JF1873: Working Through A Sticky Real Estate Investing Situation #SituationSaturday with Colin Douthit

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Colin and Theo will work through a situation that Colin is currently going through right now. A 16 portfolio of 16 homes is giving Colin a tough time and he’s currently trying to refinance as this project has cost him too much money and time. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Our biggest takeaway has been doing the construction loan up front” – Colin Douthit

 

Colin Douthit Real Estate Background:

  • Real estate investor, general contractor, and property manager
  • Owns 70+ doors all acquired in the past 24 months, manages 50+ doors for other real estate investors
  • Based in Kansas City, MO
  • Say hi to him at colinATatlas.rentals

 


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JF1860: New Investor Buys 30 Units With Other Peoples’ Money with Colin Douthit

Listen to the Episode Below (00:21:32)
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Since Colin is still a newer investor who has successfully used OPM to purchase real estate, we’ll hear a lot about how he met investors and convinced them to invest in his real estate deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“If they say they’ll invest anywhere then they are willing to invest in areas that are bad and not guide you properly” – Colin Douthit

 

Colin Douthit Real Estate Background:

  • Real estate investor, general contractor, and property manager
  • Owns 70+ doors all acquired in the past 24 months, manages 50+ doors for other real estate investors
  • Based in Kansas City, MO
  • Say hi to him at colinATatlas.rentals
  • Best Ever Book: Bible

 


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TRANSCRIPTION

Theo Hicks: Hi, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m your host today, Theo Hicks, and today I will be speaking with Colin Douthit. Colin, how are you doing today?

Colin Douthit: I’m doing well, how about yourself, Theo?

Theo Hicks: I am doing great, and I am looking forward to our conversation. A little bit about Colin – he is a real estate investor, general contractor and property manager. He currently owns over 70 doors, which was acquired within the past 24 months. I’m looking forward to diving in how you were able to accomplish that… He’s also a property manager and he manages over 50 doors for other real estate investors. Based out of Kansas City, Missouri. You can say hi to him at his email address, colin@atlas.rentals.

Colin, before we dive into your background, could you tell us a little bit more about your background and what you’re focused on now?

Colin Douthit: Yeah, sure thing. I haven’t been in the real estate game my entire life; I’m kind of new to it. I was actually an engineer by trade, I did project management for construction companies, [unintelligible [00:03:21].25] of engineering school. I decided to kind of split ways with the corporate world, so I started acquiring rental properties. We started buying them because that was the goal, and I had some extra capital; that was kind of the initial seed for it. We had saved up some capital, had a little bit of a life insurance money to get going there.

That really got us through the first 12 months of acquisitions, but things for me really got interesting on the second 12 months – the last 12 months, I would say – because essentially we’ve been able to buy 40 doors with 100% OPM, which has really been huge in our growth, as well as capital preservation.

Along the way, with my construction background, I started to provide my own GC services for rehabbing the rental properties. I couldn’t find people that I could depend on… And then since we were already in the property management space, because I was having to manage all my own doors while we rolled that out as well, I got a property manager onboard who’s helping me out, and we’re servicing outside customers now as well. That’s how we got to where we are at.

Theo Hicks: So let’s go one by one… Let’s talk about the previous 12 months. You mentioned how you had that seed money from your life insurance fund to fund those first 12 months worth of deals, and then after that you were able to raise capital from other people to fund those projects… First, walk us through who these people are, how you found them, and how you presented the opportunities to them and convinced them to come onboard and invest their capital.

Colin Douthit: Yeah, absolutely. I think the whole thing with any business, especially real estate is networking and how you know people, and then just hitting up your friends and family. Honestly, I had some family members that had some capital sitting aside, so what I essentially offered them was a second lien position or personal guarantee, and we used their money for a  down payment and our wholesale purchase, or just the whole purchase of the property, depending on how much the property was, and paid them essentially interest-only. We make extra principal payments on that interest-only loan on a monthly basis, and a lot of times we used them for the down payment, which allowed us to leverage that even further.

So we made sure we had plenty of debt coverage on the monthly income that was coming in, and then paid them on a monthly basis as well, with the goal of at year five doing a refinance that should them pay them off completely.

Theo Hicks: Do you mind walking us through how you are presenting these opportunities to them? Are you just calling them on the phone and saying “Hey, I’ve got this deal. Do you want it?” Or is there a more specific process?

Colin Douthit: A little bit. These are people I’m close with – parents, some other family members, some close family friends that we know have money, that do some investments in other real estate, that have some successful businesses, that have some capital they’re looking to deploy… And I’m just always talking about what I’m doing in the real estate space, and “Oh, look at this proformas I’ve put together. Look at this deal.” And they started to see the success and the growth, and with that track record I was then able to say “Hey, let’s go ahead and see if we can work something out. We’re looking to fund this next deal… Do you have an interest? We’ll give you 8% interest-only.” And they’re like “8%? That’s pretty good.” They start penciling the numbers… Like, “Okay, that’s about what I’m getting in the stock market, so I might as well place it with you guys, with a physical asset”, and then they get the whole principal back in five years.

Now, I was just talking to a lot of people, and I didn’t really have to push a hard sell on them too much. We gave them a personal guarantee, and they were pretty excited. People see the stock markets continuing to rise, but they’re also apprehensive that it’s gonna pull back, because there have been some major pullbacks, and they’re like “Man, I’ve lost tens of thousands or a hundred thousand dollars over this last week… I’d rather just place it somewhere I know I’m gonna get the 8%.”

Theo Hicks: Do you ever plan on expanding to — not strangers, but people outside of your current network, like maybe building a brand to attract other investors, or do you just plan on sticking with the people that you already know, just because they have enough capital to fund your deals?

Colin Douthit: I’ve entertained the idea of expanding. I haven’t had to reach that far yet outside my network, to be honest with you. I know that you start running into some — you wanna make sure you’re not playing with the syndication rules, or some of the legal rules, so I don’t wanna try to stray too far into that area without knowing all the rules they play by over there… So I don’t really wanna get in over my head in that department.

Theo Hicks: For those 30-40 doors – it doesn’t have to be an exact number, but approximately how much capital have you raised for those deals total?

Colin Douthit: About 250k-300k. We had a couple big purchases, a number of properties, low class B, high class C properties that we needed to value-add. The price was right, we could get a good down payment going for it, and we were able to be like “Okay, we need $80,000 for the down payment on this chunk of properties”, and we were able to raise that here, and $10,000 there, and $30,000 there, so…

Theo Hicks: Okay. Let’s move on to the second thing you talked about, which is being a general contractor. Did you start this general contracting business just because it was your background and you wanted to save some money, or did you just have issues with the GCs you were using?

Colin Douthit: Really just having a hard time finding people that I could  depend on. There were multiple reasons. One was having a hard time finding people that I could depend on; that was a challenge. Trying to pay people on a regular basis, or have to upfront make these large payments sometimes wasn’t always ideal.

Also for the legal protection, if I’ve got a bunch of 1099 guys running around and we have multiple different LLCs set up to protect the different assets – if I have to pay each of them out of this different one, each of those is exposed to a liability if something gets hurt. So if I roll it into the GC and then I can have my general liability insurance through one company, then I don’t have to worry as much about my exposure if I’m hiring the guy to come in and lay some flooring. It’s just some 1099 guy that I know from town, or whatever. But if I am the GC, then I have to worry about that legal liability [unintelligible [00:09:03].08]

Theo Hicks: So  instead of hiring a GC to find these subcontractors, you just find them yourself? Or are you actually going in there and doing the stuff yourself?

Colin Douthit: We’ve got a  number of guys that work for us full-time now.

Theo Hicks: Okay. And is this something that you just do for your own deals, or do you also provide this service to your property management clients?

Colin Douthit: Yeah, we also provide it to property management clients, and I would say almost — the GC came for two reasons. One – I needed my own guys, because we had so much work, and then B was for the property management side of things. When we’re working with our customers that are property management related, we can provide the maintenance service for them quickly, because we have it all in-house, we don’t have to rely on a third party vendor additionally, which I think we might touch on here in a little bit… Kind of the full-service that we offer to some of the investors as well – it allows us to be a single point of contact for investors, so they don’t have to worry about coordinating work and everything from halfway across the country, or even internationally.

Theo Hicks: Yeah, we’ll transition into property management, but just one more question – have you found that you’ve been able to either do more deals, or offer a higher amount of money on deals just because you know that you are not going to be spending as much money as your competitors because of the fact that you’re keeping all of this renovation in-house, so I’m assuming it’s gonna be less expensive to do these rehabs, compared to someone else who has to hire someone like you to do it for them?

