Like many other real estate investors, Mike started his journey at a corporate 9 to 5 job. His buddy suggested branching out and becoming a landlord. Since then, has Mike grown his portfolio and has now become a property manager. Most of his properties were built before the 1940s, and few construction companies in the area could handle that kind of work. That’s why he opened his own construction company. He now has a nice cash flow coming from these adjacent fields, and his companies are working in synchrony with each other.
Mike Bonadies Real Estate Background:
- Full-time landlord and owner of Side By Side MRO, a construction company that specializes in pre-1940 construction & property preservation
- Co-owns TerraVestra Property Management
- 5 years of construction experience
- His personal portfolio consists of 25 units
- TerraVestra manages 250 doors, and his construction company works with 600 rental units
- Based in Sewell, NJ
- Say hi to him at www.sidebysidemro.com
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Best Ever Tweet:
“The system includes more problem-solving in pre-1940s construction.” – Mike Bonadies.
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. 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, Mike Bonadies. How are you doing, Mike?
Mike Bonadies: Thanks, Joe. I’m really looking forward to being on today’s show. Greatly appreciate you having me on.
Joe Fairless: It’s my pleasure. I’m looking forward to it as well. A little bit about Mike. He’s a full-time landlord and owner of Side By Side MRO, which is a construction company that specializes in pre-1940 construction and property preservation. He also co-owns TerraVestra, which is a property management company. They manage 250 units. He’s got a personal portfolio of 25 units, so he’s an active guy; very, very active guy. So let’s talk about that. He’s based in Sioux, New Jersey, by the way. So first, Mike, you want to give Best Ever listeners a little bit more about your background and your focus, and then we’ll go from there?
Mike Bonadies: I started off like a lot of other real estate investors, in a corporate job, doing nine to five work. It was for Dewalt Power Tools, so at least I saw construction unfold. As I spent more time there, a buddy of mine who was in the cubes with me was a landlord, and he said, “Hey, Bonadies, just check landlord-ing out. It’s a lot like what we do for here, but you can make more money for yourself.”
One thing led to another, I became a landlord. Quickly from there, I grew my portfolio, ended up becoming a property manager, and then from there getting my own construction company and have a nice little trifecta going of multiple cash streams, but within the same industry, all complementing themselves.
Joe Fairless: I love talking to people who own their own construction company. Yours specializes in something interesting, in my opinion. It’s pre-1940 construction and property preservation. So can you talk a little bit about that?
Mike Bonadies: Yeah. A lot of construction companies out there, they might do new construction or… BiggerPockets always talks about, “Hey, get properties that are over the age of 1952 after the Construction Code was established.” Well, I decided “Hey, why don’t we just go the opposite direction and doing exactly what everybody else isn’t doing?” We specialize in pre-1940 construction, and more specifically, multifamily pre-1940 construction.
Part of that is a byproduct of the area that I work in investing. I’m in the swamps of South Jersey, so there’s a lot of towns here where the average age of the original construction is 1880 to 1920. So if you’re going to buy a house in this area, you’re already looking at older construction.
Furthermore, from a business perspective, we saw that there weren’t a lot of contractors or individuals who were specializing in these older homes. There was a large demand for people that could do construction in these homes, and renovate them, and get them up to snuff. Just because there was a lack of supply, we said, “Why don’t we fill that gap and specialize in this? I think this could be quite lucrative.” I was already a landlord, my partner who is my partner in crime in almost everything, Drew Side, he was a landlord as well, and almost all of our properties was pre-1940.
So we already had some familiarity, and we decided, “Alright, let’s just work on this. If we’re going to continue to be landlords and grow our portfolio, we’re going to have to know pre-1940 construction, and we’re gonna have to be good at it.”
So we started rehabbing properties that are in that age range, and building out crews that know how to operate on those properties and the difficulties of those properties, because they are definitely not your run-of-the-mill construction jobs. A lot of these properties are built like jigsaw puzzles, and they were built three or four times over by someone’s great-great-grandfather, who built it without power tools, and kind of just doing however they wanted to do. So now there’s a large amount of demand in this for South Jersey, and a lot of the, let’s say, landlord-friendly buildings or good deals in South Jersey are of this age group. So it really complemented everything quite well.
