BiggerPockets Podcast 107 with Jonathan Makovsky Transcript

Link to show: BP Podcast 107: Making $47,000 On Your First Deal with Jonathan Makovsky

Josh: This is the BiggerPockets podcast, show 107.

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Josh: What's going on everybody? This is Josh Dorkin, host to the BiggerPockets podcast. Here with my freshly-relaxed friend, Mr. I Spent a Week and a Half in Hawaii, Brandon: Turner. What up Brandon:?

Brandon:: Hello, it's good to be back. First day back.

Josh: Aloha.

Brandon:: Aloha. It's always a depressing day, your first day back from vacation. But today's been good though. Today's been good.

Josh: Good. Well, I hope you had a good trip. Did you guys do anything exciting in Hawaii?

Brandon:: I rented a moped. That was cool. And the island sails are on the southern part of the island and I looked at real estate because I can't help it.

Josh: Haha. Some weight application.

Brandon:: I know, I know. I didn't like go into any places. Just every time we drive around the island, whenever we see one of those like realtor boxes that you can go and grab one of the flyers - every time I had to grab it. So I found like a duplex for like $900,000 right on the ocean, on the opposite side of the island and I'm like, "I could live in that little one bedroom unit in the bottom. You know the mother-in-law apartment and rent the top as a vacation rental. So who knows?

Josh: Let's do it.

Brandon:: Let's do it. You can rent the top out, BiggerPockets will fund it. I love it.

Josh: Looking forward to spending the weekend there when you buy it.

Brandon:: Haha. Alright, we're doing it. Anyway, other than that yeah it was a good week. It was a good vacation away and now I'm back. So if anybody emailed me or PM’d me in the last, week, sorry. Haha. I'll get back to you.

Josh: Welcome back, welcome back. It's good to have you here. Alright, well. The year is moving along nicely and we are as well here at BiggerPockets. Today we have a quick tip that we are super excited about. Today's quick tip is: we are proud to announce--

Brandon:: Drum roll.

Josh: Drrrr. Alright, so we've been talking about this thing since the beginning of last year and we put up the "COMING SOON!". Well, soon is year. Soon is relative, in the whole distance of the universe it was pretty soon. But today we are excited to announce the launch of the BiggerPockets Wholesaling Calculator.

Brandon:: Whooo!

Josh: And this thing came together after lots and lots of work. We collaborated with lots of folks. Anson Young, Jay Scott. A bunch of other people and we really, really appreciate all their feedback and input in making this happen. And really the guy that was instrumental behind it was Brandon: and its awesome. It's awesome. Yes. No, you Brandon:. You don't have to look behind you. I'm talking about you.

Brandon:: Haha. Me and Anson went out to lunch and we spent like two hours brainstorming this thing back like last year. Anson was the brainchild behind this. But yeah, it's exciting to be out here. So here's what's cool about it. There's a couple of things that I like a lot that when we designed it, it's bigger than the rental property calc or the flipping calc. In that, there's a little bit more that you can do with it because wholesaling is a little bit more complicated in that. You need to be able to sell to a flipper or to a landlord.

So you could actually work backwards, just like a wholesaler works backwards. This calculator actually works backwards. You start with the ARV, you work backwards to discover how much you should pay for a property. So if you're looking to get started with wholesaling or you could use this for flipping just as easily or buy and hold. But if you're looking to get started, you're not sure how much you should offer on a property, you could work backwards and with rental side of it, you could actually put in like a yield, a return on investment and ROI. Like what does your landlord want to get an ROI of. And you can actually get a final number based on that. Anyway, I'm pretty happy with it. I love it. I use it on my own stuff now all the time. Just for the analyzing, anything. It's my favorite calculator we've done yet. Check it out.

Josh: And where do they find it?

Brandon:: BiggerPockets.com/calc. C A L C. All of the calculators are there and you can get specifically to the wholesaling one on BiggerPockets.com/calc so check it out.

