JF2741: The Ultimate Strategy to Retail Center Syndication ft. Vick Mehta

Are you in residential or multifamily and curious about how to transition into retail? Vick Mehta, Founder of Indvestia Capital, lays out the best practices for retail syndication, including sourcing tenants (national and local), structuring leases, selecting properties, and more must-know insights for creating strong cash flow.

Vick Mehta | Real Estate Background

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Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest Vick Mehta. Vick is joining us from Downers Grove, Illinois. He is the founder of Indvestia Capital which is a syndication company that focuses on retail. Vick’s portfolio consists of $22 million of assets under management, he is a GP on five buildings and an LP on one building. Vick, thank you so much for joining us and how are you today?

Vick Mehta: I’m great, Ash. Thanks for having me.

Ash Patel: It’s our pleasure. Vick, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Vick Mehta: Yeah, I’ll tell you. I started out as a retailer my entire career, and then when I had the opportunity to start acquiring some of the properties that my businesses were in, I took advantage of that. Along the way, I met some great people and started investing with other people in their deals, and really learned what I liked about the syndication business, what I didn’t like about it, and then decided in 2020 that I wanted to focus on syndication full-time. Since my background is being in retail, I thought the retail sector would be the ideal place for me to focus on that.

Ash Patel: Vick, you mentioned your businesses, what businesses were they?

Vick Mehta: Currently I’m in the Cricket Wireless business. I’ve always been in wireless my entire career, been involved in a couple of different franchises that I’ve been in, and also exited. But currently, I’m still operating 21 Cricket Wireless locations.

Ash Patel: Alright, so you’re making a lot of landlords a lot of money by signing those leases. You saw that they were making a lot of money, and you wanted a piece of that?

Vick Mehta: Absolutely. That’s exactly what happened.

Ash Patel: Now, let me play devil’s advocate. What about the people that say stick to what you know, stick to your core. Why not just use all your capital to continue expanding stores?

Vick Mehta: You know what, I understand where they’re coming from, and I have an analogy that I use – it’s that we’re not going to buy a cow just because we want a piece of steak, so we’re not necessarily going to buy a property just because we want to lease 1,200 square feet of it. But I’ll tell you this, my goal in life – and really COVID has redirected my focus – is I want to be in the passive game. I don’t necessarily want to be active, managing the businesses, managing the staff. Luckily, I have a good team in place, I have good people that are running that business, so I could focus on the real estate side of our business.

Ash Patel: Vick, what was it about COVID that changed your mindset?

Vick Mehta: I don’t want to say being forced to spend time at home, but really spending that time with my family. It’s just really realigning priorities, I would say.

Ash Patel: That’s incredible. Similar story, if I could share real quick… My wife is a physician, and her outlook on work was “Why am I going to retire? What am I going to do?” And COVID, for the first time ever, forced her to close her office for a while, be at home and have free time. High performers like you probably have never had free time, so you get a taste of that. And you’re like, “Wow, all right, I could deal with this.” Is that what happened?

Vick Mehta: That’s exactly what happened. The message that I’ve been sharing with my wife is that I don’t ever want to have to be somewhere. I want to go where I want to go, I want to do what I want to do, but I don’t want to be forced to do it anymore. Luckily, I’m in that position that I could do that, and have now taken some investors along for the ride with me. It’s been perfect, it’s been the perfect model for myself as well as some of my investors.

Ash Patel: Vick, let’s dive into that journey. So you are an established businessman, an established retailer; how do you go about buying retail centers?

Vick Mehta: Having that experience in retail as an operator really gives me some insights into what works and what doesn’t work. Everybody is so down on the retail sector right now, and I think what I’ve learned is that retail is not going away; there is essential retail out there. What I focus on is a pretty specific model which is the outlots to the power centers, the Walmart’s, the Home Depot outlots, where there is daily traffic that’s going to be there, and that has tenants that people are always going to need to go to; it’s not going to be replaced by the internet, it’s not going to necessarily always be shut down because of a pandemic or things like that. Using that experience as a retailer is what’s really helped me make that transition into the retail landlord space.

Ash Patel: What were some of the difficult learning curves that you encountered?

Vick Mehta: As far as acquiring? Some of the things are just kind of figuring out which tenants are I guess credit-worthy, if you will, and which ones have the runway to continue to operate, and then which ones are going to eventually be phased out.

Ash Patel: And do you focus solely on outlots, or do you also buy centers?

Vick Mehta: Right now, I’m focused solely on outlots; that’s been my bread and butter. I don’t want to mess with the formula that worked. If this is working for us; if it allows us to provide a good return to investors, that’s what I want to stick with.

Ash Patel: And for our Best Ever listeners, an outlot can be described as something closer to the road, in the parking lot, standalone… Are your centers standalone or are they multi-tenant?

Vick Mehta: They’re multi-tenant centers.

Ash Patel: Okay, so there’s a Walmart or a giant anchor behind you, and you’ve got a smaller strip in front?

Vick Mehta: Exactly. Part of the reason for that is the sizes make sense. Our tenants range from 1,200 to maybe 5,000 square feet. Whereas if you’re in the power center in the back, because of the size, the depth, those spaces are typically larger… If a vacancy happens, you’re a little bit more limited on who you can re-let that to.

Ash Patel: Vick, do you buy existing centers or do you build from the ground up?

Vick Mehta: Everything that I’ve done is existing. I’m currently in the process of developing my first building here in Downers Grove, but everything that I’ve done so far has been existing.

Ash Patel: Man, you’re really straying from operating Cricket stores.

Vick Mehta: You would think that, but again, just being in retail does give you that background of what works and what doesn’t. I look at things differently than a lot of landlords would look at, or a lot of investors might look at that are coming in and haven’t been in retail before.

Ash Patel: How do you look at things differently? What’s an example?

Vick Mehta: An example would be access, co-tenancy; is there synergy between the tenants. Competition. If we’re here and we’ve got this group of tenants, where are their competitors? A lot of investors might not think to dive into that. But I’m looking at it as what’s the longevity of this tenant? What’s the likelihood of their success in this center if we invest in it?

Ash Patel: Let’s dive into that. You also mentioned you look at the creditworthiness of the tenants. Do you just look for national or regional tenants?

Vick Mehta: No, absolutely not. A lot of people are really keen on finding the national tenants with A credit, but I feel like there is always going to be a place for that mom-and-pop tenant. What I like about that is when you’re dealing with somebody — I’ll use an example of a nail salon; that’s their business, that’s their bread and butter, that’s how they feed their family. So they’re going to do whatever it takes to make that business successful. Whereas maybe a national chain that’s looking at thousands of stores across the board might have a threshold and say, “Hey, this one’s just not meeting our minimum”, and then they pull out. So no, I don’t discriminate against the mom-and-pop tenants, if you will.

Ash Patel: How does a national tenant pull out if they have a lease?

Vick Mehta: Well, that’s a great question. A lot of these leases we’re buying sometimes do have exits, and there are performance clauses that if the location doesn’t hit a certain threshold in sales, they have the ability to pull out. When I do leases, I try not to do that, but sometimes you get so hung up on the excitement of having the national tenant that you’ll do whatever it takes to get them in there.

Ash Patel: Those triple net leases are not always what they’re cracked up to be.

Vick Mehta: Yeah. You’ve got to really dive into the details, especially if there are performance minimum standards and things like that, that they have to have. Those things – they’re just as good as any other lease at that point.

Ash Patel: You also mentioned synergies amongst tenants. Can you dive into that?

Vick Mehta: Absolutely. When we’re looking at centers, for example, what kind of audience does a certain group of tenants attract? When we look at centers, we call them the soccer mom centers. You’ll have the nail salon, the hair salon, and places that the moms are going to go to and frequent. So is there synergy amongst those tenants and is there an audience for those tenants that they’ll be able to target?