Joe Fairless: So let’s talk about that, because you’re focused on an area that there wasn’t a lot of other focus, or maybe no other focus from other construction companies. But if you were to ask them, I imagine they’d say, “Well, yeah. Because, Mike, it’s just tough work.” There’s a path of least resistance in other places to make money and to do well. Can you get into some more specifics? You said jigsaw puzzles and built many times over by multiple people… But what were some real challenges that you all came across with this business, and how did you solve those challenges?
Mike Bonadies: Where to start there…?
Joe Fairless: Maybe the companies that looked at this opportunity… Because I imagine some construction people said, “Oh, yeah. There’s an opportunity there.” But they’re like, “I don’t want to mess with that.” What would be the top two or three things that pushed them away, but pulled you to it?
Mike Bonadies: I would say the biggest difference between post-1940 and pre-1940 construction is the focus on mechanicals. If you think about your average construction company, it’s very easy to drop flooring, install a new kitchen, demo out something, hang new drywall, to make it look pretty. There’s a lot of people that are very good at doing that, and it’s rather a cookie cutter. You can just say, “Okay, tear up the floors, put new ones down, just got to measure it out, and we’ll just get away [unintelligible [00:08:18].12]” Pre-1940 construction you have that element, but the focus is much more on the mechanicals… Because a lot of times the plumbing is absolutely janky, the electrical might have cloth wiring, you might have a ton of knob and tube, you might have wires completely ran to the wrong box if you’re in multifamily construction.
So you have to have a level of comfort troubleshooting and running diagnostic work on what works currently in a property, or just stripping it all out and understanding “Okay, look, this piping is completely shot. I’ve got an [unintelligible [00:08:51].24] sewer main going out the front of the property that’s completely deteriorated. We’re just going to know that we’re going to have to replumb everything, and we are going to have to just tear everything out and get started with it.”
So I think that comfort working with mechanicals and enjoying working with mechanicals. It’s not necessarily as enjoyable as cosmetics… Because with cosmetics you can see the work that you’re doing, you can plan it out in your head very well, and then you can see a finished product, and you’re like, “Oh, this looks way prettier than when I started.” Mechanicals, if you’re running new HVAC ductwork or if you’re re-plumbing the place, there’s not that level of satisfaction that comes at the end of it, cosmetically. You’re like, “Well, there was a pipe here before and now there’s another pipe here. But this pipe works better.”
Joe Fairless: The new one is shinier.
Mike Bonadies: Yeah, exactly. So I think that’s the biggest differentiator between the two. That cascades down to problem-solving, too. With a lot of the, let’s say, your generic flip construction, again, it’s more about cosmetically pleasing something, and that doesn’t require a lot of problem-solving elements to it. If you have pre-1940 multifamily construction, you might have wires that are going to the incorrect boxes, and now you have to figure out how are you going fix one wire over here to make it make sense without having to tear down a wall or something like that.
Or on another hand, boilers are pretty common in South Jersey in the construction we’re doing. So we might get there into a basement and it looks like a kraken. There are just pipes going everywhere, leading to the boiler systems, and you’re looking at it and you’re trying to figure out, “Alright, do we need to replumb these boilers because everything’s on a common system? Or do we want to have them be independent? And if we do that, we have to rethink how we’re going to lay out some of these units, or rehab it.” So there’s definitely more problem-solving. It’s not like one of those things where you know how to do it a couple of times over, and then you just create a system around that. The system involves problem-solving more often in pre-1940construction. I think that scares away a lot of people from doing that kind of work, if that makes sense.
Joe Fairless: Why 1940? Why not 1930? Or Why not 1950? What took place in 1940 that you’re focused on pre-1940?
Mike Bonadies: Well, from the late 1940s into the early 1950s, the construction codes started to get solidified. Now you had a state Construction Code that clearly outlines “Hey, this is how you’re supposed to do construction.” When you hit that early 1940s and before, there weren’t these big developers that were creating standardized homes. Your family was building a home, and it was however the person that knew the most about putting things together was developing that home or building that home. So nothing is standardized before that date.
Now, I know that may change from state to state, but generally speaking, I think most of the codes were developed in like 1952 or late 1940s. So when you hit early 1940 and before, it’s all custom construction, and there weren’t a lot of big developers. For instance, in New Jersey, Levitt is pretty well known. Levitt town and all that kind of area, they had standardized homes that they built for everyone. When you’re in that earlier timeframe in the United States, nothing was standardized. I walked into 50 different homes and seeing 50 different ways of putting together a house in some of those older constructions.