Josh: Good stuff. Alright, well this is show 107 of the BiggerPockets podcast and you could check out the show notes at BiggerPockets.com/show107. Really, really quickly, before we get into this, if you are listening to the show and you have not yet left us a rating or a review on iTunes, we really, really ask that you go ahead and do that. Those ratings and reviews are extremely helpful for folks who are exploring their podcasting options. And when they see what you think about our show, it certainly helps motivate them to jump on. So please, check out. You can find the link on any of our show notes and just go to iTunes and find the BiggerPockets show and leave us a rating and review. That would be extremely helpful. And lastly, before we introduce him, we're going to have to get a word from today's sponsor.

Brandon:: Alright, this episode is brought to you by RealtyShares.com. Realty Shares is a real estate crowdfunding platform that allows accredited investors to invest in pre-vetted real estate deals online. So investors can browse and invest in both residential and commercial properties that yield returns of 8% to 16% annually. As a Realty Shares member, you can also passively invest in professionally managed real estate investments in a variety of asset types and geographies for as little as $5000, all from the convenience of your living room. Excited to learn more and to get started with a free account, visit RealtyShares.com/BiggerPockets. That's RealtyShares.com/BiggerPockets.

Josh: Alright. Let's bring him on. Today's guest. Jonathan Makovsky. Jonathan is a Miami-born man who has moved up to the New York-New Jersey-Connecticut TriState area and he's a relatively new investor. But the cool thing, this is not necessarily a newbie podcast. We get into some pretty cool things. Jonathan's got some great tips. He's wholesaled, he's flipped, he's worked with a partner. He's doing all sorts of great stuff and I think there's a lot of great advice in here so pay attention. I know Brandon: wants to chime in and--

Brandon:: Yeah, I was going to say, the thing I liked about the show most was that-- and I talked about this in the show later on-- but most beginners lose money in their first deal or two. But he went and together with a partner made almost $50,000 on their first flip and then they wholesaled a deal right after that. Then they did a buy and hold, you're looking at a commercial property. The first few deals, he just like right out the gate. He's just rocking it and I love to see that. He's got some good tips on how you can do the same thing.

Josh: Yeah, that's key. I mean I think those were extremely important to listen to for anybody. Regardless of how experienced you are so definitely stay tuned. Well with that, why don't we bring him on? Alright, Jonathan welcome to the show man. It's good to have you here.

Jonathan: Hey, great being here, Josh. Great being here, Brandon:. Thank you.

Brandon:: Yeah, thanks for coming on. This is going to be fun. I'm excited to talk about your story. I've been kind of following you. We've been hanging out online for a couple of years now, you and I. A year now? Something like that. Yeah, I don't actually know your whole story. Today let's get into it.

Jonathan: Yeah!

Josh: And thank you in advance for showing up during the middle of the biggest blizzard in the history of New York. It's dedication - to the listeners. Dedication.

Jonathan: Yeah, well it's to be determined. Media likes to hype this stuff up so we'll see what happens. Gets great ratings for them.

Brandon:: That it does.

Josh: Yeah, for sure. Cool man. So I don't know much about you. I know you and Brandon: have been chit-chatting for a bit. So let's just start with the beginning. Who are you and how'd you get into real estate. Tell us your background here.

Jonathan: Sure. Well, the funny thing is I'll just fast forward and then rewind for a second. I wouldn't be on the podcast probably without the BiggerPockets podcast. I'll go back and explain kind of how all that ties in. I'm a CPA by trade. I started at one of the big four accounting firms and then went to another big financial institution as a CPA in their real estate crew. Worked there. Wasn't so much. I mean, both firms were fantastic but I was stuck behind an Excel spreadsheet all day. 12-13 hours a day and wasn't my speed. At the time, I figured, "Hey, you know what, if I'm going to be miserable my whole life, let me be miserable and make a lot more money." So I applied to law school.

Josh: Nice.

Jonathan: Figured combine a JD CPA and maybe that'll do something better for me. Fortunately, once I got accepted to law school, I gave notice to the company I was working, and this was back in January 2010, and my brother-in-law was starting out a restaurant. So he figured, "Hey," we're both talking. He said, "Why don't you come work for me until you start law school." And I figured, "Hey, this is a great idea." I loved what I was doing. It was necessarily the food per se, but being an entrepreneur and being out there and making things happen in a kind of new establishment.