Colin Douthit: Yeah, absolutely. We’ve got a couple guys that are working out there for between $15 and $20 an hour, doing even some grunt labor at $12/hour… We can get that done a lot quicker and a lot cheaper than if we have to pay a GC that’s gonna bill everybody else out at a minimum $35/hour. Then if I can get a guy that I can trust, that can do some of the stuff like plumbing, and the hot water heater, and I can pay him $25/hour for one of my skilled guys, then I’m really gonna save a lot of money in the long-term, over a plumber that’s gonna come in and bill me $65/hour.

Theo Hicks: Would you say that if someone has their own business like you, and they don’t have the construction background, do you think that they could do what you’re doing? Do you think that they could be the GC and find some contractors, or do you recommend they just find a GC and kind of just take those disadvantages, but also benefit from the fact that they’re not gonna fail because they don’t know necessarily what they’re doing?

Colin Douthit: I would  probably lean towards the second option, of hiring somebody. My background in construction was purely commercial, so me getting into the residential side was a large learning curve for me. I took a lot of licks trying to figure some of this stuff out, on the estimating and stuff like that, and hitting my head against the door with permits, and everything with the cities, and codes… I do have a knowledge of codes, which has helped me a fair amount, especially if we’ve had to do something structural-related.

Honestly, I would say it’d probably be a safer bet for somebody just to build a relationship with a good GC, that has all the insurance and can do all the permits and everything else like that that you need. It’s been an interesting challenge… And then you don’t have to worry about hiring and keeping employees happy as well.

Theo Hicks: So you mentioned insurance… What are some other things that they recommend investors look at when they’re trying to find a GC? Because obviously, as you mentioned, you’ve had a hard time finding people to depend on, so [unintelligible [00:12:09].15] unless they have that background, specifically residential, and even if it’s commercial, it’s still gonna be tough… If I need to go out and find a GC, behind making sure that they’re insured, what else should I be looking for?

Colin Douthit: References. Get references from other people. Make sure that they are comfortable with the scope of work that you’re asking them to do, and that they’re not overqualified sometimes for what you’re asking them to do. Our focus is solely on long-term buy and hold rental properties. We’ve done some flips, but we really wanna focus on what we know best, which is rental properties.

So if you’ve got a GC out there that’s used to finishing high-end homes, and they’re gonna come in and help you update your rental property that’s $750/month or $900/month, the level of finish and the expense that you’re gonna incur with them is probably gonna be way higher than you need to have for that property.

Theo Hicks: Yeah, I remember when I first got into real estate I was convincing my now wife, then just girlfriend, to buy a property… And she had three contractors come out to quote for a duplex, and one of them was this higher end, and he quoted triple what everyone else did. They were like “We can do this, and –” [unintelligible [00:13:13].13] take a step back… No one’s gonna rent this. They’re gonna rent it, but you’re not gonna make that money back. So making sure they’re not overqualified is good advice.

Let’s talk about your property management company. You were telling me beforehand how you have a turnkey service for people who wanna invest out of state. I personally have had issues with property management companies in the past, and since this interview is not gonna be airing for a long time, hopefully I’m out of the weeds at that point… Because I do have my properties under contract when we’re recording this; hopefully they’re gone by that point… But what’s some advice you have about making sure you find the right property management company for your specific property you’re buying, or specific deal, or specific investment strategy?

Colin Douthit: Make sure first that they’re familiar with the area that you’re gonna be investing in. People can have a wide area that they’re comfortable managing – the whole metropolitan area… Or ask them “Where would you not invest?” Because if they will say “Oh, we’ll just manage anything, anywhere”,  then that means they’re also willing to not guide you properly into investing in areas that are bad. If you’re trying to stay out of some low class C, class D neighborhoods that might have a rougher demographic, they’re saying “Yeah, we’ll just go anywhere. We don’t have any exclusions on where we invest.” Then I would be a little concerned there.

I’d also make sure that they can be full-service for you on what they offer. All these programs now, the property management softwares are getting so advanced and so web-based that you can get a really high level of service from the property managers, get all  the information that you need to get from them through these web-based applications and reports that they can run… So I’d say make sure that they’re up to date on how they’re doing things.

Theo Hicks: And then what about on an ongoing basis, what are some of the things you recommend investors do to make sure that they’re — obviously, you’re gonna ask them “Are you familiar with this area?” and they say “Oh yeah, of course.” And then ask them “Will you offer full-service?”, they’re like “Yeah, of course.” How do I make sure that that’s actually the case? Specifically on that latter part, which is that they’re full-service, that they’re taking care of maintenance issues quickly, that they’re making sure they’re filling vacancies… What are some things that I can do as an investor to make sure that they are actually doing what they say they were going to do?

Colin Douthit: I would ask for some of the properties that they have under management, maybe go drive by and see a couple of those. I would ask what services they do provide. Are they coordinating the maintenance for you? Are they charging you for that? How often they’re inspecting the units, what are some of the systems they have in place, how do they handle a maintenance call coming in during the day, how do they handle a maintenance call coming in after hours, who answers the phone after hours. Let’s see some pictures of some of the properties that you do have listed right now, and then maybe say “Hey, how long have these properties been on the market? What are your average days of vacancy from when somebody leaves? How long does it take you to get the unit turned over, and then how long is it on the market?”

Theo Hicks: Alright, Colin, what is your best real estate investing advice ever?

Colin Douthit: This was a tough one, I had to think about this one… It’s probably you didn’t lose or you can’t make money on a deal you never had. You can’t lose money on a deal you never had. If you’re under contract to buy something and it falls through, you never made the money and you never lost the money.

Theo Hicks: Solid advice. Alright, are you ready for the Best Ever Lightning Round?

Colin Douthit: Yeah, let’s go ahead.

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

Break: [00:16:28].03] to [00:17:13].24]

Theo Hicks: Alright Colin, what is the best ever book you’ve recently read?

Colin Douthit: There’s two. Bible, number one. That’s a huge part of my life. And then number two, Atlas Shrugged, by Ayn Rand.

Theo Hicks: Nice. Is that where the Atlas Rentals comes from?

Colin Douthit: Yes, and a lot of my LLCs that own my properties have names from different characters in the books.

Theo Hicks: Is the movie as good as the book?

Colin Douthit: No.

Theo Hicks: Okay.

Colin Douthit: But you’ve gotta make it through the first 200 pages of the book before it gets good.

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

Colin Douthit: I would start sourcing money from other investors, and I would probably start another service-based business like property management to get the income rolling in without having to outlay a bunch of capital.

Theo Hicks: What is the best ever deal you’ve ever done?

Colin Douthit: I bought a set of dilapidated duplexes out in the country near a college town, near [unintelligible [00:17:59].24] rehabbed them, I borrowed the down payment from somebody, like we were talking about, started the rehab process, did a refinance, repaid the down payment after I got the appraisal, which came back stellar, so now I own six duplexes for zero dollars.

Theo Hicks: Wow. What’s the best ever way you like to give back?

Colin Douthit: I like to donate my time and energy to the church here. I work with a lot of the [unintelligible [00:18:20].09] and we do community service projects.

Theo Hicks: And then lastly, what’s the best ever place to reach you?

Colin Douthit: Probably either find me personally on Facebook, or Atlas Property Management on Facebook, or shoot me an email.

Theo Hicks: Alright, Colin, solid information presented in this conversation. I really appreciate it and I enjoyed it. We hit on three major areas… One was using other people’s money, and you just mentioned it’s all about networking, and you in particular focus on friends and family. You said that specifically you offered them an interest-only – I think it was 8% – and you gave a personal guarantee, and you also do some principal payments as well on top of that, I’m assuming depending on how the deal performs. Then the exit strategy is to do the refinance at year five to pay them back in full.

Then you mentioned that you were able to rely on your track record to raise that capital. So you’re always talking about real estate. You’re telling them “Hey, look at this deal I did, look at this proforma”, and then eventually you say “Hey, if I find a deal that can pay you 8%, would you be interested?” So it’s presenting it like that, asking that question… If they say yes, then you can come back at a future date and present them with an actual deal. They’ve already said they’re interested, so they’re more likely to invest. Then you said that so far you’ve raised about $300,000 in capital.

Then we transitioned into talking about your general contracting business, and why you started your own – in particular, you had a hard time finding people to depend on, so we talked about some ways to make sure that you are finding someone you can depend on, like making sure they’re insured, make sure you get references, make sure that they’re actually comfortable with the scope of work, and make sure that they aren’t actually overqualified for what you’re doing… So don’t find a luxury residential homebuilder to do your D class renovation.