Joe Fairless: Let’s switch gears and let’s talk about your personal portfolio. You have 25 units. Are they all single-family homes? Tell us a little bit about it.
Mike Bonadies: Yeah, I have 25 units and they’re all small multi’s; either duplexes, triplexes… And I’ve got two mixed-use buildings. We decided to go to the multifamily route because we thought it was a little bit less risk-inducive if things go sideways. We look at it as, again, putting my construction hat on, there’s only one roof; there’s potentially one furnace or two furnaces. There are less objects that can break down over time in multifamily. So the long-term play is to get multifamily… Even though you might get a little bit less rent. And people say that your tenants will stay a shorter amount of time in multifamily versus single families. I disagree, but we thought that the margins were higher on multi-families, and there were less things that would break down over time.
So I don’t own any single-family houses. I have just multi-families, all in the South Jersey area. I do tend to buy white elephants, so all my multi-families are really strange in one way or another… But they’ve been very lucrative deals because of that. Some may have cost me more money than others, but if you can problem-solve around it, you buy the deals that less people are looking at, and therefore you can get it at a better price.
Joe Fairless: Well, you’ve piqued my curiosity. Tell us about a couple of those.
Mike Bonadies: One of them is a mixed-use triplex that used to have a bar on the bottom and two residential units on top. The bar was converted into a residential, we went through the zoning process of that, and we turned it into an apartment in the downstairs. The building has like seven sides to it. It doesn’t look like your traditional house at all. I think back in the day it used to be a train station, 100 years ago. No one wanted to buy it because it had zoning issues that we had to work through, and no one wants to get a potential mixed-use property and convert it to residential in a highly regulated state like New Jersey. It does have its own unique challenges, because it used to be commercial, the mechanicals was set up for a commercial, so you had things like two sewer cleans leaving it versus a traditional one sewer clean leaving the property. And the gas meter–
Joe Fairless: And why is that a problem?
Mike Bonadies: It’s hard to trace problems. If something’s backing up, and the backup’s out in the street, you’re going to have to test more things to problem-solve it. That’s the core.
Joe Fairless: Okay. So in that case do you convert to one, or…?
Mike Bonadies: No, we leave it as is, and we just [unintelligible [00:14:48].07] over time. If you’re an out-of-state investor and if you’re not involved with your properties pretty directly every day and a sewer problem comes up for that particular property, you might have to spend more money getting someone to troubleshoot the problem and diagnose what’s the issue. If you know the properties that you buy incredibly well, like what we do – we try to really understand the properties that we buy. Well, when someone says, “Hey, we got this problem coming up”, we’re like, “Alright, well, we already troubleshooted it a bunch of times. I know exactly what this problem is based on how it was constructed. We knew it was a bar previously, so therefore, the problem is probably here.” If that ends up being what it is, great, you solved it. If not, you’ve got to do some more troubleshooting. So it’s a little bit more active than some other investments, but it can be very lucrative.
Joe Fairless: What did you buy it for?
Mike Bonadies: I bought this one for $140,000.
Joe Fairless: And how much did you put into it?
Mike Bonadies: I want to say 32,000 bucks, and I probably spent an additional $20,000 on top of that, because of zoning variances… And I had a sewer line collapse after the fact, so another 50K, we’ll say. My gross rents on it are $3,400 bucks a month, which is pretty decent for South Jersey.
Joe Fairless: So let’s see, you’re about 190k all-in, and $3,400… Yeah, 1.7%. You’re almost at the 2% rule on a place in South Jersey. What do you think it’s worth now?
Mike Bonadies: We just had it appraised for I think it was like 235k or 245k. So I was able to pull out all of our money; we’re in the money for nothing.
Joe Fairless: How long did it take to get the zoning fixed? Or changed, I should say.
Mike Bonadies: It took us about a year.
Joe Fairless: Okay. Knowing what you know now, would you do it all over again?
