want to move at the same pace, that doesn’t make for a healthy environment. So knowing who you’re working with… And you always want to grow. If you’re not growing, you’re dying. That is so important and coaches are so important to that. The basics of the coaching program are pretty similar, but it’s all those extras that are important that really can help you grow.

Ash Patel: That is phenomenal advice. Karen, are you ready for the lightning round?

Karen Oeser: Okay, here we go!

Ash Patel: Let’s do it. First, a quick word from our partners.

Break: [00:30:08][00:30:29]

Ash Patel: Karen, what’s the Best Ever book you recently read?

Karen Oeser: Hidden investing by Holly Williams.

Ash Patel: And what was your wow moment in that book?

Karen Oeser: My wow moment for that is because she’s like-minded with me and she wants to know that there are so many hidden tools within the investment world that we’re bringing it to the masses.

Ash Patel: Wonderful. Karen, what’s the Best Ever way you like to give back? You talked about your foundation, that’s incredible.

Karen Oeser: What I like to do is I like to give back — women are my passion. I like to help women who’ve been struggling, who have every passion and every desire to move forward, but they just need that one little push, that one little thing, that one little piece of information that will nudge them forward. Having met me for one day, or somebody on my team, if we know that we’ve made their life a little bit better, that’s the Best Ever.

Ash Patel: I think you’ve inspired a lot of people with your podcast today. Karen, how can the Best Ever listeners reach out to you?

Karen Oeser: Yes, you can reach out to me — the best way, I have East Light Investments, which our website is eastlightinvest.com. If you want to download a report that tells you the 10 reasons why I left the traditional investment world, that gives a little bit more meat behind what we talked about today, you can go to our website and you can download a free copy of that report.

Ash Patel: That’s amazing. Karen, you’ve got an incredible story. 25 years of having the blinders on in the fixed income industry, and somehow you’re able to find real estate, adapt to that, and now you’ve found a whole new calling with helping women. What a great story. Thank you so much for sharing that with me today.

Karen Oeser: You are most welcome. Thank you so much for having me and have a blessed day.

Ash Patel: You as well. Karen, thank you.

Karen Oeser: You’re welcome.

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The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2272: Experience Gives Perspective With Arn Cenedella

Arn Cenedella started his real estate career in the 1980s after graduating from the University of Michigan. During this time he invested locally and remotely in Charlottesville, VA and Austin, TX. After 36 years as a broker, he decided to leave Silicon Valley and head to Greenville, SC with his girlfriend in November of 2014. He now has 8 rental properties, 3 subdivisions, 2 condo conversions, and 3 residential lots permitted for single-family development. 

Arn Cenedella Real Estate Background:

  • Full-time real estate investor
  • 34 years of real estate investing experience
  • Portfolio consist of 8 rental properties total 13 doors, 3 residential lots, 15 completed flips, 3 subdivisions, 2 condo conversions, and 4 passive investments
  • Based in Greenville, SC
  • Say hi to him at: www.investwithspark.com  
  • Best Ever Book: Building a Story Brand by Don Miller

Click here for more info on groundbreaker.co

Best Ever Tweet:

“I believe if you approach real estate with a long term perspective, you can ride out the inevitable ups and downs of economics” – Arn Cenedella


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today I’ll be speaking with Arn Cenedella. Arn, how are you doing today?

Arn Cenedella: I am doing great, Theo. Glad to be here and pleased to have the opportunity to talk to your Best Ever audience.

Theo Hicks: Absolutel,y and thank you for joining us. Before we hop into that conversation, a little bit about Arn’s background. He’s a full-time real estate investor with 34 years of experience. His portfolio consists of 8 rental properties (13 doors), 3 residential lots, 15 flips, 3 subdivisions, 2 condo conversions, and 4 passive investments. So he has done it all. He is based in Greenville, South Carolina, and his website is investwithspark.com. So Arn, do you mind telling us some more about your background and what you’re focused on today?

