Michael caught the real estate bug by reading books and saving money until he had enough to start investing. He worked his way up to 31 units in just 9 months. Hear the systems and people that it takes to scale that quickly, especially when starting from scratch. We’ll also hear about some of the roadblocks and obstacles that Michael had to figure out ways to get over. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
Michael Beeman Real Estate Background:
- Started studying real estate in 2016 by listening to podcasts, reading 20 books, and saved 12k
- 31 multi-family units in 9 months
- Started an LLC, found 2 investors that believed in him, they purchased 1/2 of his new business
- Began multi-family investing on May 15, 2017
- Based in Casey, Illinois
- Say hi to him at bestevercommunity.com or 317.508.8185
- Best Ever Book: Best Real Estate Investing Advice Ever
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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, Michael Beeman. How are you doing, Michael?
Michael Beeman: I'm doing great, how are you?
Joe Fairless: I'm doing great, nice to have you on the show. A little bit about Michael - he started studying real estate a couple years ago by listening to some podcasts, reading 20 books, and saved $12,000, and well, today he's got 31 multifamily units and they are under contract with I believe 15 right now. He'll fact-check that when we get into it.
He began multifamily investing May 15th, 2017, so he's acquired those 31 units since then. He's based in Casey, Illinois. With that being said, Michael, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Michael Beeman: Yeah, I was a typical Midwestern middle class, who made about $60,000 a year, but my wife and I have seven kids, because she had three from her first marriage, I had three from my first marriage, and we had one together; we've been married about five years... But about 2-3 years ago I got the itch; I started studying, trying to figure out how I could come up with enough money to start a business in real estate. Even being in the rural areas, it takes money.
So I studied and studied, and I actually went out, I started a side hustle, and I started cutting and selling firewood locally, and I saved up about $12,000. My excitement grew, I started seeing some deals that I could get started in. Then when my excitement grew, I had two people that were interested in investing with me, and they put in 20k each for half of my basically newly-formed company that didn't own any real estate. They just believed in me that much, and saw how much effort I had put out for it. So we took off, we bought a six-unit building, and used the BRRR strategy and we've kind of got the snowball running now.
We have 31 units now, with another 15 under contract, and then I have another 8-unit that I have a for sale by owner seller that the numbers look good on it, and I think I might end up with that as well.
Joe Fairless: Alright. Well, I want to remember to ask you this question, so I'm gonna just ask it now and then we're gonna back-track a bit to talk about at the beginning... How did you find the current deal, the for sale by owner that you are under contract on?
Michael Beeman: Well, that's developing relationships. That's a big, strong point in any investing or any business. I have a relationship with my banker, and he saw what we were doing, our local bank; he's a commercial lender, and he saw what we were doing and he knew one of his other clients that was trying to sell out only had eight units all together in one multifamily, and he hooked him up with me.
At first I turned it down, because the numbers weren't great. Then he tried to sell it to somebody else, and then he came back to me and came down to my price, where I told him "This is what this takes to make money, and what you're asking is not gonna work."
Joe Fairless: So it's how many total units?
Michael Beeman: It's eight units.
Joe Fairless: Eight units. And what was his original price?
Michael Beeman: He was at $200,000, which sounds good, and that can be good, but at the time I had better deals in front of me. The eight units were renting for just around $490/unit on average, which is about $100 under market, in the market that he's in... Which I saw immediately when he showed me that originally; I knew the market, and I thought "Well, you know, I could pay 200k for this, raise these rents..." There's a couple other things - he pays for all the water; I could use the RUBS method and bill the water back to the tenant, and then I could get the NOI up and then it makes a lot of sense, and actually we'll make more money.
I looked at other deals and I had other deals that made sense immediately, and then you could add money to them... So I said "If I'm gonna buy a deal, I'm gonna buy a deal that makes money immediately, whether I do anything to it or not." That was one of my things - I wanted to cash-flow from the beginning, not cash-flow because I was smart enough to fix the problems.
Joe Fairless: And $490 on average for eight units, that's $3,920, divided by $200,000 - that's a 1.9%, so it shatters the 1%; it's almost a 2% rule, that I thought it was like chasing unicorns, so were there a lot of issues?
Michael Beeman: There's a $500 bill back on the water on the place, because I don't know why he would do this, but he basically had it all wired to one meter. The local utility company, when I talked to them, they said they would charge 4k/meter to put the meters in there... And looking at the whole entire thing, it just -- yeah, it probably would have still cash-flowed; I think when I ran my numbers it was somewhere around $600, but I didn't wanna cash-flow less than $100/door. That's just a thing I have. Everything I have cash-flows better than $100/door... And I could have got the cashflow up by doing those things, but I had other better deals on the line.
