Brandon: This is the BiggerPockets podcast Show 282.
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Brandon: What is going on, everyone? This is Brandon Turner, today’s host of the BiggerPockets podcast, here with my co-host, Mr. David Greene. How are you doing, David Greene?
David: Other than melting in this 100-degree California heat, I’m doing pretty good. How’s it over there?
Brandon: Definitely not 100 degrees. All right, so I’m going to start off today’s show asking you a question I don’t usually ask you. I already said what’s up, how are you doing, but what are you learning? What are you—before we get to the interview, what are you learning lately, David Greene? What’s been on your mind?
David: I was not expecting you to go that deep this early in the podcast.
Brandon: We’re going deep. What’s been changing in your life? Go.
David: So lately, I’ve been realizing I tend to take on new challenges, learn them, and then get stuck there. So I’m going through a phase right now where I became a real estate agent. My first year, I became the top-selling agent in my office. It was great. I got off to a great start.
I got really good at being a real estate agent and then I just got stuck in playing that role all the time when what I really wanted to be was a business owner. I wanted to develop a business, learn how to be an agent, hire agents, teach them how to do it, and have more David Greenes running around that can help investors buying properties.
Brandon: Oh, please no. Anyway. I agree.
David: More David Greenes. What ended up happening is I lost my confidence because people like Brandon didn’t believe in me and said mean things when I was recording the podcast and I just got stuck in the same place. So, what I’m realizing is every time I get comfortable, I need to start asking myself what’s the next step? How do I push forward?
You want to get comfortable with being uncomfortable. And I’m not and it causes me to not take the steps forward that I need so I just spent pretty much all day long thinking about this and realizing I need to start hiring people, finding talent, giving them new positions within my company and teaching them how to do what I’m doing so they can do it and we can help more people in route to being the top-selling real estate team in the Bay Area.
So it’s kind of heavy as it sits on you and you think about all the fear and uncertainty and what if it goes wrong? And just like everybody else, I have all these doubts that go through my head. And I have to remind myself, well we say all the time on the podcast, well you’ve got to think about what could go right. What would I be missing out on if I don’t do this and I don’t expand exponentially?
I don’t teach more people and I can’t help more people and bad real estate agents end up getting more business. So that’s kind of what’s been going on with me and you asked for the truth so you got it.
Brandon: That was deep for an off the cuff me throwing that at you. All right, well I guess if you’re in the Bay Area, you should hang out with David and be part of his team. Look at that, I even gave you a plug. All right. You like that? You’re not going to be the biggest real estate team in Bay Area, you’re going to be the biggest real estate team in California. I don’t know who’s number one right now but we’re coming for you.
David: You heard it here first. Brandon Turner, writing checks that I now have to go cash.
Brandon: All right, well we’ve got to get on with today’s show. Today’s show is really fantastic. We’ve got a couple of guys who actually met through BiggerPockets, through a mutual connection through BP. They got together and they’ve been crushing it in real estate so we talk a lot today about partnerships and how to put them together, how to make them work, how they’re finding deals, how they’re funding deals. Some really cool stuff there, you guys will like it. Single-family, multi-family, we cover it all.
But before we get there, let’s get to today’s Quick Tip. All right, today’s Quick Tip, very simple. Because we’re talking a lot about partnerships today, I want to encourage ya’ll, I’m not saying you have to go out and find a partner necessarily but I want to encourage ya’ll to go find somebody on BiggerPockets in your local area.
There’s a lot of ways to do that but I recommend just typing your zip code at BiggerPockets.com/Meet. Type in your zip code there. Find somebody local and try to connect with them. Whether it’s send them a private message, go out and get a cup of coffee, whatever.
You never know what will develop and in fact, it doesn’t mean you’re going to partner with that person, but they might know somebody that can maybe you’ll work together some day, maybe you’ll share contractor ideas or you know, the strategies. Whatever. Anyway, that is my not-so-Quick Tip today. You like it?
David: I love that. I mean, that’s basically how The Avengers became The Avengers, right? They found somebody who had a skill that was different than theirs and the joined forces and they took down their enemies that no one man alone can take down and that’s kind of what today’s guest did. They kind of took The Avenger approach.
Brandon: That’s pretty much exactly what I was thinking. All right, let me ask you this, David. If you were an Avenger, who would you be of The Avengers?
David: Oh man, I want to say The Hulk but that’s probably not true. I would want to say Iron Man but I’m not that wealthy. I’d probably be Captain America because I’m kind of boring and a bit of a square and I like to lead all the other people. I’m surprised though Brandon that you know who The Avengers are, because with a two-year-old, all you’re really watching is like TV shows and Moana and Teletubbies, right?
Brandon: Blippy. Hundreds of hours of Blippy on YouTube. If you guys don’t know Blippy, YouTube him. All right, I would say Captain America, too. The whole cop thing, it fits. All right well, we’re going to move on and we’re going to get to today’s show but the last thing before we do, this coming week over on BiggerPockets,
I’m going to be doing a live online class on how to run the numbers on a rental property, so if that interests you at all, if you want to see how I run my numbers, cash flow, cash and cash return, how I incorporate appreciation in there or how I don’t because I do a little, a little bit I don’t. Even talk about BRRRR investing a little bit.
We’re going to be talking about all of that live on a real-life webinar, which is an online class. Sign up at BiggerPockets.com/webinar. Again, BiggerPockets.com/webinar. And I’ll see you guys there. Now, with that, let’s get to our interview with Jay and Tim.
Alrighty, Jay and Tim, welcome to the BiggerPockets podcast. How are you guys doing?
Tim: Great. Thank you for having us.
Brandon: Yeah, so I know you guys only via social media. I guess we’re BFFs there maybe, so to speak. But I want to get to know you a little bit about your real estate investing journey. Now, my understanding is from our little notes here, is you guys were both getting involved in real estate independently before you kind of joined forces and took it on. Is that correct?
Jay: That is correct.
Tim: That is affirmative. Yes sir.
Brandon: All right, so why don’t we go through each of your individual stories first and then we’ll jump in it together. You guys want to do a little game to see who goes first? A little rocks, paper, scissors?
Jay: Let’s do it.
Brandon: All right, one round. So it’s not best of three. One round. And you guys have got to do it for the camera. Ready? You guys look at each other and do your little things here.
Brandon: Who are you betting on, David?
Tim: Rock, papers, scissors, right? And then we shoot on shoot. Ready? Rock, papers, scissors, shoot.
Brandon: Tied. Do it again.
Tim: Rock, papers, scissors, shoot. All right. I’m first. I got paper.
Brandon: All right, tell us who you are and tell us your story.
Tim: All right, hello everybody, my name is Timothy Kelly. I am currently active duty military. I’m stationed in the Pensacola area. Got involved in real estate back in 2011 when I purchased my first single-family home with the intentions of living in it and flipping it, you know, over the course of a couple of years, adding value to it over time.
I was pretty successful with that and then throughout that two or three years, I’m like, real estate is actually pretty neat. I started reading a lot more about personal finance and real estate so my curiosity grew. And then one of my partners, still one of my best friends today, Jordan Griggs if you’re out there, love you, man—we bought a couple small plots of land and that was pretty much it. That was when I was living in Virginia, the Virginia Beach area.
Then I moved to Pensacola, Florida, now where I’m stationed. And a few months after I got here, I closed on a fourplex using a 203K loan that I learned all about on BiggerPockets with the intentions of house-hacking it. Long story short, now it’s a rental. A very nicely cash flowing rental and just before we closed on that, pretty much me and Jay met through BiggerPockets, a broker linked us up together.
We were both independently talking to him. His name is Kyle McGee on BiggerPockets. He then recognized that we both had similar goals and then he put Jay and I in touch and from that point, that’s when me and Jay met.
Brandon: All right, so Tim, a couple of quick things. First of all, can you explain what that 203K loan is? Because we do talk about it a lot at BiggerPockets. It’s not real well-known but I think it’s one of the most powerful strategies, especially dealing with a fourplex, oh man.
This is like my favorite show ever because this is like the best use, I think, for a 203K loan. So what is that? Can you kind of walk us through, what did you do and what does that mean for that deal?
Tim: Absolutely. So the 203K loan is an FHA-backed loan whereas you can purchase a property with your intentions of living in one of the units. And you could wrap in your rehab costs. When I first learned about this, I had to read it over a couple of times to think and to convince myself that it was real because I’m like, is there a better way to first get involved in real estate than to leverage the power of a bank, not only paying for your property, but a bank paying for your rehab?
And I’m like okay, I’m going after this. Really quick numbers, it was a $150,000 property, fully rehabbed. It needed some tender, love, and care for sure. So then I put $100,000 worth of rehab into it so that the total loan was $250,000. 3.5% down is all I needed to come up with, with closing costs and everything. That was about $15,000 give or take, a couple thousand.