So worked with him and told law school, "Thank you very much for the acceptance, but I'm not going." From there, my friend's father started a 2GO packaging company in the quick service restaurant space and they had no sales in the US and it was kind of like, "Hey, why don't you come and just try to make things happen?" So they were actually not in the country working here, so it was really, for me, wearing a lot of different hats. My primary role was sales, but also was doing a lot of pitching to help raise money. Doing the accounting. Really everything else that's needed to run a business, I was helping them out. It was fantastic, we were growing. We got a lot of big accounts. But at the end of the day, it wasn't my business. And I really wanted something of my own.

So I looked at a lot different businesses. Laundromats, and things in the health care industry. And my mom kept pushing me to real estate. I always figured, to get in real estate to really need to-- your family needs to be in real estate or you need to have a lot of money to get in real estate so I didn't know how to really transition. At the time, this is summer of 2013, I had not yet found BiggerPockets. I knew about valuations, just from my financial background. My mom's like, "Just go check out buildings. Just go check things out." So I was like, "Alright." So I was looking at different things, looking at things in the Bronx. Everyone's saying, "Oh the Bronx is going to explode, just like Brooklyn's exploding. It's the next big place. You can get in the city." So I was looking at things and I'm like, "These valuations are just through the roof." People aren't accounting for vacancies. People aren't accounting for cap… Before I found BP, and I love this suggestion of kind of going outside. Go within the sixty to a hundred mile range of places to look, see that's kind of the strategy that I was employing. I was going to Connecticut. I was going to Pennsylvania. I was going to Jersey.

And I was doing this for some time and figuring, "Hey, at some point, I'll hit it." November of 2013, a friend of mine was saying, he kind of told me about the BP podcast. And I was looking, I still wasn't finding any deals. No deals really coming back to me made sense. But on the ways, wherever I travel, I'd be listening to the BP podcast and I figured I could make a go with this. So a year ago, almost today, somewhere January 2014, I gave notice to the company, I'm like, "I'm going to make real estate a full-time go." I felt with BP, you know despite some of the advice that a lot of people say, "Hey, don't quit your job until you know."

Josh: Haha. It's not my fault by the way. Blame it on Brandon:. Blame it on somebody. It's not my fault.

Brandon:: I tell everyone to quit their job. Do it.

Jonathan: I think it's great advice. One thing that I've kind of learned - just a little side tip here - you can't listen to all the advice that everyone says. Everyone's situation is different. Everyone's situation is personal. I was just listening actually the podcast with Mike Sumsky. Last week. I listened to all 106 and I think I'm a third of the way through listening to them a second time ago around.

Brandon:: That's awesome.

Jonathan: They're great. Yeah, you guys sound slow. I usually listen to you about 20% faster.

Josh: Hahaha.

Brandon:: That is funny. I do that too, a lot. We made that quick tip like a long time ago. Maybe I'll re-hash it here that if people want to listen to the podcast and want to go through it quicker, if you have an iPhone or an iPad, you can do faster speeds when you listen to it. You can get it going pretty good. Anyway, quick tip. Anyway, alright. So you were saying, you were listening to the podcast. Driving around. Learning stuff and--

Jonathan: And not coming across deals. So doing a lot of stuff. And actually I was getting engaged in BiggerPockets. Again, listening to the quick tips that you guys--

Josh: I'm engaged to BiggerPockets by the way. Getting married and--

Brandon:: Engaged ON BiggerPockets.

Josh: Yes, yes. Oh. Oh, I see.

Brandon:: Anyway. Okay.

Jonathan: Nice, Josh.

Brandon:: Haha. So you were listening, getting involved.

Jonathan: And not discriminating only listening to the buy and holds podcast, even though that's what I was really looking to do, because for me flipping and wholesaling was so beyond what I thought I can do. And I also networked with a lot of people in BP. But one of them, who is now my partner, him and I were sitting down to breakfast one morning in Connecticut, he's been there for a while. He has a hew smaller multis. We were just talking, "Hey George," I said, "how are you doing with your investing? Are you looking at deals?" And he said they're trying to look out-of-state and find different things but it's not working. His investor group shied to pull the trigger and just talking more I found out his background's GC. And I said, "That's interesting," I said, "Did you ever consider flipping?" You know, I've kind of been learning all about it through the BP podcast. And he's like, "Yeah, I kind of thought about it but never really pulled the trigger." I said, "Look, I got my license in real estate. Will you consider? Maybe let's give it a go." He said, "Sure, we can try it out."