And then we also talked about your property management business and some things that you’ll want to look for when you’re hiring  a property management company to make sure that they are doing what they’re supposed to do. Ask them for a list of properties that they currently have under management and drive by those properties, maybe ask for a few of the properties that are vacant, ask them how long units are typically vacant, how long it takes to turn them around and how long it takes to actually lease them, ask them the services they provide… Something that stood out was asking them how they handle maintenance, in particular the difference between how they handle maintenance 9 to 5, versus someone calling at one o’clock in the morning because their house is on fire, or whatever.

And then finally, your best ever advice, which was very succinct – you can’t lose money or make money a deal you never had. To me, that means you just gotta go out there and do it, do a deal. You can’t really fail if you’re not doing anything, but you also can’t make money if you’re not doing anything either, so I think that’s really solid advice and it’s applicable to all aspects of life.

Colin Douthit: Yeah, absolutely. You can get emotionally wrapped up in a deal that you lose, but at the end of the day you didn’t lose or gain anything, too.

Theo Hicks: Exactly. Alright, Colin, I appreciate it. Best Ever listeners who tuned it, I appreciate it as well. We will talk to you soon.

Colin Douthit: Alright, thank you so much.

JF1845: Ex NFL Player Turns To Real Estate Investing with Logan Freeman

Listen to the Episode Below (00:28:52)
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As the title suggests, Logan was an undrafted NFL player who worked really hard to make it to the league. Once his time in the NFL was over, he had to reinvent himself from an athlete to…what? Real estate investing was the answer for him, as it is for many of us if you’re listening to this podcast. Hear his story of making the change and what he does with real estate investing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“When you’re buying something that’s almost 150 years old, you really need to take an expert in there with you” – Logan Freeman

 

Logan Freeman Real Estate Background:

 


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Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


TRANSCRIPTION

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

Logan Freeman: Phenomenal. Energized, thriving and focused today.

Joe Fairless: Wow! Alright, then I need to step up my game, because you’re gonna bring it, clearly.

Logan Freeman: I’m gonna bring it!

Joe Fairless: A little bit about Logan – he is a real estate  investor, developer and agent. He has completed over 120 transactions in less than one year. Ex-NFL football player for the Raiders. Based in Kansas City, Missouri. What position did you play?

Logan Freeman: I was an offensive lineman. So I went out as a center, and I ended up playing a little bit of guard. I’ve lost 100 pounds since then, Joe.

Joe Fairless: Nice! And where did you go to college?

Logan Freeman: University of Central Missouri. It’s just East of Kansas City. A Division II school.

Joe Fairless: Well, congrats on getting to the league from a D2 school. What an accomplishment.

Logan Freeman: Well, thank you. It wasn’t from being talented, it was a lot of hard work, and a lot of work ethic… But it was a great experience for me. It really was.

Joe Fairless: If you can give the Best Ever listeners a little bit more about your real estate background, just how you go to this point… And then we’ll go from there.

Logan Freeman: Yeah, I think that’s a great place to start. After college, like you said, I was picked up as [unintelligible [00:03:20].11] for the Raiders. I was out there for a few months, not very long… But after I was cut from the Raiders, I had to kind of look at my life and reinvent myself. I had identified as an athlete my whole life… So I said “Well, what do I wanna do?” So I really started studying and trying to figure out where I wanted to be and what I wanted to do.

I got into sales, I worked at a startup company, I worked at a larger organization… About 24 months ago I was actually fired from that larger “comfortable” and (what I thought was) safe organization here in Kansas City.

So I was fired, I had some great mentorship and leadership from my wife. She started an LLC for me. I started a very small consulting company, and I got into real estate full-time. Like we spoke a little bit earlier, William Robinson, who is my real estate mentor and business partner, took me under his wing and I came in as a director of acquisitions for his firm. I’m no longer with those guys, but I learned a lot, and I got to complete a lot of transactions by representing a 40 million dollar fund here in Kansas City.

Joe Fairless: Wow. You were fired from the job… Why did you get fired?

Logan Freeman: Well, the company brought on a private equity firm. I was one of the younger, more expensive salespeople, and they came on to try to (what I’ll call) trim the fat a little bit, and apparently I was the fat. So I got let go along with about six other individuals, and six months later they actually let the whole sales team go. So I was ahead of the game, which was actually in my favor, and I was kind of working towards getting into real estate anyways full-time… I was already halfway to getting my license at that point.

Joe Fairless: Alright, you’ve completed over 100 transactions in less than one year… Is that since you’ve left the first real estate company you were at?

Logan Freeman: Yeah. When I was working with William here in Kansas City, in about 9-10 months we did about 120 transactions. And the bulk of those were for our funds that we represented here in Kansas City, but I built my buyers list to over about 130 individuals from out-of-state clients, just off of Bigger Pockets, networking and LinkedIn. Well, a little bit less than half of those transactions came from other clients, as well. That was all of last year, so I haven’t been doing that since then.

Joe Fairless: Okay, and what are you doing now to make money?

Logan Freeman: In September of last year I kind of looked back at the year that we had had. I’d walked over 650 single-family homes and small multifamily properties, underwrote all of those and made offers on about 450 of those… And I was watching the margins continually get thinner, and thinner, and thinner. So I couldn’t just honestly continue to make offers for my clients. It just didn’t feel like the margins were there. So in September I started to dive into real estate syndication in larger asset classes.

I flew down to a few events, I bought a bunch of books, I really started to educate myself. One of your books is on the shelf, I’m looking at it right here… And I hired a mentor, as well. Michael Blank – I’m sure you’ve met Michael before…

Joe Fairless: Yup.

Logan Freeman: And I decided that I was gonna go syndicate multifamily apartment complexes in Kansas City. Well, my naivety didn’t lend to me not knowing that a lot of other people were already doing that, and you really had to find a good project to actually syndicate and make sense.

I didn’t stop though, I continued the hustle, and really networked my tail off, and we completed a couple transactions on the syndication side. I was successful on that piece… But right now, what I do on a regular basis is I’m a broker here in Kansas City on commercial and multifamily properties. I work on transactions above 750k, and for your listeners in Kansas City – yes, you can get quite a bit for that still. You can get probably 10-15 units for that in Kansas City. So I do that.

I’m a general partner on about 4-5 projects a year here in Kansas City. That might be a commercial mixed use development, it could be a multifamily property, and it might be actually in the hospitality space as well.

And then the third part of it is I do this whole process — I’ve been blessed to meet some very awesome individuals in the private equity and family office space… So I co-GP with other sponsors and help them with their capital stacks on the debt and equity side. So that’s what I do on a regular basis right now.

Joe Fairless: You’re a jack of all trades.

Logan Freeman: A little bit. I try not to be, Joe, because I don’t wanna chase too many rabbits. But with that being said, a lot of the things that I do have a lot of great parallels to them, so they can play off of each other a bit.

Joe Fairless: Yeah, I could see that. I wanna focus the conversation on what you’re doing now, but I do have a follow-up question whenever you were looking at 650 homes and made offers on about 450 of them.

Logan Freeman: Sure, yeah.

Joe Fairless: When you make that many offers, 450 of them, I imagine you have a pretty refined process… What would you say your offer, when you make it, has in it, in terms of language, or clauses, or your approach, that someone who makes a couple offers a year doesn’t have in it?

Logan Freeman: That’s a great question. One would be actual terms. The price is the price, and we never really moved on our price. But we offer incredible terms for sellers. We were really solving the pain points of closing these properties fast, and not doing traditional inspections. When William was taking me through the houses and I was learning this process, he showed me — because he’s been in over 10,000 homes… He showed me exactly what I needed to look for. And did I miss some things at the beginning? Sure. But we were very diligent on not making offers on any property that we hadn’t seen before, for our clients… And then also walking those properties and estimating those rehabs.

So I would say that the track record that William had in the city – we could show proof of funds of the money in an account, and then I never just had an offer that I would send off to a listing agent. I would call the listing agent, I would tell them what the terms were gonna be, here’s why we’re making the offer where we are, and I would try to build some sort of rapport with that listing agent.

What I learned through this process of making all those offers is that those listing agents actually have a lot more pull than anything else in the transaction. Yes, there’s still terms and price, but that seller is really listening to that listing agent. So if you can somehow position or find out a piece of information, we could tweak our offer to make them a little more attractive to people, because we do have a competitive landscape in that asset class.

Joe Fairless: And what’s an example of when you speak to the listing agent, that you hear something so you tweak the terms?