Then he tried to sell it to somebody else, their financing fell through, and then he came back to me, and down to my price, which was $170,000.
Joe Fairless: Okay.
Michael Beeman: So right now I just ran the numbers, sent them back off to one of my minority partners, he loves the deal, and I believe that's going to be one of our next projects.
Joe Fairless: Outstanding. And what type of location is this in? How would you describe it?
Michael Beeman: This property is in a great location. It's just outside of Terre Haute, Indiana, and it's a multifamily unit, but there are half a million dollar homes all around it... So the location is prime for what it is. That was one of the things I was originally attracted to it. And I could have done the deal originally, and I could have made it all work, but I had other better deals, like I said.
Joe Fairless: Yeah, I hear you.
Michael Beeman: And also, it's a negotiating tactic. If you see that the guys had it up for sale for six months and he's talking about one of his tenant's mom is trying to get a loan to get it - that's what he was telling me at the time - and then this is 90 days later and he said "Well, she could never get that loan. Are you still interested?" Then he comes back to my price.
Joe Fairless: Patience and the ability to walk away, whether it's because of outside reasons, like you have other deals, or just an internal approach for doing so is the key there.
Michael Beeman: Yes, and when you look around - and I've met a lot of people and I've done a lot with exhausted landlords, people that kind of do it the old way (that's what I call it), they show every single individual unit, three or four times they get stood up; they do all this - the walkthrough, the month-to-moth leases, and no tenant screening; their tenant screening is just "Give me three or four references." Those types of landlords, which are all over across the Midwest and everywhere, they're exhausted.
We've set up systems, we take all of our payments online... This is part of my team, though. I could take a minute to tell you a little bit about my team, if you don't mind.
Joe Fairless: Sure, of course.
Michael Beeman: So when we got started, we brought on two investors that were minority partners. One was my mom, and the other one was basically my best friend. He was the best man at my wedding. He invested 20k. But what he did behind the scenes, which was invaluable for our team - me and him had talked about building systems, and we'd actually set up the systems. We used a property management software that made us able to take online applications, take online payments, it does all your financing... Basically it does all your books right there.
Joe Fairless: What is it?
Michael Beeman: Rentec Direct is what we've been using.
Joe Fairless: Okay.
Michael Beeman: And it was very affordable, and I don't know why people don't do it. Then also, I added this step in... Every time I had a vacant unit - I did this about three months in, after I've been stood up like everybody else does; showing units, you know, you line up two or three people who look at a unit, you maybe have one show up... I started doing video YouTube walkthroughs. Every time there's a vacancy, I walk through a unit, do a YouTube video... It doesn't even have to last more than two minutes, where they can see a whole entire unit, and the picture of the outside of the building, the location... And then I'll upload it to my YouTube page and I'll send them a link when somebody enquires about it. I'll send them a link, and then I'll require that they actually put in an application before I ever will agree to meet them.
So I'm only meeting with qualified tenants, and after they've done all the effort to put in an application. If they've done all the effort to put in an application, they almost never miss a meeting. I haven't had anybody stand me up yet.
Joe Fairless: There's a fee to apply too, yes?
Michael Beeman: No, we actually went back to a free application.
Joe Fairless: Okay.
Michael Beeman: That's just what our market was, what everybody was doing.
Joe Fairless: Even with background check, credit check...?
Michael Beeman: Yeah, we had a free application because we can do the background check for $15, and what we do is we screen them through their answering to the other questions. We even have a question on there that says "If this application is not filled out in full, it won't be considered. You have to fill this application out in full." And that's our last question on the application; they'll go back through and refill everything out.
Most of the times, you can look at the front of an application without doing a background check, and rule somebody out. Or you can rule them as probably more likely to be a good renter.
So we do that, and then we'll run a $10 background check on eviction history and criminal history, which Rentec has right on there... The eviction history and criminal history, and then we'll have a pretty good idea of what kind of renter they're gonna be. Then when we sign a lease, we make them bring paystubs for proof of income.
It seems to be working pretty well, we have not had a single eviction in nine months. I've probably averaged around one late payment a month.
Joe Fairless: Yeah, that's great. That's phenomenal, across 31 units. One quick question - do you still have your W-2 job?
Michael Beeman: Yes, I've kept my W-2 job.
Joe Fairless: What is it?
Michael Beeman: I am VP of client relations for my family's sawmill... Which basically means that I meet with landowners, evaluate timber, and look up what we're going to select to harvest off of their property. We have a crew that goes in, my brother runs that crew, they go in and they select harvest the timber that I picked out, and bring it back to the sawmill.
