JF1307: Apartment Due Diligence: How To Evaluate The Mechanics Of A Deal #SkillSetSunday with Nathan Tabor

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Nathan has been on the show once before, and is back to tell us how he evaluates mechanics of the apartment buildings that he fixes and flips. From roof, hvac, and plumbing, to parking and windows. Nathan knows what to look for and what you can do when mechanics are less than ideal. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Nathan’s previous episode:

https://joefairless.com/podcast/jf1299-finding-a-niche-creating-executing-a-business-plan-with-nathan-tabor/

 

Best Ever Tweet:

 

Nathan Tabor Real Estate Background:

  • Has purchased, renovated and sold over $52m dollars worth of real estate
  • Enjoys helping others find their niche, understand the processes and achieve their goals.
  • Has founded and operated more than two dozen businesses since 1999, grossing over $150 million in sales
  • Based in Winston Salem, NC
  • Say hi to him at  apartments.nathantabor.com

Join us and our online investor community: BestEverCommunity.com


Made Possible Because of Our Best Ever Sponsor:

Are you committed to transforming your life through real estate this year?

If so, then go to CoachWithTrevor.com to apply for his coaching program.

Trevor is my real estate, business, and life coach. I’ve been working with him for years. Spots are limited, so be sure to apply today!


TRANSCRIPTIONS

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.

I’m excited about today, because today is Skillset Sunday, and we’re going to be helping you hone a skill as an apartment investor who is doing due diligence on apartments… The skill of knowing how to look at the mechanical aspects of the apartment community and what is the ideal setup, and what are some of the things to consider for the setup if you’re presented with a less than ideal situation, from water heaters, to aluminum versus copper wiring… We’re getting to get into those details.

With us today to talk through that is Nathan Tabor. How are you doing, Nathan?

Nathan Tabor: Good, Joe. I hope you’re doing well.

Joe Fairless: I sure am, and I’m excited to have our conversation. Best Ever listeners, a little bit of background… So I interviewed Nathan on a previous episode, and you can just search his name, my name and it will come up. After interviewing him, I then bought his book, which is “How to find, finance, fix and flip apartments from duplexes to 100+ unit complexes.” I read that in approximately 72 hours, I enjoyed it so much, and afterwards I thought it would be good to have him on the call as a follow-up to talk through some due diligence stuff on apartments, because his background and what he does is he fixes and flips apartment buildings in a short period of time, so due diligence is clearly a bit aspect of that.

With that being said, Nathan, let’s go ahead and dive right into it. The approach that we’re gonna be taking today is talking about what the ideal setup is for our property, and then some situations if we’re not presented the ideal. So first, what is the ideal setup as you walk into an apartment community, from a mechanical standpoint? What would you love to see?

Nathan Tabor: Well, in the perfect it would be building it from the ground up, so you can build it exactly the way you want it, Joe. But walking in – and this depends on class A, B, C or D, how much you’re paying for it, occupancy, deferred maintenance… But I would rather have a pitched roof over a flat roof, I would rather have copper over aluminum, I would rather have newer HVAC units versus radiant heat in the ceiling, or baseboard heat; I would rather have a good, solid parking lot that’s been recently done, I would love to have double pane windows for efficiency on the electrical bills for the tenants… And those are on the mechanical side. Windows might not be a mechanical per se, but those on the mechanical. Hot water heaters – newer; I would love to have all the units individually metered from the water side as well.

Joe Fairless: Okay. And then what are some common situations or common circumstances you’ve found yourself in that weren’t one of these, and how do you think through it?

Nathan Tabor: So I bought one complex with aluminum wiring, and my personal is I don’t buy aluminum wiring anymore. I know people who do, and that’s good for them… But I bought it not knowing about aluminum wiring, other than the normal “Why we use copper versus aluminum” tide. But I had to pigtail all the units – the pigtail is this little 6 to 8-inch copper device wiring; I had to do all the outlets, all the light switches, all the overhead lights, because I couldn’t find an insurance carrier who would even bind the property without having that done.

Joe Fairless: How much did you invest to do that?

Nathan Tabor: 56 units cost me $93,000.

Joe Fairless: Yowsers.

Nathan Tabor: So it was a pretty significant, unplanned-for expense. And the problem with aluminum is housing is one thing, but you get into the apartments – it overheats, it doesn’t conduct as well, especially if it’s 40 years old, you’ve got some nicks in the wiring over the years… It’s just not the best thing to go into, whether you’re flipping or keeping the property long-term.

Joe Fairless: You mentioned HVAC units versus radiant heat in ceiling or baseboard heat. Why that?

Nathan Tabor: The cost for the tenant. One of the biggest is HVAC units are traditionally more efficient and more cost-effective for the tenant, but then on the owner side, the flipping side… At one point, I owned 399 units in 7 complexes, and I currently have about 168 units… Baseboard heating gets beat up, people stand on it, they kick them off them, they bend them… Well, guess who’s responsible to pay for those? The landlord.

For resale value, HVAC units always are gonna bring more money. So I would almost rather not have central heating and air than to have the radiant or baseboard heat. I’d rather go in and put in new units into all the units than to have to deal with a radiant heat especially. You start getting into the ceiling, and that’s been put in for 40 years. Insurance companies these days that I dealt with, they really wanna know “Is that an efficient/effective way to heat that unit that doesn’t have a fire risk to it?”

So if I were looking today, when I look, if it does not have HVAC, I build into my numbers to go in and put in a drop ceiling and put in HVAC and do away with the radiant heat and the baseboard heat. If I can’t make my numbers work, then I don’t do the deal.

Joe Fairless: Approximately what does that cost per unit?

Nathan Tabor: I’m in North Carolina, we don’t have a union, so we’re a work at will state, or whatever they call that… So we’re about $2,800 to $3,800 a unit to put in for a 2-bedroom — about a 800, 900, 1,000 square feet unit. So a pretty significant cost. You’re doing a 50-unit complex – $150,000.

Joe Fairless: Oh yeah, absolutely.

Nathan Tabor: But you will get every dime of that back in resale, or in holding; your tenants like it better. You’re gonna get better tenants if you have HVAC statistically than if you don’t have air conditioning and you just have baseboard heat or radiant heat.

Joe Fairless: You said earlier pitched roof versus a flat roof. Why pitched roof versus flat?

Nathan Tabor: Maintenance, mostly. pitched roofs if you’re building – they’re cheaper to initially install, but a flat roof is less expensive to install, but flat roofs you have the drainage you have to make sure, so you’ve gotta climb up there often, make sure that the drains are unstopped… Depending on where you are in the South, flat roofs just make your electrical bills more, because in the summer it’s hotter, and in the winter you don’t get the sun.

pitched roof has more appealing appearance to it, as well. Flat roofs are very institutional, like medical facilities and that. I don’t know that I’ve ever seen a class A apartment building be built with a flat roof, unless it’s in a city. So when you start looking at maintenance-wise, a pitched roof is easier to maintain. Now, pitched roofs cost more — if you’ve gotta go in and replace the roof from the get-go, a flat roof is gonna cost you less than a pitched roof, but that’s about where the pro of a flat roof…

Now, I will say I did several complexes with flat roofs. One of the biggest benefits that I know of for a flat roof is if you’re in an area where people still HVAC units, and I’ve had that happen quite a bit. [unintelligible [00:10:18].25] and instead of setting them back outside, you set them on top of the roof… And I’ve never had an HVAC unit stolen from a top of a flat roof. That’s about the only benefit of a flat roof that I can really think of.

Now, Joe, with a pitched roof you’ve gotta be really careful of where the guttering is coming down, right? Same way with your house. If that water is just running into the gutter system but then running straight down and running into the foundation, it won’t be long before you have foundation problems and cracked brick and that, so make sure that’s running off and out, away from the building.

Joe Fairless: I know with the flat roofs, at least from my experience, it also costs more to ensure, because insurance companies know that they’re not gonna last as long as pitched roofs.

Nathan Tabor: They’re not gonna last, and there’s also a greater leak risk with a flat roof, because the water stands, and if you gutter gets stopped up on a pitched roof, it just rolls over the top. If your drain gets stopped up in a flat roof, where is the water going? Into a unit… So there is a great insurance — and lifespan… On most flat roofs, a lifespan – they say ten years; I’ve seen some flat roofs that made it 15-20 years, but see, they don’t use asbestos in the rubber anymore, so you have money up-front, but you don’t get the lifespan of a 25 or 30-year shingle as you do on a pitched roof.