Ash Patel: I love that, and I love the fact that you recognize the importance of neighborhood businesses in a neighborhood center; the insurance guy, the pizza guy, that deli, the hair salon, the nail salon – they’re always going to be needed. Even during COVID, they were thriving. And those national tenants – not to name names, but several of them, even though they were making more money during COVID, told their landlords, “Hey, we expect rent concessions”, just because they can, they can throw their weight around.

Vick Mehta: Absolutely, you’re 100% right. We experienced that same thing.

Ash Patel: So what would your ideal tenant mix look like?

Vick Mehta: One of the things that I’ve very focused on now is medical users. When I say medical users, I’m talking about the dentists, the optometrists… We’re seeing a little bit of a shift from some of these medical practices not being in medical office buildings and moving more to a retail storefront. Their patients are more comfortable just being able to walk right in, sometimes they have things where they can go out to the vehicle and do things. So that’s a big focus of mine, is the medical users, so I try to get at least 30% medical users; I’d like to see 30% national credit, and then the remaining – I’d like to see the locals, or I’d like to have value add opportunities, where maybe there are one or two spaces that are vacant that we could fill and adds value to the center when we’re acquiring it.

Ash Patel: Do you always look for some upside in terms of vacancies when you acquire, or do you buy fully leased centers?

Vick Mehta: No, I don’t always look for it. One of the ways that we create upside is by looking at the leases and if they have natural rented creases, that will create natural upside in the property. I do acquire 100% full centers, but with those, I want to make sure that their cash flowing properly to provide a good return for investors, and then again, they’ll just naturally have some upside potential with lease bumps.

Ash Patel: Vick, we all know when you sell these centers, if they’re full of all national tenants, you get a more compressed cap rate. Why not do all national tenants instead of mom-and-pops?

Vick Mehta: Why not do that – again, the likelihood of all nationals going out could be higher. Also, at the same time, what you sell, yes, you have a more compressed cap rate. But you’re also paying more if you’re buying that center with those tenants in there already; so that will be why. Again, I’m looking for cash flow. I love having a mix of national and local tenants, but the cash flow is king in our business.

Ash Patel: And when you have a vacancy, how do you attract a national tenant?

Vick Mehta: I have access to a couple of databases. I’m actually a licensed broker here in Illinois, I’m on CoStar, I have a lot of relationships with tenant reps, so I’m really focusing on contacting them, getting ahead of it when you see a vacancy coming up, just making them aware of the situation, and constantly staying in front of them.

Ash Patel: What are the challenges of getting a national tenant in?

Vick Mehta: Sometimes it’ll be proximity to other locations that they already have. Obviously, they’re a lot larger, so they’re competing against themselves, they don’t want to cannibalize themselves. Sometimes it’s just space requirements; we might be just a little bit too small or a little bit too big for them. They have much stricter guidelines on what they’re looking for.

Ash Patel: What about in terms of TI money?

Vick Mehta: I’m willing to put up TI for the right deal. Yeah, that is one of the things that national tenants argue to require, is a healthy chunk in TI. But for me, that’s the cost of acquiring that tenant and we’re willing to put that in there.

Ash Patel: The beauty of mom-and-pops, if you notice – often, you can give them just a white box. They go in there and put their own time and money into improving the space.

Vick Mehta: Absolutely. And they also continue to maintain that space after they build out as they’re operating. They take very good care of it.

Break: [00:14:34][00:16:31]

Ash Patel: Do you have these conversations with the multifamily guys, where they’re always repairing and fixing their tenant’s damage… Whereas here, your tenants are improving, they’re remodeling bathrooms, redoing their lobby?

Vick Mehta: Absolutely. Even with the national tenants, you’re seeing them have strict guidelines for their brands and having to remodel every 5 or 10 years and refresh the spaces. Yeah, I do kind of laugh when I hear about people dealing with that on the multifamily side. Again, it’s a lot harder for somebody to pick up and just moved their business, versus pick up and just moved to another apartment. I think overall, that’s why I like retail and the commercial sector a lot better.

Ash Patel: Yeah, that’s a great point. Vick, what was it about being on the client-side, if you will, that helped you in this business?

Vick Mehta: As far as being on the LP side, or are you talking about…

Ash Patel: No, the retailer side, as a store owner-operator.

Vick Mehta: As a store owner – again, just getting the experience of what works. I’m not going to say that every single one of my businesses has been successful. I’ve seen the ones that have failed, and I’ve picked up on why they failed, what happened along the way, and what could I have done better when I was selecting the site or negotiating the lease. So being able to have that whole 360-degree view of the relationship has helped me quite a bit.

Ash Patel: And you are a rarity in that you’ve been on both sides, so let’s dive into some lease clauses. What’s beneficial to the tenant, versus the landlord, and vice versa? What are some clauses that you like to include now, but maybe you did not like as the retailer?

Vick Mehta: A big focus of mine now is to have annual rent increases; instead of seeing the rent bumps at a five-year mark, I like to see smaller bumps every year, for a couple of reasons. Obviously, that’s making them compound faster, but also because that’s adding value to the center every single year, versus having to wait five years to see you add in the value just from a rent increase. So from a landlord’s perspective, annual rent bumps are something that I’m very focused on getting now.

From a tenant’s perspective, I would say TI is really crucial. now. We’re seeing a lot more requests for larger amounts of TI. The interesting thing there is people are actually willing to pay more than my asking rent in exchange for TI, which, again, if I have confidence that the business is going to be successful, I’m willing to do that. If I’m concerned that, hey, this guy is going to open up this business, I’m going to pay for him to open up this business, and then two years from now, he’s not going to be there anymore – I’m a little bit reluctant to do that.

Ash Patel: To break that down for our Best Ever listeners, it’s — you’re willing to give the tenant $50,000 upfront for maybe a $3 increase per square foot in rent. But when you go to sell, that increase in NOI is a multiple of what you’ve given as TI.

Vick Mehta: Absolutely, it’s hundreds of thousands of dollars difference when you’re looking at it on the cap rate. Absolutely.

Ash Patel: Yeah. It’s well worth the money. Why are you attracted to medical tenants?

Vick Mehta: The pandemic is really what’s taught me the necessity for that. That’s the reason for it, those are the ones that are going to be pandemic-proof.

Ash Patel: What type of medical specifically?

Vick Mehta: I love dentists. I think dental practices have always had a place in retail. The investment that goes into putting a dental practice – again, it’s not easy to just pick up and move that. I also like optometry; I think optometry is one of those things that people are going to need to come in. It’s a very personal business; it’s kind of half medical half retail if you will, but it’s a very personal business and people are going to always need to come in for that. And we’re seeing a lot of urgent care now; that’s been the big thing. People just want to be able to get in and out, instead of having to go to the hospital or to make appointments at their doctor’s office. They’ve been a big new tenant of ours.

Ash Patel: When you were a retailer, did you have to disclose sales?

Vick Mehta: In some situations, we had landlords that did have that in their lease, yes.

Ash Patel: Do you put that in your lease, to see the tenant sales numbers?

Vick Mehta: On some of them I do; not on all of them. On some of them that I’m more intrigued by – yes, I do ask for that.

Ash Patel: Why?

Vick Mehta: Just to be able to keep an eye on what’s going on as far as how much of the rent is a percentage of their sales. It’s not just so that when it comes time to renegotiate that we have some leverage to what their sales are, but also just to be able to make sure that the rents are in line with what’s going on for volume. It’s also a marketing tool, when you’re able to be able to go out and say, “Hey, we’re seeing this X dollar of sales per square foot at our center.” It is something that attracts buyers when you’re looking to sell the center.

Ash Patel: What if their sales numbers year over year are declining? Would you reduce their rent?