Arn Cenedella: Sure, I’d be happy to. So like many of your listeners, I went to college, I planned to become a scientist or an educator, got a master’s degree in chemistry from the University of Michigan, but then I went into the real estate business back in 1978. So I had the good fortune to grow up on the San Francisco Peninsula, basically above Silicon Valley, and went to work for my father who was a great mentor, taught me the brokerage business as well as the investing aspect of real estate… And I had the good fortune to work there for 35-40 years in probably one of the best real estate markets in the world.

Theo Hicks: So you have seen a lot of market cycle ups and downs, so I think maybe a good place to start would be how do you see what’s going on right now, since we’re recording this on August 19th… So how do you compare what’s going on right now to previous recessions? And maybe kind of talk to us about the mindset you have after experiencing a lot of these recessions, as opposed to someone who just started investing in real estate in 2009 or 2010 and has only experienced growth, and hasn’t seen the other side?

Arn Cenedella: That’s a great question and hopefully I can help your listeners feel okay about what’s going on. So certainly, COVID is something new to me. I think it’s new to all of us. But I can tell you, I bought my first house in 1980 and paid 11 and 3 quarters percent on my mortgage. And I was happy to get 11 and 3 quarters; it seems like a lot today, but 6 months later rates were up to about 16%. Been through the dotcom boom, through the dotcom bust, various cycles, Resolution Trust… Not many people remember the S&L crisis, I believe, in the early 1990s.

So there have been various cycles, and in general, I’m an optimistic person and I believe if you approach real estate from a long-term perspective, you can ride out the inevitable ups and downs of economics and just what happening in the world. So I’m optimistic about the future, I’m continuing to invest. Fortunately, my rentals have done well on collections and have had no issues there, and I think by and large from what I understand, rent collations on most residential multifamily properties has remained pretty good, even though the COVID issue.

Theo Hicks: So kind of three options – you either don’t do anything, you don’t buy, you don’t sell, you just chill. The other option is to sell something or all of it. And the other option is to buy. So based off of your experience again with these previous real estate cycles, what are you doing and what would be your advice to people?

Ard Cenedella: So first of all I would say, “don’t panic”, that will be rule number one. And I think hunkering down, getting a read on what’s going on is good, but I also believe that there are always opportunities to buy and sell, depending on your particular situation. I would say if you’re in good real estate investments, cash-flowing, you’re properly capitalized, you can ride out the downtimes while still be looking for opportunities. Right now, what I’m doing is I’ve started to transition my actively managed rental portfolio into passive investments. So over the last 6 months I’ve probably made 4 passive investments in multifamily syndications, primarily in the Southeast, but also elsewhere in the United States. And I generally sold one of my rentals and made a passive investments. So I think there are opportunities to transition one’s portfolio at any time, and I think it’s just a matter of keeping your wits about you and evaluating and making good decisions.

Theo Hicks: Before I ask you about the passive, you’ve mentioned something about– you said if you approach real state from a long-term perspective, then you’re going to be able to ride out the ups and downs. You kind of mentioned cash flowing and being properly capitalized… Is that what you mean? …that you buy properties for cash flow and don’t be over-leveraged. Is that what you mean by long term?

Arn Cenedella: Well, what I would believe is if you invest in real estate and you have a long-term perspective, which is 5 to 10 years, I would say the overwhelming majority at the time those investments will prove to be a positive factor in your life. Certainly, you don’t want to get over-leveraged, because if you are in a situation where you’re over-leveraged, you may be put in the situation where you have to sell when the market is not ideal, and I believe people can get themselves in trouble that way. But if you have good, solid properties, properly leveraged, that are paying for themselves, then yes, time is on your side and you can just ride out the down cycle.

Theo Hicks: So as I mentioned in the intro, you’ve got your active investments, but you also have passive investments. You said that you made 4 passive investments recently. So is this something that you’re doing because you just don’t want to be an active investor anymore, or you’re doing it because you think that’s it’s a better use of money being invested passively in this larger apartment syndications, as opposed to doing your own deals?

Arn Cenedella: It’s a great question, and I would say it’s a combination of both. I’m 65 years old now, and I do not want to be as involved in the day to day management of the property. There are a lot of things I want to do. I have several passions that I enjoy. I’ve loved actively managing my real estate portfolios over the last 30 years. But I’m just at a point in my life where I want less day-to-day responsibility.