Joe Fairless: What are some other due diligence — well, actually, you said hot water heaters… That compared to having boilers – can you elaborate on that?

Nathan Tabor: Yeah, so in the South we don’t have a lot of boilers here. I think that’s been more of probably a North — we had one complex with a boiler… Those are expensive to repair, they’re expensive to replace. Hot water heaters – the number one issue that I see in a hot water heater is when you visually are looking at the hot water heater it looks okay, but how old is that hot water heater? When was it installed? Was it permanent when it was installed? Does it have a drip pan? I don’t know of any municipality that allows you to put in a new hot water heater and not have a drip pan. Well, if that unit is 12, 15, 18, 20 years old, most likely the bottom of that hot water heater is rusted out or is rusting out.

I don’t know about your grandma’s house, but [unintelligible [00:12:52].26] They don’t make hot water heaters like that anymore.

Joe Fairless: My grandma is 102 years old and she’s lived in the same house since the 1940’s, so hers is probably looking pretty shabby, too.

Nathan Tabor: But it’s still running, right?

Joe Fairless: It’s still running, yes.

Nathan Tabor: And congratulations on having a grandmother that’s 102. She must be living a good life.

Joe Fairless: She is.

Nathan Tabor: I mean, a good life as in what she does with her time and her life. But the average hot water heater today – about 15 years and you’re getting ready to have to replace that hot water heater. So if you’re buying a complex that’s 40 years old and every hot water heater in that complex is 20-25 years old, if you’re planning on keeping it or flipping it, get ready to deal with having either to replace or give a credit for those hot water heaters. And to replace a hot water heater – labor, permit and hot water heater, it’s around $1,200 in my area, for a 40-gallon hot water heater.

Oh, here’s another one that’s come about. I’m in Winston-Salem, North Carolina area; the housing authority has passed now that any time you have a 30-gallon hot water heater, you have to replace it, even if they find out about it. So there’s nothing wrong with the unit, there’s nothing wrong with the hot water heater, you still have to replace it. That’s crazy, isn’t it.

Joe Fairless: That is. So you have to proactively do that? You said “only if they find out about it”, so is that if there’s an issue and someone tells on you, or what?

Nathan Tabor: You’re supposed to proactively do it, but obviously, most people aren’t. So if they find out about it… I had a complex that had 40 units, 40 30-gallon hot water units, and we got cited by the city to replace all the units because a 30-gallon hot water heater was not enough water for a modern-day family. And over time, we had to replace them all. What do you do if the municipality is telling you to do something?

Joe Fairless: Yeah, that would be a battle you don’t wanna fight.

Nathan Tabor: Well, you hire an attorney, but you’re gonna spend the money one way or another, so why not just go ahead and upgrade the hot water heaters? That’s not in my book, but I need to put that in there, now that I remember that story. So check with your municipality township, make sure what size hot water heaters do you have to have.

Gas hot water heaters? What’s the current code for venting those out? Because the way they installed those 40 years ago, if you upgrade the gas hot water heaters today, they have to be vented directly out, not up… At least in North Carolina. We know how expensive that is, if you can’t go up in the same pipes, and now you’ve gotta go left or right; it can be quite an expense. I’m not trying to scare anybody away from doing this, I just want to help them make sure they have the right information to do it the right way.

Joe Fairless: Earlier you said you want all units individually metered. Will you elaborate on that?

Nathan Tabor: If you only have one water meter, you’re getting the bill for it. I have a 60-unit complex and it just has one water meter, so I get one bill. Well, who’s outside washing their cars all the time? Who’s letting their faucets run? If they’re not paying for it, why does it matter how much is being used?

There’s some new systems out there – we haven’t tried it yet – that they hook on top of the hot water heater and they bill tenants individually… I’ve not had any experience with those, but it makes it a lot easier if you have individually water meters for each unit to where they call and get their own account set up, versus having one main account.

Hey, here’s a total random thought.

Joe Fairless: Bring it!

Nathan Tabor: Do you know who owns the fire hydrants on the complex you’re getting ready to buy?

Joe Fairless: I can tell you what – on my very first one, I did not look into that, and then you know what happened, since I didn’t look into it… Fast-forward two years and there’s a big ol’ gigantic puddle next to the fire hydrant. So I said to my management company, “Hey, tell those fire department guys to come over and fix that thing!” Uh-uh, not how it works. [laughs]

Nathan Tabor: Because it was a private road, so who had to pay for it?

Joe Fairless: I had to pay for it, $6,000.

Nathan Tabor: Yup. So I bought a complex, it had four hydrants; thankfully, I didn’t have to pay anything for it, but I was looking at a $24,000 expense if anything went wrong. That’s one of those that who would ever think about it? Now, hopefully, whoever is listening to your show, they now will think about it… But $6,000 – had you planned on that?

Joe Fairless: No.

Nathan Tabor: Still, it’s a lot of money, but… Any way you cut it. So who owns the mailboxes, the aluminum little boxes? Do you know how much — and I’m sure you do… I was mortified; I looked at a 40-unit aluminum box, four feet by four feet. Do you know how much that thing was?

Joe Fairless: How much?

Nathan Tabor: It was $1,800. You know the ones that I’m talking about, where they’ve got the big door on the back and the little doors on the front?

Joe Fairless: Of course, yeah.

Nathan Tabor: Google how much — now, that was seven years ago, but I just thought hey, it’s stamped on the side of it “Property of the USPS”, they maintain it. Guess what they don’t do? They don’t maintain them.

Joe Fairless: Yup.

Nathan Tabor: So those are some of the curveballs that really break people down, because it’s not that you miss one of them, you miss three or four things and then it’s times 7 or 8 or 40 or 50, and all of a sudden the $200,000 you were hoping to make, you’re looking at $100,000 in expenses that you didn’t plan for, that were right out there in the open, but you missed it.

Joe Fairless: What about any plumbing considerations?

Nathan Tabor: So the number one thing on top of my list that I do first when I start due diligence is to go to the housing authority or whoever is writing city complaints and get the last two years’ worth of city complaints. The reason why – I got burned on this.

I bought a complex on a foundation – 20 units downstairs, 20 up top. The day I closed, that night I had a plumbing company out there and got a $2,200 bill because the bottom units had backed up and sewage was coming up in the bathtubs and in the toilets. The pipe underneath the building was crushed, so we had to move all the bottom tenants out, go in with a jackhammer and jackhammer the concrete out, dig down two and a half, three feet, and replace the main sewer pipe that was on the bottom of the complex.

I was like, “There’s gotta be a way to figure out the plumbing side”, so I started pulling housing complaints and started looking for backed up toilet, raw sewage in the bathtub… Anything that let me know that there was a problem with the main sewer line.

Joe Fairless: Yeah.

Nathan Tabor: You can hire somebody to bring a camera out, but they want $300 to $1,000 to bring a camera out and run it down the pipe, and I was like “Well, I can get the information for free and in 30 minutes know.” It takes a little bit of time on that, and then once you know that… It was $87,000 to replace that pipe underneath that complex. It was $87,000 I lost. It didn’t come out of anybody else’s pockets, it came out of mine because I didn’t know how to catch that problem.

Joe Fairless: So now the first thing you do is get the last two years of complaints?

Nathan Tabor: Yup, complaints. I sit on every toilet, I rock the toilet to see if the floor underneath it is rotten, I open up every sink… If you are opening up a sink, and every sink you open up – in the bathroom, in the kitchen – has freshly-painted wood underneath the P-trap, do you know most likely what they have? Severe water leakage problems in that area. Because they’ve known you’re coming to do your due diligence, they’ve cut a new piece of plywood, painted it white and stuck it underneath there. Well, that’s a plumbing issue, but that’s also a mold and mildew issue. What’s underneath that piece of board?

So plumbing, electrical, talking about that… Do you have a fuse box? Do you have the old screw-in fuses? The first thing I do when I go in to buy a complex, from the electrical side, is see what the breaker box is like, because it’s a couple grand (2k, 3k, 4k) to rewire a unit. And people laugh at me – I buy one of those little $5 testers, Joe, that plugs in, and I walk around to every socket and plug it in.

Joe Fairless: When you look at the fuse box, what are you looking for, what ideally do you see and what ideally don’t you see?