Vick Mehta: Well, I’m not going to proactively reduce somebody’s rent, but certainly, it gives them an opportunity to make a case for a rent reduction. Again, it’s case by case; if the tenant is somebody that we see has long-term viability, has been loyal… Yeah, there are certainly conversations that we’ll have to look at that.

Ash Patel: Have you encountered that?

Vick Mehta: I have. We had a tenant that we actually allowed him to buy down the rent. I think he was able to take some of the money from PPP, give us a lump sum upfront, and almost get two to one for his dollar for rent reduction over the years that he had remaining on his lease. Yes.

Ash Patel: That’s a great creative solution. If somebody wanted to get involved in retail, let’s say they’re a multifamily or a residential investor, what advice would you give them?

Vick Mehta: If somebody is new to retail, I would tell them to look at the areas that they’re familiar with, centers that they drive by on a regular basis, so they have an idea of what’s going on… I would start there. I would look at getting into a neighborhood that you’re familiar with. Maybe one that your multifamily tenants are frequenting already would be a good place to start.

Ash Patel: And what are some hard lessons you’ve learned along the way in this sector?

Vick Mehta: I would say, access has been a hard lesson that I’ve learned along the way, as far as making sure that the center’s got the right accesses to be able to support customers coming into the center. I’ve acquired centers that didn’t have that, and they’ve struggled to fill.

Ash Patel: What does that mean? It’s just difficult to find the parking spot, find the store, find the entrance?

Vick Mehta: If you can’t get into the building in the first place, it’s going to make it very hard for you to be able to lease that space out.

Ash Patel: What’s another hard lesson you’ve learned?

Vick Mehta: I would say getting ahead of vacancies, don’t wait for the lease to expire. You’ve really got to spend time, I would say a year out from a lease expiring, to start having conversations about renewals, and getting ahead of that vacancy, and start marketing the space, so that you’re not sitting dark on a space.

Ash Patel: How did you go about wanting to syndicate deals?

Vick Mehta: Again, when the pandemic happened and I was looking at how I wanted to make changes in my life, I had some friends that wanted to invest in properties, too. As an LP, I had been involved in the syndication model, so I took what I had learned from that, what I liked, what I didn’t like with people that I had invested in, and thought I would come up with this new grand and new company and try to provide access to deals for people that didn’t have access to deals. That’s the reason why I went behind it. It’s really to not only bring myself to that next level, but also be able to bring other people along for the ride.

Ash Patel: What’s your typical investor profile?

Vick Mehta: Typical investor is a professional W2 employee, high-earning, that doesn’t necessarily have access to opportunities like this, has capital sitting in the bank, they’re already diversified in their 401K and IRAs, and just looking for new, exciting opportunities. That’s been a model that’s worked for me, people that are looking to diversify and get into different buckets.

Ash Patel: What were items that you didn’t like about your LP investment, and what did you do to incorporate a change into your model?

Vick Mehta: Number one was communication. I just felt like a lot of syndicators just don’t do a good job of communicating along the way. In the beginning, when the deal is about to close, they’re not doing a good job keeping you up to date once you write that check, and then also along the way, as things go on. I’ve tried to incorporate technology into communicating. I have a set model of communicating every quarter with what’s going on with not just the financials, but just overall what’s going on with the center, and really just making sure that I stay on top of that.

Ash Patel: What technology did you implement?

Vick Mehta: I actually subscribe to InvestNext. I thought it was a great portal for my investors to be able to log in and get access to numbers and see what’s going on with their investments. Also, it allows me to blast out communications to all of them with what’s going on in their investment.

Ash Patel: Vick, how do you attract more investors, and what’s the education that you have to provide in teaching them about retail investments? Because there’s a lot that, “Oh, there’s a retail apocalypse coming. Amazon’s going to usurp retail.”

Vick Mehta: I’m attracting investors really from word of mouth. It’s my current investors that are happy with what I’m doing and what’s going on with their investments that are really sharing it with their friends and family, and that’s how I’ve been able to attract new investors.

Education-wise, it’s not just necessarily education on the retail sector, but on the syndication model. What is it that you’re actually buying? What is it that you’re actually investing in? How are you going to see a return on that investment? I would say I spend 75% of my time educating people on what syndication actually is, and then the rest of it on I why I think the investment’s a good investment, and why I think it’s a good choice.

Ash Patel: What’s a typical structure for your investors?

Vick Mehta: Typically, we’re getting an 8% pref, we’re looking at five-year deals, and try to get IRR around 15% to 17%. I do a 70/30 split at the end of the waterfall, so that’s the deal structure…

Ash Patel: Do invest alongside your investors?

Vick Mehta: Absolutely. What are things that I’m fortunate that I’m able to do this, and abide by is that I will always be equal to or greater than the largest investor in the deal.

Ash Patel: I love that. What is your best real estate investing advice ever?

Vick Mehta: Stick with what you know, and what you see on a daily basis. It’s something that you’ve got to be able to get your arms around if you need to.

Ash Patel: Vick, are you ready for the Best Ever lightning round?

Vick Mehta: Absolutely.

Ash Patel: What’s the Best Ever book you’ve recently read?

Vick Mehta: I wouldn’t say it was recent, but when I first got into the syndication model, Hunter Thompson’s Raising Capital for Real Estate really helped me and helped educate me on some things with syndication.

Ash Patel: And Vick, what’s the Best Ever way you like to give back?

Vick Mehta: From a time perspective, I love talking to new investors and new real estate brokers, helping share some knowledge that I have. From a money perspective, my wife and I really like raising money for causes that are local, that doesn’t necessarily get the attention that the big causes get. We like doing fundraising for local causes.

Ash Patel: Vick, how can the Best Ever listeners reach out to you?

Vick Mehta: I would say my website is probably the best place, indvestia.com. There is an opportunity to schedule a call with me, and I’m happy to talk to anybody anytime about anything that we’ve talked about here. Also, an opportunity to register for our portal, so you keep up to date with our newest offerings.

Ash Patel: Awesome. Vick, thank you so much for sharing your story with us. From starting out as a successful retailer, to seeing the landlord side of things, and making the moves necessary to acquire retail real estate, and now syndicating. Thank you again for sharing that.

Vick Mehta: Thank you for having me, Ash. I appreciate it.

Ash Patel: Best Ever listeners. Thank you so much for joining us. If you’ve enjoyed this episode, please leave us a five-star review and share this podcast with anyone you think can benefit from it. Also, don’t forget to follow, subscribe, and have a Best Ever day.

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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.

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Best Real Estate Investing Advice Ever Show Podcast

JF1041: Stick to Your Process and Don’t Get Greedy #SkillSetSunday

As an investor, it’s important to know exactly when to exit your investments. Many investors make the mistake of hitting their goals with an investment, but stay in the deal rather than exiting as they originally planned.  Jordan tells us how and why to stick to you original exit plan.

Best Ever Tweet:

Jordan Fishfeld Real Estate Background:
-Co-founder and CEO of CFX Markets, a venture-backed trading platform
-Assisted on implementation of the JOBS Act regulations and the intra-state crowdfunding rules
-Decade of investing, development and sales experience in the real estate industry
-Prior to he was finance attorney who assisted on more than $1 billion worth of syndicated loan transactions
-Based in Chicago, Illinois
-Say hi to him at https://cfxtrading.com/

Click here for a summary of Jordan’s Best Ever advice: When Is the Right Time to Sell Your Real Estate Asset?

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Jordan Fishfeld advice



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

Because it is Sunday, we’ve got a special segment for you called Skillset Sunday, where we talk about a specific skill that you can hone after listening to this, or perhaps adopt if you haven’t adopted it. This is an important skill; this is a skill on how to stay true to your original financial modeling. Basically, how to not get greedy and identify when it is time to exit out of an investment. With us today to talk through that – Jordan Fishfeld. How are you doing, Jordan?