So I think freeing up my time is one part of the answer. The other part is – generally coming from the San Francisco Bay area, most of my investments have been more in appreciation markets than cash flow markets. And in looking at my return on my equity on a cash flow basis, it is lower than what I can achieve through the multi-family syndications. So my purpose of transitioning my portfolio is to free up my time and also increase my cash flow. So those are the two main things. And I’d like to help other investors who have a similar history to me. I’d like to help them perhaps consider transitioning into more passive multi-family investments.

Theo Hicks: Are you able to do these passive investments? Because you said that you sold a property. Is that a 1031, that is the passive investment? Is that kind of like your strategy?

Arn Cenedella: It’s pretty difficult to 1031 into a passive investment, so I have to pay Uncle Sam a little bit of money. But we pay Uncle Sam on every dollar we ever make, and real estate gets taxed less than our typical ordinary income. The other thing that will help me is most of these syndications I’ve invested in have a large first year– I believe it will be called bonus depreciation… Where in the first year I’ll receive a K-1 with a relatively sizeable tax clause. Since I am considered an active real estate professional, I’m able to apply that passive laws against any other income. So in my particular situation, I’m hoping the bonus depreciation, which by the way expires I believe in a year or two, will be used to offset some or most of my capital gain. Yes.

Theo Hicks: I just interviewed someone – he’s a GP, and he had a deal under contract before the COVID outbreak, I think he said February. And then COVID happened and he lost the previous lender, and he was able to get an agency loan with a really low interest rate, but he was also able to negotiate a pretty large discount in the purchase price. So from your perspective, when you’re analyzing these passive investment deals, and I’m assuming they’re doing the same thing, they’re getting a discount in there, and they’re assuming some sort of reduction in income that first year or something, do you think that the returns that you’re seeing projected are going to be lower than what you actually see once things turn around?

Arn Cenedella: Well, that’s a 64 million dollar question. And of course, it all comes down to the skill and integrity of the operator, of the syndicator, and how he or she goes about his or her business. So I would say most of the passive investments I’ve made, price reductions have been able to be negotiated. Probably not as big as people think. What I’m kind of seeing is maybe 3, 5, 7 percent off pre-COVID pricing. So there’s no fire sale, at least not yet; there’s no panic. So I believe the prices have been negotiated down a little bit. I think the underwriting has been tightened up. I’m looking at one possible investment now where the operator’s projecting a decrease of $100,000 year one in rental income. So not only are they projecting flat, they’re actually projecting a decrease, and I appreciate the integrity of an operator who does that.

I think what counterbalances is it all out is the unbelievable interest rates you can get on agency debt. One of the partnerships I’m in I believe we got 2.88%, ten years, with maybe 3 or 4 years of interest only. So I believe the rates — and again, I bought my first house at 11 and 3 quarters. So when you’re talking 2.88%, 3%, it’s like they’re giving money away. So I think the financing available now compensates for the potential issues. Eventually, we’ll work our way through COVID, and I’m optimistic about the future. So even with these passive investments, I’m looking more 5, 7,10 years down the road, where am I going to be. Not as concerned about what’s happening 3 months from now.

Theo Hicks: Okay Arn, what is your best real estate investing advice ever?

Arn Cenedella: My Best Ever real estate advice – and this may go counter to many of the people on your podcast – would be slow and steady wins the race; consistent investment over time will lead to financial freedom. In my investing, I focused on solid [unintelligible [00:15:43].28] base hits. I’m not interested in the grand slam. I kind of don’t trust that. I’d rather do it slow and steady. So I believe there’s kind of a logical sequence to investing, to gaining knowledge, and that sequence is beneficial over time.

Theo Hicks: Alright Arn. Are you ready for the Best Ever lightning round?

Arn Cenedella: I think so.

Theo Hicks: Alright, first a quick word from our sponsor.

Break: [00:16:11][00:16:50]

Theo Hicks: Okay Arn, what is the Best Ever book you’ve recently read?

Arn Cenedella: Well, since I’m starting a new investment group, Spark Investment Group, the best book I’ve recently read is Building a Story Brand by Donald Miller, which gives some good advice on how to best brand oneself and so forth. So it is a fascinating book and is been a big help for me.