And with that, I had to only put that $15,000 down and I was able to get into a four-unit property that essentially included $100,000 worth of rehab. And now it’s in a very hot, desirable market in Pensacola. It’s been fully occupied ever since and it turns out that, we actually had the intentions of house-hacking it, living in one of the units and renting out the other three because the rehab went a little bit longer than we expected.
It was supposed to go about 90 days. It lasted for about seven or eight months. We were settled in another place, so FHA guidelines, you have to have the intentions of moving in for six months in one day because we were asked that. We ended up just turning it into a rental.
And that was pretty much one of the last deals that I closed and it was pretty cool. So always try to convince people if they are unaware of house-hacking or unaware of the 203K loan, I love trying to get people into that, or at least learn about it and try to leverage the same thing I did.
Brandon: That’s awesome. I love the 203K loan, yeah. Because a lot of deals, normally you would have had to come with, even if you had done FHA, you would have had to come with 3.5% of the $150,000 and then another $100,000 of cash, which is how most people do real estate deals. But this was like, the banks like combine both together and then just pay 3.5% of the total and they will fund the rehab. And it’s like probably a 30-year fixed mortgage at like the lowest rates in human history. It’s like stupid good.
Tim: Absolutely. Yeah. Super cool.
Brandon: All right so David, you want to add anything to that before we jump over? I’m kind of hogging today’s show.
David: Nope, I’m good. Let’s hear about Jay.
Jay: So I got my start in 2006. Because we now know the height of the market was coming shortly after that. I like to refer that as to my false start. That was before BiggerPockets. That was before really knowing anything other than what was shown on HGTV, flipping houses. So I bought a 3/2 1950s ranch style house with the idea of living in it and flipping it. That quickly turned into, we owned it, it ended up being eight years. So after a few years of being in there and flipping it or remodeling it, doing a lot of work myself, I met Cassie who is now my wife, and luckily, she became my designer as well because I was going to make some horrible decisions from the design of the property.
So we ended up getting the property—our renovation included brand new windows all throughout. 1950s style so they were the metal frames, single-pane glass. Brand new kitchen. Renovated sunroom. Renovated bathrooms. Well, at that same time, we were starting at 2008, I got an opportunity to move to Pensacola for my job so we took it.
We initially wanted to sell it but the broker I had been working with told me, hey, hold onto it. If you don’t have money to close when you sell it, just hold onto it. So we did. We turned it into a rental. And then at that point in time, I found BiggerPockets and I learned how to actually analyze a property for cash flow and I started figuring out, okay, it’s costing me $300 a month to hold onto this property. And that’s with the height of the market rents for that neighborhood.
So every February, I made a call to that broker saying hey, is it time to list? No, not yet. No, not yet. So back in 2015 or 2014, it was time to sell, right? So we walked away with some equity in that and I now had all the knowledge that BiggerPockets had to offer at that time. After selling it, we paid cash for our next one, which was what I consider our true start.
And it was a one bedroom, one bath. It was a foreclosure. We paid cash for it. We paid $23,000 cash for it. We put $9,000 into it. And it rented $600 a month for the time that it was ready. And we thought we’d hold onto that property forever. And we just sold in February. I didn’t have it listed for sale. I don’t even know how the guy found me but he said hey, I’ve been watching this house and I’d really like to buy it.
He was a new investor and we came up with a price that I was happy with. We sold it. And we’re now using that money to 1031 Exchange into a fourplex which we’re supposed to close tomorrow, but I just got notice that’s going to be postponed a little bit.
David: That’s unusual. What are you talking about?
Brandon: Exactly. So cool.
Jay: So that’s how we got started.
David: So can you tell us a little bit about this live-in flip that you had? You guys have mentioned two awesome ways for people to break into real estate. One of them was an FHA loan with the 203K aspect and then this live-in flip. Tell us how that looked, what you did, why that made it easier for you.
Jay: Yeah. The biggest thing that helped me at the time I bought it is I was single, right? This was a 1950s style house, had not been touched since the ‘50s. I mean, it had some of the funnest wallpaper, some of the funnest looking tiled bathrooms, you know, and the double-oven stove is there. I mean, I think it was manufactured in the ‘50s. It was God awful ugly. So knowing that going into it, I knew I could put sweat equity into it. Nights and weekends was a great time for me to do that.
But then my wife came along and it truly was a blessing. She moved in. We did the whole thing where we moved the kitchen into the living room, right? Our fridge is hooked up and we’re eating microwaved meals if we’re not eating out and she got in there with the best of them.
Demo day was absolutely fun, ripping things up. I had to say hey, let me do that part because I’m afraid you’re going to get hurt. I mean, she’s 5’8”, maybe 110 pounds and she’s getting out there swinging a sledgehammer trying to knock stuff down.
So doing that and we’re actually doing the same thing with this house that we’re in right now, is when we first moved in here, we didn’t have a kitchen. We had a fridge. We had some folding tables, utilities, sink. So I think part of that success is having the right partner is kind of where I’m circling around back to that is having somebody who is willing to go through that.
And it has tremendously gotten more difficult from the first time we did it, because we didn’t have kids then. Now we’ve got a three-year-old and a one-year-old. It’s an adventure, right?
David: So you guys were able to save on hard money costs. You’re able to save on—you didn’t have to come up with the rehab money right away. You could kind of do some of this stuff yourself. You just were smart enough to make it easy for yourself to get that first one under your belt. You kind of probably took some lumps like we all do on our first deal. You got a little bit of confidence built up and then you’re able to ramp up a little bit more. Am I hearing it right? Is that kind of what you guys did?
Jay: Yeah, and I will say there is some value in contracting out, right? So that one-bedroom, one bath that I talked about earlier, we bought it. We closed on it when our son was three weeks old. And as you guys know when you have kids, there’s a lot of things that just change. And you can’t really prepare for them until the kid gets here and you kind of start adjusting.
So we went into that idea of hey, we’re going to do all—we’ve done this before so I mean all we’re doing is painting some walls, putting down some flooring. Everything we’ve done before, we can do ourselves and save on that labor. Well, we closed on it in October and we didn’t get it ready until February of the next year.
So afterwards, I did the math and I said, we missed out on I think it was six months or something like that, we missed out on almost $2,000 in mostly rent. And then I already had contractor bids and it was well below that for them to do the work themselves. So there’s some value in knowing your limits and knowing your available time and what’s going to make the most sense to produce the most cash for you.
David: So you guys were both kind of doing your thing on your own and then you guys met through a mutual friend on BiggerPockets. Can you tell us how you guys knew when you were introduced to each other that you’d make a good team or how this person knew that you guys would make a good team?
Jay: Tim’s Hawaiian shirt.
Tim: Yeah, it was the same thing I was wearing when we met. No. So like I mentioned before, a broker that was on BiggerPockets was individually talking to myself as well as Jay, individually. And we were all in the same area. And this broker, Kyle, knew that we had the same goals and he took it upon himself to set a dinner up with all three of us where we can come and meet each other and chat and see how much more we could accomplish together, with all three of us.
And from that point, Jay and I recognized, we had the same goals. We knew, initially, we both wanted to do medium and large-sized multi-family for buy and hold. So our goals were on track and they were very concise. And then Jay and I both knew that we were both just as committed. This wasn’t just a hobby. We weren’t just playing around in real estate.
We actually wanted to do big things in real estate and we were actually committed to it. So that was easy to recognize that this is a business, not just a hobby. And then you know, at that point, six months later, we closed on an apartment complex together.
David: So tell us about that. What apartment complex did you buy? What were the details behind it?
Tim: Yeah, so it’s a 42-unit apartment complex in Mobile County, Alabama. It was a purchase price of $700,000 and we wrapped a $200,000 renovation budget in there. It was built in 1980 and the previous owner, or the current owner that we bought it from, had it for about ten years and he was an elderly man who was trying to do a lot of things himself. And when I say elderly, he’s in his mid-70s. Living at the property during the week. Self-managing.
So you know, the property, I think, was just as tired as he was in trying to keep it up. So it was a great opportunity for us to take it on. We’re scheduled to be done with renovations next week as long as everything goes as planned and that included—help me out here. We painted the exterior, right?
Jay: Repaved the parking lots.
Tim: Repaved the parking lot, restructured the parking lot. We had some fencing we had to repair. We updated the playground equipment.
Jay: We completely renamed the whole entire community from Timber Trace to Citronel Square. Just new, updated, fresh signs.