My other brother works inside the sawmill and he actually manages and operates the sawmill and saws logs, and then I help on the other end a little bit with selling the lumber, but that job's mostly been handed off to my sister-in-law.
Joe Fairless: There's an easy joke there about your brother sawing logs, I'll leave that alone though... [laughter]
Michael Beeman: Yeah, yeah. So basically, it has been my job for five years at this location, and then I was with another company before I joined this company. My dad kind of hired me away, doing the same thing because I grew up in this business, I got my business degree, started for another company doing this very same thing, and then my dad kind of stole me away from them when he was like "Hey, you all inherit this business someday", you know, trying to bring me on.
Then when I joined the company, I started doing this full-time [unintelligible 00:11:34.22] I love working deals.
Joe Fairless: So that's your W-2 job, still doing that... The first deal - your mom, your best friend, $20,000 each, to buy that six-unit... How much money did you put into that six-unit?
Michael Beeman: Well, what we did with that six-unit was a deal where -- again, like I said, talk about what you're doing; get out there and tell people, don't be embarrassed about it, because... I started talking to people, and another friend of mine - his girlfriend said "My mom works for a guy that has a six-unit building that just sits empty all the time." He bought the thing three years ago, messed with it a little bit, and it's like his stepchild. He owns an oil company, and he was over it...
So I went down there, looked at it, he told me what he wanted, I shot him a really lowball offer...
Joe Fairless: What did he say he wanted, and what offer did you give him?
Michael Beeman: He wanted $90,000, which was really reasonable, but like I said, it was a dilapidated unit. I went through and spent $3,000-$4,000 a unit to remodel everything before I was willing to put people inside of it. Then I split apart part of the electrical, because he was paying all the electrical, so the units that I could split apart, I did.
There were a bunch of one-bedroom units, and I have about $85,000 in it, but it rents for $3,330 or something like that. $60,000 is what I purchased it for, and since I told the bank what I was going to do and what I was going to bring the units up to, they gave me 100% financing, and now it's appraised at somewhere near 145k, off of its NOI, and locally - there are 7,000 in that market (it's just a small town), but they have good manufacturing and everything else, and the building stays full.
Joe Fairless: I believe you said you have $85,000 into it, so that would include the $60,000 loan, yes?
Michael Beeman: Yup.
Joe Fairless: So that's $25,000 that is out of pocket, and you said you got 20k from your mom and 20k from your best friend, so that's 40k... So there's a surplus there, and that also doesn't include you investing any money... So did you not invest and did they not in total do 40k?
Michael Beeman: When we started renting it out -- as soon as we got the first unit done, we started renting it out, unit by unit, until we got it full. Then we basically ended up buying another building off of him, a two-unit building that was vacant (we had to do the same thing) and we were cash-flowing half of our rehab money... So we still hadn't tied up a bunch of money yet. We were basically moving on and probably still had somewhere near $45,000, because we cash-flowed so much of the rehab on that project.
So we moved on, we did a two-unit building off of him, we did a three-unit building, another three-unit building was my Bay of Pigs. [laughs]
Joe Fairless: Before we go on to that, just so I'm clear - you got the (100%) financing on the first one, the six-unit, so it did not require all of the $40,000 from your investors (we'll just call them your investors). Then you bought the two-unit from the same seller, and you were able to use the cashflow from the first property to help with the rehabs for the second one and some of the first... So you still had not used all the $40,000 from your investors after the first two. Is that correct?
Michael Beeman: Correct.
Joe Fairless: So at that point you personally had not put any of your own money in the deals, and you hadn't used all of the investor dollars that had been committed...
Michael Beeman: Exactly.
Joe Fairless: Okay.
Michael Beeman: So I ended up -- at the same time as all this was going on... It's not like these went one after another; the deals started happening together, at the same time, and I was doing that thing where I was holding a property with no tenants and no work being done in it, because the deal popped up, and I said "The deal is too good", and I went ahead and took it, knowing I was going to eat money on the bank payment, and I was going to eat money on property taxes, and I was gonna eat hold money because I didn't want to let the deal get away.
That was one of the things that I attribute some of my success to... Because when a deal is there and I know it's a deal that's gonna make me money, I don't hesitate. And I still don't regret any of that stuff, because yeah, there were times I was losing money because I was holding on to a property that took me three months before I got a renter in it, but as it turned out, the deal was so good because I could see what I could make it into, that I didn't hesitate.
But there is one property, if you'd like to hear about how I--
Joe Fairless: Yeah, the ugly one?