Theo Hicks: If your business were to collapse today, what would you do next?

Arn Cenedella: Honestly, and I say this without trying to be flippant, I’d probably go play golf. Because after all isn’t the point of this real estate investing, passive investing, is to create a passive income, to create financial freedom.  And over four decades of real estate investing I’ve been fortunate enough to be able to do that. So I’d probably get bored playing golf at a certain point, and then maybe go back to selling houses like I did 20 years ago.

Theo Hicks:  Tell us about the Best Ever deal you’ve done?

Arn Cenedella: The Best Ever deal was a flip that a wholesaler sent me. The property was an old beat-up house, fairly good size, but it was on an acre. And I had a good feeling it could be subdivided, so I bought the house, we subdivided the land, created two additional lots, fixed up the house, sold that… I sold the two lots I created to builders, and probably had about a 30% return over 18 months. So that was one of my better ones.

Theo Hicks: What is the Best Ever way you like to give back?

Arn Cenedella: Well, I’ll return to golf; so I’ve played golf since I was 8 years old, and it’s a passion of mine, so I now volunteer at the First Tee of the Upstate, which introduces young kids to golf, but even more importantly, uses golf as a way to instill core values, principles, character, integrity, honesty. So it’s a great program and I love being involved with youth in sports.

Theo Hicks:  And lastly, what is the Best Ever place to reach you?

Arn Cenedella: Best ever place would be my cell, 650-575-6114, or my email which is arn@investwithspark.com.

Theo Hicks: Alright Arn, thanks for joining us today and proving us with your wisdom on how to–

Arn Cenedella: Not sure about that, but okay. [laughter]

Theo Hicks: …how to continuously thrive in real estate through the various ups and downs. So you talked about you bought your first house at an 11.75 interest rate. And then you said that it actually went up 16. I knew that but it is just funny, because now you say that you’re in a deal where the interest rate is at 3%. So it’s a huge difference between what you started off, to where you are now. And you said you went through all the various ups and downs and that it’s really about having a long-term perspective on real estate, thinking in terms of 5, 10 plus years, as supposed to thinking what’s going to happen a few months from now.

So you said that it means not being over-leveraged and it means making sure the property can at least pay for itself, so you’re not forced to sell. In regards to what’s going on now with COVID, you said that hunkering down is totally fine, but you also think that there are always going to be opportunities, to sell, depending on where you’re at in your business. And you mentioned that right now you’re transitioning from active to passive; you made 4 passive investments in the past year… And that the reason why is: one is to free up your time, but two, because a lot of your deals are in this appreciation markets.

The cash flow that you get in these markets is not nearly as high as the cash that you can get on these vacation deals, so that’s why, as you mentioned… And sometimes it makes sense to buy, sometimes it makes sense to sell, or do both during these types of economic environments.

We talked about what these sponsors are doing to conservatively underwrite their deals, price reductions, underwriting, lower year one incomes compared to T-12’s, and then the fact that the interest rates are just insanely low.

And then your Best Ever advice was, “The slow and steady wins the race.” Being consistent over time, following that logical sequence will result in financial freedom. And that you’re a base [unintelligible [00:21:11].18] kind of guy as opposed to the home run grand slam. You don’t trust the grand slam; you like the consistent, steady investments.

So, Arn, I appreciate you coming on and speaking with us today. Best Ever listeners as always thank you for listening. Have a Best Ever Day and we’ll talk to you tomorrow.

Arn Cenedella: Thanks, Theo.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

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Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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Joe Fairless and Chad Carson podcast episode JF1474

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

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!

 

Best Ever Tweet:

 

Chad Carson Real Estate Background:


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Best Ever Listeners:

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

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

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


TRANSCRIPTION

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

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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commercial development

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

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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Today’s guest is one of our sponsors and of course he’s a sponsor for a very good reason, amazing terms! Tenant to hear how his fix and flip company has a program called Rental 30 and what it can specifically do with your assets, even if you’re not making a lot of money!

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– Founder and CEO of Lima One Capital
– Former Marine
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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.

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