Tim: Part of that, part of the renaming was, the Timber Trace name did not have a very good reputation for the community. We wanted to make sure new ownership was involved and that we were trying to turn things around. And then we also renovated 12 units. And there are some varying—depending on how poor shape the units were in, most of them got new flooring, new paint, painted kitchen cabinets were brand new kitchen cabinets. New bathrooms, light fixtures, new outlet switches, the whole nine.
Brandon: Nice. Did you say how you found the deal? Did I miss that? Okay, how did you find it?
Tim: So the broker that we had met on that first dinner that we had, the broker wasn’t particularly as seasoned. He wasn’t at the point where he was working on his CCIM for those who understand commercial brokerage. He put us in touch with a lot more of a seasoned individual who had a CCIM and he just had a lot more experience in the commercial world and multi-family world.
And quickly after that, we were introduced to him. And then Jay and I built a relationship with him. We were very clear and concise in what we were looking for. And we told him exactly what we wanted. He knew we weren’t just messing around. He knew we were serious and that was essentially one of his pocket listings.
Brandon: I love that you say clear and concise. I think you said that phrase earlier, too, and I made a note to talk about it because like so many people have these goals or your plan or what you’re looking for in a property or a partner or whatever. And it’s like, I want this and this and I think this would be cool but maybe this would be good and like, I love clear and concise goals or clear and concise objectives, right?
So you’re like, this is what we’re looking for. A small to medium-sized apartment complex in this type of thing. Very easy to understand and very easy for people to get behind. Because I would encourage everyone listening right now, figure out what you want and find a way to make that more clear and concise so that other people—if you spend more than ten seconds explaining to somebody what you want, it’s probably too complicated for you to focus in, right?
Jay: It does take some time to figure out what you want. And if you can figure out why you want to invest in real estate, that whole investing criteria is going to get much more clear. And David, as we were talking last week about one of the most frustrating things I have when I get on the forums is somebody will put, is this a good deal? And they’ll put these very minimum details about the deal and usually my answer is, is this is a good deal for you?
Why do you want to buy it? What is driving your interest in this at all? And you’ve got to figure out your why. Once you figure out your why, then you’re going to be able to set goals to help work that why. Once you figure out your goals, you can establish investing criteria and then you’re just, as Tim was saying, clear and concise.
Brandon: Yeah, I love that. I also want to point out—people will say, I don’t know exactly what I want, right? So I don’t know if I want a middle-sized apartment complex or if I want to maybe flip houses. Part of me wants to tell people it doesn’t really matter too much. It all works.
You could find examples of somebody getting wealthy in pretty much every type of real estate in the world. It’s more important to pick something than to pick the right thing, I think. Honestly, you should pick something that works in your market and your abilities, but it’s again one of those things where you spend your entire life just going, I’m not exactly sure what I want. Give yourself a deadline. Put it on the calendar. On this date, three weeks from today, I will have a decision on what I’m doing. And then do it.
So I want to shift a little bit and talk about how you were able to pull that off. $700,000 purchase and then you said $200,000 write-in repairs? That’s a lot of money to come out of pocket with, so I’m assuming you had some kind of financing or some kind of arrangement or something.
Jay: Tim’s couch cushions. He’s been saving for years.
Brandon: Nice. I’m going to come to your house. Anyways, okay, how did you pull it off?
Tim: So we essentially—that was presented to us because Jay and I slowly became known as a couple of individuals in this market who were serious about our goals and pursuing it. We did the due diligence necessary. We did the research. We would go to the REIA meetings and ensure that everybody knew what we were doing and what we were looking for. And thereby knew how serious we were.
And so we had a couple other money partners who we actually brought in. Now, this new broker that showed us this pocket listing that we ended up closing, this broker had worked previously with these two other individuals that we were already talking about, perhaps partnering with on this deal anyway.
So now we have, Jay and I, and then the other two partners who essentially brought the money in who had experience in multi-family, who had experience in commercial and who had a better reputation than we did because we had closed the number of deals in the past. So between the four of us, we kind of came together.
Jay and I brought the deal. We did the due diligence. And then the other two partners kind of brought the money in. And they brought a little bit of expertise to oversee everything to make sure that we fill all the gaps before closing. That we can get to the closing table. Long story short, that’s it in a nutshell.
Brandon: Nice, so did you guys have to bring money yourselves in or did you do it, like how did that work out?
Jay: We did. We had the option to not because you know, of the other efforts of raising money. But we felt, or at least I did, I felt hey this is my first deal—and I’ve had the question posed to me before is how much are you investing? And you know, in previous ones, I’ve said none. That quickly turned investors off.
And to circle that, I’ve kind of went back around and followed up with those guys and said, would it make a difference if I were signing on the note for the loan? You’re not liable but I am even though I’m not putting money on the table, I am liable for that $900,000.
They said absolutely. That’s you contributing more than just putting the deal together. So that helped with the conversation. That didn’t happen in particular with this deal but it’s happened for others.
Tim: Long story short, I don’t think we needed to invest but it was such a good deal that Jay and I both ended up investing. But he brings up such a good point. When you’re syndicating a deal, if your investors who are passive, all they want to know is they want to know about the deal, but they want to trust the people who are their asset managers before anything else.
If it’s a question that they are not particularly investing as asset managers, they’re like, why would I invest if the asset manager who know the deal better than anybody else are not investing? So especially for your first syndication, we felt like we should invest and plus, we wanted to. It’s such a killer deal anyway.
Brandon: Yeah, that’s cool. So let me talk about this idea. I love the idea of bringing in partners to bring in money, or the majority of the money, to be able to pull in these larger deals. A lot of people would rather have the entire thing. Of course, we’d rather have 100%, right? But what’s the phrase we always say on BiggerPockets? 100% of a great deal is better than 50%–or no. 50% of a great deal is better than no deal, right?
But I want to talk about the actual partners that you brought in a little bit. Did you find them first or did you find the deal first? And then the second half of that question, how do you recommend other people doing it? Like if you were to give advice to somebody else, should they find the money partner first and then go get the deal or vice versa?
Tim: So the way it happened was one we were in REIA, the first month I got here, I went to that REIA meeting and it was in the process of growing. The Real Estate Investment Association meeting, and for all the listeners, I can go on for hours talking about the power of going to your local real estate Meetups. If there’s not one, create one on Meetup and establish it and go.
So I essentially went to the REIA, and the first meeting, I let everybody know exactly what I was doing. I’m looking for multi-family, B and C class, value add opportunities, blah blah blah, and I went straight to the president of the REIA afterwards and said hey, Matt, I’m Tim Kelly, this is what I’m looking for. He directed me straight to those other two money partners who couldn’t make that meeting. But he’s like, these are the two guys that you need to link up with because they are known as the commercial multi-family apartment guys.
That next week, I set a meeting up with one of them because those two individuals are both also active duty military so we all have kind of strict schedules and I had a meeting up with him. I showed him the deal that we were looking at, and he immediately knew that it was a solid deal.
And he didn’t come on and say it and be like, I want to be a part of this, and then the next month, me and Jay presented it to them and say hey, we’re trying to syndicate. Would you guys be a part of this and help us get to the closing table? And that’s how it happened. Is there anything else you want to add?
Jay: So another point to it is if you don’t know who to talk to and you’re very an introvert, like myself, right? You don’t like to get in front of crowds like Tim does, one of the things—and we’ve heard several versions of this but I heard this version on a different podcast recently. It’s about start talking to your friends and family. Say hey, I want to start investing in real estate, who should I talk to?
Well, take it one step further and this is the part I heard on a different podcast was, if you were to get fired today, who are the 10 to 15 people you would call to say okay, what should my next step be? And those are the 10 to 15 people you need to call and say hey, I want to start investing in real estate. Who should I be talking to? Because those are going to be the people who are going to give you the best advice. They’re much more well-connected.
Brandon: Yeah, that’s so good. One of the things you brought up, and I’ve never heard anybody say this strategy before, and I don’t think you meant to do it on purpose, I don’t think, but it’s still really, really awesome. You brought the deal to the guy, it sounds like, to almost ask advice, right? You weren’t even pitching the deal to him at first.
You were asking advice. Letting him know about the deal, getting him excited along with you, and then later, and I’m not saying you’re doing this on purpose, but it’s such a cool strategy, right? Later you go back and say hey, are you interested?
Because now they’ve had time to think about it, they’ve had time to look at the deal a little bit. They know who you are. They trust you that you were asking advice and now you can raise money. I am totally going to steal that move.
Tim: For everybody listening, I’m telling you, especially if you’ve done a little bit of real estate yourself and you know you want to go after the medium or large-sized multi-family deals and you don’t have that cash on hand or you don’t have the reputation where you can raise a couple million for a deal, bring it to the people that you know who can. I’m telling you.