Michael Beeman: Yeah, the ugly one. So I tried to do a conversion. Basically, there was a very big house, and the way it was designed, I could set it up to where I had a two-bedroom unit upstairs, a two-bedroom unit downstairs, and I could redo the garage and put a two-bedroom unit in there.
I hired the wrong contractor, and basically he messed up a bunch of the plumbing stuff. I was going through it and trying to do it right... So I was trying to redo all the plumbing, because if you're going to convert a place, one of your issues is going to be plumbing, because it's not set up for three toilets, three showers, three sinks, three kitchens. So I went to do a conversion, and he did a whole bunch of terrible stuff with my plumbing and I ended up going about $25,000-$26,000 over budget and tied up $27,000 of investors funds in that deal, that I still haven't recouped. It appraised out pretty close to high enough, because it appraised at 110k, and I had something like 88k in it.
I could have refinanced all the way out, but the three units only rent out for $1,500, and if I refinanced the entire thing out, I was going to kill cashflow down below $100/door. I didn't wanna do that.
Joe Fairless: How did the conversation go with your mom and your best friend after that?
Michael Beeman: They were pretty understanding, and the reason was because I had already done so well with some of the other properties. They were really understanding, and I said "Look, I won't do this again." It was an idea I had, because the building was cheap and because the contractor "I could get it all done for 55k." My 17k in it, and "I could get the rest of the work done for something like 37k." And I was going to have less than 20k/unit in units that rented for $500/month, so that was going to make sense.
Joe Fairless: How did you structure your company with your two investors?
Michael Beeman: Our company structure is very interesting. I am the managing partner; I own 50% and they own 25% each. But when I set up the company, I told them I wanted final say... So there's one non-paying voting share. We vote on who gets that voting share every five years, and basically I got voted it for the first five years.
The whole purpose of that is that they have an exit strategy; if they wanted to leave the company, they could sell out their shares. Nobody does, because now their shares are worth four times what they were when they started, but we set the company up that way... It's all in an LLC, and they just own parts of the LLC, and the LLC owns the properties.
Joe Fairless: How much in total has been put in from investors into the company to date?
Michael Beeman: To date -- I've put another $8,000 in, because when they put in 20k each, that meant I automatically owed it 28k. So this year I've put in another 8k of my own money, so it's basically still only got 16k in investor money.
Joe Fairless: 20k from them originals, so that's 40k, plus your 8k is 48k, and then the difference is what?
Michael Beeman: No, 20k from them each, originally, and 12k from me. And then I've put in another 8k.
Joe Fairless: Got it, got it. Okay, cool. So now you all have invested the same amount into the company.
Michael Beeman: Yes. And I still have promised the company that I would pay in another $20,000.
Joe Fairless: To compensate for the 50% ownership, okay. So you've acquired 31 units for $60,000?
Michael Beeman: Yeah, I guess you could say that... Using refinance strategies, seller financing on a couple of properties... And there's some other things I've done, as well. I bought a house at auction. The guy passed away, it was up for auction, and I knew it was a $40,000 house, but when you walked in that house, it stunk form his animals.
It really stunk. I was ripping up the carpet, and [unintelligible 00:19:47.00] the entire floor. I cleaned the floor - the subfloor - replaced what I had to replace on the subfloor, and then I did the [unintelligible 00:19:55.21] all over it, because that kills the stink. Then I put new flooring down.
That was what was keeping other people (individual buyers) away, so I ended up buying that house for $11,200. I spent about $2,000 on it, and it appraised for 38k. So I created $25,000 in equity, and I've put a mortgage against that house after I got a tenant in there for $650/month. I put a tenant in there, the tenant is paying the note down, plus it cashflows $150/month... And I pulled another 13k out.
I did this on a couple different things. Basically, I would pull the money out in refinances with the bank after I had improved the property and I had it stabilized, and they worked with me really well... Because I've heard about people saying, "They won't let you refinance for a year" or "They won't let you refinance for multiple years sometimes", and my bank will go in and let me -- as long as I have the property stabilized, I have a rent tenant in there and I have the work done and they have an appraisal that says "It's worth this", they'll go back and let me put 80% against it.
Joe Fairless: What bank do you use?
Michael Beeman: Just a local lender. In fact, they don't go outside of 60 miles... Because I tried to buy a property just a little bit--
Joe Fairless: 60 miles?
Michael Beeman: Yeah, 60 miles.
Joe Fairless: What bank is it?
Michael Beeman: It's First Banking Trust, in Marshall, Illinois.
Joe Fairless: Okay.
Michael Beeman: Because I tried to buy a property that was in Vincennes, Indiana, which was about 65 miles--
Joe Fairless: Oh, my gosh... Come on, five miles!