Nathan Tabor: You want to see the modern-day little black 3,5-inch fuse with a toggle switch on it, left to right. You wanna take the outside off – and if you can’t do this, have somebody with you, take it off, and then you can see, is there aluminum wiring or copper wiring? I’ve actually opened them up before and seen half-copper and half-aluminum on one unit. I don’t know how that happened. Somebody must have just rewired it themselves, or they had a water leak and they updated it with — obviously had to pull that out.

You really want to see if you can toggle those little switches, to see if those breakers are good or not. If you have the old screw-in fuses, not that they are bad, but that’s old technology in the electrical world. So if you have screw-in fuses, at some point those are gonna need to be updated. So if you’re flipping it, I would ask for a credit on that.

If you’re holding it, you need to put money in reserve to upgrade that at some point. GFI plugs, little things like that. Does each bathroom and each kitchen have a GFI plug? Most insurance companies I deal with today require that there be a GFI plug in the bathrooms, in the kitchen, or they won’t write the insurance policy on the complex. But most 1960, early 1970’s complexes were built without GFI plugs. Again, not a big expense; a GFI plug is $8-$12, but how many do you have to replace, and how much is the electrician gonna charge you to put them in?

Joe Fairless: This has been a college course of due diligence for apartment communities and I’m very grateful that you came back on the show and talked to us about the ideal scenario, and if it’s not ideal, things to consider.

Nathan, how can the Best Ever listeners get in touch with you?

Nathan Tabor: They can visit Apartments.NathanTabor.com. It’s got my contact information there, and they can also get a copy of my book, or talk with you about how to get a copy of my book, what are the best ways to do that.

Hey, just so you know this, I really appreciate you having me back  on, I enjoy our conversations, and I hope your listeners take this in the spirit of — look, you can make hundreds of thousands, you can make whatever you want to in doing apartments, but out of personal experience, if you don’t do it the right way and you don’t do your due diligence right, you can just as quickly lose hundreds of thousands of dollars or millions of dollars, because you missed something.

Joe Fairless: So true, and I’m glad that we approached it from that angle, because typically it’s not approached that way. So for the ideal scenario, as you’ve mentioned, having a pitched roof, having copper… By the way, I have aluminum wiring in my house, believe it or not. Yeah, it’s something we ended up being okay with during our due diligence of my primary residence. We’ve done some things to mitigate that risk…

But pitched roof, copper wiring, HVAC versus radiant heat or baseboard heat, good parking lot, double pane windows, hot water heaters that are individual, and having the individual water metered.

Thank you for being on the show, thanks for talking through this. I hope you have a best ever weekend, and we’ll talk to you soon.

Nathan Tabor: Thanks.

JF1299: Finding A Niche, Creating & Executing A Business Plan with Nathan Tabor

Listen to the Episode Below (36:07)
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Nathan enjoys helping investors with their businesses and lives. He is also a multifamily flipper. He has a specific niche that he sticks to and credits having a niche to his success. We’ll get advice on how to find a niche and stick to it, which will bring us success. Nathan also tells us about what to look for in multifamily building and communities. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Nathan Tabor Real Estate Background:

  • Has purchased, renovated and sold over $52m dollars worth of real estate
  • Enjoys helping others find their niche, understand the processes and achieve their goals.
  • Has founded and operated more than two dozen businesses since 1999, grossing over $150 million in sales
  • Based in Winston Salem, NC
  • Say hi to him at  apartments.nathantabor.com

Join us and our online investor community: BestEverCommunity.com


Made Possible Because of Our Best Ever Sponsor:

Are you committed to transforming your life through real estate this year?

If so, then go to CoachWithTrevor.com to apply for his coaching program.

Trevor is my real estate, business, and life coach. I’ve been working with him for years. Spots are limited, so be sure to apply today!


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, Nathan Tabor. How are you doing, Nathan?

Nathan Tabor: Good, Joe. Doing well.

Joe Fairless: Nice to have you on the show, and glad to hear you’re doing well. A little bit about Nathan – he has purchased, renovated and sold over 52 million dollars worth of real estate. He has founded and operated more than two dozen businesses since 1999, grossing over 150 million in sales; that’s a whole lot of money. He is based in Winston-Salem, North Carolina. With that being said, Nathan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Nathan Tabor: Yeah, sure, Joe, and I appreciate you having me on your podcast. I enjoy the information that you give to people and all the stuff that you’ve got going on. I’m involved now — I still do real estate investing, I do real estate coaching a little bit, helping folks who are getting started; I do a lot of work/life balance seminars… My main focus at 44 years old – I kind of got it upside down in life; if you become too focused on money and that is all you’re focused on, you’ll wake up and you might have a lot of money, but no one wants to be around you, right?

I really like to go in and talk to investors, especially if they’re getting started out, or in the middle or at the top… What’s your niche? What are you going after? What type of real estate investor are you?

Joe Fairless: What’s a good answer to that question?

Nathan Tabor: Well, the good answer is do you find that you want to do raw land? Do you wanna be a futures buyer? Do you wanna flip $50,000 houses or $500,000 houses or do you wanna flip duplexes or apartments? Because as you know, you’ve raised a ton of money… How much have you raised at this point?

Joe Fairless: A lot. Probably 100 million, or something like that. I haven’t counted.

Nathan Tabor: When you go to your investors, you don’t go and say “I need to raise a million dollars for a real estate deal”, because they would be like —

Joe Fairless: “So what?”

Nathan Tabor: Yes, but under normal circumstances, the normal person would be like “Well, where is it? What kind of deal is it?” They would ask 50 questions. So to find your niche, “Hey, I wanna go in the South side of town, I found this property over there… Here’s the address. It’s gonna need $100,000 to purchase it, $50,000 to renovate it, and we can flip it and make $50,000.” You go with a plan, not just “Oh, I need money.” Most people get told no once, and they quit and they say “Well, that didn’t work out.” Well, it didn’t work out because you didn’t plan well. You didn’t know your niche, you didn’t have your business plan put together…

It’s amazing when I go out and talk with various folks just in any business just how many people don’t have a business plan. They have in their mind, but they don’t know where they’re going. And then they’re confused and upset why they don’t get to where they want to go, but they don’t have it mapped out.

Joe Fairless: So a niche that would be specific would be “I want to buy $50,000 homes in the South side of my town, fix them and flip them, and then continue to do that.” Is that specific enough?

Nathan Tabor: Yes, split the profit with the investor, 50/50. Or for me, my niche is I only flip multifamily apartment complexes in the Piedmont triad, which is Winston-Salem, Greensboro, High Point, North Carolina. They range in size from 20 units to 120 units, they’re all class C, they all have high deferred maintenance, high occupancy issues, so lots of renovations, lots of management things to be done. I’m looking for a lot of meat on the bone. 0% occupancy or 20%… Basically, the worse, the better. That is my niche.

I don’t look for other real estate, really; I don’t do other deals, I don’t spend my time trying to do other deals or learn other systems. I’ve been doing this for 11 years now, that’s what I focus on. I can [unintelligible [00:06:26].15] on other people and help them find their niche or any questions on that, but that’s what I do.

A lot of times, if you don’t even find that niche, you can never get off the ground. I know a ton of people who’ve been trying to be “a real estate investor” for 2, 3, 4, 5 years and they’ve never done one deal. But they work hard all the time trying to do it, they just never get off the ground.

The other is someone’s at that level where they’ve done 20 hundred-thousand-dollar deals, and now they wanna get into the next level. Well, to get into that next level you’ve got to plan for the next level. So at any point, whether somebody’s getting started or they’re wanting to double what they’re flipping, or buying and holding, or they wanna go from two million dollar deals to five million dollar deals – on paper that’s not a lot, but you’ve gotta plan a lot out for your banker, for your investors, how you’re gonna manage that… There’s a lot of things that need to be filled in, one so you can succeed if you can do it, but two, to find the people that can help you do that.

Joe Fairless: It makes sense. With your niche, the flipping apartment complexes, within the Piedmont triad, 20 to 120-units, the lower occupancy the better (the worse occupancy, the better), how did you plan to get into that business? Because that’s different and it’s really interesting; I’d love to talk about that.

Nathan Tabor: Ten years ago I had never — outside of two homes… I bought one, sold one, bought the one I currently live in… A gentleman walked into a Buy Here Pay Here car lot that I owned at the time and said if I don’t sell this 18-unit complex in 30 days, the bank is gonna take it.