Because once you get this first deal done, there’s been exponential growth with both Jay and I where now people know, we closed on an apartment complex and it’s almost like, without even realizing it, you’re a magnet to money, to people who want your advice, to people who know you have the capacity to close deals. You get even more deals coming through. You get more money coming through simply because you knew how to get that first deal close.
It wasn’t a massive sized apartment complex, not for our first deal, but it’s amazing that if you bring those partners in—and not only that, their expertise, we essentially called them the Board of Advisors for this deal because they didn’t really make any decisions unless me and Jay were faced with a situation where we needed to consult them and say hey, we’re looking at this property management company. Before we sign up with them, we want your input on that.
Because that’s a major decision when you’re figuring out who’s going to manage your property. Another thing, again, for all the listeners, partner with people who have the capacity to close. Don’t try to tackle stuff. You can, by all means, do it. But that is one of the easiest ways to get into larger scale deals, is to bring partners in who have already done it.
Jay: Yeah, just to add to that. The only thing I would critique on the way that we did it is we waited until after our deal packaged together on our first deal, and then we started presenting it to investors. The way I’d do it now is I’d go to sit down and have lunch with somebody I know who is interested. I’ll take a sample deal package with me and say look, at some point in time, I’m going to bring you something like this. Let’s talk through it. I want you to get comfortable with it and make sure you understand it and tell me what you don’t like about it and what you’re going to have to see to be a partner on the next deal I’ll bring you.
David: That’s really smart.
Brandon: I love that. I think my buddy, Michael Blanc, who has a podcast and a blog, he’s a writer and he’s been on the podcast a few times here—he talks a lot about that. I had never heard of that before and he told me about that. Put together a sample deal.
Jay: That might be where I got it from. His sample deal package is essentially all we used and we were able to transition that and make that reflect our deal, and that’s essentially the same one we used for all of our deals from this point.
Brandon: So smart. Yeah.
David: You guys bring up a really good point of there’s a lot of things that need to be done, raising the money, there’s preparing people for when you’re going to be raising the money. There’s rehab, there’s finding the deal, there’s finding people that can vouch for you so that you can close the deal. Can you tell us a little bit about how you guys split up the duties that go into taking on something like this?
Jay: Part of it is we’re still figuring that out. Our first big deal together, there’s a lot of moving parts, especially the rehab piece. And I think, David, you and I talked about how our personalities are different. Tim and I’s personalities are different. I think what’s happened naturally is our personalities have just kind of shifted and taken on roles.
We really haven’t talked about it too much but it’s so much like okay, David, you know you’re good at this. You’re focused on the details. You’re going to scrutinize everything. You’re probably going to make a couple of contractors angry. You do this.
And then Tim, big picture guy. Always positive attitude. Nothing can go wrong. He’s going out and doing this, right? So that’s kind of how it’s evolved. But again, it took that first deal for us together to figure that out. And the next one that comes along is just going to be easier.
Tim: And the way I’ve learned is Jay is the left brain. He’s the analytical. Sometimes he overthinks. Sometimes he’s the perfect epitomy of the analysis paralysis. I don’t think I’ve ever had analysis paralysis because I’m the right brain.
Jay: You could have stopped at perfect.
Tim: My bad. But yeah, I’m the right brain that, I kind of have that 10,000 vote view, I can see the big picture and I can paint that vision. I’m more charismatic with people. I can easily strike up a conversation with pretty much anybody. I’m the guy that every single REIA meeting, I get up in front of everybody.
Some people have seen it over and over and over every month. And I tell people who we are, what we do, exactly what we’re looking for, and then five minutes later, you’re surrounded by people who either have something for you or could get you in touch with somebody who can provide that for you.
And again, I’m the right brain guy and it’s like almost the perfect partnership and that’s where we always try to tell people, when we’re looking for partners, one—I highly recommend one is the analytical, data-driven left brain, and the other one is the more visionary, the right brain, more charismatic, pretty much could converse with anybody and can talk about real estate with anybody.
Brandon: Yeah, that’s awesome. I want to point out a couple of quick things here. We talked about it briefly earlier about how you guys would go to these local events and I always suggest, if you don’t have an event, start an event. I wanted to point out the URL for that at BiggerPockets. It’s BiggerPockets.com/events. You can go there. You can see all the events in your area and if you want to start one, go ahead and do that.
One other thing I’ll point out, too, though is one of the powerful things at an event, if you’re hosting an event or you’re at an event, and it sounds like you guys have this at yours, where people just stand up in front of the group and say who you are and what you’re looking for. I know some of the clubs around here call it, what is it, like the “Haves and Wants” section or something like that. What do they have and what do they want, right?
I want to point out, take part in that. If you’re at an event like that, make sure you do that. But I’ll also point out that over on the BiggerPockets forums, there’s a place called the BiggerPockets Marketplace. And a lot of people know the Marketplace as where the deals are. You can go and a lot of people list their wholesale deals there and flips and things like that. It’s great.
But what people don’t know is you can use that as your “Haves or Wants”. Go in there and introduce yourself. If you’re a Pro member anyway, you can post in the forums and the Marketplace. So say hey, I’m looking to get started here in Pensacola and I’m looking for a medium-sized apartment complex. If anybody has any around, let me know, right?
Those kind of posts might attract just the right person, especially if you have some keywords in there like city names. People will see that, read it, reach out to you. Just like in the real world where they surround you afterwards and like, hey, let’s work together. I’ve got an idea. They’ll do that on the digital world as well. So I just wanted to point out those two things for people. So BiggerPockets.com/events and BiggerPockets.com/marketplace.
Tim: I’m telling you, Brandon, that’s amazing advice, too. If you could set a weekly reminder to just repost it, automatic, you don’t even think about it. It will take you two minutes to write and post. If you do that on a weekly basis, you’ll be one of the first results when people are searching that. Or you’ll be on the top.
If you do it once and never do it again, you may or may not get any response and you’re like, well it’s not powerful enough. It didn’t do that well. You’ve got to be insistent and you’ve got to be persistent and you have to have so many “nos” before you get any “yeses”.
Brandon: That’s true. You guys are in the forums, at least I’ve seen your names around. Can I ask you—maybe this is a little selfish question but like, why do you participate in the BiggerPockets forums?
Jay: I participate for two reasons. One, to learn, because there’s still a tremendous amount of value that I don’t know or never thought of. And two, to help give back. I promise you, if I weren’t have found BiggerPockets, I would still be buying single-family homes that cost me $300 a month to keep, right? It was just a shift for me and I feel like I owe it to you guys, to BiggerPockets, to help educate others and get past that initial question, hey, here’s a couple of numbers on a property—is this a good deal? Well, it goes further than that.
Tim: That’s the beauty of BiggerPockets. There are people who have just heard the term ‘real estate’ and they appear on BiggerPockets all the way to people who are multimillion dollar investors and everything in between. So if you just set a keyword notification and you say, if you’ve done one deal and say if it’s either a flip or maybe a small multi-family using the 203K list, for example.
If you know you’ve done a deal, set a keyword for that so when people jump on the forums and they ask a question that you know you could answer because you have the experience to back it up, do that. And try to do it every week. And then at the same time, you can go, what question do you have?
Post that question and you’re going to have a hundred responses. It’s just amazing, the power of BiggerPockets is insane and I have to attest BiggerPockets a lot to where Jay and I are at. We’re nowhere near our goal of where we want to be in our goals, but BiggerPockets streamlines that process, if you leverage it properly.
Jay: The selfish side of me is, and maybe this is just the way I am wired and thee way I learn but the more I educate, the more I learn if that makes sense.
David: Yeah, absolutely. They say you learn 98% of what you teach. That’s the best way to learn about anything. One of the best ways that I love to use BiggerPockets is when you’re on the forums or you meet somebody through there, you can click on their name, you can look at their profile, and you can see all the ways they’ve contributed. And based on the types of things they are answering or the questions they’re asking, you can get to know what kind of person that is, right?
So if I went to you guys’ profiles, and I looked up Jay and I looked up Tim, I would see that Jay was answering questions that were very detail-oriented that had to do with analysis, that had to do with making sure all your ducks are in a row, and Tim was giving encouraging advice and coming up with these grandiose plans and telling people like, man this is what you’ve got to do, you’ve got to stop doing that. And then me knowing myself, I can figure out which kind of person that I needed in my life to help me become a better investor.
The problem I think, is that most of us are looking for people that are just like we are, because we’re more comfortable talking to people so analyzers want to talk to analyzers. So they get into circles of analyzation and they get their computers out and they run these numbers and they leave three hours later and they feel like they just worked and they just did something, right? And they did. They just tickled their little analyzation—
Tim: Ran into a defense lately, Jay?