We started slow. I want to say it goes about end of February or March of 2014, somewhere around that time period. And we were taking it really slowly about it. We were kind of looking at just going. I had my real estate license so we didn't need to wait on anyone else. I was able to just go to any house I wanted to. Also, I was part of a brokerage that kind of gave me some places, "Hey, go here. Go to this area. This area's hot. This area's not." Really guided me along the way. But again, this is March, April. I think March and April, we still weren't finding any deals. We were doing sometimes about 12-15 houses a day, just going through, looking at--

Brandon:: Well, I was going to say, didn't mean to cut you off there. But you mentioned something there that's really important. Maybe we can touch on that, maybe we talk about it later. But the idea of you were looking at 12-15 houses a day and you said you had your license at this point, right?

Jonathan: Correct.

Brandon:: So there is a good reason why you should get your license, right? Because a normal real estate agent probably isn't going to show you 12-15 houses a day while you go and search for a good deal.

Josh: That's a great point. Absolutely.

Jonathan: Yeah. So I had taken a real estate course in New York. I had to take some more hours because they added some more since I took it last. I got my license actually in the middle of I read Jay Scott's book, The Book on Flipping Houses, which is a total life-changer for me. He talked about the advantages of having a real estate license and that was one of them. Just really being able to plow through deals and we go and make tons of offers. I was able to write my own offers because we disregarded the list price when we would offer because otherwise we couldn't make money.

So finally, after again, not coming across any deals, George and I said, "You know what, I've been learning all about these direct mail marketing campaigns from the podcast, maybe we can give that a go." So we did a few home-cooked direct mailers. The first one was kind of a dud. We got some responses but I also didn't know what to do when the sellers called me and picked up the phone. So we kind of let it go. We re-did the mailers back in May. I think it was first or second week of May of last year. The responses were through the roof. A lot of tire-kickers but we got a ton of responses in every deal - and I don't know if this was a Jerry Puckett or one of the other great people on the BiggerPockets - you know, just be persistent and just keep following up. I had their phone numbers so it was just easy. It was just, "Hey, will you sell? Will you sell? Will you sell?"

Finally, we got one of the people, and he's like, "Can you bring your number up a little bit and we're ready to go?" So we re-ran the numbers. I went back to the brokerage - which going back to having a real estate license, one of the advantages - I'm also able to leverage off my brokers. And they'll give me undivided attention because they know I'm kind of a go-getter and they're also getting a piece of every pie that I'm doing without really doing too much work. To your book Brandon:, which was fantastic, about partnership - that's one of the partnerships I don't hear too many people talk about. But being associated with a good brokerage, someone that's going to kind of show you and kind of mentor you without really taking too much of their time, that was really a good partnership that I had. We were kind of able to narrow down our ARV a lot better. And we still say conservative, I still hang around the more conservative side. So we, on July 1st of last year, we purchased the property for $154,000.

Brandon:: Okay, $154,000.

Josh: Where was this?

Jonathan: This is in Trumbull, Connecticut.

Brandon:: Trumbull, Connecticut. I don't even where it is.

Josh: I'm going to roll back a quick second. Man, you say we're slow because you listen at 20%. I'm going to have to slow down this recording because you talk fast man. Holy Moses. I love the energy. Wow! Alright. So the Bronx, really quickly. I've got a good friend. He's been investing for a long time. He started up in Harlem, moved over to the Bronx. Definitely is not as hot as Brooklyn. Brookyln's insane, absolutely crazy. But the Bronx, it's a great place. It's starting to come up and there's definitely the chance for opportunities but like you said, I love that, you're patient. You're patient. You're patient. You're not going to dive in and just buy anything because you're desperate to do it.