Logan Freeman: This is a great example – we were working with a client and they were looking to acquire a property; they didn’t really have a timeframe… They weren’t needing to place any money or anything, so they were patient, which was great, which gave us some options.

So the seller – they had accepted an offer, or were getting close to accepting an offer, but they hadn’t identified their next property quite yet. And I said “Well, that’s not a problem. Maybe we can talk to the buyer and see if we can do a sale-leaseback for a certain amount of time.” So that closed the deal. We gave the seller the option to stay for 90 days after the close of the property, at fair market rent values, and we took ownership 30 days later, because they found another house. So just being flexible on a term like that really can help you set your offer apart from others.

Joe Fairless: Absolutely. And you mentioned that you’d walk the units with your mentor at the time, and he educated you on what to look for… What do you look for when you walk the property?

Logan Freeman: When we were walking properties, we would always start on the outside. This is probably odd for a lot of listeners, but landscaping can really, really start to add up when you have to trim trees here in Kansas City. Trees can get really expensive, because we have a lot of snow in our metro area. When that snow is on those limbs, things start falling, and when you’re a property owner, you don’t want them falling on people, or on their cars.

So we would start on the outside of the home, we would look at fence lines, we would look at how the property was sitting on the actual parcel itself, where the water was gonna be running to or running from, was there enough [unintelligible [00:11:37].21] coming from the foundation that was gonna keep the water away from it… Because we have basements here in Missouri and foundations are a big, big issue.

Then I could look at a roof and tell you if [unintelligible [00:11:47].28] bubbling, or if it looked like maybe the roof had three or four layers of shingles, which is actually illegal… So I was looking at roofs, I was looking at windows, conditioning units on the air conditioners, looking at foundations… William taught me how to look at a foundation and be able to actually use my fingers on where the foundation and the siding come together, and you could kind of actually do a little trick to be able to see if a foundation has shifted over the years.

Joe Fairless: How do you do that?

Logan Freeman: There’s two parts; there’s the actual foundation of the home, and then there’s the walls that are sitting on top of that foundation. Well, on the houses here in Kansas City – a lot of them are brick. So where the brick starts, you can kind of put your finger underneath that brick, and you start on the middle, maybe say you have one finger that you can put underneath that brick and that foundation. Okay, great. Go out to the sides. If that has moved to two or three fingers, you know that there has been some shifting on that foundation, and that top layer of the house… And I’m not a construction guy by any means, but what I can do is do a test like that, because William made it really simple for me.

Then I would go inside, and then you can actually look at a few things on the inside, too. Maybe there’s some boards in the basement, and they just had to renail them. Or actually drill more screws into them because they’re pulling off of the foundation – well, that’s because they moved over the years. So that was one test that we did, on the foundation, at least.

And the going inside… You have to estimate your flooring, your paint, your appliances, your granite, your cabinets – all of those things. So that was not really big ticket items. The big ticket items are your roof, your foundations, the exterior landscaping… If you have the paint the property, that can kind of add up, too.

So we had just a checklist, we made it really easy. We had a checklist that we would go through. And yes, it was monotonous, yes, it took a lot of my time, and by the end of it I thought it was silly for me to be doing that checklist, but it was important because we had a lot less misses on the rehab estimates when we would go to actually do the repairs on the property, than we did if we just were taking notes by hand.

Joe Fairless: Great stuff. Thank you for sharing that. Let’s talk about — you said you did a couple on the syndication side, using your words. What deals did you syndicate and what was your specific role?

Logan Freeman: My specific role has always been on finding the property and then finding the equity for the properties. A previous guest, Paul Nagaoka, was on your show a few — I don’t know how many back… You do this daily, so it’s been pretty far back. But the two syndications that we did complete were bed and breakfast hotels, so I don’t really want to talk about the same thing as he probably talked about.

What I’d like to maybe talk about is how I’ve done a couple joint ventures with my clients instead, on a few properties… If that’s okay, Joe.

Joe Fairless: Yeah, sure. Just real quick though, and then we’ll talk about the joint ventures…

Logan Freeman: Okay.

Joe Fairless: Best Ever listeners, if you wanna hear the details of these deals, it sounds like you can listen to the interview I did with Paul. How do you spell his last name?

Logan Freeman: Nagaoka. Paul Nagaoka.

Joe Fairless: Alright, cool. If you can search “Paul Nagaoka and Joe Fairless”, I’m sure that interview will come up. So did you find those hotels and then you found the equity for them?

Logan Freeman: That was when I was searching and underwriting all this multifamily property in Kansas City. I know the city really well, and I have a weird hotel and restaurant management background. I started sweeping floors and doing dishes in hotels and restaurants when I was 14 years old, and I actually have an undergrad in that. So somebody sent this property to me and said “Logan, you might just take a look at this. I know you’ve been working really hard to find a property to purchase and you’ve got some good equity behind you… Why don’t you take a look at this and see if it can make sense?” I said, “Okay, great.”

It was on the Kansas City Plaza, which is a great dining and entertainment district here. The real estate alone is worth I feel like what we’ve put it under contract for, not the business.

So we’ve found that property, sent to me from just a broker friend who was a residential guy, and he obviously was doing his marketing to try to get rid of it. I requested some financials, started to look through them. They looked very similar to multifamily financials from the standpoint of looking at the T-12s and operating data.

There were a few different things in there which you have to kind of unpack, which is different types of tax, or occupancy, or the cyclical nature of the shorter-term rentals that I had to wrap my head around… But I owned some other Airbnbs here in the city, so I took that data to my current manager and we worked through that, and I felt really good about it. So I was able to think about this holistically.

Then I found the right partners that I felt like could be the operational team for this project… Because I’m not gonna live in a bed and breakfast hotel and be the operator; I can’t do that. A lot of people that have passed on this project said the same thing. Well, I said “Well, ding-ding-ding! That’s an opportunity for me to solve a problem”, so I started networking and asking people who might be able to do this, and I found the right partners to actually come into the project with me on the general partner side, and then also figure out the operational piece.

So now the brokerage and the partners that I work with – we actually manage these two boutique bed-and-breakfast hotels in-house, and we’re actively going to work on acquiring our third one. So I played the role on a lot of things upfront, because this was my first project, that I was really trying to put together from a syndication standpoint… So I [unintelligible [00:17:08].20] and then I tried to really present it in a way to the right partners that “This isn’t gonna be as tough to manage as you think it is. You already have a portfolio of 1,000 units. We can utilize some of the same resources”, and so on, and so on.

This is the deal that kind of put me on the map in Kansas City for the syndication piece. And then I also raised all the equity for it, as well.

Joe Fairless: So let’s talk about the joint venture project.

Logan Freeman: Okay. The joint venture project that I’m really excited about – still going through it right now…

Joe Fairless: But you haven’t closed on it?

Logan Freeman: No, it’s closed. We’re just renovating it.

Joe Fairless: Alright, cool.

Logan Freeman: Unfortunately, the renovation is taking a lot longer than I put on my proforma. But this project I’ve found off market through my consulting company. One of my clients was buying product from this building, and he said “Logan, this building is awesome.” He told me where it was, I went and toured it, I sat down with — her name was Judy; she’s over 85 years old, not in the best health; their family had owned property for close to 70 years. It was built in 1888. We’re in a property that’s in the crossroads in Kansas City; we’re seeing this big resurgence of commercial multifamily [unintelligible [00:18:21].27]

So I talk to her… I had an investor who was just looking to purchase something in Kansas City on the multifamily side. But I was reading a book at the time, and I think it was Matt Faircloth’s book; I can’t remember exactly what it was… But I was learning about the syndication and how to structure a project. I was reading out of this book, and I said “Hey [unintelligible [00:18:42].28] do you think that if we structure this project 80% to you, 20% to me, do an 8% preferred return etc.”, and I went down the line, I was reading out of this book… “Do you think that would make sense for you?” And he kind of looked at it and he goes “Yeah! I think we can do that. I need some boots on the ground. You’re putting in a lot of sweat equity. I need to run these other things now…”

So for six months I negotiated this million-dollar transaction that needed–

Joe Fairless: What is it? You said an off market building, but I’m not sure what it is.

Logan Freeman: It’s a 12,000 square foot commercial building in one of the hottest areas of Kansas City, and it has three levels.

Joe Fairless: Was this like a warehouse, or…?

Logan Freeman: Yeah, it was an old belting and supply company building. So it was just a big kind of warehouse that we’re doing a total reposition on.

Joe Fairless: Okay, alright. Cool.

Logan Freeman: So I was able to figure out the highest and best use of it. I am a commercial broker, so I can figure out the leasing part of it… And I have a lot of good connections on the construction side. So we’re building two Airbnbs upstairs, that are gonna sleep 8-12 people.