Jordan Fishfeld: Good. How’s everything? Thanks for having us!

Joe Fairless: Yeah, nice to have you on the show. Jordan is the co-founder and CEO of CFX Markets, which is a venture-backed trading platform. I interviewed him on episode 558, titled How To Invest In a Secondary Market… So you can learn more about it there, as well as hear his best advice ever on a previous episode, just by searching his name on the BestEverShow.com, and that will come up. With that being said, Jordan, even though we’ve talked about it a little bit, can you give the Best Ever listeners a little bit more about your background and your company? That will add some relevancy to our conversation with the task at hand for what we’re gonna talk about.

Jordan Fishfeld: Yeah, sure. My background is obviously in real estate. I ran a capital raising platform for real estate transactions and found that investor liquidity was a really big issue and something that I wanted to support more specifically, so my partner and I developed a trading platform where minority investors and LP investors could go and sell their assets in an open, transparent but secure way.

Before that I was an attorney, which was fun… Kind of.

Joe Fairless: [laughs] Alright, so you’ve got the legal background, and then you’ve done some crowdfunding work, and now you’ve got the secondary market with CFX Markets, where people can sell their shares of companies on a secondary market if they need to exit out of it. So the skill that we’re gonna be talking about today is how to know when to stay in or when to leave an investment. How should we approach this conversation?

Jordan Fishfeld: I think there are a few different things that come to mind in deciding when it’s the appropriate time to exit. I think when you’re the sponsor, when you’re in control of the deal, that decision is actually much easier. You’ll sell it when you want to, and when you think you can get that cash back that will be supportive to your investors. Where it becomes really difficult is what if you’re one of those small investors and right now is the time that you would normally wanna sell it – what do you do?

What we’ve found is most investors – both sponsors and limited partners – kind of suffer from what’s clinically called “the endowment effect.” Basically,  when you own something, you kind of wanna keep owning it, even if it’s not in your best interest or fitting within your original model.

What I think is an unbelievably important skill is with every investment – real estate included, and probably most importantly – if you were targeting a 20%, 15% return on a specific project over a certain number of years and you’ve kind of hit your proforma, think “Would you buy it today at the price that you are looking to sell it?” and if the answer is no, then you should probably sell it, and really sticking to that proforma or that goal that you set for yourself going into the project.

I know prior to some of the new technology and new rules it was really hard if you were a limited partner to sell your asset, but that’s not the case anymore across all assets, so it really is now a skill of the investor… Not just the sponsor, but a skill that the investor has to have going into these limited partnership deals is annually reviewing your deal – is this exactly where you want it to be? Is the return that you’re expecting gonna continue? And if not, you have that opportunity to sell it and guarantee whatever return your goal was originally set for.

Joe Fairless: I’m reading a book that is titled Mistakes Millionaires Make. It is one of my favorite books of all time. I literally bought it yesterday and I’m probably gonna finish it today… It’s that good. I’d say 25% of the mistakes listed in there have to do with an entrepreneur having a company – in this case it’s not necessarily real estate, but it’s certainly relevant to real estate investors… Having a company, it’s worth 100 million bucks, but yet they stick in, stick in, they don’t sell, and then eventually (holy cow) something happens, the winds shift, the government gets into their business and all of a sudden it’s worth nothing.

Jordan Fishfeld: Or even – in a better case scenario that’s not tragic – you spend the next nine years with this business and it’s now still only worth 100 million, when you could have taken that 9 years ago  and done something better with it, right? That’s where I think a lot of value is lost, both in real estate and in other opportunities, where you end a project where you’re like “Oh, this is great, but if I could have sold it five years earlier and had the same gross return” and put that money to work in maybe some project that’s more appropriate or even gained a little bit more diversification or more safety – was that a better decision at that time?

I think that you’re right… That mistake, that endowment effect problem is something that’s really hard to overcome. This isn’t an easy thing to do, to sell something you own that’s going well for you; it’s a very hard thing, and I think that’s why it’s a great skill that is a learned skill. It is not a natural occurrence, it’s something that you have to learn and be good at and really stick to. I think people that do it well benefit tremendously from putting capital to the most efficient use possible at the most efficient time.

Joe Fairless: And on the flipside, the grass is always greener, and if we have something that’s working and we are comfortable with — in this case we’re a passive investor, we’re not the general partner with a limited partner. If we’re happy with the general partner — because so often the number one thing is “Is the general partner someone who I trust and do they qualify based on what I’m looking for in someone overseeing my investments?” Because the deal is always secondary; the people running the deal is primary, in any investment.

So if we’re comfortable with that individual, then why not hold on to what we’re doing with that individual already, versus going and taking it out and doing “the grass is greener” somewhere else?

Jordan Fishfeld: Well, I think there’s a few points there. First is there’s no reason why you can’t take that money and put it into a new project of that same manager. Most managers aren’t running one project and are not raising for one deal at any given time if they’re that good… So to say “I would like to take my cash out of this deal, which has kind of already run its course” — specifically talking about a development project… We’ve found great developers who know how to manage a construction crew, know how to put together great plans, work with the government to get approvals… And then once they get their certificate of occupancy, they kind of pass it off to a brokerage or a property manager to lease it up.

So most of your bet is on the developer, not on the property manager, so in this case, why not sell at the time of the certificate of occupancy and put money into the new developer’s project, which is what you had bet on in the first place.

So things like that where 1) a new capability, given the new rules and the new technology – this wasn’t always possible, which is why many investors I think will have a very difficult time with this process in the early days… But if you compare asset classes, so public securities – specifically people who are not traders; people who invest, say, in Apple or Facebook, not to try to sell it the next day or during a spike and then a dip, but who say “I believe in this company, I believe in the manager and I think it’s gonna grow…” They look at that stock every six months (maybe every year) and say “Do I still think this is a good company that’s gonna grow?”

If you bet on Groupon early and then two years later you said “Is it still gonna grow?” and maybe you said “No” and you sold it and you did really well. Facebook, if you look at the company a week after it IPO-ed or a month after it IPO-ed and you looked at it today, in both instances you said “I think this company still has tremendous growth potential.” That’s kind of the same analysis – “I’m gonna buy it again today. If I wanna buy it again today, then that’s what I should do.” If you wouldn’t buy it today at that same price, then you should probably sell it. I think that’s the skillset that investors are almost required to have going forward, as choices and opportunities and efficiencies become more commonplace.

Joe Fairless: That’s a really simple, boiled down way of looking at it. If I wouldn’t buy it at today’s price that I could sell it for, then I should sell, right?

Jordan Fishfeld: I think so. And there’s obviously a lot of different theories, but this is one that I think will definitely be a great skill, and the more and more investors that start thinking this way — we’re seeing it already in the financial advisor and kind of alternative asset marketplaces. When advisors now do your annual check-up, this is exactly what they do; they just haven’t been able to make that recommendation for real estate. I think that’s why this is a really powerful tool for active and passive real estate investors, that has kind of been overlooked in this market, because it hasn’t been that easy to do earlier in the history of this asset class. Now that it is much easier – again, with the new rules and new technologies – it’s something that needs to bleed over into this space, to have that same type of efficiency that we have in the public market investment decision-making process.

Joe Fairless: The one challenge that I would have with that (just thinking about it a little bit more) “if I would not buy it at this price, then I should sell it” is I bought it at a lower price — and let me use a specific example… An apartment community I have in Houston – it’s 250 units, I bought it for 14 million dollars. 16 months later it is worth 21 million dollars; we got an appraisal. We put in 2 million, so all-in we’re at 16, now it’s worth 21 million dollars. Well, it’s worth 21 million, but I would have a hard time buying it for 21 million, because we bought it for 14 million. However, that doesn’t mean it’s not a very good investment if I brought in additional capital and did even better renovations and increased the rent even more. So there’s gotta be some sort of psychology with price anchoring tied into this. Because just like store – “Buy it for 100 — no, never mind, we just slashed the price to 50.” Well, now I don’t ever wanna buy it for 100, even though it might be worth $200. So there’s gotta be that playing into that mentality as well.