And for those people who are listening, I think it's really, really important to understand that. It's so easy to get caught up in this, "You know what? I'm going to skip the fundamentals. I'm going to bypass the numbers because I can't find a deal right now." Well, then you can’t find a deal right now. Set your criteria, look somewhere else. Keep looking until you find one within your little farm and go with that. But don't change your criteria and bend so that you can make it work because that's the fastest way to screw yourself. So I really love that. Anyway, I just want to kind of get that in. I tried to get it in about ten minutes ago, like I said, you talk fast man. Alright, so you're in on this first deal. You paid $150K. What was it again?

Jonathan: Yeah, $154,000.

Josh: $154,000. George, you said, was your partner yeah?

Jonathan: Yes.

Josh: Okay, where'd you find George? We're going to get to this deal really quickly, but where'd you find this guy?

Jonathan: George and I met on BiggerPockets. I think I mentioned that. I was looking at a few, primary multi-family deals before, that was kind of the space that I wanted to play on. Figured it was a lot more for recession-proof kind of product to have and couldn't find anything. There was one deal that the seller and I agreed on a price and I was going through my due diligence list. At the time, I was on BiggerPockets and George had posted one of his forum posts. He was in Connecticut. Due Diligence Checklist. So I emailed him, just had some questions about it. So we kind of just chatted loosely. Like I said, I think this was in November of 2013, I reached back out to him when I wasn't finding deals and was just kind of asking him. His experience, where he's looking in in Connecticut's pick-up properties, because I know he has some. He said he couldn't have. He said he wasn't finding any. So I messaged George and said, "Do you want to sit down and just grab coffee one morning and just talk about things?"

Brandon:: Do you have any recommendations for people? Because I get that question a lot. Like how do I find a partner on BiggerPockets? How do I use BiggerPockets to find somebody to work with? In your experience now, do you have any recommendations that people can do?

Jonathan: Yeah, one of the best advice that I had when I was looking at a lot of different business was just talk to everyone and anyone and I know you guys speak a lot about that. For me, when we're looking at a property, if there's a neighbor or there's a mailman nearby, I always go. I'm not too shy, so I'll always go and say, "What's the deal with this house?" Haha.

Josh: What?

Brandon:: That's smart. It's smart. That is an incredible tip right there because sometimes like the mailmen, they know more about the neighborhood than even the people that live there a lot of times too. They see everything.

Josh: They see the mail. You're not supposed to really know what's happening in the mail but they get an idea.

Brandon:: So you never know who's going to be the… I think that's good advice. Anything else you want to add on that?

Jonathan: Well, just on that, to further that. You also never know when you speak to people - kind of down the line - when you're going to go and have to speak to them again. I've had so many times recently. Actually something-- I don't know if we'll get to this-- but there's a deal in Boston, I even ended up doing. I don't know how to make this long story short, I’ll probably be dead at this part.

Josh: Can we come back to it after we get the… because I know we still want to get to the flip. I know people listening want to get to the flip. I know you were going somewhere. Why don't we kind of go in some kind of order, because whooo! You got some energy, boy.

Brandon:: Haha. $154,000.

Josh: Alright, I'm going to cut back. $154,000. We got this flip, you picked it up. What on earth did it take to rehab? How'd that first experience go? I'm assuming George led the way as the GC. Just kind of walk us through the process quickly and then let's kind of crank out what the numbers look like through and through.

Jonathan: I just got to rewind first for one quick second here before the purchase. Just one quick tip, we had an inspector come too. Because George, like I said, his dad was a GC. His dad was a Gc. He's been around the industry. He's not a general contractor, so we did have an official GC do our jobs. But again, he has all the contacts in the industry to kind of lead the way. But we did get an inspector. We did feel comfortable with your purchase price and one of the things that the inspector saw was an oil tank underground. That was when I began to research through BP.

That was one of the big things and I just really got to express a lot of people out there. You could be starting way in the red even before, if there's some spillage in the oil tank, we had to remove it with the fire marshal. Right before our inspection period did I call the seller and said, "Hey, we just can't do this deal. There's just way too much risk involved before the tank is pulled. Look, we'll pull the tank for you. We'll pay the money if the deal goes through. We'll just add that to the purchase price because originally we agreed on a $151,000 purchase price. And so he pulled it. Everything came out clean, but I just think that might be a good tip for anyone wanting to get involved because if that leaked, you could be looking at a $5000 - $10,000 excavation. But if it goes to the foundation of the house, you could be looking at a six-figure excavation to get rid of the oil.