My dad was a painter and a contractor, so I knew a little bit about doing things, but not flipping anything. I went to five different bankers; the first five said “No, we’re not giving you a loan for that.” I found a sixth banker who I went in and they gave me 100% financing and 100% renovation loan, which doesn’t happen these days… And Joe, I bought that 18-unit, and 30 days later I bought the 12-unit that was beside it, and in eight and a half months I had renovated it, leased it up and sold it on LoopNet and made $252,000. And I didn’t know what a cap rate was. [laughter]

A friend of mine, they’ve developed 54 grocery store facilities over the last 20 years, and she asked me “Do you know what a cap rate is?” and I’m thinking in my mind, “A cap rate… That’s gotta be on top of the roof. It’s that little vent area up there, right?” [laughter] She looked at me and she said “Please tell me you didn’t just go and do a $500,000 loan and not know what a cap rate is?” and I was like “Unfortunately, I did.”

The second unit I bought was a 12-unit, and I thought “Here I am now, my head’s big and my breeches are big, and I just know all what I’m doing”, and my second deal I bought I didn’t check the zoning — well, an attorney checked the zoning, a surveyor checked the zoning and told me it was grandfathered in, but I didn’t call the zoning department. A five-minute phone call. Well, I come to find out that the property had been split a number of years earlier. The setback had not been discovered because the property had not been sold. So when the property sold, on my second deal, I was faced with tearing down half of the complex, or buying a tenth of an acre that had a building on it that had asbestos in it.

Joe Fairless: Why was that your other option?

Nathan Tabor: Well, I had to cure the setback. When the buildings were built, the setback was 25 feet. The current code, since the line was split, was 40 feet, and the only way to cure the setback — and then the apartment spaces… So since that wasn’t grandfathered in, I didn’t have enough parking spaces. It cost me $150,000 and 18 months, and every day, week, month I didn’t know if I was ever gonna get through, because I didn’t know where the end of it was.

Joe Fairless: Just to be clear, you bought it, it had a setback that was — it was discovered, but you thought it would be grandfathered in, but you didn’t call… And then there was a building there, so it had to be removed. Is that correct?

Nathan Tabor: I went to pull my building permits the day after I closed, and they said “Oh, we can’t give you your building permits because this building is too close to your other building, it’s a fire hazard. You either have to get that building removed, or you have to tear down enough of your units to be set back from that–”

Joe Fairless: Oh, okay.

Nathan Tabor: In the end, the option on tearing down part of the building didn’t work, because I still didn’t have enough parking spaces, so to get enough parking spaces, I had to tear down half the building… So I paid a local church actually $75,000 for a tenth of an acre; I’d only paid $200,000 for the entire complex, and they were supposed to tear their building down and they didn’t. So one mistake, one issue led to another, because I didn’t know what I was doing.

Joe Fairless: You paid $75,000 for a tenth of an acre from a church, and then what happened?

Nathan Tabor: And then they took the money and didn’t tear the building down.

Joe Fairless: Because if they had torn that building down, then what…?

Nathan Tabor: Well, so if they had torn it down, I would have been out of my issue.

Joe Fairless: How would that remedy the problem? Because you have two buildings that are close to each other.

Nathan Tabor: So when I paid them $75,000, part of it was for them to demo their building. So they owned the building next to mine.

Joe Fairless: Oh, okay. So you couldn’t have demo-ed it anyway, because it was their building.

Nathan Tabor: It was theirs. I only bought one building… There was a building that was on their land, not on mine, but it was standing too close to my building in the current setback laws.

Joe Fairless: Okay, I’m with you.

Nathan Tabor: So my next thing I’m really passionate about these days is helping people understand due diligence… Because a lot of people are like “Oh, just check the rent rolls, check this…” The number one thing I tell people… Before you buy anything, go to the zoning department yourself, on their letterhead, signed by them that your – whatever it is, $5,000 house, or 50 million dollar piece of property meets the current zoning laws, and you have that on hand. Because if an attorney tells you that or a surveyor tells you that and they miss it, you can try to file a complaint against your title insurance, which I was going to do, and an attorney told me, he said “Yes, I’ll file the complaint. Write me a check up-front for $25,000 and you’ve got a 50/50 chance of winning.”

Joe Fairless: Yup. That’s a great piece of advice, for sure. With the local church, going back to that example… You paid them 75k; regardless of your levels of expertise, I know you had a contract with them. You wouldn’t just give them $75,000 cash and say “Hey, go make it happen, I trust you. Here’s a handshake”, right? So what happened?

Nathan Tabor: When you get into a buying and you’re operating from “I have to solve this problem”, sometimes you have to do things that put you in a further buying. So I paid them $75,000 and I wanted to put $40,000 of it into an escrow account to pay the contractor to take the building down. They said, “No, the only way we’ll do this is you pay us the $75,000 and then we’ll pay to have the building torn down.” So here are my two options – tear half of the complex down (the building that I own), so tear out six units, and spend almost $200,000 to take the units down, convert the other ones and add the parking spaces that are needed… Or I could pay $75,000 and take a chance that this church would actually do what they said they were going to do, and tear their building down. Because once they tore their building down, I owned a tenth of an acre that their building sat on. So I bought enough land to cure my setback issue once their building was torn down.

Joe Fairless: Right.

Nathan Tabor: But they didn’t. They took the $75,000 and actually the pastor moved to Atlanta, Georgia and took my money. And I sued him, and I got a $278,000 judgment against him for unfair trade and deceptive practices. I paid my attorney $28,000 and I never —

Joe Fairless: You didn’t get that money. You never collected it. [laughter]

Nathan Tabor: Don’t spend good money on chasing bad money, right?

Joe Fairless: And what religion — no, I’m kidding. [laughs]

Nathan Tabor: You wanna make half of America mad? Do you wanna talk about politics [unintelligible [00:14:51].22]

Joe Fairless: [laughs] Alright… Due diligence – one piece of advice that you have is go to the zoning department yourself and get something on letterhead, written from them, that says the property meets the current zoning laws. What are some other things in due diligence that you do that perhaps others wouldn’t?

Nathan Tabor: Some other things… Rent rolls. The third complex I ever bought, I was under the impression that when you’ve got a rent roll that was “certified”, that that by law, real estate standards, that was the amount of money that’s being collected.

Joe Fairless: Oh…

Nathan Tabor: And actually, in all 50 continental United States, a rent roll is only a reverification of what the terms of the lease says, and does not mean that’s actually what they’re paying. So you buy a complex from someone that says it’s collecting $28,000 a month, and you close on it, and the next month you collect $7,000 and you go “What?!” You come to find out some of the tenants there hadn’t paid in six months, and the landlord had been telling them “Look, don’t say anything about this. I’m selling the complex. The new owner will deal with it.” So he committed fraud, but then it’s a civil matter, because it’s a contract.

The only way that I have found to verify actual moneys is bank statements. If they say they’re collecting $10,000/month at this complex and they won’t give you their bank statements, or they give you their bank statements and it doesn’t say $10,000, you need to find out what’s the discrepancy. Why are they not collecting that amount of money?

Now, if you’re doing bigger deals and you’re dealing with major companies, you’re probably not gonna run into a lot of that, because there’s a lot [unintelligible [00:16:39].20] But if you’re buying a $500,000 apartment complex or two million and it’s already financially struggling, and that owner just wants to get out of it, you never know what they’re gonna say or do on that.

So if someone won’t give you their bank statements to verify how much they say on their income and expense and their rent roll, you’ve really gotta kind of figure in that a lot of that money they might not be collecting.

Joe Fairless: One thing I’ve come across before on apartment communities is when you ask for those banks statements, the owner might say “Well, I can’t provide it to you because it’s a bank account that has all my other stuff incorporated in it as well”, and you just have to push through and say “Well, I need these. Don’t worry, I’ll have a professional accountant look over it”, and if you want, maybe agree to them with having their accountant send over blacked out information from their other stuff; whatever it is, but get those bank statements.

Nathan Tabor: Yeah. Man, I’ve had so much happen to me that — I mean, I’ve had a lot of good things happen to me, but you can go out and buy a rent receipt book from staples for $10 and sit down and make up the 12-month.

Joe Fairless: [laughs] Yup.