Jay: I did. I put on my propeller hat just for him.
David: Or the opposite happens which is big thinkers get together and they plan out these like 15-year plans to take over the world and be the next Elon Musk and then they don’t do anything because they don’t have an analyzation guy to actually put something in place to make it happen. You can’t only talk to people that are like you. You’ve got to find people that have the skills that you don’t have. That’s what makes really good teams. That’s what the best sports teams, they have people do each aspect of what their team is trying to accomplish, at a really high level, and they all play well together.
And I just want to commend you guys for recognizing that and stepping into your comfort zone and putting it together because now you have a really good partnership. The two of you have a really good rapport. You know who’s doing what. You know who’s good at what and you guys are going to be successful on another deal, I’m sure.
Tim: And another thing I want to tell, a quick little story about how when we were—we didn’t even know each other yet. We just had gone out to dinner with that broker, then we found this 42-unit deal and we were conducting due diligence. I knew the first thing that we had to do was put a deal package together, an investment summary for the banks, for the investors, etc.
So I built it using Michael Blanc’s summary deals. That’s one example deal summary that I had in my toolbox. So I pretty much just made that reflect our deal and you know, just an overview, and I put as much detail as I possibly could into it and then that night, I’m like hey, Jay, check this out for review. Within 24 hours, I truly believed that he had some kind of investment summary making guru that he had in the back office of his house, because of the detail and how amazing it was in a 24-hour timeframe.
All the detail he put in, all the pictures were on point. There was like all the legal terms were on every single page, it’s a professional grade deal package. And I’m like all right, from this point forward, Jay, we already know who’s going to be doing the deal packages in our partnership. And so that’s just how we really realized who was going to do what for that particular piece.
Brandon: That’s funny. So now that you guys have found each other through networking, through BiggerPockets, do you have any advice for people who are listening to this that are like, I need that. I need a partner because I am the left brain or I am the right brain. I need somebody to come up with what I lack. What’s kind of the first couple steps you would advise for people looking for that?
Tim: Know for sure you’ve got to be patient with yourself because you have to give people reasons to want to partner with you. And how do you do that? You do that by knowing what you’re talking about, being able to speak the language by reading books, listening to this podcast over and over and over, even if you know it’s not in the particular genre that you want to go after, or the niche.
So just educating yourself to where you talk the talk and you know what you’re talking about, being patient with yourself and then going right back to having clear and concise goals and having it narrowed down into 10 or 15 second elevator type pitch, not to sound salesy, but just so you could just repeat it over and over in your head ten times. So when anybody asks you what do you do or what are you looking for?
My name is Tim. I focus on B and C multi-family properties. We’re focusing hard right now on mobile home communities and apartment complexes in desirable neighborhoods with a predictable path to progress. And if you could just fine-tune that and just tell everybody something similar for your own particular situation, people will take you a lot more seriously.
So be patient with yourself. Go to those REIA meetings. Get in front of people. Break out of your comfort zone. If you’re one of those left brain type of people, like Jay—I know for me, it’s like second nature so I’m not really out of my comfort zone when I’m doing that stuff, but you know, you have to portray yourself as a subject matter expert.
Even if you have to close a deal, at least talk the talk and say this is what I’m looking for. I know exactly what I’m looking for and then brokers will take you more seriously, too. So what else do you got for finding partners?
Jay: You know, finding partners, I would say the same thing I do for finding brokers. You’ve got to have that one-on-one time. I think meeting socially or through social media is one part of it. But you’ve got to get some face time. It’s really hard to portray geniality over the web or over text. So you’ve got to get some face time with them.
And like Tim said, you’ve got to be patient. It’s got to take some time to develop. I think we were extremely lucky with Kyle having the foresight of saying, these guys have like-minded goals. Let me link them together. And I think he did it as he was hoping to get a deal out of it. He still sends us leads. So I would just say that.
Don’t be afraid to go grab coffee with somebody. Don’t be afraid to take them to lunch. Always buy lunch. If you ask somebody to go to lunch, always buy. It just lets people know that you’re real and you’re serious and you’re genuine. And I’ve been doing that with brokers and realtors for the last six months.
And usually, the conversation is about what interests them. What’s going on in your world? What’s going on with your family? That kind of thing. Eventually, you get personal. Now, don’t, the first meeting, say hey I was stalking you on Facebook. What were you and your wife doing this weekend? That’s not the way to do it. It’s just be a real person to them.
Because now, I’ve been doing that for six months or so, the deals that I’m starting to receive are much more solid. They’re in tune with what we’re looking for and it’s just—we haven’t closed on anything through those but the leads that are coming in are much more solid, right? Much more in our wheelhouse. Some of the sellers just think their properties are worth more than they are, but that’s it.
Tim: It sounds like just read How to Win Friends and Influence People and then apply that in real-life situations. Be genuinely interested in others.
Brandon: You still haven’t read that book?
Jay: I have not read that one.
Tim: The right brain part of the partnership has so we’re good.
Brandon: So okay, you mentioned sellers are thinking their properties are worth way too much so like, you must have some criteria in what you think a good deal is. So can you kind of walk us through, what is a good deal to you guys? What are you looking for?
Jay: Specifically, we’re looking for, and the reason why we’re looking for this when we’re talking about multi-family now is just our investors are looking for a minimum of 15% ROR and somewhere between 7-10% ROI.
Jay: Thank you. I’m the numbers guy. Have we met? But the beauty about that, we talked about our 42-unit apartment complex, the way we split that up, it was a 60/40 split, right? So the asset managers got 40% of the deal. The money guys got 60% of the deal. So the beauty of that, you know what your investors are looking for so you can kind of tailor the deal however you want to, and the latest deal package I put together, it was ugly and we ended up throwing it out. It was a 90/10 split.
The reason why I say the beauty of that, I learned this from one of our other partners, is that you go to an investor and say hey, this is going to get you 50% return, they’re probably going to look at you and say hey, you’re crazy. But he did this exact same thing. He reworked the numbers, gave himself a larger percentage, went back to the same investors and said, okay now what do you think? And they’re like, yeah we can do that.
Tim: It’s more realistic. Even though it’s less.
Jay: The point I want to make there is you’ve just got to know what your investors and what your potential partners are wanting out of the deal.
Tim: So while Jay is stressing over the numbers, basically, I’m looking at the location, especially if we don’t know the market very well. I haven’t analyzed a deal without going to three different websites. BestPlaces.net, BLS.gov—it’s Bureau and Labor Statistics, and City Data. City-Data.com.
All we’re looking for is your very simple metrics that are so powerful, is that is the population increasing? Is it going up? Higher than the average, which I think is like between 4-7% depending on where you’re looking. Per year population growth. And then not only that but the median home price has to be above $100,000. Because if it’s below $100,000 that means that people could actually afford to buy their own homes instead of renting one of your units.
So median home value, at least $120,000 is usually where our target is. We’d be willing to look between $100,000-$120,000 depending on how the metrics are checking out. And then making sure that there’s diverse employment in that market.
There’s more than two, three, four solid employment industries in that market, making sure that there’s healthcare, maybe there’s government, maybe there’s aviation. Maybe there’s a school system. Multiple, not just one. It can’t just be one specific industry that is carrying the economics of that market. So the location is the first thing I look at while he’s stressing over the numbers, basically.
Jay: And don’t be afraid of beehives either.
Brandon: Beehives? Is there a story with this?
Jay: So during the due diligence of our 42-unit, we noticed that there were some bees swarming around this unit that was not occupied. And that was it. They were swarming on the outside or what not. Well then, we got to go into the unit and bees started coming in more and coming in more.
So our manager, our property manager at the time wanted to just go in there and have our groundskeeper spray them down and that be it. And I was like, no. Something’s telling me that there’s more to that. So we hired a professional beekeeper to come in and scope out the situation. The hive in there was about five years old. The size of it was ginormous.
Tim: Like six feet by four feet wide. Four feet wide by six feet long. It was massive and crazy.
Jay: But we got some pictures of it and we got some really good honey out of it that I actually jarred up and gave to our investors. The running joke was, either this was going to be the most expensive jar of honey you’ve ever purchased or this is your first dividend. So that’s what it was.
Tim: But that’s going back to we’re looking for that value add opportunities. We’re looking for the locations. Obviously, the numbers gotta work. But value add opportunities like high expenses.
Essentially, where’s the NOI and high expenses could mean that the owner is paying for some of the utilities or water, where you can bill it back using RUGS—a ratio utility billing system, on a master meter. It’s simply just get numbers put into a formula and every tenant gets billed back equally based on occupancy.
So low expenses—if their shutters are falling off, if the grass is overgrown, and then of course, if there’s a distressed seller. If the seller is in any way distressed. And how do you know that, Jay? How would you know if a seller is distressed?