Joe Fairless: Wow.

Logan Freeman: And there’s about ten wedding venues in walking distance. And weddings in Kansas City have blown up. I call it funny money. When there’s weddings involved and you can solve a problem — maybe the bride’s party will stay on one side, and they can all get picked up in the same bus, right out front. And it’s in a hot area, and then they can just drive around and take all their pictures. There’s nothing in that area that serves that many people. And then I have 6,400 square feet of commercial space that I’m leasing out right now.

So that was one way that I did a joint venture with one of my buyer clients and turned them into a joint venture with little to no money into it on my end.

Joe Fairless: What’s the 6,400 square feet gonna be used for?

Logan Freeman: Joe, I wish that I had that already taken care of… And here’s a good nugget for your listeners. If you’re doing a commercial project, make sure that you have a tenant in mind with the commercial building. I knew we had six months to do this renovation, so I’ll find the tenant, but it feels really good to know that you have a tenant in your backpocket, ready to put into a building. So if you can ever do it from that standpoint, buy a building and then try to go find a tenant, it’s a lot more fun that way. But we’ll find it, I’m confident; I’m touring the building very regularly right now.

Joe Fairless: How much did you buy the property for?

Logan Freeman: We bought the property for $775,000, which is right around $75/sq. ft. The one next door to us — these are a big row building, Joe. There’s just this big line of old buildings that were built at 1888… So we share a party wall. And the door or the building next to us is about half our size, so they have the 6,400 sq. ft. floor place, and they sold that unoccupied to a user for $256/sq. ft. So when I looked at the map, I said, “Even if I had to put $125/ft into this property, I still have $65 worth of equity”, and I think I can do better than $265, because we’re gonna be bringing in a lot of income and we’re gonna have an investment property, not an end user.

Anyways, that’s what we bought it for, 775k. We were estimating about 880k in the renovation, and I have a call today actually to go over our revised budget, and that’s just under 1 million dollars. So we’re off a little bit, and that’s when I get to come out of my pocket and fix the situation, because the bank’s not gonna give us more money… But when you buy a building that was built in 1888, that’s to be expected, I guess.

Joe Fairless: Yeah.

Logan Freeman: Fortunately, it’s not gonna kill the deal, but it’s definitely not the juicy 10-cap that we thought it was gonna be… But we’ll still do okay on it.

Joe Fairless: So what are some of the 100k-ish things that snuck up on you?

Logan Freeman: One of them was that the whole building actually had to be tuckpointed. When we went under contract it was winter time, and the building didn’t look as bad in shape as we actually thought, because — well, there was a lot of coverings on all of the interior walls, and things. Needless to say, we actually had to rebuild the whole parapet wall, because the wall started to fall down on us on a Sunday. My general contractors know not to call me on Sunday; I don’t work on Sundays. But they called me three times in a row, and we had to do an emergency shutdown because bricks were falling on the South-West Boulevard, one of the busiest streets in the city.

Joe Fairless: Dang…!

Logan Freeman: So I said “Okay, yeah. Well, I guess we’d better do something about that.” So we had to end up tuckpointing the whole building, which was quite a big expense for us. The second piece was that there was extensive termite damage that was not uncovered, even though we had a termite inspector come out; they missed it. It was covered with a lot of stuff, and it was deep down, so we had to replace a ton of floor joists actually, for that piece of it.

And then this last part of it is that actually the water supply line coming into the building, since we are changing the use of the building, we have to put a sprinkler system in. Well, the water supply line we have is not quite big enough to support the water supply that’s gonna be needed for that sprinkler system, because we have residential upstairs now. And now we have to shut down South-West Boulevard in Kansas City, which is  a hefty price tag for us to do that. So those are the three things.

Joe Fairless: How much does that cost?

Logan Freeman: I think it’s coming in right around $39,000.

Joe Fairless: To shut down a street?

Logan Freeman: Yeah. And then the system itself another 90k. We had budgeted about 75k for that, so we’re over 45k-50k on just doing that part of it…

Joe Fairless: How long are you shutting the street down for?

Logan Freeman: It’s gonna be at night, and it’s only gonna be for legitimately 4-6 hours… But since it’s a boulevard in Kansas City, I have to now work the parks and recreation department as well as the city; we have to coordinate this whole thing… And it’s just this whole mess, because it’s a nightlife area, so that part of the area doesn’t shut down until 3 AM anyways, and so it’s just — they have some calculation that we have to abide by… And I was like “Really? That’s what you think that’s gonna be?” and they said “Yeah, I think that’s what we’re gonna do.”

Joe Fairless: How much is it again, to shut it down?

Logan Freeman: It’s about $35,000 to shut it down.

Joe Fairless: $35,000 to shut it down for four hours.

Logan Freeman: Yeah. Unfortunately, those are the things that crept up on us and ate up our contingency really quickly, and it’s a great lesson learned for me for future projects. Even though I thought I had a lot of experience, when you’re buying something that’s almost 150 years old, you really need to take an expert in there with you.

Joe Fairless: What’s your best real estate investing advice ever? You’ve already given a lot of great advice, by the way, but  – the best real estate investing advice ever?

Logan Freeman: Joe, I’m gonna say that you need to be quick, but don’t hurry. Slow down to go fast. What I mean by that is just be patient. Real estate is a get rich slow game, not a get rich fast game. If you speed past something, it’s gonna come back and catch you. So I would say be quick, but don’t hurry.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Logan Freeman: You bet!

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

Break: [00:25:49].10] to [00:26:28].11]

Joe Fairless: Best ever book you’ve recently read?

Logan Freeman: Capital Raising by Richard C. Wilson.

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

Logan Freeman: I’m gonna say the best deal that I’ve done is yet to come. However, I’ve found a commercial mixed-use property for a client in Westport, and I was able to put a tenant in the building during our due diligence phase. He was cash-flowing from day one, and I helped him turn one long-term rental into a short-term rental, and skyrocketed his net operating income for him.

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

Logan Freeman: I started a non-profit foundation here in Kansas City called CareKit KC, and we help the homeless here in Kansas City by packing drawstring bags full of food, water, shelter, things that they need… Bus passes, and things like that. We do about 3,000 kits a year. We have these big packing parties, and it’s really great to see people walking around with our green drawstring bags. That’s how we give back.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Logan Freeman: You can find me all over the social medias, but the best place is probably my website, which is LiveFreeInvestments.com.

Joe Fairless: Logan, you gave so many good tips and lessons learned… I’m very grateful for our conversation. From looking at homes, and looking for things that could be read flags, fence lines, degrading, the foundation, how to check for foundation, at least in your area, the roof bubbling etc. And then talking about the joint venture that you have done, or are in the process of being in… And some lessons learned from that, where [unintelligible [00:27:59].09] and the termite damage, which — I mean, come on; termite damage – they should have found that thing. But I don’t wanna pour salt on an open wound. The water supply line, as well as perhaps a Best Ever listener hasn’t come across having to shut down a city street, and maybe they didn’t know there would be costs involved… So just talking about that. I think you’re the first person in like 1,800 episodes who ever mentioned the cost for shutting down a street for doing work… So you made a record today on this podcast, so congrats to you on that.

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

Logan Freeman: Thanks, Joe.

JF1621: Why Enjoying Your Real Estate Journey Is Important with Paul Nagaoka

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Paul had everything most newer real estate investors want; a large business with a lot of units and employees. He began to want something else however, cashed out and took up modeling in Asia! Now he and his family are back in the States and building another real estate business, hear why this time is better than the first. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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TRANSCRIPTION

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

With us today, Paul Nagaoka. How are you doing, Paul?

Paul Nagaoka: I’m doing awesome, Joe. How are you doing?

Joe Fairless: I’m doing awesome too, and looking forward to our conversation. A  little bit about Paul – he started studying no money down real estate at the age of 12, and he got started in real estate 14 years ago. He purchased 350 units and had a team of 35. Based in Kansas City, Missouri, and his website you can click through on the show notes page, we have that in there. With that being said, Paul, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Paul Nagaoka: Yeah. I’ll keep the story as short as possible. As I was a kid, when I was six, my friends wanted to be firefighters and that kind of thing, and I always wanted to take Alan Greenspan’s job as Chairman of the Fed. Then when I was eight I started investing in the stock market, and at 12 I started studying no money down real estate investing. My mom would go to these seminars and pay a bunch of money for education, hoping to give us a better scenario, and I ended up taking the content and learning it, and out of high school I started a business and took the money I made from that, rubbed my nickels together and started investing in real estate. For the last 14 years that’s what I’ve been doing full-time. I took 2,5 years off to travel the world, but outside of that I’ve just been doing real estate.