Nathan Tabor: So if that’s the verification that you’re relying on… And I did. I found myself in a precarious buying because I bought an almost three million dollar piece of property that instead of collecting 28k a month it was collecting 7k.

Joe Fairless: What do you do? Let’s go back in that situation, and I’ll hold my breath for you so that you’re not stressing out too much over it… But if you could relive that – you thought it was gonna bring in 28k, it’s bringing in 7k; now what do you do that helped remedy that?

Nathan Tabor: The initial thing is immediately we started filing evictions. We started moving as quick as possible to stabilize the property… Because there was no reason at that point to wait on anything. If a tenant is not paying, evict him, get rid of him so you can have the ability to renovate the unit and lease it back up.

Of course, we got a lawyer involved, looked at the contract, looked at what they had done, went after them… But again, hindsight 20/20. I don’t think I’ve ever had a lawyer involved where I actually won. I mean, I won a lot, but I didn’t actually win.

Joe Fairless: Of course. We all lose, most of the time.

Nathan Tabor: Most of the time, because I got money back out of the guy, but by the time, what I had paid my attorney and the 12 months it took and the stress and the worrying and the back and forth, I’d just have been better to have licked my wounds, learned from that mistake and dealt with it. Of course, I went to the bank, and we had built reserves, so by this time I had learned due diligence-wise and planning, always have (at least in my books) six months of full operating cost and reserves in case you buy something and it’s not going the way it’s supposed to, or you find complexes and every unit has bed bugs in it. No one during the walkthrough, during the due diligence period mentioned that they had bed bugs. Treating 40 units at almost $800 a pop for bed bugs is expensive.

Joe Fairless: $800 a pop?

Nathan Tabor: $800. There were 3-bedroom 2-bath, 1400 square foot units. It’s $800.

Joe Fairless: Wow, that’s pricey. I’ve done the bed bug thing and it was about $75 a treatment, times three treatments; there were 2-bedroom apartments, around 700 square feet.

Nathan Tabor: We tried smaller bombs, and these were so bad, Joe, they had to bring these big heater units in…

Joe Fairless: Oh, we didn’t get to that point. Fortunately, I haven’t seen those heaters.

Nathan Tabor: Well, if you get to that point where it’s like they’re embedded in the baseboards, and… Again, I buy stuff that really foundationally is solid, but a case could be made just to bring in a bulldozer and just go ahead and level it. So you plan for that, right? In your due diligence period you plan for the things that you can’t see. You plan for the things — but there’s a lot of things you can control… Checking the finances.

Another one on the due diligence is always plumbing and electrical. I always check every plug. In every apartment complex I ever buy, myself or somebody that works for me buys one of those little $5 plug testers from Lowe’s or Home Depot, and we check the top and bottom plug on every wall.

Joe Fairless: Okay… Why so detail-oriented with that?

Nathan Tabor: Well, because in the process of buying complexes I would find that after we closed there would be three or four units where on the left side or the right side of the complex the plugs weren’t working, and the tenants had just ran extension cords from around the other side of the wall… And when we did our due diligence and we came in and said “What was wrong with your unit? Why didn’t you say the power doesn’t work on that side of the unit?” “Oh, well…”, and they come up with different excuses. So I started finding the only way — you know, we turn on every water spec and we check underneath every sink for water leaks, we sit down on every toilet and rock back and forth to see if it’s rotten underneath the toilet, because you can spend $200 to $2,000 for a rotted out flooring, if it’s got mold and stuff in it.

So it just came down to the point that really don’t trust anybody else unless there’s somebody that really works for you and you know. It would take us an extra couple hours to test all of those, but you can spend $2,500 to $4,000 rewiring a two or three-bedroom apartment complex or house, whereas it could take you ten minutes to walk around and check all the plugs. So the return on it, time vs. money, paid off really well for us.

What would happen then – I did this immense due diligence, so if I had a property under contract for a million dollars and I went back and I sat down, I said “Okay look, these 40 units, I’ve found seven units where they’re gonna have to be completely rewired, because half of it doesn’t work.” So I go the high-end, I need the $4,000, so I need $28,000 credit here. I’d go back to the owner and say “This million dollars – I need $100,000, $150,000, $200,000 credit, and here’s why”, and gave him specific units, the specific things that were done, with a quote from my contractor to fix it. Every complex I’ve bought, I’ve gotten 10%, 15%, 20%, 25% discount off the contract price because of the due diligence process we did.

If you go to try and argue with someone and say “Oh, I just don’t think this complex is as great as we thought it was, and I want $100,000 credit off a million”, that’s kind of hard to get. But if you can go and show them that there’s actually $100,000 worth of work to be done, then you can negotiate.

Joe Fairless: What are some common things that you’ve negotiated, where you know when you buy a distressed property most likely you’re going to be renegotiating X, Y, Z?

Nathan Tabor: Roof is one of the big issues, and a lot of times they’ll go in and put shingles up on the roof. Every time I buy a complex, I get my roofer to get on every roof, both sides, walk it front to back… Because the shingles can be brand new, but every decking board underneath it can be rotten. So you buy this complex and then six months later you start getting dips in your roof, because the shingles are good, but the under-decking is not. That’s probably one of the biggest areas we have negotiated price.

Parking lots, that alligatoring where it starts to break apart… Well, eventually, that’s gonna have to be replaced. Plumbing and electrical can be some of your more expensive one-offs, because rewiring one unit is not bad… Have you run into aluminum wiring much in your area?

Joe Fairless: I have not purchased a property with aluminum, but we’ve looked at them.

Nathan Tabor: I’ve done one, and I don’t think I will ever do a complex again that has aluminum wiring.

Joe Fairless: That says a lot, coming from you who buys distressed properties.

Nathan Tabor: Yeah, well the aluminum wiring you pigtail, which is expensive to put those little 6-inch, 8-inch copper on, but insurance these days — I have found the ones I’ve looked at with aluminum, insurance is two to three times higher on the insurance premiums, versus copper wiring, because of the fire risk, even with pigtails.

Now, I’m looking at 35, 45-year-old properties. I would be really cautious at looking at aluminum wiring on properties. Make sure you get a quote from your insurance carrier, that they know that it’s aluminum wiring, and make sure that you’re covering yourself on that.

The other biggest area in the due diligence process – talking to the managers and the maintenance folks. Most owners, if they don’t want you to talk to their staff – why? Why are they always lingering around? I have found you can learn a lot of information by just casually talking to those folks.

When I get into what I’m doing, especially on the due diligence side, I make my money when I buy the property, not when I sell it. Because if I don’t cover my due diligence right, especially if you’re going in to flip a property, you can lose your shirt in a split second if you don’t know what you’re getting into.

Joe Fairless: What’s an example of a property that has gone wrong for you? You talked about the one with the church, but maybe one more example.

Nathan Tabor: I’ve got many of them, so I will go down here of HVAC systems. I am not an HVAC expert, but it seems like about every 10-12 years congress or EPA or someone is changing the freon, and the current freon is — [unintelligible [00:27:00].09] What’s the freon that has been — that just changed? It’s like L40, or something…?

Joe Fairless: Something like that, yeah. I’d be able to pick it from a multiple-choice test, but I can’t recall it off the top of my head.

Nathan Tabor: Yeah, I could pick it out, too. So in buying the latest complex I’ve purchased, in the due diligence I caught that some of the heat pumps were out inside and were gonna need to be replaced, or some of the compressors were out… So parts of the unit were out. And in the past, that would have cost $100, $300, $500, $800 to fix. Come out, replace that little copper wire, put a new compressor in… But now it’s getting really hard; the freon per pound, where it used to be $4-$7 a pound, now it’s $40, $80, $100 a pound. Most compressors have five pounds, so all of a sudden what used to be a $200, $300 repair can cost $1,200-$1,300. Well, eventually it’s gonna come to the point you’re not gonna be able to repair those because you’re not gonna be able to get the freon. So a lot of the older units in a lot of the older houses that I work with on people is to make sure what type of system is in that HVAC.

A very specific for me in dealing with a due diligence nightmare was water leaks in old bathrooms, behind the wall. So it’s grandma old’s tub, it’s the one-piece bathtub and shower insert, and there’s no panel access behind the wall, there’s no way to get to it, and water has just sat there for how many ever years, and why it didn’t show in the upper ceiling? It’s ran down the little wall, and then it’s ran across the floor, and it’s ran down.