Jay: He’s in his mid-70s and if you look at the property that he’s been managing and taking care of himself and half the shutters don’t have windows on them. Some of the units didn’t even have unit numbers on them. We walk in through, when we were doing due diligence, and one of the units had some water damage to it. And there’s mold. Surface mold that hasn’t been taken care of.
Brandon: That’s how most people respond to it.
Jay: I’ve been meaning to get to that.
Tim: Like two years ago? That’s pretty much it.
Jay: Oh yeah, we also found a stack of about, for podcast listeners, it’s about four inches thick, of trouble calls that were never addressed, by the tenants. Dating back probably just a couple of years of trouble calls. So the tenants were not getting taken care of and that’s why it had the reputation that it did. That’s some easy ways to identify good opportunity.
Brandon: I wonder if there’s some way to use—I’ve never heard of an investor talking about this, but I wonder, and I’m just going to give away some massive secret here—use like Yelp and find like apartments that have the worst ratings on Yelp and use that as leads. I don’t know if they rate apartments on Yelp but I wonder, there is probably a thing there. The more complaints the tenants have, probably the worse the landlord is and the more likely they would be to sell.
Jay: Google Reviews allows you to review just about anything.
Brandon: Yeah, looking at Google Reviews and seeing if you can find the ones—anyway, before we move onto the Fire Round, I’m curious—I actually got inspired just now by our conversation earlier about how a lot of the real estate clubs have this section of “Haves and Wants”. So I’m going to shift that to our guests today, you guys.
Is there anything that you guys want that our listeners might have? Is there something we can help with, like our listeners listening right now, what is it? You have the clear and concise goals so what is it that you would like our listeners to know that you guys are looking for in your business?
Tim: And Jay can back me up or completely change it but this is what I believe that we’re looking for, and it is mobile home communities and apartment complexes, any size and any condition, within a three-hour drive of Pensacola, Florida.
That means in Mobile, Alabama, Mississippi, getting closer to Orlando and Tampa and Jacksonville. And then up into Atlanta. Not as far as New Orleans. That’s probably like the border, but any size, any condition, mobile home communities and apartment complexes or multi-family deal.
We like to stay between, at least over 60 units, up to 100. But we’re going to look at all deals. Some hidden gems won’t meet all of our criteria, which we’d be willing to flex. What’s your response say?
Jay: Yeah, from an asset standpoint, absolutely. I think, too, and this is something I’m venturing off myself is I really do want to get back—I think ther’s a niche that I can help serve and get back, and you guys at BiggerPockets do this, too. But the focus for myself is real estate investing for the W-2 employee.
And that’s kind of what our Facebook group is dedicated towards, because I started this journey with—I’m going to clarify this in case my boss is listening—so the company that I had worked for, for a little over a decade, I was the Principle at, we were required under no stretch of the imagination did that acquisition go good. I don’t even want to use the word great. Everybody claims that everybody knows it.
It was a very frustrating time in my life and I was like, hey, I’m ready to pull the ripcord and I’m ready to do this full-time. Well, that was three and a half years ago and things have since ironed out and I actually love what I do. Just like you guys. Brandon, I’ve heard you and Mindy and Scott, I’m sure David said the same thing, is that we could all be financially free right now but we love to be able to give back.
So my focus is now, hey, you can do this while you work a full-time job and focus on that niche. And a lot of me focusing on that is in turn helping me learn, right? Teach but learn kind of thing. So I would love to point people to that Facebook group. But yeah, from an asset standpoint, Tim it right on the head.
Brandon: Cool. And we will link to you guys’ BiggerPockets profiles, obviously in the Show Notes of this show, which you can get to at BiggerPockets.com/Show282. But we’re not quite done yet. We’ve still got the next segment of the show which we lovingly refer to as our Fire Round.
It’s Time for the Fire Round.
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Today’s Fire Round, of course, let’s get to it. These questions come direct out of the BiggerPockets forums, and I know you guys are active there, so maybe you’ll recognize the questions or maybe not. So let’s see if you can help out some people in the forums.
Number one, I love this question. I have three tenants. All of them are on a lease: a young woman, a young man, and the young man’s father. The couple is nice and they make more than enough to afford the place. It’s the father who is clearly a freeloader. Last night, the father and the son got into a fight and it sounds like the police were called. I’m waiting to see a copy of the police report. The dad got a restraining order first so the couple can’t stay. They are only three months into a year-long lease. Any advice? Should I keep the couple? Should I get them all out of there? What do I do?
Jay: If the couple is gone and the dad is living there, I’d be fine with it. I would say if it went any further than that, I would seek your attorney’s advice to see what you legally can do because I don’t imagine in your lease, it says something like if you get into a fight with your wife’s dad or whatever, you have to leave. I would focus on the legal aspects of it and get some advice on that and I’m not the person qualified to give you that advice.
Tim: That’s the thing. Before I can even try to manufacture some kind of answer, I’m going to go straight to the property management thing and say, how are you going to handle this, and they have an amazing attorney on retainer. And he’s going to be an instrumental piece in that decision and there’s a lot of depending factors, like what’s the occupancy and all this? Is it going to make or break the numbers?
But even if it did, something like that is only going to escalate. There’s no way that I could foresee that Dad is either moving out or essentially just changing his behavior overnight to where okay, regardless of what you tell him or you try to convince him, and so it’s probably not going to get any better. It’s only going to get worse at that point.
Brandon: David Greene, you were a cop. Any thoughts on that question?
David: You know, this is actually such a tricky situation for police because there’s no crime committed, it sounds like, just an argument. And then a lot of people don’t realize, in my state of California, if you’ve been living in a place for a certain period of time regardless of if you’re a freeloader or not, you still have tenants’ rights and it actually has to go to civil court and the judge has to evict you from like your parent’s house if you’re a kid and they’ve been living there for a long time. So the lease probably doesn’t cover some of this stuff because legally it can’t.
So I think I would do exactly what Tim did, I would go to property management and say how are you going to handle this? What do you recommend we do? And then I would probably make a decision about who I’m going to try to kick out first. I would say, we need to start paying a lot more attention to this house.
I want a weekly walkthrough. I want to make sure it’s not falling apart. I want to make sure the rents are paid on time. The first mistake they make, if I want to get rid of them, boom. That’s what I would do. But I wouldn’t just jump right to that, think oh this could get bad. I better kick them out. No, just pay a little more attention. Do a little more investigating.
Jay: And maybe pay a little more attention to detail in your screening process. Was the screening process in place at that point or how did they get through the process?
Brandon: Maybe the dad wasn’t even supposed to be there. I don’t know. I think it said he was on the lease though.
David: Yeah, he was on the lease.
Brandon: All right. Anyway, cool. All right, good question. What’s funny is those kinds of things do happen when you’re managing your own properties all the time. Like, we constantly deal with stuff like that. And most of the time, our response is like, we just don’t get involved unless the rent gets paid. Unless they break the lease, I don’t get involved with the drama. Because there’s always going to be drama with tenants. The lower income you have, the more drama you have. And it’s just what it is.
Tim: My question was, are they paying rent on time every single month?
David: Well then maybe we’ll give them a little bit of flexibility. And that’s why I use property management. If I don’t have the authority to arrest you, I don’t want to be involved.
Brandon: All right, next question. The seller does not want to give me a due diligence period in the offer I am writing. What do I do?
Tim: Walk away. I would say walk away unless they can give you all the requested financials, which are essentially a one-sheet of paper with all kinds of bullet marks. Everything from certified financials to a PNL dated in the last 36 months, and all leases. If they can provide me everything I’m asking for, it’s still going to be—and that’s only paper but you still need time to walk the property and take a vendor through.
I’m trying to figure out a way around that. I’m just wondering how they’re going to sell it. They’re going to probably sell it to somebody who is either paying cash and doesn’t know what they’re doing or somebody who has the resources to no conduct the diligence because they know the property very well and they have all the financial data that they already and they already need.
Jay: So it basically comes down to, you’ve got a process you know that works. And the way to repeat success is to use the same process. If you’re used to doing acquiring properties like that, by means, so be it. I’m not there. I don’t know if I ever will be.
David: It’s funny this came up in the Fire Round because the exact scenario is happning to me, last week. My agent’s calling and I’m finally like what? She said there’s a great deal but the sellers don’t want to offer you a due diligence period. I’m like, well why? They just want to see it as is. Thy don’t want to have to do any work. I was like okay, did they already do a home inspection so that I can look at? No they didn’t do it.