Michael Beeman: Yeah, I know! And he said, "Man, that's just [unintelligible 00:21:25.28]" It made me laugh, because he must be a banker... They told him that they would let him go ahead and do it if he would drive and check on us at least once a week to make sure we're doing what we said we were gonna do... But he didn't wanna do that. He didn't wanna drive down and--
Joe Fairless: I don't blame him.
Michael Beeman: [laughs] So I said "That's fine..." They've gotten a little bit more lenient with us. That was something that we were trying to do six months ago, and I'm guessing they might work with us a little bit more, just as the fact that we have six or seven notes with them now, and we haven't been a day late on a single payment, and they know that we have rents coming in in the $14,000-$15,000 range, and I think our payments were only in the $2,000-$3,000 range... So because we've been finding the deals and we have the equity now, we're proving. Our next step after we close on these 15-24 properties and get those done, we have a few extra outside investors that have stepped in and seen what we're doing, and we're gonna do some partnerships with some outside investors and try to step in smarter properties.
Joe Fairless: What is your best real estate investing advice ever?
Michael Beeman: My best advice would be get started. Yeah, it takes money; sometimes you could say it doesn't take money, you could step in wholesaling, but get started. Evaluate deals; it starts to get you pumped up. Step outside and evaluate deals, and then if you have to find an investor, if you have to find a partner, don't be afraid to.
I could have said "I want all of this for myself", but if I didn't have my partners and I didn't have people working with me, then I would have never been able to get to this point.
Joe Fairless: Yeah, and there was that unforeseen benefit with your best friend, where he set up the systems too, that you probably didn't think about that value coming into the team, but then afterwards...
Michael Beeman: Yes, exactly. That allows you to grow faster, because you can take on -- like, we just took on a 10-unit building. You basically post to tell everybody how they make their payments, how they provide their work orders, show them the website... Then I don't have to see them, I don't have to take phone calls. There's a lot of advantage to systems.
Joe Fairless: We're gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Michael Beeman: Alright, sounds good.
Joe Fairless: Alright, let's do it. First, a quick word from our Best Ever partners.
Break: [00:23:37.26] to [00:24:17.07]
Joe Fairless: Best ever book you've read?
Michael Beeman: I like your Best Real Estate Investing Advice Ever. That's one that was a favorite of mine. Brandon Turner has a really good one on real estate investing. Those are two that I recommend all the time.
Joe Fairless: You're the man! Best ever deal you've done that we didn't talk about a lot on this call?
Michael Beeman: I'm in the middle of a deal right now - a 10-unit building, four down units, and it appraised... I should be able to get the NOI up to get four of the down units rented, and pull six figures in [unintelligible 00:24:46.09] equity out of it. I'm pretty excited about that, but it's a pretty good size project.
Joe Fairless: What's a mistake you've made on a transaction that we have not talked about?
Michael Beeman: Well, I did a purchase agreement with someone on a 7-unit building, and I found out in my purchase agreement - which I was just using off of a realtor - there was nothing that held them reliable for my legal fees if they backed out. They ended up backing out, I ended up having money in inspection and everything else... They backed out of something they signed, but I would have had to spend 10k -- it would have made the building a lot worse in cashflow and other things, and I would have had to spend 10k to force the sale, probably with attorneys or more... So I had to back out of it, eat my inspection money, and I learned a valuable lesson, and my contract is pretty solid now.
Joe Fairless: Best ever way you like to give back?
Michael Beeman: I help people. I help people all the time. Every time somebody's talking to me about it, I'm always trying to -- I'll evaluate a deal with them, investors, I will encourage them, I will tell them where to look, I recommend your show all the time, your book... I tell them how to get educated and tell them to get started, I kick people in the butt.
Joe Fairless: And how can the Best Ever listeners get in touch with you?
Michael Beeman: You can find me on Facebook, you can find me on Bigger Pockets, you can find me in your group on Facebook, and you can reach out to me on my cell phone - 217-508-8185. If you wanna shoot me a text message, if you wanna talk real estate for 15 minutes, I'll make time.
Joe Fairless: Thank you so much for being on the show. 31 units with $60,000, and doing that through refinances, creative seller financing strategies, and even buying a stinky house, pull out the floorboard, doing some [unintelligible 00:26:25.02] action and then pulling out the equity there - which is a refinance, but I just had to give that example.
I really enjoyed our conversation, because this is how Best Ever listeners who have not got going, or perhaps wanna scale, can scale. You've talked about how you structure your partnerships, what you do, what they do, and then how you've gotten to where you're at in a relatively short period of time.
Thanks for being on the show. I hope you have a Best Ever day, and we'll talk to you soon.
Michael Beeman: Alright, thank you, Joe.