I bought a 40-unit complex in Winston, it didn’t have central heating and air, so we were gonna put HVAC into it. We never got to install the HVAC because we found so much rotten flooring, mold and milldew, and issues that we couldn’t see. You couldn’t feel it when you walked… The tub was secure, the faucet metals were secure… That was like the fifth or sixth deal I did.

Now in due diligence when we’re buying a complex – of course, all the ones I’m buying are 35-40 years old – I tell the owner “We’ve gotta have a panel access to look into that faucet system in that shower to see has it been leaking for quite some time, or is it good?”

Joe Fairless: What if you don’t have the panel access to look in to see it?

Nathan Tabor: If I don’t have the panel access, I basically say to the owner, “Okay, look, I know this is gonna cost me about $1,500/unit. You’ve got 40 of them, so I’m gonna need a $60,000 credit.”

Joe Fairless: But that’s assuming that there is a problem.

Nathan Tabor: If he/she won’t let me cut a few holes to see…

Joe Fairless: Okay.

Nathan Tabor: If there’s 40 units, I wanna check 20% of them. And I’ll buy the little plastic inserts from Lowe’s, they’re $10. I wanna cut a little 20×20-inch hole, and we’ll put the panel in there, but I’ve gotta see if there’s a problem there.

Joe Fairless: Got it.

Nathan Tabor: And if they won’t let me look at that problem, then I’m gonna assume that all 40 of them have the problem and I’m gonna ask for that credit.

Joe Fairless: Got it.

Nathan Tabor: Do you know what they let me do then?

Joe Fairless: They let you put it in.

Nathan Tabor: They let you cut eight holes.

Joe Fairless: Yeah. This is great stuff, I’m soaking up every example that you’re talking about, and boy, am I grateful that you’re on the show… What is your best real estate investing advice ever?

Nathan Tabor: The best real estate investing advice ever – and this i gonna go against most… I don’t think it necessarily goes against yours, because I’ve read a lot of your stuff, but most people out there do real estate investing to make money, but don’t do it just for the money. If a deal is not right, walk away from it. Don’t force it. That little God-given internal stomach mind is like “You know, something’s not right here. Something doesn’t add up. This, and this…”, and instead of going “Oh man, I can make $500,000 on this deal” (and I’ve done this) and you ignore all the red flags, you don’t make $500,000. You’re lucky if you don’t lose 500k.

So my advice is do deals that make sense. All of them are gonna have risk. There’s gonna be certain things that you’re gonna have to absorb, get your arms around and do it, but if there’s just that feeling — I don’t really know how to describe it, Joe, but I’m sure you’ve felt it before when you’re doing a deal…

Joe Fairless: Sure.

Nathan Tabor: That broker or that owner, or something — I don’t wanna say that they’re liars, but something doesn’t add up. And if you can’t get past that feeling, it’s better to walk.

Joe Fairless: And that also comes with more and more experience; the more experience you have and you’re exposed to different situations, the more that feeling becomes more valuable, for sure, right?

Nathan Tabor: Yeah. Develop a team. Even if they don’t work for you, find two people and go sit down and talk the deal out with them. Lay out everything and find counsel from others, even if they’re not part of your group, and just say “Hey, does this all add up? Look at this”, and let someone look at your work. And I did this for a while, too – don’t have this fear of like “Oh, I can’t show somebody this, they might not like it” or “They might try to talk me out of it.” If you can’t justify to someone else why you should be doing this deal, don’t do it.

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

Nathan Tabor: I’m ready.

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

Break: [[00:33:06].10] to [[00:33:33].29]

Joe Fairless: Alright, best ever book you’ve read?

Nathan Tabor: The Bible.

Joe Fairless: Best ever deal you’ve done that isn’t your first and isn’t your last one?

Nathan Tabor: I bought a 66-unit complex for $1,075,000 that they were asking 2,5 million. I put a million in it and sold it for 2,9 million in 14 months.

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

Nathan Tabor: Children’s efforts, especially at Christmas time, helping others in their time of need.

Joe Fairless: And how can the Best Ever listeners get in touch with you and learn more about what you’ve got going on?

Nathan Tabor: My website is NathanTabor.com.

Joe Fairless: Nathan, thank you again for being on the show. You talked through case study after case study of what to do, and mostly what not to do, which is a great way to learn, and we’re very fortunate to hear the lessons that you personally experienced, and that way we don’t have to personally experience them.

Nathan Tabor: Joe, do you know what my tagline is?

Joe Fairless: What is it?

Nathan Tabor: Amazing successes, epic failures.

Joe Fairless: There you go. Well, you listed a lot of surprising due diligence tips that we might not be doing, but we should be doing on an apartment building. One is go to the zoning department and get a signed note from them saying the property meets zoning laws. Two, make sure we’re looking at the bank statements; certified rent roll – yeah, but that doesn’t actually show money going in the bank account, so get those bank statements.

Three is from an operations standpoint – make sure we have at least six months’ worth of operating costs in reserves. If we do happen to buy property that has significantly lower economic occupancy than what we anticipated, then start filing evictions and move as quickly as possible to stabilize the property. And another tip for due diligence – looking at the water leaks in the old bathrooms behind the tub, or behind the shower, and if you don’t have an access panel, then put one in there and look at 20%-25% of the units, and if they don’t allow you to, then ask for a credit.

Thank you for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Nathan Tabor: Thanks, Joe. I appreciate it.

Raise revenue for real estate projects

JF1224: How To Raise Over $1 BILLION For Real Estate Projects with Jared Rogers

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Jared has done a little bit of everything in his lengthy real estate career. His forte is raising money for investors and developers, but he also has a ton of experience in construction. Having knowledge in both those area allows Jared to work very efficiently, and take some risks that others may not take. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Jared Rogers Real Estate Background:

For the first half of his real estate career, Jared raised over $1 billion for investors and developers

– Has leased, managed and sold properties from 700 square foot homes to 900,000 square foot industrial parks.

Over 20 years of commercial and residential real estate investing experience  

– Based in Winston Salem, North Carolina

– Say hi to him at jrogers AT webuyhouses.com

– Best Ever Book: Design Your Life

 


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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 fluff.

With us today, Jared Rogers. How are you doing, Jared?

Jared Rogers: Good. Thanks for having me, Joe.

Joe Fairless: My pleasure. Boy, looking forward to diving in with you because, well, Jared’s got over 20 years of commercial and residential real estate investing experience… And in fact, for the first half of his real estate career, he raised over one billion dollars for investors and developers, and he’s also leased, managed and sold properties, from 700 square foot homes to 900,000 square foot industrial parks. Based in Winston-Salem, North Carolina.

Is that all accurate, Jared? That’s incredibly impressive.

Jared Rogers: That’s all accurate. That was my first two lives; I’d say I’m probably on life three now.

Joe Fairless: [laughs] Well, let’s talk about the beginning, and then I’d love to talk about where you’re at now. One billion dollars raising money for developers and from investors… Tell us about that.

Jared Rogers: Well, I started off out of school in a small boutique investment bank; we were basically placing debt for people who had shopping centers, apartment buildings, that kind of thing; everything from mobile home parks, some esoteric properties to the [unintelligible [00:03:27].14]

That company got acquired, we turned into being a direct lender. It grew real fast, I got to grow real fast… I kind of wanted to get into more of the creative side of financing, so I left to join a boutique firm called Industry Partners, which is still somewhat in operation today on a smaller scale.

Then me and a partner, we basically had our own rolodex of clients and we would raise three million dollars for a simple acquisition, to the largest deals I did, around 150-180 million dollars, kind of entire redevelopment plays. Mostly on the West Coast… We’d follow our clients sometimes East as they went East, but basically West Coast-focused.

Joe Fairless: I wanna make sure I’m understanding… Let’s just pick one of the projects, let’s say the redevelopment. You were raising money, and were you on the general partnership side, or was your role different?

Jared Rogers: No, so we were retained by lots of developers and investors to raise money for their projects.

Joe Fairless: Okay… You were a broker-dealer?

Jared Rogers: No, we were a finance broker. They’d contact us, we’d underwrite, understand the deal, present them the different capital sources, and then we might raise equity, we might raise debt, we might raise both… Sometimes we’re raising five different capital stacks if the deal is large enough; we’d get money from Germany, and kind of all over the place. So it really just depended on the deal. We were basically — for middle-sized developers, we were their in-house CFO in terms of raising money for their projects.