Jordan Fishfeld: There’s so much psychology in this decision process, and actually part of this thesis is coming from what’s going on in Michael Lewis’ new book “The Undoing Project”, which if you haven’t read, definitely check it out. It’s all about the psychology of decision-making and financial market decisions… And you’re exactly right – price anchoring, emotional relationships with the asset class, the fact that you already own it… I mean, they have a name for what you’ve just described, which I talked about earlier – the endowment effect. You own it and you bought it cheaper, so you don’t wanna 1) sell it, or 2) buy it for a higher price than you originally paid for.

I think this is a very hard skill to learn and to implement, but at the same time very relevant. Now, the question I would have for you is similar market, similar asset class, 21 million dollar apartment project that has some renovation capability with the ability to boost rents and increase occupancy – would you buy that next door? And if you said yes, then clearly the reason why you wouldn’t wanna pay 21 for this specific project is because your basis was lower and you’ve price-anchored. But if you would buy the project next door with the exact same features for 21, then I think you’ve made the right decision to keep it and hold it and put more money into it.

You’re exactly right, the psychology around this process is very potent, and it requires a very determined and sophisticated and focused investor. With this skill, I think you’ll see some great return on your projects.

Joe Fairless: Is there anything else that we haven’t talked about as it relates to “Should I stay in longer or should I sell?” that we wanna talk about?

Jordan Fishfeld: I think it’s a multi-variable decision. I think “Should I stay in longer? Would I buy this project at this price?” I think is a great baseline. Again, everybody has their own tax burden, so you have to just ensure that selling it is the same as buying it, because when you sell it, you’re actually gonna get a tax bill; when you buy it, you don’t get a tax bill… So making sure that that’s considered…

The other thing is is there a project that you can put your money in to satisfy your same goals? I think that’s a really relevant point right now – if I sell this project where my initial target was 12% and now I’ve hit that, and I know that for the next four years I’m gonna be making 8%, so that will reduce my overall yield on the project to (let’s call it) 10%, can I find anything that has a great than 10% yield in this market right now, that has the same risk profile? If not, then you’re kind of stuck in your current project for that reason.

Where I see it being really problematic is, specifically in the development project, you create all this value, you have this great jump in IRR from year one to year two or three – whenever you get your certificate of occupancy – and then during the lease-up phase you’re kind of averaging down your IRR as the leasing effect takes place. But if you can move that money into another development project and kind of go after your 25ish, 20% return over that two year period with significant risk, and if that’s what your profile is hoping for, then you should do it.

Again, it still always depends on the investor individually and the projects individually and the opportunities available to that investor. But as opportunities explode with the online capital raising space, as information explodes all over with podcasts and papers and books, and as yields compress, there’s a lot of different reasons why you should stay in and not stay in certain investments. But I think the skill of just doing a check-up on your investments and making that decision is very powerful.

Joe Fairless: Yeah, I certainly agree. This has been a fun conversation. Jordan, where can the Best Ever listeners get in touch with you?

Jordan Fishfeld: Come to our website, it’s CFXTrading.com. They can e-mail me at Jordan@CFDTrading.com. I’m looking forward to hearing from your users, and also always looking forward to chatting again with you.

Joe Fairless: Cool. Jordan, thanks so much for being on the show, talking about if we should or shouldn’t stay in an opportunity. We should just always do a check-up on our investments, take a look at the tax consequences, the true value of it today versus when we bought it, if we still would pay that same amount for a similar or exact property, but just not that one, to try and distance ourselves from the process. If we’re reaching our goals, if we already reached our goals, and if we have a new project that will accomplish whatever we’re looking to accomplish in the development deal is a good example of that.

There’s more risk on the turning dirt into actual steel and places where people can live, but then there’s less return on the lease-up because the risk has certainly been mitigated a lot once people are starting to move in there and occupy. So maybe if you want to do something more aggressive, then you can just bounce around from development deal to development deal during the first 12-24 months.

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

Jordan Fishfeld: I appreciate it. Thanks so much. Talk to you soon, Joe.



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JF933: Your FORMULA to Buy 5 Rentals in 2 Years and Payoff in 7!

Purchase, rehab, rapid pay-down and refinance 5 properties in 7 Years! Whew! Before you think it’s impossible, turn up the volume and listen to our guest. He’s extremely motivated and driven to find the right lender and the right properties, it is possible.

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Andrew Holmes Real Estate Background:

– Real Estate Investor & Founder of Chicagocashflow.com
– Chicago’s # 1 Flipping Team
– Radio show host of Real Estate Live with Andrew Holmes on AM560
– Have over 160+ rental properties
– Idea of investing is based on 2-5-7 Cash Flow For Life; In 2 years 5 properties and 7 year payoff
– Based in Chicago, Illinois
– Say hi to him at http://www.chicagocashflow.com/
– Best Ever Book: Rich Dad, Poor Dad by Robert Kiyosaki

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Complete Episode

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 fluffy stuff.

We spoke to Barbara Corcoran from Shark Tank, Robert Kiyosaki, the author of Rich Dad, Poor Dad, Jay Papasan, the co-author of The ONE Thing with Gary Keller, and a whole bunch of other best-selling books.

With us today – Andrew Holmes. How are you doing, Andrew?

Andrew Holmes: Doing great, how about you?

Joe Fairless: I’m doing well, nice to have you on the show. A little bit about Andrew: he is a real estate invest and founder of ChicagoCashflow.com, which is Chicago’s number one flipping team. He’s the radio show host of Real Estate Live With Andrew Holmes. He has over 160 rental properties and based in Chicago, Illinois.

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

Andrew Holmes: Sure, so my background was a real estate agent since I was 19 years old until about 33-34. In 2008 it was the first time I started with flips. For a couple of years I had done well as a real estate agent, but I kind of found myself on a treadmill, so I switched to flips, which worked out quite well in 2008, 2009, 2010, but what I found was I had traded it in for a bigger treadmill. It was kind of a rational sort of a business, and I didn’t want transactions, I wanted investing.

In 2011 is when the focus shifted to about 60%-70% of all properties that we touch today go into a rental portfolio. The key is that it needs to be paid off in 7 years or less. That’s basically what we focus on today.

Joe Fairless: Did I hear that right, you pay the properties off in seven years or less?

Andrew Holmes: That’s correct.

Joe Fairless: So you own your properties free and clear within seven years, that’s the goal…?

Andrew Holmes: That’s the goal. We use a formula we call 2-5-7 – that’s kind of where it started. In two years how do you accumulate a minimum of 5 properties and get them all paid off in 7? You can do that 2-10-7, 2-20-7… The formula doesn’t change, it’s just the number of properties, how much cash flow do you wanna create a month; you scale based on that.

Joe Fairless: And please educate us – how do you in two years get five properties and have them paid off in seven?

Andrew Holmes: Most people, whenever they own rental properties, they tend to buy rental properties in areas that are rather challenging. We have a different philosophy, which is we tend to buy in bread and butter areas, right next to what we would call premium areas. Basically, if premium areas are A, we tend to buy B- or C+ category areas.

The other requirement is whenever we’re buying a property, after rehab it must have a minimum of 25% equity. Also, it must have [unintelligible [00:05:04].03] We focus on buying small three-bedroom, one and one-and-a-half bath ranches. They must cash flow to the tune of 400-450 dollars/property after all expenses, including management.