I purchased 350(ish) properties and units over that time, built out a team. I really believed in owning all the different verticals of real estate, so I had a construction crew of 15 I ran, I had in-house property management, a finance division to keep the K1’s and all the different account straight, and had a broker on staff to help me find deals. I just kind of put all that together, and I would go out and syndicate deals, and purchase them, and that’s the story.

Joe Fairless: I think I heard you mention the team as past tense, so do you not have that team anymore?

Paul Nagaoka: I don’t have that team anymore. Do you want me to jump into why that happened?

Joe Fairless: Yeah, please. Go ahead.

Paul Nagaoka: Okay. Well, after doing it for a while,  buying a bunch of property, and coming to the place in life where I really didn’t necessarily need to work anymore, I always wanted to travel the world, and do that with my wife, and we just decided we’re gonna do it or we have to give up on the dream. To be honest, doing all the different elements of real estate, from construction and property management and overseeing finance and haggling with municipalities over zoning issues, and doing deals and finding them, I wasn’t focused on the areas that I really loved the most, and I started getting burnt out in real estate.

I was only working maybe 20 hours a week at that point, but I was really not happy with what I was doing and I wanted to take a step back and really ask some big questions and see what is it that drives me; if I don’t have to work, why am I doing it, and what do I wanna do.

So we sold 275(ish) units in different properties, packed it up, and kind of let go of the whole team, and hired three different management companies to manage the easy properties to manage from a distance, and we took off.

Joe Fairless: And you’ve just been traveling the world ever since, remote, and you just got the three management companies?

Paul Nagaoka: Yeah, not quite… Kind of, but not quite. It was supposed to be a 3 to 6-month trip, and 2,5 years later we came back. So we were traveling and I was kind of trying to find what really drove me and what I was super-passionate about. I got involved with some really weird stuff… I actually got involved in modeling and acting and TV show hosting overseas, and  kind of crushed it at that. It was really fun.

Joe Fairless: Where at?

Paul Nagaoka: South-East Asia. I was in South-East Asia, in Singapore, and kind of filmed all over that region, did nine different TV shows, including like an HBO original, and hosted a reality TV show for Fox, and I was nominated the top fashion model of the continent of Asia in 2016… So I kind of really went for it and it was really fun,

Joe Fairless: There you go…!

Paul Nagaoka: Yeah, it was wild… To go from real estate, number crunching, when my peers are 75-year-old rich guys, and jumping into a totally different world –  it was a really fun, incredible experience, and we got to really check out a large portion of Asia and really sink our teeth into it.

But we got pregnant with our next kid, and just asked the question “Do we wanna live in Asia the rest of our lives?” and “Is this really what I wanna do?” The answer to that was no. We came back to the United States, and from there took  a really good, long think about what and how I wanna do business again. I got back into real estate, and now I’m back doing real estate, but I’m doing it smarter this time, Joe. As opposed to just trying to own all the different components of it, I built out a team where I have my other partners in the business; we all stay in our lane and they’re able to really handle a lot of the different pieces that I didn’t enjoy very much… And they’re super-passionate about it, and love those different parts of it, so they own those elements. I just get to do the parts that I think are fun, which are raise the money, find the deal, do the creative structure of the opportunity, and then I really pass off the operations and the legal side to other parts of my team… And it’s awesome. I’m actively having tons of fun doing real estate, and that’s a real litmus test for me now on doing this kind of thing.

Joe Fairless: When you mentioned you liked the raising money, finding the deal and doing the creative structure of the opportunity – will you elaborate on the third part, the creative structure of the opportunity, what you’re referring to?

Paul Nagaoka: Yeah, I have this weird, a little bit different approach. Multifamily has been a real sweet spot for me, but now multifamily – the types of opportunities for that aren’t available as they were… So maybe I can highlight that with two different deals that I’ve done.

Joe Fairless: Please.

Paul Nagaoka: A couple years ago I bought a 72-unit apartment complex, and honestly didn’t have enough money to do it; I couldn’t finance traditionally from the bank, so what I did is I sat down with the owner, built rapport and trust, and gave him a really good strategy on what I was going to do with the property and why he should seller-finance the deal to me. So I ended up talking this guy into seller-financing (I think it was) like 93% of the carryback; I think I put maybe $100,000 down on the project, and bought it from him. I told him I’d refinance him out of the deal.

From there, I brought on another partner and we put another 2.3 million dollars  into the project, kicked everybody out, took rents from $350 to $650 to $675. I did a really beautiful top-level renovation on the project, and then we refinanced three years later, pulled all of our cash out, and some… So now we have this great, non-recourse loan on the property, and I have this great little cashflowing asset. That’s an example and a structure/strategy I’ve been doing.

Joe Fairless: Yeah, very interesting. You said you put down 100k, and then you brought in a partner and then you two put in 2.3 million – was that cash from your partner, or was that a loan that was obtained?

Paul Nagaoka: It was part cash — so we got a bank loan that cashed out the owner that had the first lien, and then it was part my cash and part his cash, to come up with the difference for the equity needed for the construction loan.

Joe Fairless: Okay.

Paul Nagaoka: I needed some more money, so — we needed about (I think it was) $650,000, something like that.

Joe Fairless: So why didn’t you just use that structure to start with, instead of doing the creative structure with the seller financing?

Paul Nagaoka: Well, I didn’t have the 650k, and doing the traditional raise from the — I needed a little bit more strength on the guarantee. I had a bunch of property and I needed a bit of a stronger partner on that side. It probably would have been a way to be able to approach it that way, but… So my original strategy, Joe, was to buy it and then use a lot of the cashflow to renovate the buildings and have a little bit of a reserve, and do it onesie-twosie, per month, as were–

Joe Fairless: Yeah, it always looks good on paper.

Paul Nagaoka: Yeah, it sure did. And then about three months into it… It just wasn’t that fun.

Joe Fairless: It wasn’t cash-flowing.

Paul Nagaoka: It was cash-flowing, but it wasn’t as productive. You underestimate what it takes to transition a property, and keeping $350/month tenants in the same space as a $650-$700 tenant – they don’t mix well. It’s kind of like oil and water, they just don’t mix as well… So it was pretty difficult to do that. And really, the way to do it is just do it all at once and pull the band-aid off, all at the same time.

Joe Fairless: Yeah. Was that the main thing that was underestimated a little bit, the two resident profiles, one at $350 and one at $650? Or were there other things that if you were presented a similar opportunity again, that you would update in your assumptions?

Paul Nagaoka: Yeah, what I liked about the seller finance structure is that it gave me control of the property immediately. I saw it was a good opportunity and I needed to jump on it immediately, so that it didn’t go to somebody else.

Joe Fairless: Okay.

Paul Nagaoka: So I was happy with that part, and then it gave me time to explore getting a different solution… But I would say updating that – and actually that is a model that we’ve replicated multiple times, on multiple different multifamily projects  – it always costs more than you think. Luckily, we bought it right, and I always really focus on that – make sure I’m buying the deal at a price that if I have an Oops factor of 15%, 20%, 30% on my construction side, that I’m prepared for that.

And probably the other piece on this project that was a bit of a challenge was the carry costs and the timing of it. We had a bit of a hiccup with the city, and that slowed us down for about three months. But honestly, all in all, the project went a lot smoother and really wasn’t terribly difficult. I mean, there were a lot of moving parts, Joe; I’m not saying it’s not difficult. Kicking everybody out, and doing a 2.3 million dollar renovation, and completely doing everything new, from top to bottom – yeah, it’s difficult… But it went relatively smoothly.

Joe Fairless: Yeah, well all is well when it ends well. What was the hiccup over the three months? Just curious.

Paul Nagaoka: Oh, it was with the MEPs – the electrical, they wanted upgraded service, and they wanted it ran from the other side of the street, so we had to get a process to be able to do that, and then it took a while to get the permits… I believe we had to bore underneath the street to be able to get it across, and we weren’t anticipating having to do that, and honestly we didn’t have to for zoning or code compliance, but they just wanted us to do that, and it’s really hard to argue with a city/municipality person that just has more time and has a chip on their shoulder, and doesn’t seem to like you, for whatever reason.

Joe Fairless: [laughs] Well, is there anything with that particular scenario, anything that you could do prior to the deal, or any question that you could ask, if you were presented a similar deal and you were like “Wait a second, I wanna make sure I avoid this three-month hiccup with the city on an issue I know has come up before.” Would you ask a question or reach out to a certain group for another deal?