Okay, well do they have any reports of what’s been done? No, that’s not the case. They said that you can pay the report yourself and then write an offer if you’d like. And I thought the same thing as you, who’s going to buy your house? If you’re telling people A, I won’t do due diligence period. That just puts up red flags. I’m probably going to have to pay more essentially than I would have if you didn’t say that.
And then you wouldn’t even get a report done for me to be able to look at myself. Now we’re just like in a stalemate because it’s stupid. Now that house is just going to sit on the market for 60 days. I probably could just go and get my own inspection report because nobody would ever buy it but just out of pure principle, I don’t want to.
Tim: Me and Jay were just talking about that. It seems now sellers are doing due diligence on the buyers before the buyers even start due diligence. We’re trying to put an LOI in for this mobile home community and before we get even it under contract, they were like, we need to see a preapproval from a bank. We need to know exactly how much they’re putting down.
We need to know what bank they’re using. Like this whole list of stuff, they’re doing due diligence on us before we even get it under contract. It’s like, I don’t know if I want to proceed with this deal. There’s too many deals out there to mess with this one. But that’s funny, I just thought of that when you asked the question.
Tim: And I know we’re fine. But I’ve got a similar experience. It wasn’t due diligence. It was verifiable income. So I had a 36-pad mobile home park under contract and kept asking, initial request in the seller’s agreement was provide verifiable income expense statements. Anyway, I ended up walking away from them because they would not do it. They would not provide. I think their last comment after many, many excuses was, we’re just good people. You just need to trust us. Clearly they weren’t very motivated to sell if they weren’t.
Brandon: What’s funny is when I was doing the mobile home, I mean I’m still looking for mobile homes but when I was buying my first mobile home park, I was running across that kind of thing all the time. So many mobile home park operators do not have any records. They probably walked door to door, and say, hey you guys got your change out of your couch cushion today? They just collect rent when they want, how they want.
Tim: Will you take our piece of notebook paper that’s signed or maybe not signed?
Jay: I think Tim was onto something there. I don’t think they were motivated to sell. Because I even offered to do a master lease for three years so I can build that financial information and strike a deal with them but they weren’t up for it.
Brandon: Yep, onto the next one. All right, next question, if you had no ties to any city in the U.S., where would you move to start your investing career?
Tim: Me personally, I’m going to live where I want to live and I’m going to invest where it makes sense. So investing would be the middle of the United States. South and the Midwest. That is where there’s steady growth. When you’re looking at the United States, the East Coast and the West Coast is the most volatile, that reacts the most to the per se market cycle, the cyclical 20-year period of time that homes appreciate and depreciate.
So the middle of America is the most proven to be steady growth. There’s going to still be down markets but during those super volatile times where California and Florida are going up and down, the Midwest and the South are stable. So I would invest there and maybe move to Hawaii and hang out and learn how to surf from Brandon.
Brandon: You’re invited anytime.
David: You’ve already got the shirt. Pull the money out of your couch cushions and you can pay for your plane ticket and you’re ready to go. Brandon, why don’t you take this last question?
Brandon: All right, I can do it. I think it’s an interesting question but it’s kind of long. So 12 months ago, this guy paid off his first rental property in Boise, Idaho. Now, he’s making a cash flow of a little over $1,000 a month. He thinks he can sell the property for like $230,000. So it’s worth $230K and he’s making $1,000 a month in cash flow. So he wants to take that money and use it elsewhere. He’s not making a massive return off what the property is worth.
The two options are A, sell it and take the money and invest it in two single-family house rentals. Maybe put 20-25% down on each one. Or not sell it, take out a home equity line of credit instead. Get a line of credit on it and then use that to buy one more house. What would you do?
Tim: What do you got, Jay?
Jay: I don’t know this guy or his goals, right? So it really depends on what he wants to accomplish. For me, I’m in it for cash flow. I’m going to pursue the option that’s going to give me the most cash flow. Now, I do like home equity line of credits. Because you’re only going to pay what you’re using, versus selling it off, putting down payments. I don’t know. I’d have to run the numbers here, overthinker and analyzer coming out of me. I want to see what’s going to give me the most cash flow.
Brandon: You know, I think it’s a really interesting question. I’ve never heard of anybody asking it in the forums before. I’ve never seen it before. That’s why I wanted to bring it up because while this guy is talking about a paid off property, the same question comes up all the time from people wondering should I sell the house I live in right now and buy a rental with it, or should I just refinance it or get a home equity line of credit?
And so yeah, for me, I’m kind of like you. I’d just go through the credit number and be like, which would give you the highest return? And go through all the numbers and the return on equity. David, you use that number a lot, return on equity. Is it worth pulling out? Anyways, there is no right or wrong.
Tim: I’m never a fan of leaving equity in property. Not only is it not financially smart because you don’t have the return on equity, right? But you’re just making yourself more and more vulnerable to a very litigious society. And the more equity that you have in your property, the more people are going to look at you and try to go after your assets if something happens.
Yeah, you can always have all the asset protection in the world under an umbrella policy on your insurance and everything but there’s not enough coverage with you. If you have a completely paid off property, they’re going to look at you before they look at someone who has a hundred properties with low equity on every single one of them. So I don’t foresee myself anytime in the near future leaving a whole lot of equity on any property.
Brandon: There you go. All right well let’s transition to the last segment of the show, which we call our Famous Four.
These are the same four questions we ask our guests every week and we’re going to throw them at you guys right now. Number one, I’m sure you’ve heard these before. Number one, what’s your favorite real estate—each of you can answer individually—what’s your favorite real estate related book, or current favorite book?
Tim: We should paper, rocks, scissors it. No, go ahead.
Jay: Rich Dad, Poor Dad. You guys have mentioned it a lot. Many, many guests have mentioned it on the show. That book, but there was a trifecta when I discovered that book and it was actually discovered through BiggerPockets but we talked about the merger acquisition I was a part of and how horrible of a nightmare that was.
My wife was pregnant with our first child. Discovering that book just had a paradigm shift for me in the way I look at managing money and growing a lifestyle for us. So it has to be Rich Dad, Poor Dad.
Tim: Everybody defaults to Rich Dad, Poor Dad because it’s the mindshift that gets everybody into it so I’m going to have to say Rich Dad, Poor Dad. But for real estate, I’m probably going to have to go to Ken McElroy’s ABCs of Real Estate Investing. He is the real reason why I pretty much stopped looking at small residential property and I went straight for multi-family.
It’s like literally, and Brandon, you’re the one who mentioned it countless times over and over, and I was like all right, maybe I should buy it and I should read it, a couple of years ago. And it’s a step-by-step guide of how to analyze multi-family property, how to conduct due diligence, and it’s just like he simplifies everything. And then of course, his advanced guides are excellent. So if I had to choose one, Rich Dad, Poor Dad is that mindset shift, but The ABCs of Real Estate Investing probably had the most profound impact on my career so far.
Jay: Isn’t it scary how much advice we get from a guy who has to [inaudible][1:09:54]?
Tim: Hey, double human protection.
Brandon: Nobody can see that but before the show started today, I’m at my buddy’s house recording this podcast, hence the bad sound, and I put on a pair of headphones and they are massive. And they’re like air traffic controller headphones. And then he’s got sitting here another pair of headphones, so I thought, why don’t we throw those on, too, make the point? So I’ve got more headphones than any person can ever need.
David: What’s even funnier, and people don’t realize this, is Brandon suffered a concussion yesterday because he’s too tall and he walked into the ceiling of the house where he’s staying at, and it actually looks like he’s wearing a special helmet to protect himself from the concussions.
Tim: His eye was also gouged down. He doesn’t see how funny it actually looks. He’s only had one eye at this point.
Brandon: I’ve had a rough few days here.
David: It looks like we’re visiting him in like the mental institution and he’s got a soft helmet on and he’s been poking himself in the eye, poor guy. But he’s here, providing amazing content for all of us in this podcast.
Brandon: All right, shifting back to you guys.
David: Back to business. We’re not making fun of Brandon anymore. Tell me what are your favorite business books?
Jay: Is this me? I’ll give you two. I’m a big fan of Grant Cardone, anything he puts out. But are you guys familiar with Ryan Mickler at all? So he just recently released a book, Sovereignty: Battles for the Hearts and Minds of Men. It gets into business a little bit but it is a little more inclusive about protect, preside, and provide for your family and what it takes to be a man. So that book, alongside Rich Dad, Poor Dad, was a paradigm shift for me.
Brandon: Have you read Wild at Heart? David Greene and I throw that book out a lot. We both know that book. It reminds me of what you just said about Sovereignty. I haven’t looked that one up but I’ll look it up.
Jay: I’ll read it. I’ll add it to the list right now.
Brandon: Wild at Heart. Awesome book. But anyway.