Joe Fairless: How did you and your colleagues come in contact with the individuals who were writing hundred-million dollar checks?

Jared Rogers: Different organizations… A lot of it started with, like everyone else, [unintelligible [00:05:10].06] the Lehman Brothers… We did a lot of stuff with New York, like everybody did, and then you just kind of grow from there as you build up your reputation. We started doing stuff with investors out of Asia, I did stuff with Sharia investors, I did stuff with European investors, high net worth family offices, you name it. There’s a lot of money out there that’s chasing yield, and that was one way that we could get yield, was to loan to developers, ground-up, kind of creative stuff.

Joe Fairless: Was it through an EB-5 program, or something different?

Jared Rogers: They were all institutional or large investors, so we would just basically create similar to an offer memorandum and say, “This is what we’re requesting. Here’s the sponsor, what can you do?”

Joe Fairless: What’s a typical structure look like?

Jared Rogers: One of my sponsors, one of the largest developers in the world, they really were only looking for good debt for large projects. I had other investors who literally said, “Look, this product is 50 million bucks. We can put in half a million, and we need you to find the other 49,5 million.” And we would raise — sometimes that might be an A piece, a senior debt, we might raise a B piece, we might even raise a C piece just to layer it all in.

Joe Fairless: For someone who’s not familiar with different types of ways to structure that, could you elaborate on the senior debt, the B piece, the C piece, just to bring us all to your level in case we’re not as versed in this?

Jared Rogers: I apologize. The senior-level is just the debt; that’s whether it’s a construction lender, or what everybody has on their house. That would be senior financing. The HELOC that people have on their house would be a B loan; it’s secured behind the A loan, so that would be more of an equity position. Sometimes products are so large enough we would raise a piece between it that we call the B piece or the mezzanine, and that would be the piece between the equity and between the senior debt. It gets paid a higher return, because it’s riskier than the senior level (A piece) but it is as risky as the equity piece, because it is debt… So it would charge somewhere in between.

Joe Fairless: Does the B piece have to agree to have it be jumped ahead?

Jared Rogers: [unintelligible [00:07:13].03] That’s why they get paid more. All the home loans that people do today that all get pooled together, they get sold off in one million tranches. So someone’s buying the A piece, someone’s buying the B piece, and then all the way down the line, depending on where that investor wants his return. If he wants essentially a rate better than a CD, he’s buying the A piece, and that’s basically all he’s getting. But then there’s somebody on the back-side who will take all that risk, because they want a 20% return, if that kind of makes sense…

Joe Fairless: Yeah, it does make sense. So that was part one of your career… What was part two?

Jared Rogers: Part two was when I left that partnership in California and decided to chase the quality of life; I came out to North Carolina and I wanted to get on the ownership side of real estate, the true bricks and mortar side of real estate, so partnered with a former client of mine, and we were buying business parks, industrial parks and that kind of stuff, in and around North Carolina. That’s when I hired a construction manager, a leasing person, property managers, all those things. They ran kind of the day-to-day, and I was more of the regional director overseeing the operations, seeking out new opportunities, making big decisions, interacting with money partners… All those kind of senior level duties.

If anything went sideways, I’m the person that’s gonna go in and try to straighten that out. I’m the person that other people on the ground can call in when issues arise.

Joe Fairless: Tell us a story about one.

Jared Rogers: I’ve dealt with everything from the smallest tenant with 400 square feet and the largest tenant with 220,000 feet, and that was Ralph Lauren. So we had all kinds of different problems. Although it was much more of a critical operational thing, the business shut down, and they were really frustrated.

Small businesses, we had everything from delinquencies like you would on a single-family home, because [unintelligible [00:08:57].23]  I’ve had tractor trailers back up into gas lines, whole properties evacuated… You name it. I’ve seen a lot happen on a commercial property.

Joe Fairless: So walk us through one specific example if you would, and then your approach for how you had a solution and the process for it.

Jared Rogers: Well, one of the properties we bought down in Charlotte had some awkward buildings. People kind of add stuff on, as they go through the years, to try and chase more income, so… [unintelligible [00:09:24].19] solution on that was I contacted the city, I contacted the investor and partner, I went to him and said, “Hey, honestly guys, this building is 14,000 feet but it really should be 10k. Let’s cut off 4,000 feet.” I know it sounds crazy, but at 14,000 feet it’s gonna lease for, let’s just say $1/foot/month, and if I get it down to ten and I can lease it for $1,50 a month, we’re gonna make more money and we’re gonna have less downtime, because it’s a more functional building.

So I still do a lot of that every day, addition by subtraction, but that’s something that a lot of people won’t even look at.

Joe Fairless: How do you show that in numbers to the business partners, to get them comfortable to actually remove square footage from their property?

Jared Rogers: I’m a big fan of keeping it simple, stupid (KISS), so I do do a lot of simple [unintelligible [00:10:13].26] presentations, walking them through, showing them why it’s more functional and showing them at the same time that they’re not losing equity because of this. So it’ll be a simplified map analysis, but I might show him a floor plan, I’ll have different brokers in the market provide their input, and we’ll have contractor input to show them “Hey, this is what it’s gonna cost, we’re not gonna get destroyed on it, and we can make that money back in three years of lease, just on that space.”

Joe Fairless: Now you’re investing in your own deals and you’re focused on that, right?

Jared Rogers: Yeah… Basically, life has gotten in the way and I had to take more time off, so I just started doing single-family deals, and now I’m doing single-family and commercial deals. [unintelligible [00:10:56].01] slower just because it’s just less partners. I get a bigger share of the upside and less partners to answer to.

Joe Fairless: What’s a specific example of a commercial deal that you’re doing?

Jared Rogers: I’ve just bought three recently. I’ve bought one which could be considered not the prettiest thing in the world, but I bought one about 5,500 square feet; I’m subdividing it for kind of nine small business spaces. [unintelligible [00:11:20].28] We were able to get the municipality here to allow us to move it into a RUCA, which is kind of a revitalization area, where the city has two programs – one, they should give me a grant for 50% of my construction costs, and another, they give me a loan for the other 50% of my construction costs. So on that building, I bought it 25% below list price, I got the seller to give me 80% debt for five years at 3,75%, and I’m negotiating with the city to basically give me my renovation money.

Joe Fairless: [laughs] I was writing down notes… What were your out-of-pocket costs to acquire it?

Jared Rogers: My partner and I put 30k down to buy it. We actually have a really bad tenant in there now, but he still pays for our overhead and pays for our mortgage from our seller while we go through and do the whole design, rebuild and approval process.

It worked without the potential city funding, but obviously it turns into a complete homerun if our equity goes down from 200k to 50k overall.

Joe Fairless: What type of property is it?

Jared Rogers: Oddly enough, it was a former restaurant/catering space, but we made some reconstruction; it’s got shallow depth, so it’s very functional to carve up. It’s got a very good traffic count… It basically sits just off a corner. So I looked at it more like a small flex building; we’ve had a ton of those where most people saw very old, dirty catering buildings.

Joe Fairless: What type of tenant, once you sub-divide it out, would be renting?

Jared Rogers: It’d be everything from the small tax guy, the small business that deals with government money where they need to have a physical location… You name the small business; it’d be quasi-retail, it might even have a barbershop it, just because of the traffic count. So any small retail, small office, or anything in between.

The great thing about those products is they rent like apartments. If someone comes in and says “What’s the rent per foot?”, they say “What’s the monthly number?”, so I can rent 350 square feet for $550/month, which is in that area probably a crazy number per foot, but that’s not what it’s about. It’s about what can they afford per month, just like an apartment.

Joe Fairless: Compared to industrial parks or retail, that might rent per square foot…?

Jared Rogers: Any space over space over 2,000 feet is gonna rent per foot, just because of options. On a small-sized range, it really comes down to what they can afford per month. I did a survey on our area when we went under contract to buy the building, there was literally one space under 700 square feet available, and that doesn’t count the small office suite that’s on the third floor, because that’s not my competition. My competition is you can drive right up and you have a quasi-retail location.

Joe Fairless: How much did you acquire it for, how much are you looking to put into it, and what is the value that you’d like it to be at, in what period of time?