Mike Bonadies: Absolutely. I learned so much. I think the biggest learning factor there is a lot of other states don’t have a lot of complexity around zoning, like New Jersey does. Zoning is very tough in New Jersey. This deal gave me my first taste of politics and real estate and their intersection. I had to go up in front of the zoning variance board, I had to talk to the mayor and the town councils and get their votes. It was a great interaction, and I learned a lot.
Joe Fairless: What’s one thing you would do differently knowing what you know now, if presented a similar opportunity?
Mike Bonadies: Scope your sewer lines, oh my gosh. If you’re going to buy a property, and it is older than 1952, scope that sewer line, because the half-life of iron pipes are somewhere between 65 and 85 years. If you’re buying around that 1950, 1940, 1930 timeframe, that means the original cast iron pipes are decaying, are corroding and they’re getting close to a collapse. Now I scope all sewer lines if I’m buying a property.
Joe Fairless: So that’s one deal, the mixed-use triplex; you had a bar downstairs, two residential upstairs, you changed the bar into a residential unit… I’m just curious, you have seven sides to the building, so how did you close off certain sides? I mean, if it was a bar, I imagine there’s a bunch of windows. The resident doesn’t want people peeping in.
Mike Bonadies: We were relatively lucky here… There was only one commercial door in the property. The bars here in South Jersey look a lot like Cheers does, so there’s not a lot of Windows, and there weren’t a lot of entrances and exits. So that wasn’t really a concern. But we kept the commercial door in there. Some people look at it as a unique character-building item to the property. We had a lot of interest when we were renting it out, because it still has those commercial doors, it has these giant commercial glass storefront windows, and people think that’s pretty neat. It also had an ATM still on the outside of the property, that gave it some character. It’s a brick building, so it really gives a unique feel when you’re moving in there. It’s not for everybody. It’s not your standard like “Oh…
Joe Fairless: You kept the ATM?
Mike Bonadies: …but it gives it character.
Joe Fairless: So you kept the ATM?
Mike Bonadies: Yeah, kept the ATM.
Joe Fairless: What do you make on that?
Mike Bonadies: I don’t make anything, because it’s not functional. But we jokingly collect the rent through the ATM every month.
Joe Fairless: Why don’t you make it functional?
Mike Bonadies: I do it for the sake of the tenants. It is right next to their door. I don’t want to have people just coming up.
Joe Fairless: Why don’t you remove it?
Mike Bonadies: Again, for character aesthetics. When we were showing the unit, people were fascinated by the ATM still being there. And the tenants have access to the guts of the ATM, so we made it a joke that when we pick up the rent, we collect it through the ATM.
Joe Fairless: Alright. What about another white elephant?
Mike Bonadies: Which should we go at next? Mixed-use properties are always great white elephants.
Joe Fairless: Yeah. They’re fun to talk about.
Mike Bonadies: They are, and they’re super unique, because the funding for them can be pretty difficult, too. But I have a mixed-use property that’s a mile away from the other mixed-use property. And this was a property — when we bought it, it was one single commercial storefront, and then two residential units on top. So it was actually a triplex when we got it. I think if you look at how the property was originally built, it was built as two blocks and lots, so two duplexes that over time someone must have got the zoning variance to fuse them together to make a triplex. Then we tore down the commercial storefront and we made them two different commercial storefronts. So we turned it back into a quadplex.
That one was a unique challenge, just because the process of going from a triplex back into a quadplex, splitting up the utilities again, and dealing with a commercial storefront instead of just residential units – it always presents a learning opportunity. It’s just something not cookie-cutter, like residential is. In residential you have kitchens, bathrooms, bedrooms. Everybody needs them. With commercial storefronts, you’re trying to build a vanilla box that someone else can then come into and turn into their own.
We had to do a lot of electrical work there, we had to rewire most of the building, redo the HVAC… And that was a challenge, because the building was not set up to be a quadplex for at least the past seven to 10 years. What makes that a little bit more of a white elephant is it’s a mixed-use building and it still was a mixed-use building. So when we had to do lending, it had to be a commercial loan, but the ARV of the property was $235,000. When you have a mixed-use commercial loan that is under $500,000, it’s a very small subset of lenders who will do long-term financing for that type of property.
If I look back at the other mixed-use property we just spoke about, that was a fully residential building when we were done with it, therefore we could get residential multifamily lending against it. If it’s a mixed-use property still, we have to get a commercial loan. So we had to do a little bit more shopping around, we had to work more with local banks on getting the financing on there, because there’s just such a small subset of individuals who will do long-term lending for under $500,000 commercial loans, at least in the South Jersey area.