Tim: So if I had to—again, there’s so many great ones. And it turns out, I’m going to name two because it has equal impact on my life and in my career. The first one would have to be Tax-Free Wealth by Tom Wheelwright, at his Rich Dad advisor, his CPA. And everybody hears how many tax incentives you get in real estate but he really just simplifies why there are so many tax benefits and so many incentives and he was the guy that maybe understands the IRS and the fact that the IRS is not just trying to consume as much capital as possible from the W-2 earner.
The IRS simply incentivizes certain behavior. That behavior is to provide housing and to provide jobs. If you invest in real estate, you happen to be doing both. So that’s why the IRS gives so many tax cuts and so many tax benefits to investors. Plus, he goes on a tangent and kind of a step-by-step guide to choosing a CPA that’s right for you. So tax-free wealth is huge.
And then the second one is The Go-Giver. That one is an amazing book. It’s just the five steps to stratospheric success or something like that but it’s all based on giving. It’s all based on the more you give, the more you will receive. The amount of income that you earn is based on how much value you could bring. And how much you can give all day, but you have to also be open-minded and have to be willing to receive as well.
So, The Go-Giver. I’m sorry, that was a short read. Super short read, super easy read. Even The Tax-Free Wealth is a short read but those are probably the two that I had to mention.
David: Yeah, somebody gave me The Go-Giver. I haven’t read it yet.
Tim: Oh man, dive in. It’s great.
Brandon: Wow, somebody gave you The Go-Giver? Somebody was paying attention.
David: All right, what about hobbies? What do you guys enjoy doing when you’re not cleaning out beehives from abandoned apartments?
Jay: Anything the family wants to do. I love my family, I love my wife. Love my kids. We’re situated in Gulf Breeze which is between downtown Pensacola and Pensacola Beach. So downtown Pensacola has been going through this revivalization for about ten years now and it’s just incredible. Booming area. So we hopped down there. If we get tired of going to the beach or on the boat or fishing or what-not.
Tim: So yeah, amazing beautiful wife, Alison. Spending as much time with her as possible. We don’t have kids so this is the time in our lives where the time together actually means a lot before we start becoming parents. And then, Brandon, you don’t know this yet but I, too, have a four-pound Yorkie. He’s amazing. His name is McGee. Best dog I’ve ever met. I never thought I would be a dude that has a four-pound Yorkie. I always wanted a German Shepard or a Rottweiler because I’m a guy, but best dog ever. So I spend as much time with them as possible, of course.
Brandon: Did you name him McGee after McGee and me kids’ videos back when we were kids? Do you remember those at all?
Tim: No, I’ve never actually—
Brandon: You remember those, David, right?
David: Yeah, I do. They were like Veggie Tales before Veggie Tales.
Brandon: Yeah, they were like ‘80s big kids’ videos. Anyway. McGee and Me. Look it up on YouTube.
Tim: When my wife and I first got together, she would call me McGee just random, and then one of my favorite all-time bands is Unfreeze McGee, an awesome band out of Chicago. And that transitioned into the fact that music is my passion. I can’t live without music. I’ve been playing drums all my life. I play in a band in this area. We have shows most weekends.
So I love going to see music and that’s one of the reasons I wanted to get into real estate, so my wife and I could travel the world and go see music all over the world and enjoy it. It just takes me into a different mindset when I’m seeing live music. And then staying active, being on the water where Pensacola beach is one of the finest beaches in Florida. Super clear. I like to scuba dive and stay active and enjoy the summertime.
Brandon: Awesome. All right, well, my last question and you guys can answer this independently if you want or together, it doesn’t matter. What do you think separates successful individuals from those who give up, fail, or never get started?
Tim: I think we both had the same answer, right? Pretty close is that you’ve got to know your ‘why’. I touched on this earlier. You’ve got to know why you want to invest and then you can set up goals to support that why and then you can focus on your investing criteria to support those goals. But you’ve got to know why.
Jay: And I could say it’s the grit. Never giving up. That’s it. Just knowing that whatever’s happening in your career, whatever you’re failing at, know in the back of your head that this is all part of the process. Just keep going. Keep talking to people. If there is a brick wall that you have faced, it’s usually one person that’s missing from the equation or maybe one book or something you need to get, that little piece of advice or one podcast that you just need to listen to. Just don’t give up. Don’t stop. And establishing your ‘why’.
I have to emphasize that because I spent so much time establishing my ‘why’. Not only why I wanted to do this for myself because I want freedom and I want to give back and help promote financial education all over the world. But understand why people get into real estate. Really educate yourself on why people get really involved. Why there’s so much tax benefits. Why the government struggles to provide affordable housing.
Why all that—so if you have that solid ‘why’, I could say you need to set up your ‘why’, but learn about all the reasons why people would do this and why real estate is so powerful. I think because I spent so much time on that, everything is just a habit. Like I don’t even have to think I’ve just got to keep going. I failed but I just have to keep going. It’s just a habit now. It just automatically happens because of that ‘why’, it’s so strong and stable.
Tim: It’s a motivator. When we talk about all the good stuff that happens and the deals, and growing our financial wealth and independence. Things go wrong and you’ve got to have something you can rely on to help pick you back up and get you motivated again. And the clearer your ‘why’ is, the easier it is to do.
Brandon: All right. Tell us, guys, how can people find out more about you?
Tim: Of course, on BiggerPockets. I think I’m TimmyKelly on BiggerPockets. And I’m pretty active on Facebook and LinkedIn. TimmyKelly on Facebook and then LinkedIn is Timothy Kelly. Pretty active on Instagram, the Timothy Kelly, and then my website, KellyHousingGroup. Any of those ways. And then you can always give me a call. Area code 847-910-9161 or shoot me an e-mail anytime. [email protected].
Jay: You just gave out your cell phone number to 200,000 people.
Tim: Only one of them may even consider calling. By all means. I’m very, very open to it, guys.
Brandon: All right, Jay, what’s your cell phone number?
Jay: 555-5555. I have a landing page to point everybody to. It’s HelmsREI.com. From there, you can hop over. We’ve got all the social media links. There’s some page you can download. One of the things we talked about earlier is sample deal package. There’s a link to the Facebook group. And the e-mail, of course, is on there. But yeah. HelmsREI.com.
Brandon: All right. Good deal. Well, thank you, gentlemen. This has been a lot of fun today. I’m kind of excited to see where you guys are heading next in your little partnership. So super cool.
Jay: Thanks for having us, Brandon. Watch your head when you get up.
Brandon: That beam is too low. Thank you. Good men, good men. Well, get out of here. Adios.
All right, that was our show with Jay Helms and Tim Kelly. Super, super cool. I love hearing that story. I love people who are, they connect on BiggerPockets or through BiggerPockets. Getting together, working real estate together. It’s like you said in the intro, right? The Avengers? Sometimes we have things that we’re really good at, sometimes we’re not. You find people to work together and you can take on a lot of bad guys.
David: These guys took down a 42-unit property together. I would venture to guess that they would not have bought a 21-unit apartment individually. So like the sum of the parts is greater than the sum of the whole or however that saying goes. Definitely the case with these guys. So that’s very encouraging. If you’re not getting the success you want, maybe you’re missing a partner.
Brandon: There you go. I actually use a lot of partners in various deals. I’ve kind of always done that. In fact, I’m looking at another deal right now that I’m trying to put together and I’m going to use a partnership for that. So more on that as it develops. I’m kind of excited. It should push me over the hundred unit number that I was trying to get to, so we’ll see.
David: That’s really something.
Brandon: That’s really something. I’m growing up and putting on my big boy pants.
David: A hundred-unit club. I like it.
Brandon: If I get it, it’ll be like the 150-unit club, which will be pretty exciting. We’ll see. I’ll tell you more about that later. Off the air because I don’t have it under contract yet. All right ya’ll, it’s been fun. Thank you guys for joining us today. If you like this show, make sure you subscribe to this show whether you’re on iTunes, whether you’re on Google, whether on YouTube, whether on Facebook or whatever.
Subscribe. Hit that little button. Hit the little ‘Like’ button. Share this with your friends. Make sure you like and comment and all that. And again, another good way to find partners. If you want to find people, start sharing stuff like this on your Facebook page. I’m not saying that for selfish reasons. Go share somebody else’s stuff that’s not even related to BP.
Just share real estate content on your Facebook or on your Instagram or on your Snapchat or whatever you do. Snapchat it if you’re like seven. And let people know that you are in real estate and they will reach out to you and you never know who you’re going to find. So with that, DG, anything you want to add?
David: I think you said it. If you ain’t subscribing, you ain’t trying. So you better go subscribe and let everyone know you’re legit. And with that, this is David Greene for Brandon “I Am Groot” Turner, signing off.
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