Jared Rogers: I’d like to do per-foot numbers – so we bought it for like $35/foot, and we’re gonna put anywhere probably additional $20-$30/foot, depending on how far we take it. If I get the municipality partnership, I’ll go on the higher end, because I’ll make the building more bulletproof, so I’m keeping my maintenance costs lower ongoing, and then it should be worth $90-$100/foot after that.

Joe Fairless: Over what period of time?

Jared Rogers: It will take, I’d say, a year to renovate and three months to lease up, and a year of [unintelligible [00:14:45].14] so around three years.

Joe Fairless: And what do you plan on doing at that point with it?

Jared Rogers: Getting a conventional loan, taking out any equity and hopefully recapturing some profits, and paying off my seller financing, and holding it for as long as I can.

Joe Fairless: What’s your role in the management?

Jared Rogers: The property management, or are you talking like asset management, construction management and all that stuff?

Joe Fairless: All the above.

Jared Rogers: I guess you’d say I’m involved in all of it… Some level of involvement. In some of the property management I’ll be involved, in some of the construction management given my background – I’ve probably done one thousand or so TI jobs. And then on the leasing side, given the traffic counts, we won’t even hire a leasing broker, we’ll just put a sign in front and say “Space available, under $500/month”, and then just hopefully start taking orders. I don’t need a hundred of them, I just need nine of them on that building.

Joe Fairless: Based on your experience, what is your best real estate investing advice ever?

Jared Rogers: I would say don’t throw good money after bad. I’ve made lots of mistakes, like anyone else, but don’t compound it by trying to hang on to the money you’ve already invested in it. It’s better just to cut and move on.

Joe Fairless: Can you tell us a story about that?

Jared Rogers: Yeah, I’ve had several ones since I was working on a deal even recently with the city of Charleston, and I had a deposit down on some row houses that we were gonna renovate, and they were gonna send me a public/private partnership and that kind of stuff. I’ve met with the division, it was great, everything went well, I [unintelligible [00:16:15].17] presentations… I didn’t like the feedback I got; it wasn’t negative, but it gave me pauses in terms of the questions they were asking. So I have $3,500 at risk, and I said, “You know what? I’d rather fight for that $3,500 on that escrow than double down and hope these guys will be there for me like they said they would be.” It turned out to be the right decision; the municipality wasn’t as aggressive as they said they were gonna be, and I would have lost  a lot more money if I had decided to go forward.

Joe Fairless: You said the questions on the surface weren’t positive or negative, but it gave you pause… What questions were they asking that gave you pause?

Jared Rogers: When I first discussed the project with them, they were talking more like “Hey, we really wanna see this happening. We’re gonna help you do it, we’re gonna have to do all these things…” Then when we sent them information, they started (I’d say) kind of wearing the wrong hat. So they started asking questions about our potential constructions costs and that kind of stuff, and I said, “Whoa, that’s not your role, guys. Your guys’ role is to trust us as the developers to what we said we were gonna do, and then be there for us when we need you.” So when they started (I’d say) poking around, responding maybe a little slower than I would like to based on our initial feedback, I just said they’re not where they wanna be.

They said they wanted to be there, but they weren’t there. It’s better for me to cut the fishing line and try again. I’m still trying to get that deposit back, I haven’t given up on it, but I’m much more comfortable knowing that that’s my downside if I lose that. And I wouldn’t like to lose $3,500, don’t get me wrong, it really hurts, but the potential losses and the time invested on those losses far outweighs that.

Joe Fairless: If you would have proceeded and then something happened, what would have been the potential losses, besides time, monetary-wise?

Jared Rogers: Monetary-wise, I would say after a couple years it was three projects which we were trying to grow into five… I might have had to come out of pocket like 50k to refinance them at the end of the day, or leave a lot more equity in there than I wanted to. So they would go into probably a low-yielding deal.

Joe Fairless: That is definitely a story of experience coming into play, because on the surface if they were not saying no, then inexperienced investors might not read between the lines.

Jared Rogers: Right. And that probably goes back to my experience in my first life, when I was having to make those calls for those developers to help them raise money where they might have $100,000, $200,000, $300,000 non-refundable money… You get to the point where you’re pretty good [unintelligible [00:18:52].15] and making sure that the people are gonna be there for them when it comes times to close.

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

Jared Rogers: Sure.

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

Break: [[00:19:06].11] to [[00:20:00].18]

Joe Fairless: What’s the best ever book you’ve read?

Jared Rogers: I’d say I’m kind of reading it right now, it’s a book called Design Your Life. I really like it, because I think we all have made the shiny bubble thing where you chase whatever seems like everybody’s doing well at, but I’m kind of passionate about a lot of things, so I like to try a lot of things. I’ll try private partnerships, I’ll try tax credits, I’ll try anything and everything to figure out if I am truly passionate about it… So I like what those guys are teaching, which is try it, learn from it, and figure out the stuff you wanna do ongoing.

I don’t wanna be pigeon-holed or narrow-focused and not be open to new opportunities, where I think some investors are told “Don’t go chase the shiny new object”, I think we can learn a lot from chasing the shiny objects, as long as you put that into practice and move on.

Joe Fairless: Best ever deal you’ve done that you haven’t talked about already?

Jared Rogers: On the residential side I’ve done some very simple assignments and made 25k pretty easily. On the commercial side, the large industrial deal in Greensboro, with my old partnership, a 79% return on investment. It’s still the largest return I’ve ever had. That’s a pretty high number for buying existing property and turning it around. So that was probably the best deal I’ve ever done.

Joe Fairless: Is that 79% annual return?

Jared Rogers: Yeah.

Joe Fairless: Over how many years?

Jared Rogers: Four years.

Joe Fairless: Wow. So 79% return a year for four years is what they made – wow, that’s great. Well, it’s phenomenal actually, not great.

Jared Rogers: What’s a mistake you’ve made on a transaction that you haven’t talked about.

Joe Fairless: I would say a mistake that I’ll never make again or haven’t made again was I didn’t pull permits on one of my earlier renovations. I let a contractor tell me I didn’t need them, and then when everything hit the fan, that contractor was gone and I was left trying to solve all the problems.

Joe Fairless: What was the result?

Jared Rogers: The result was $8,000 in repairs, and a slap on the wrist from that municipality for doing unpermitted work.

Joe Fairless: Plus probably a delay in selling, which time value of money comes into play too there.

Jared Rogers: Actually I had sold it.

Joe Fairless: Oh, you already sold it… You had to go back into it?

Jared Rogers: [unintelligible [00:22:03].07] North Carolina is a buyer-beware state, but at the end of the day you’ve gotta do what’s right.

Joe Fairless: Best place the Best Ever listeners can get in touch with you?

Jared Rogers: My e-mail, JRogers@webuyhouses.com is probably the one I use the most. I’m on Facebook, I’ve got several Facebook pages. The one I’m doing the most on right now or trying to build up is WeBuySmallCommercialProperties.com, because that is one of my focuses, trying to continue to buy more small, well-located commercial properties.

Joe Fairless: And just to double-check, your e-mail is JRogers@webuyhouses.com, correct?

Jared Rogers: Correct.

Joe Fairless: Alright, great. Well, thank you for sharing your insight, your experience over 20 years of investing and being involved in real estate, the “Don’t throw good money after bad” example with the row houses in Charleston, and on the flipside, the 5,500 square foot commercial property, subdividing that out, and how you were able to structure that deal and maybe even get a grant to pay for 50% of the renovations and a loan for the other 50%, and then where you see that going – $35/foot, put in $20, all in about $50-$60, and then make it worth $90-$100 in about three years time.

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

Jared Rogers: Thank you, Joe. Have a good day!

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JF835: $10,000 in 2 Days, Using a VA, and How Even New Guys Can Make a KILLING!

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He has been an active wholeseller for only four months but nets approximately $20,000 every month. Our guest jumped in 100% after limited experience in real estate. He managed a multi million dollar portfolio as a young man and scraped by when between checks. Now he is rocking his market, hear how he did it and what he’s doing now!

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Max Maxwell Real Estate Background:

– Full time wholesaler at Cash Homes Triad; A real estate solutions company
– Started in real estate in 2006, very successful for 2.5 years until the crash
– Mainly does flip, hold, and rent
– Served 4 years in US Air Force and is now a private pilot on the side
– Based in Winston Salem, North Carolina
– Say hi to him at http://www.cashhomestriad.com
– Best Ever Book: Rich Dad, Poor Dad by Robert Kiyosaki

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