The biggest challenge people have is that they try to invest in properties with residential loans, and the scale at which they can grow is hampered, because you need seasoning on those, you need all those types of issues. What we always do is we buy them with commercial loans. Basically, a five-year balloon with a 25-year amortization type of a loan; it’s a commercial loan at five, five and a half percent. The speed at which you can scale and grow is much faster, and the seasoning requirements [unintelligible [00:05:52].01] so you’re borrowing money to buy the property, you’re borrowing money to do the rehab, and then you’re going to a commercial lender, refinancing it and then putting the money back to do the second one, the third one, the fourth one and the fifth one.

Joe Fairless: There’s a couple keys here: one is finding the properties that meet the criteria that you just mentioned, the other is having the lender lined up that works with you on that. Let’s talk about the lender real quick; who do you use for the commercial loan?

Andrew Holmes: For commercial loans we typically tend to go to the small banks that are in town. Every town has like a small X, Y, X bank or trust type of a bank. Typically, they have anywhere from one to five, ten, fifteen, twenty ranches. That said, we’re not gonna go to Chase Bank and we’re not gonna go to the big lenders, because they don’t really offer these programs for small investors. So typically, we tend to go to them.

B2R – your listeners might have heard of them… That’s another place. Their rates are a bit high compared to local banks that we can find, but typically they’re local, small banks. Every community in America has those.

Joe Fairless: Let’s say we know a community bank or credit union in our area – we definitely do. When we walk in the door, who do we ask for and what questions do we ask.

Andrew Holmes: That’s a great question, because you always wanna go and directly talk to the VP. Typically, at these small banks the VP is pretty much the main guy there, and that’s the person you wanna approach. You do not wanna talk to a residential loan officer, because that’s where the teller or somebody at the front is going to try to push you to, because that’s really what they’re familiar with. But you really wanna go directly to the VP of the bank.

What you wanna tell them is that we’re looking for properties that are purchased, rehabbed and they already have a tenant in them. So they’re stabilized properties when we go to these types of lenders, and there’s cash flow that comes in. As you know, that covers a ratio of about 1.25, but our minimum standard is that every property that we take to them has a minimum debt coverage ratio of at least 1.5, 1.6, 1.7, so we’re well above their thresholds.

First they have a hard time believing that you can even do these numbers, but once they look at them and they see you have a nice equity position, they will tend to give you 70-75% (in some cases 80%) of appraised value.

If it’s okay, can I give out some numbers, so that listeners will get a little bit better idea?

Joe Fairless: Yeah, I love it.

Andrew Holmes: Okay, great. Basically, let’s say you’re buying a bread and butter property, three-bedroom, one bath ranch for $65.000. You’re gonna put $20.000-$25,000 into rehabbing the property. You have another carrying cost of another $5.000-$6.000, so you’re all in cost into the property is somewhere around $90.000. This is the most critical part, which to me is investing, versus what most people do, and that is the property needs to appraise on a conservative refinance appraisal for $120.000-$125.000-$130.000. That’s the key thing – that’s the only way you’re gonna be able to get all the capital that you put into the property out, so that you can efficiently recycle the same money over and over and over.

So the property appraises for about $125.000. The lender is gonna give you about 75% of appraised value. We can get more technical with it, but for starting out purposes, that’s the key thing. That’s the benchmark people have to look at. If the property appraises for $120.000-$125.000-$130.000-$135.000, now they’ll give the $90.000-$95.000 refinanced.
So you put that loan, you pay your first lender off – the lender you used to buy the property and to do the rehab – and then you just recycle the same funds. Or if it’s your own money, that’s fine also, but you just repeat that process over and over and over, goal being you need to get to a minimum of five. Obviously, 10 is better, 15 is even better, but five is the critical number.

Joe Fairless: With the questions… Going back to walking into the bank, and we are in front of the vice-president, and we are asking the questions about the minimum debt coverage ratio that they look for and what we’re anticipating… You went into some of the business plan, which is great, and it helped clear things up a little bit – or at least, not clear things up, but paint the picture… What specific questions would you ask of him or her as the vice-president so that you get the answers to what you’re looking for?

Andrew Holmes: What we’ve always done is when we walk in, we tend to describe them really briefly (in two minutes or less), kind of an elevator pitch as to what we do. What I typically say is “Hey, we’re buying foreclosure type of properties or investment properties that are rentals. When we come to you, they’re gonna be purchased, they’re gonna be already stabilized – they like that word – there’s already an existing tenant. We do two-year to three-year (minimum) leases only; we don’t do short-term leases” and we explain to them why and what the philosophy is and how we wanna aggressively pay down properties.

First, they’re kind of shocked, like “You actually do this?”, and then their head starts nodding as you start getting into more technical issues, which is “I know typically most banks look for 1.2/1.25 debt coverage ratios. Any property we bring to you is gonna have 1.5/1.6 debt coverage ratios”, and we’ll show them a couple of actual examples. If you’re brand new, just show them a property of two maybe that you have in the works, that you plan to do.

The key thing to understand is a lot of these small banks will have a footprint in an area. Let’s say in X, Y, Z community – they wanna lend in a community that is typically around that area. They’re not going to go in a big city like Chicago — if a bank in the Southern part of Chicago, typically they’re not familiar with the North Side. They might say, “Yeah, that’s a market, but that’s really in our footprint.” That is key to understand – where you ask them to lend is also a very critical piece whenever you talk to these lenders. A lot of times, they’ll be able to tell you yes, that is something that they would be willing to look at.

Now, some banks, when you go to them they’ll say, “Well, we won’t do the rental part of it, but we’ll do the purchase. We’ll help you on that end.” Or “We don’t really wanna do onesie-twosie loans, we want a minimum of 5-7 properties at a time.” So it just depends on what the appetite of that bank is.

Back in 2011, literally, I had to go to about 30 or 40 banks to find one. Today almost every bank that I walk into, they’re more than happy, they jump up and down, because the mood of the market has changed quite a bit, obviously, around the country.

Joe Fairless: One thing that you mentioned as far as the bank’s footprint – maybe it’s too far out, even if they’re within the same city… Would you recommend identifying your submarket and then looking at the community banks and credit unions within that submarket and going to them first?

Andrew Holmes: I think you hit the nail right on the head. There’s a site that people might be familiar with that they can go to, which is called Bauer Financial. Any state that they live in, they can go to that particular website and look up which are all the small banks in that area.
Whatever community you live in, I would just draw a 10-15-mile radius around it, and then start with the ones that are closest to wherever you’re going to buy properties. Especially if it’s in a B market, a C+ type of market, then the banks that are local in that area, they have depositors from that particular area and they need to make a certain amount of loans in that particular market. So that’s the first place you start.

As you start developing relations, as you start having credibility with a particular bank, they’ll scratch their arms a little bit for you, but in general, the place to start always is the community banks – they wanna have a relationship; it’s a relationship sort of a lending, and they really like that word. If you go in and say, “Hey, we wanna develop a relationship with you” and you tell them that you’re gonna put your rental deposits in their bank, they’re all over that, because that’s really what in the long run they’re looking for. It’s not a one-way street. Especially, we’ve had lenders that have developed relations with us for a long time now.

In 2010 or 2011 when we started accumulating these, they’ve literally in Chicago helped hundreds and hundreds of lenders. They don’t have a [00:14:38].10] stringent criteria. For people who may not have a W-2 income, they’ll work with 1099. If somebody doesn’t have a W-2 or 1099, but has retirement income, they’ll work with it. If somebody doesn’t even have that but has some assets, a good portfolio in the stock market or just cash – they’re much more forgiving and they’re not as sensitive, even in the department of credit scores.
They’re not gonna analyze everything to that debt, and they’re not gonna ask you where did the forefathers come from. We like a traditional, residential bank; every single thing you have to explain. They tend to be very willing to work with you.