Paul Nagaoka: Yeah, I did a bit of ready-fire-aim on that project, which – sometimes you’ve just gotta do that; if you see something that makes sense, you’ve just gotta jump on it. But yeah, the due diligence on the front end is always the most important part of the process, and now that I have a little bit more talented operators, and we’re more robust in terms of executive team with me now, we never get less than 90 days of due diligence on a project, and we ask a lot of those questions to the city. But honestly, if I was listening to this, or I could get out of a similar scenario if I was in it again, is just be prepared and know that you’re gonna face things that you don’t plan on, and no deal is gonna go through perfectly… And you need to account for that. You need to have carry costs set aside, you need to have extra cap-ex that’s not forecasted in your plan, and just have a little bit more money and make sure that the deal — be more patient in finding the right deal that has enough room that you can do that.

Joe Fairless: What would you recommend that extra carry cost or extra cap-ex to be on a project?

Paul Nagaoka: Okay, well let me give you another example. I bought a hotel 3-4 weeks ago now. I kind of did a similar scenario – sat down with the owners and negotiated a sweetheart 92% carryback… And on that transaction we budgeted —

Joe Fairless: How many units, or rooms?

Paul Nagaoka: It’s a boutique hotel, and it’s a really high-priced kind of thing. It’s got nine units, and some other additional space there. It’s right behind the Art Museum, in a core area of Kansas City… Kind of an interesting, expensive hotel.

Joe Fairless: Alright, cool.

Paul Nagaoka: So I just bought that, and we negotiated the seller carry, but on the project we had my budget for the renovation – there wasn’t a whole lot of renovation required for the project, but I literally added 30% to my budget, just to make sure that I was safe on any area. And then my carry cost – I think I can get the project done in six months, and I added a year’s worth of carry in there. I feel like, especially if you’re syndicating – and I’ve listened to your podcast, Joe, and I know this is more of an advanced level listeners that you have, and when you’re syndicating deals and when you’re raising funds with investors you always wanna make sure you under-promise and over-deliver. And if you can’t get a deal to really pencil well, with lots of extra safety in there, it’s just better to move on and look for something else, my perspective.

Joe Fairless: How did you find this boutique hotel?

Paul Nagaoka: Well, actually one of my partners brought a different one that we also have under contract right now, and set to close in February, and then somebody told me about a sister property to it, that was down the street, in a similar location… And since that deal was so good, I just had really good timing on that one. It wasn’t an off-market deal, but it had just got listed. There were probably seven or eight other parties that were interested in the project.

I always found it best to negotiate a deal with a seller directly. I think a lot gets lost in communication when you’re going through a realtor, and so I look at them as my first gatekeeper. I usually never have a realtor — or I have somebody, but I’m really doing the deal; I always try to be the liaison communicating with them, and then I connect with the broker… And I asked him, “Look, I really wanna put a deal together here. I think there’s something really valuable. I’m serious, here’s my experience, here’s what I’ve done in the past… Would you be open to facilitating a 30-minute sit-down with your seller, and I will  get him an offer by the end of that conversation? Are you open to doing that?”

From there, they were able to let me sit down with the seller directly, and I was able to build trust, and talk through my track record and use all that. They ended up taking my offer over other offers that he had, because he knew who I was, and he saw my face, and he believed that I’d be able to close.

Joe Fairless: Where was the meeting?

Paul Nagaoka: In the hotel.

Joe Fairless: At the hotel. In a private room, or just in a lounge area?

Paul Nagaoka: It was in the sunroom, next to the fireplace.

Joe Fairless: Oh, how quaint.

Paul Nagaoka: Yeah, right…? [laughs]

Joe Fairless: And there were strangers coming past you all during the meeting, right? It’s a small place…

Paul Nagaoka: Well, it was an open area, but luckily we didn’t have too much of that.

Joe Fairless: Okay, alright. So you sit down with the owner… Is it just you and the owner?

Paul Nagaoka: It was me, the owner and their broker.

Joe Fairless: And their broker, got it. So it’s the three of you, correct?

Paul Nagaoka: And his wife, yeah.

Joe Fairless: The owner’s wife?

Paul Nagaoka: Yeah.

Joe Fairless: Right. The broker didn’t bring his wife, obviously… [laughter]

Paul Nagaoka: Wouldn’t that be great? That would be the most interesting deal I’ve ever done.

Joe Fairless: That would be. So you sit down, then what? How do you approach that conversation?

Paul Nagaoka: Well, I do my homework on the property before I get in there  – and I think that’s really important. You’ve gotta go in there with a plan. You’ve gotta know what you’re trying to get, what your objectives are out of the meeting, you’ve gotta have your proforma done, and really run the numbers in a way that you know the range that you can make an offer on.

Usually how it goes, at least for me, we start off with some small talk, and I try to find some element of common ground, that you can really relate to the person, and see that “Hey, this guy’s a lot like me.” Then from there I shared a little bit of my story, and what I’ve done, and given them examples of different projects around town that he knows of, that I participated in… And from there, it’s a really delicate balance. I try to put people at ease the best I possibly can.

There’s this really fantastic book written by an FBI hostage negotiator called “Never split the difference.” Anybody who’s listening to this that wants to know how to do face-to-face negotiations better I think should listen to that book. I use a lot of those types of principles where you go in, you build rapport, and then try to create a scenario where they really trust that you’re looking out for their best interest… And genuinely, if your heart really is, you’re trying to find a really good win/win scenario, you can do that authentically, and then just try to craft something that makes sense.

I think it’s really key to be listening more than you’re talking. The more you can get the other person to talk, the better. And you’ve gotta listen for those keys – what are they trying to get out of this situation? What’s a win for them? I found out they were wealthy, they didn’t need the money right away, so a full price offer with a carry was more attractive than doing something that’s all cash, that’s a little bit under their price. So you just hear for those kinds of things, and then you have your moving pieces and you make your offer.

Joe Fairless: Are there any tax benefits to them for doing it your way, versus getting paid all upfront, traditionally?

Paul Nagaoka: Well, that’s a good question for a CPA…

Joe Fairless: So that’s not something in your repertoire, where you bring that up then…

Paul Nagaoka: No, not really. When you look at it, I think one of the benefits – I think it’d probably give a little bit more timing in terms of doing some sort of exchange; anything on that side, I think that would be a benefit. But yeah, that’s not really a piece that I try to communicate. I really try to stay higher level on whatever the pieces that really move them. If that was something, I would probably be not qualified to really go there with them.

Joe Fairless: Okay. So I’m the owner of the boutique hotel, and you ask me what am I looking for, and I’ll say the price that it’s advertised for. Then you say “Okay, I can do that. Here’s how I can structure it.” And I say “Well, I’d rather get the price and then be out of the deal, so I’ll just wait to get a full-price offer.” What’s your response?

Paul Nagaoka: Well, in that scenario it depends what I can do, because I can’t buy something. A good example on that – I have this 21,000 square foot empty retail space that I’m making an offer on today, actually. The same scenario came up, where we were discussing owner financing, and we were able to get to a point where we could just purchase the thing without having to do that component, because we got the price where we needed to, so we just kind of threw it out the window and went with the more traditional model.

So I think it comes down to really knowing your numbers. On the boutique hotel, a similar type of project hit the market a week or two after I had this under contract, for 40% more than the original listing price of this property. So I knew it was a great deal, and whether I had to buy it without seller carry or with seller carry, that was something I was willing to do. But if it was a different scenario and I couldn’t do any other option, then I don’t have that option. So if he says, “Hey, look, I want full price…”, I would probably not quite give up at that point. I would come back around and say “Look, I’m really trying to create some sort of win/win scenario here that we can both it in and feel really good about. Are there any other moving pieces to this, that would be areas that maybe could help justify, help get me to a point where I can really make a full-price offer and do this with you?” And then I’d give them a couple suggestions, leaving some different elements on the property that he might not typically do, or negotiating “I’ll give you full price, but you have to do the roof, and you have to do this and this”, or some other ways that could help line us up.

Joe Fairless: That’s very valuable, I appreciate you talking through this with us. Taking a step back – and you knew this was coming, because you said you were a listener of this show – what’s your best real estate investing advice ever?

Paul Nagaoka: Now, is this to somebody new, getting started, or to someone that’s been in the game for a bit?

Joe Fairless: Been in the game for a bit.

Paul Nagaoka: Probably the biggest piece of advice that I would say – this is for me – is really figure out what part of the process you enjoy the most and you’re the best at, and then build a team around you that can support you in the other ways that you’re not as talented at.