Josh: And those oil tanks, that's pretty common back home. We had one at my house growing up in Long Island. I don't know exactly where it's typical, but I know it's a New York thing for sure.

Brandon:: Interesting. I didn't even know that.

Josh: Hey and the town that you purchased in, where exactly is it as it pertains to Manhattan?

Jonathan: So we are just outside-- we're in Riverdale, in the Bronx. This is about 50 miles from where I am. So it takes me an hour to get there.

Josh: So you're telling me, because I'm on the BiggerPockets podcast - 40,000 people are going to be listening to this. 50,000. A hundred. Whatever it is. You're telling me that New York City, Manhattan, like one of the most expensive places on planet Earth to buy real estate within 50 miles of where you are - you were able to buy a property for $150,000?

Jonathan: Yeah. And the next one town too.

Josh: There you go. So if you guys are listening, you cannot complain anymore that, "I can't find deals where I live." Because there's always deals.

Brandon:: Yep.

Jonathan: Absolutely.

Josh: Keep going.

Brandon:: $150,000. You ended up buying it $154,000. You ended up paying the extra because he removed the tank, correct?

Jonathan: Yep. $154,000. Yep, it was $151,000 plus the three grand for the tank removal. So we're at $154,000. We went in. George and I had, I think, we put about $25,000 each into the deal and we had raised private money for the rest. So this was July 1st. HUD statement was pretty simple and we projected five months to do it and we were kind of going back and forth how we should do the rehab. We had projected $93,000 are for rehab costs and we overshot that. We went to $134,000.

Brandon:: Wow. So you were predicting $90,000 something and you went to $134,000.

Josh: That's a big change.

Brandon:: Which is fairly common for people's first flips but how did that turn out then?

Jonathan: So we changed a couple of things with the flip. The way it was, on the town record it was a four-bed, two-bath including the finished basement downstairs, although the finished basement was never carpeted. So there was no master bathroom and the only way we could fit a master bathroom in there which we wanted to put in, again speaking to the brokers that we leveraged off of, was to change the entrance to the home. So we changed the entrance to the home. We opened up all the walls to make it an open floor concept. And the funny thing is, so we overshot our rehab budget by $41,000. Again that was due to opening walls, putting the master bath and changing the entrance. Once we opened up the walls, which for new rehabbers out there, just be aware, we had to wring up everything. All the insulation to code. All the electric to code. That was a big knot for us that we didn't--

Josh: That's a great tip by the way.

Jonathan: So we had our ARV at $330,000 and we ended up getting, once we sold, to $371,000. So it's kind of almost dollar for dollar of the $41,000 that we overshot the budget. We got it back on our ARV.

Brandon:: Nice.

Josh: I'm not doing the math in my head. I'm lost. What was your profit?

Jonathan: The profit was $47,000.

Brandon:: And you split that with your partner?

Jonathan: Yeah. Funny story about that again, going back to the partnership thing. I had one friend when I told him, "Hey, we got this deal and we got it done." And he's like, "Oh, how much did you make?" I said,"$47K," and he's like, "Oh, what did you do with your partner?" " We split it 50/50." He's like, "Oh, that must have been tough to get him to write him that check." And I was thinking to myself, "Man, I wouldn't have been here without him." And funny thing is, when we closed that deal, we also closed a wholesale deal on the same day from the same seller that we purchased that property.

Brandon:: Okay, so the same seller that purchased that one, you did a wholesale deal?

Jonathan: Correct.

Brandon:: Wow. Okay. Tell us about that real quick. Why didn't you end up flipping that one? Why'd you wholesale it?

Jonathan: So that property was around the corner from the one that we did. And so we purchased this one for $154,000. He didn't want to let this one go for under $160,000. He was pretty adamant. The location was not as good as our first one. Our first one had 1,700+ square feet. This one had about 1,300 square feet. And we just knew how much work and there were just a ton of issues that we came across and the situation, how they treated their properties. It's deferred maintenance across the board. They were evicting both of their tenants. So there were a lot of issues in both the properties and we just knew the risk was too great for that.