Other advantages… As you work with these commercial banks, you can buy properties in your LLCs, you can buy properties in your S Corps, you can buy companies under a trust… Let’s say you bought a property with a partner – at the time of closing, you can [unintelligible [00:15:30].19] over to whatever company you want… There’s a ton of flexibility if you really understand how to work that niche.
That’s been a godsend to us when we found these commercial banks, and there’s tons of them. There’s always a pro and a con to it, and the only con to these is typically these institutions tend to have a limit. They’ll do 3-4 loans for you initially, then they’ll say “Okay, let’s stop. You need to bring in your tax returns and then after February we’ll again start doing more.” Next year they’ll do 7-8, and once you reach a threshold typically of about a million dollars or so (850-900), they’ll kind of put the brakes on, and a lot of times they have a lot of sister banks that they do business with, and if you develop good relations with them, they’ll be happy to refer to you, and your business becomes easier and easier to grow.

Joe Fairless: Outstanding information. Best Ever listeners, the Bauer Financial can be found at BauerFinancial.com. I had not heard of that. I went there, and it’s great. You can search for credit unions in your area. I’m sure you’ve heard me mention this before about what we’re talking about, which are portfolio lenders – community banks and credit unions. They keep the loan in their portfolio, therefore they can be more flexible with the terms, and they don’t sell it on the secondary market like the Bank of America, Wells Fargo, Chase do, typically. It is their own loan, and that’s why they can be more flexible.

You mentioned talking to them about providing a stabilized property, with a tenant. That assumes that you already have the money to buy the property in the first place. What about someone starting out, wanting to implement this strategy? How would you get finance initially? Or do you just need to save up the cash to do so?

Andrew Holmes: No, absolutely not. I’ve never – even today, even though we happen to have obviously a significant amount of accumulated cash, still it can be done three different ways. Number one, you can partner with somebody that has the capital and do a 50/50 joint venture. They buy the property, they put up the money for capital – that’s one way of doing it. Obviously, you’re the driving force, you’re doing all the work, but you’re giving up 50% if the returns. That’s where I started initially.

The second way to do it is the traditional route, which is you borrow money from a hard money lender, and put some of your own money. The third route, which we tend to use the most, and that is understanding — I’m sure on the podcast you’ve talked about private money. Probably that is the biggest bonanza for real estate investors, which is join your local REIOs, join the local groups; whichever town you’re in, there are tons of them. There are people that are willing to make loans out of their IRAs, they have personal money, and you end up paying anywhere from 8% to 12%, and that’s what we tend to do and that’s what we always try to get people to understand – there’s a lot of money out there where people are willing to loan for the front end of the transaction. So that’s a great, great way to start.

Either partner for it, go to a hard money lender… The rates can be rather high there, but my first choice always is private investors.

Joe Fairless: Best Ever listeners, if you are doing a flip, which is not what we’re talking about, or talking about improving it and then holding on to it for the long run – which I like much better than flipping it… But if you are doing a flip and you’re needing cash, then FundThatFlip is a sponsor of the show, and they have opportunities for you on that.

What is your best real estate investing advice ever, Andrew?

Andrew Holmes: I would say this… If you take care of real estate for the first five years, it will take care of you for the rest of your life. Most people screw that up because they don’t build it on the right foundation. Whenever you look at long-term building wealth, you have to learn how to take care of the foundation, which is the first five years. If you take care of that, the rest of your life you’re pretty much set, as long as the first foundation is made properly.

Joe Fairless: I love that philosophy. I love how you started out by talking about the transactional nature initially, and then more of a long-term approach. One other follow-up question about the business model… I mentioned it requires a great lending partner, but then also your ability to find these deals that qualify, so that you do have the ability to take your money back out and roll it into the next one because of that equity. How do you find those deals?

Andrew Holmes: We find the deals in three places. In Chicago about 15% of the market is still just sales. That’s down from about 40% if the market, so obviously it’s going in the right direction, stabilizing the market. The last transactions we find with auctions, the Sheriff Sales type of places… We’re still buying quite a bit on the online auctions. Obviously, the MLS, and still in today’s market when there’s multiple bids going on, there’s not as much competition for buy and hold type of properties.

Most people are in the rat race of trying to do a flip, which god bless them, but that’s just not a strategy that we — we do some of those still if there’s a wide margin and it doesn’t fit our rental criteria, we’ll still do a flip, but that’s basically just additional income. That’s not our main focus.

The last place, which is probably the most ignored one, which is probates, free foreclosures… Some sort of distress; a lot of villages have issued fines, out of town homeowners… We have started doing a lot of direct marketing directly to sellers, to find properties that way. We’re looking to do about 80-100 transactions a year, and we have another group of people in Chicago that buys another 200, kind of onesies or twosies, and we’re able to find about 200 deals no problem. Our market is so large, that still that exists as long as you know what your back end numbers are.

The key is to know the numbers, to know the neighborhoods like the back of your hand.

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

Andrew Holmes: Absolutely.

Joe Fairless: Alright, let’s do it.

Break: [00:22:00].19] to [00:22:55].08]

Joe Fairless: Best ever book you’ve read?

Andrew Holmes: Rich Dad, Poor Dad.

Joe Fairless: Best ever deal you’ve done?

Andrew Holmes: Bought it for $12,000, and we keep it, and it’s worth over $150,000.

Joe Fairless: Where did you get the lead?

Andrew Holmes: Actually I got while driving for DOMs.

Joe Fairless: You’re driving around and you see a distressed property, and then you look up the owner and you call the owner? Or how did it work?

Andrew Holmes: I was driving around, I saw a really bad driveway, windows were all messed up; it looked like a house that clearly was distressed, so I called the owner and he said, “Well, it’s going to auction, and I want nothing to do with the property.” We approached the owner and we paid him 2,000, paid off the $10,000 mortgage and that was the end of the story.

Joe Fairless: What would be the incentive for him to sell it for $2,000 out of pocket?

Andrew Holmes: He had already moved out of town. The village had put a whole bunch of [unintelligible [00:23:52].28] on the property, so they would not negotiate with them. When we went to them, they were like “As long as you can give us an affidavit and a $10,000 deposit, the property would be brought up to code as per our requirements. We will renegotiate all the liens, all the things that they had put on it. It was only a $900 ticket. In Chicago in some places the charge is $7,000/day for violations, because they don’t want boarded up properties.

So we negotiated with the village. He just thought that it was an impossible thing to solve. He should have hired an attorney and rework the whole thing, but he just didn’t know what he didn’t know, and he was out of town.

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

Andrew Holmes: I think the best ever way I like to give back is share what we know, because the more that I share, the more openly information is shared, the more we get to grow; a lot of times people hold this belief, “Why would you share so openly?” I’ve always laughed, that every time I share, I get back so many more folds, because people give back in ways they don’t even know. The best way of learning is to teach others to do it.

Joe Fairless: What’s the biggest mistake you’ve made on a deal?

Andrew Holmes: Getting greedy and not trusting your gut instinct when it says no. It doesn’t matter how good it sounds, pass.

Joe Fairless: And lastly, what’s the best place that Best Ever listeners can get in touch with you?

Andrew Holmes: They can reach us at info@ChicagoCashflow.com.

Joe Fairless: And Best Ever listeners, the .com URL is in the show notes page. You can just click through and go check out the website and get in touch with Andrew and his team.

Andrew, thanks for being on the show, talking about how you and your company are buying 200 properties a year in Chicago. The long-term approach — not transactional, the long-term buy and hold approach of finding a property that is distressed or undervalued, increasing the value by forcing appreciation through renovations or talking to the city, getting the liens dismissed or paying a nominal fee to get certain things taken care of, and then going to a portfolio lender, putting that loan under the portfolio, and then recycling that money into the next deal and then paying that off over the term with the cash out proceeds from these new deals.