Joe Fairless: Let’s talk about the numbers on just your initial analysis when you’re looking at the opportunity. How do you determine to do those renovations and put all that work and time into it, compared to just renovating and sprucing up how it currently exists and finding tenants for the units?
Mike Bonadies: We look at it as a cost per door. In South Jersey, taxes are a pretty massive element of your equations, because taxes are higher than most of the other states in the United States. So if we’re looking at, “Okay, we can buy a property for less than $50,000 a door and we can put enough rehab in it so that our all-in cost is under $75,000 per door”, we know that between the taxes and the rents, we will have very good cash flow on the property.
So to go back to the first property we spoke about, with the bar conversion element… South Jersey is a lot of small towns, it’s not super urbanized, very rural, so we didn’t like the prospects of commercial rentals for that property, just because we didn’t think that demand was incredibly high. We said “Okay, look, this building is priced at 140. That hits our standard for residential purchasing, and it would be in the deal for less than 75K a door for each of the residential units. Our total net price was less than 75K door, and we know what the taxes are. So, therefore, if we convert it over to residential, it’ll cashflow like a monster.” That’s kind of the way that we look at properties in the South Jersey area, just because we know, given the South Jersey level of taxes, if we’re into the doors for less than this, we know that it will cash flow.
And it changes from county to county. So if I go to another county that I do a lot in, maybe we’re not all-in for 75 for the door, maybe we’re all-in for 50k for the door. And this is what the standard of taxes are in this area, so we know that this is a good deal. So it’s a little bit different than most people, but I would say we’re still relatively similar to what you would see other conventional wisdom saying to buy properties are.
Joe Fairless: Oh yeah, all-in per door thought process, plus keeping in mind whatever your largest expense is going to be, or one of your largest expenses, which is taxes. That might vary depending on the municipality within the state, but all in per door thought process is really helpful, regardless of where we live. Taking a step back, what is your best real estate investing advice ever?
Mike Bonadies: I’m going to say that knowing your neighborhoods and knowing your properties. Knowing where you do business is so critical. Knowing every detail of where you do business, especially if you plan to grow a lot there. We know our neighborhoods and we know the buildings that we buy like the back of our hands. It allows us that when a problem comes up, we can understand is this a symptom, or is this a core problem? Whether it’s maintenance-related or even tenant relations-related. I operate mainly in C and D neighborhoods, so there can be a decent amount of crime in our area, and maybe a problem that the tenant is complaining about. You can identify and solve for those problems very easily, if you know the areas.
Joe Fairless: We’re going to do a lightning round. Are you ready for the Best Ever lightning round?
Mike Bonadies: I like it. Let’s go.
Joe Fairless: Let’s do it. First, a quick word from our Best Ever partners.
Break: [00:25:02] – [00:25:42]
Joe Fairless: Alright, Best Ever book you’ve recently read.
Mike Bonadies: I’m going to say 4-Hour Workweek. Even though I hated that book when I first read it, I reread it every once in a while. It really helps me understand how to cut the excess headaches from my business.
Joe Fairless: Best Ever way you like to give back to the community?
Mike Bonadies: I host webinars and podcasts for my local REIA, and then I’ll often spend time with the newbies after those webinars or podcasts to help them understand specifically the South Jersey area.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Mike Bonadies: You can reach out to me on Facebook, we post a lot there. It’s either @SBSMRO or @TerraVestra Rentals.
Joe Fairless: Mike, thanks for being on the show, talking about your construction company, talking about how you’ve built your portfolio, and why you focus on, as you call it, white elephants, properties that a lot of other real estate investors would shy away from. Really, it’s the same thought process for the construction company and your personal portfolio. It’s like, finding the opportunity where others either shy away from, or just don’t know of the opportunity, because they haven’t really looked at it.
I’m glad that we talked about your desire and your enjoyment for problem-solving of the jigsaw puzzles that the properties present, as well as just being really knowledgeable about how to work the mechanicals inside and out. So thanks for being on the show. I hope you have a Best Ever day. Talk to you again soon.
Mike Bonadies: Thanks Joe, I greatly appreciate it.
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