My process – I was doing the operational elements, and I’m not as talented at that, honestly, Joe; that’s not an area that I’m that strong in. I can do it, but I don’t enjoy it, and I’m not that great at it. So build a team around you that can support you in areas that you have a weakness. And then I would say — life’s short. If this is something that you’re really passionate about, find a way that you can really enjoy every element of your working life. And really ask that question, “What about this drives me? Why am I doing this?”, answer those questions, and then really focus on those components for the rest of the time that you’re working on real estate.

It’s a long time, we spend a lot of time working, so if you’re not alive in what you do, you need to figure out a way to be able to make those pieces come together. And it may not be exiting the industry, it may just be refocusing, like I did, on the different parts that really make you come alive.

Joe Fairless: Powerful advice. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Paul Nagaoka: I’m in!

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

Break: [00:22:08].25] to [00:23:04].17]

Joe Fairless: Best ever book you’ve read recently?

Paul Nagaoka: A best ever book I read is the negotiation book, Never Split the Difference.

Joe Fairless: Got it. Is that Chris Voss’ book, Never Split the Difference? His is the — I forget, but I interviewed him in episode 1244, so you mentioned…

Paul Nagaoka: [laughs] You’re amazing. You knew that it was episode 1244…

Joe Fairless: Well, no, I did a Google search in between when you said it and now.

Paul Nagaoka: Okay. Alright, Joe, I’ve got a Lightning Round question for you…

Joe Fairless: Alright.

Paul Nagaoka: What was your episode 1132?

Joe Fairless: Oh, my god. I don’t know.

Paul Nagaoka: [laughs] I’m just kidding.

Joe Fairless: I don’t even have a good answer for that. Okay, best ever deal you’ve done?

Paul Nagaoka: The first apartment complex that we talked about.

Joe Fairless: 72 units.

Paul Nagaoka: Yeah. That was a great deal.

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

Paul Nagaoka: I bought a mobile home park, and just got really hosed by the city and got my construction halted for a year, and I didn’t raise all my money upfront.

Joe Fairless: What happened to it?

Paul Nagaoka: I was under-capitalized, and the city really [unintelligible [00:24:13].09] I ended up selling out to my partners.

Joe Fairless: Did the city just not like mobile home parks, was that what it boiled down to?

Paul Nagaoka: Yeah, there was some new development that was happening, so there was a lot of Menards, and a lot of really whole new, typical, 100 million dollar Menards with a bunch of different anchors that was really close by, and they’re putting a facelift on the whole city – the whole city being 17,000 people, but… They just didn’t like that I wanted to do a mobile home park. And they told me they loved it, and wanted me to do it, and it was awesome, on the front-end, in all the meetings we had before we actually purchased the property. We bought the property, and then a lot of the people that worked at the city (that I talked to) left, and we had new leadership, and they just absolutely hated my project.

Joe Fairless: What’s the best ever way you like to give back?

Paul Nagaoka: For me, Joe, my faith is a  big part of my life, the biggest component of my life, and a lot of ways that I like to give back really tie back into that. I’d say probably real estate related, I’m in process right now — so my mom… Okay, I know this is not very lightning, but I’m gonna give this real quick; my mom was a single mom, and we grew up really right financially, and she spent all of her seed money to invest in real estate on real estate education – expensive seminars, and coaching, and that kind of thing, and it didn’t really go anywhere. So I started a website where I just give the nuts and bolts components of investing in real estate, and I help people on their journey. And if I can help people like my mom, that were wanting to do this, and make a difference for themselves, and needed education, needed to improve their knowledge base to be able to invest in real estate well, it’s awesome.

So my website is all free, and I don’t sell anything, books or tapes or anything at all; it’s just free content that I put together, and I give what I know from the last 14 years of doing real estate.

Joe Fairless: On that note, how can the Best Ever listeners learn more about what you’re doing?

Paul Nagaoka: I guess there’s probably two different pieces to that. One is if you’re an accredited investor and wanna explore doing a deal together, reaching out to me through my website, SyndicateKansasCity.com, would be probably the best way to get a hold of me and our team.

Or if you’re a real estate investor, or you’re new, or in process and you just wanna learn about real estate investing, I have a resource, HowToInvestInRealEstate.net, that gives just a bunch of free content; I don’t sell anything, and I’m not going to. It will just help out learning different pieces of it, and help bless you on your journey of being successful in real estate.

Joe Fairless: I really enjoyed our conversation and learning how you approach conversations with owners, and how you get to the table with the owners, through positioning it to the brokers in a certain way, and then how you brought to life that through a couple examples – the boutique hotel that you’ve got under contract, and the 72 units that you’ve owned for a couple years now, and how you structured it.

And then lastly, and the foundation of this all – at least from this conversation – is figuring out what part of the process we enjoy the most, and then focusing on that. That truly ties to more enjoyable time on Earth, as well as, coincidentally, growth in business, because we’re doing what we love, and we just keep doing it.

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

Paul Nagaoka: Awesome. Thanks, Joe.

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JF475: His First Purchase was 2 HOMES!

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Our Best Ever guest loves putting deals together. He is not a fan of the accounting, paperwork, and admin…so he handed off those duties and fulfilled his passion. He buys and sells SFR’s and is diving into multi family syndication. Hear his words!

Best Ever Tweet:

Nathan Brooks’s Real Estate Background:

  • Real estate investor in Kansas City, Missouri
  • Been investing for nearly 10 years and is mainly a buy-and-hold investor
  • Owns his own property management company
  • This year he will likely rehab and hold about 50 properties
  • Say hi to him at http://bridgequity.com/
  • Been a professional musician most of his adult life

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Best Ever Show Real Estate Advice

JF420: How Your Cubicle JOB Could Lead You to REI SUCCESS!

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Coming from Corporate America, our Best Ever guest uses his systems knowledge and applies it to his real estate business. He sets up Excel spreadsheets with built in flip formulas…all he needs are the numbers! His main squeeze is the “buy and hold” method in the Kansas City market. He is looking for value-add properties that fit his passive criteria. He also is looking to help new investors jump into the game at various levels…hear his Best Ever advice to improve your game!

Best Ever Tweet:

Matt Orf’s real estate background:

  • Full time investor focused on buy and hold portfolio and fixing and flipping
  • He has 5 rental properties and has done 3 flips and done wholesale deals
  • Based in Kansas City, Missouri
  • Certified Six Sigma Black Belt
  • Say hit to him at http://www.carboniteproperty.com

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Made Possible Because of Our Best Ever Sponsors:

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

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JF414: His SECRET Exit Strategy of a Fix and Flip

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It’s not that secret…

He recommends that all investors work with a highly seasoned real estate agent. Our Best Ever guest has completed most types of transactions including fix/flip, “subject to”, buy and hold, and other creative tactics. He is an advocate of multiple exit strategies when a flip doesn’t go according to the plan…and you have to hear his tip if you’re not able to find an end buyer. Tune in!

Best Ever Tweet:

JJ Pawlowski’s real estate background:

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Made Possible Because of Our Best Ever Sponsors:

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Best Ever Show Real Estate Advice

JF 364: Be CAREFUL, Don’t Skip Your DUE DILIGENCE

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Do numbers bore you? This episode’s Best Ever guest couldn’t agree more, but if you are complacent with the facts and figures, you could lose big on a deal. Hear how he breaks down the inspection period to minimize risk on large multifamily properties!

 

 

 Best Ever Tweet:

 

 Andrew Syrios’s real estate background:

 

  •  Based in Kansas City, Missouri 

 

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Best Ever Show Real Estate Advice

JF76: Making Money from LinkedIn

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Today’s Best Ever guest shares how he uses LinkedIn to wholesale deals and make moola. Want proof? Good! We’re going to talk about a deal and how it came about.

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 Adam Doran’s real estate background:

–        Police officer with 12 years of service

–        Head of Investor Relations at MC Properties (http://www.mcpropertieskc.com/)

–        Has wholesaled properties nationwide and is based in Kansas City

–        Averaging about 10 deals a year since 2012

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Best Ever Show Real Estate Advice

JF 09: One Critical Component of Building a Real Estate Biz

William Robison shares with you his Best Advice Ever and it relates to not only real estate investing but all aspects of business building. Plus, he sneaks in a tip on how to easily determine if a property has hardwood floors underneath the carpet!

William’s real estate background:

  • Owns a successful property mgmt and rehab company
  • Successfully manged over 20 single family and 2-4 unit multifamily projects over the last year
  • Based in Kansas City, Missouri and has been working with investors there for over 10 years  (http://kansascityinvestmentrealestate.com/)

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