One question I have – to pay off the deal on the five-year balloon, are you simply paying that off from money from a previous deal? Is that how you do it?

Andrew Holmes: No, so the deal is that you accumulate fives. On an average, if you accumulate five, with the numbers that we do, you’re gonna have about $3,000 cash flow a month. So you start attacking the mortgage number one. Let’s say it takes you a year to accumulate five properties; you wait for about three months, build a reserve, and then after the fourth month you take the cash flow income from all five properties, attack property number one. That’s gonna take about two, two-and-a-half years (with our numbers) to pay off. The second property is gonna take about 19 months, the third property is gonna take about 13 months, and so on and so forth, depending on how quick you pick them.

That’s the reason why the five number is critical. If you do a proper rehab, appropriate for the next 5-7 years, put tenants on a 2-3 year lease minimum. It won’t work if you sign one-year leases, because you want stability for the long term, you don’t want tenant turnover at all. It’s okay to get a little bit less rent, but what you’re really looking for is a high-quality tenant so that you don’t have any downtime as much as possible.

Then you’re using property cash flow from five properties to pay off number one, then it builds, then you pay number two, number three, so on and so forth.

Joe Fairless: That makes sense. Thank you so much for being on the show, Andrew. I hope you have a best ever day. We’ll talk to you soon.

Andrew Holmes: Joe, I love your podcast. Thank you so much for having me on.


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JF891: House Hacking to $250,000 Gross Rental INCOME!

She didn’t start that long ago, in 2009 she began her real estate venture house hacking and ran into more opportunities. Hear about her worst purchase in Chicago and how she recovered. She now earns over $250,000 worth of rental income.

Best Ever Tweet:

Meghan McCallum Real Estate Background:

– Began investing in 2012 and went full time in 2016
– Will have nearly $250k gross rental income if she buys nothing else
– Has 18 units, mix of single & multifamily outside DC, Chicago, and the Quad Cities (Ia/IL)
– Based in Geneseo, Illinois
– Say hi to her at meghan@mccallumholdings.com
– Best Ever Book: Any Malcolm Gladwell book (my favorite is Blink)

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JF889: You Have NEVER Made an Offer Like This!

Stop everything and press play, you are about to hear a method of making offers with a slight contingency, but it’s all about the numbers. Our guest house hacked his way to freedom and has never done an off market deal, hear how he did it!

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Mark Hafeli Real Estate Background:

– Real Estate Broker & Investor at Dreamtown Realty
– Focus is on 2-20 unit residential and mixed-use properties
– Worked with owner-occupants, first time and seasoned investors and deal syndication on deals large and small
– Master’s Degree in Accounting
– Based in Chicago, Illinois
– Say hi to him at http://www.chicagoREinvestment.com
– Best Ever Book: The Four Hour Work Week by Tim Ferriss

Made Possible Because of Our Best Ever Sponsors:

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JF886: How Equity Loans on Your Property can Move You Along to the Next Project

Have equity? Pull it out! Of course do your best to mitigate your risk, as our guest did. You can find equity partners who will land on your equity so you have cash to move to the next project.

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Ben Walhood Real Estate Background:

–        President of Apex Renovations
–        President of Chicago Area Real Estate Investors Association
–        Buy-and-hold investor with over a decade of experience in residential properties
–        Bought his first house while still in school
–        Prior to full time investing, he used to sell brain surgery equipment
–        Based in Chicago, Illinois
–        Say hi to him at http://www.GoApexRenovations.com
–        Best Ever Book: The One Thing by Gary Keller

Made Possible Because of Our Best Ever Sponsors:

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

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JF844: How to Trade Real Estate Experience for Business Development and GROW!

His mentor, a previous guest on the show, reached out to him and made a deal to trade his real estate experience for today’s guest’s business development skills and attributes. They make a great team building a creative lease-option real estate portfolio and have big plans for 2017, hear what they are!

Best Ever Tweet:

John Matthews Real Estate Background:

– President of Operations of PCI LLC, a real estate investing company
– After college, bought a ticket to NYC and for 9 years rose through the ranks in Financial Services
– Started foreign language school in NYC and grew to top 5 foreign language schools, still active today
– ‎Specializing in rehabs, rent to own and wholesaling
– Born and raised in Colorado
– Based in Chicago, Illinois
– Say hi to him at http://pcirei.com
– Best Ever Book: The One Thing by Gary Keller

Made Possible Because of Our Best Ever Sponsors:

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

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JF779: You’re Losing MILLIONS Without Him on Your Team

In some states a real estate attorney is needed for specific transactions such as the wholesale pass-through from the B to C Funding to take care of the A to B purchase. Hear how he handles that and also his advice that improved someone’s cap rate to 25% by doing one simple thing.

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Gary Davidson Real Estate Background:

– Owner at Castle Law
– Represents hundreds of property investors and businesses and contractors on corporate affairs
– Unparalleled experience working on land use, zoning and development issues
– A frequent lecturer at numerous real estate investor seminars.
– Based in Homer Glen, Illinois
– Say hi to him at http://www.castlelaw.com
– Best Ever Book:Margaret Thatcher

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JF778: She Was Laid Off and Then SCORED $80k on Her FIRST Deal!

Sounds too good to be true, but with a positive attitude and open mind it’s possible for anybody to turn lemons into lemonade! That’s right, she was laid off and then right after made $80,000 in a deal, hear how she did it!

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Lori Wetzel Real Estate Background:

– President of The Wetzel Group, Inc.; A real estate consulting group
– An accomplished real estate investor, mentor, coach, trainer and national speaker
– An International Certified Coach for John C. Maxwell
– Her first real estate deal received a net profit of over $80,000
– Launched a talk radio show on the Voice America business channel called “Keepin’ It REAL with Lori Wetzel”
– Based in Chicago, Illinois
– Say hi to her at http://www.thewetzelgroup.com
– Best Ever Book: Grit: The Power of Passion and Perseverance

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JF777: He’s Closing a MONSTER $400MM+ Deal This Month!

If you had 42 years in the business you would really have it dialed in. You’re going to hear from someone who has been in the big apartment complex, condominium, and large real estate industry for over 40 years. Hear how he negotiates for his buyers and sellers and what he’s offering!

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Mel M. Kaplan Real Estate Background:

– President at Melvin M Kaplan Realty Inc
– Over 42 years in real estate business with 20 years of banking experience
– Main specialty is multi family portfolios and 5 star hotels
– Based in Chicago, Illinois
– Say hi to him at melmkaplan@aol.com
– Best Ever Book: Exodus

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JF739: An Upscale Land Development Deal Gone WRONG #situationsaturday

It didn’t go completely wrong, but you need to listen to this episode to find out what our guest’s first intentions were and how it ended up.

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Dan Breslin Real Estate Background:

– Host of REI Diamonds podcast (http://www.reidiamonds.com)
– Founder of Diamond Equity Investments, a fix and flip company operating in Philadelphia, Chicago, and Tampa Bay
– Since 2006 he had closed more than 300 deals except for one has been Off Market purchases
– Based in Chicago, Illinois
– Say hi to him at http://www.diamondequityinvestments.com/

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JF 734: How He Bought a Money Maker Mobile Home Park Working 75 Hours a Week in Construction

Today’s guest is like any average Joe, but this Joe is not average, he took massive action and ignored the noise. He purchased a mobile home park which is now making money and allowing him to eventually leave his full-time job and invest in more real estate. Hear how he did it.

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Paul Stout Real Estate Background:

– Owner of KP Assets
– $100,000 down on the mobile home park
– Based in Chicago, Illinois
– Say hi at paul@kpassets.com
– Best Ever Book: Outliers by Malcolm Gladwell

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