So we had it under contract while we were doing our inspection. I was kind of shopping out the deal to a couple of people that I built my buyers list, so to speak. I'll tell you how I got that in a second. So I sent it to one person and he's like, "Oh, I got a buyer for you." The person who referred the buyer, we wholesale that for $185,000. So I gave him $10K and we took $15K on that wholesale deal.

Brandon:: Nice. 15 grand. That's great.

Josh: Yeah Not bad.

Brandon:: What's cool about your story is that a lot of people get involved in real estate. Their first deal, first two deals, whatever - they lose money on the first one or two. That's why I generally don't recommend people- you know if you don't have a lot of money to get started, like, "Lets quit your job and go and flip a house and that'll be the income I'm going to live on, is the success of that flip." I usually just tell people you'll probably lose money on your first flip. It's very, very common. So I think it's awesome that you didn't. What would you attribute that to? Why did you succeed on both your first wholesale and your first flip?

Josh: He's a CPA man. Those guys are ain’t your tenant dude. Geez, can you not tell?

Brandon:: I don't know. Haha. Yeah, what do you think?

Jonathan: That's probably true. We're a certified pain in the you know what. That's what CPA stands for.

Josh: Haha. Self-acknowledged. I love that.

Jonathan: Oh yeah. George and I are pretty conservative. So again, we don't subscribe to eraser math, which you know, if you're in your underwriting and you're just saying, "I don't need to calculate this cost in," or "I don't need to calculate that." We didn't know everything. Not all 41,000 that we overshot our budget was due to opening walls. There were unexpected costs that we had. Some bad contractors, sub-contractors. So on and so forth.

But we stayed pretty conservative with the numbers A lot of the brokers were kind of telling us, "That house, you'll easily get $340,000 or $350,000 for ARV." We're kind of like, "I don't see that support for those numbers." I see plenty of houses kind of in that $330,000 mark and I'm not going to lean towards the ones that did really well. I'll lean towards the crappy ones, or the ones that didn't sell for so much. Whether it's a short sale or whether there might have been less square footage, or maybe it was a better location. We stayed pretty conservative for that.

Josh: And again, another smart thing there. I think if all investors were to do that and be conservative with their numbers, overshoot your rehab costs, undershoot what you're going to walk out with and odds are you're probably going to do better than the over and under right? So I think that's great. Really quickly on the rehab, you talked about the sub-contractor issues. I'm just curious, what were those issues and how'd you overcome them?

Jonathan: So George was really involved in the delegation of duties. I would really do everything-- well not everything. I mean George was with me, we're kind of together from the beginning. But I was really handling all of our marketing. I was taking all the calls. Looking into ARVs. George's role is - once we were done with the acquisition process - he would take over, and again, for a lack of a better word, GC the job, although he wasn't the GC. So he could speak a little bit more to some of the sub-contractor things. Some of the common issues that we paid. We paid some of the people too early in the process and they didn't bother showing back up. Although they did, but that cost us two weeks.

One quick tip that we kind of learned as we're doing our second rehab, just finishing it up - again, George is handy. And he's spent a lot of time on the job, swinging a hammer and I think because we kind of didn't see the big picture at that point, that also cost us some dollars. Again, it saved us money, obviously too. But I think being able to look at it and we spoke a lot about this to scale our operations up, it's like, "Hey, you can't be swinging a hammer and doing this. We have to take in to your cost into account." So those were probably the two big takeaways.

Josh: Nice. Really good stuff. Brandon:, I know you had some thoughts.

Brandon:: Well, I had a lot of thoughts in there but one thing you said earlier about the eraser math. I wanted to touch on that for a second. Because you know that's something that people do a lot. And that's something that I've been guilty of many times. I've told this story a number of times about this. There was a single-family house, or a duplex, we decided to turn it into a single-family house. on episode 92 of the podcast, I told that story. We tried to sell it for $170,000. We ended up selling it for $125,000. I wasted two years of my life. It was a miserable thing. One of the things at fault there was the eraser math.

Josh: What does that mean guys? Because some people may not know.

Brandon:: It's just like a fudge in the numbers because emotion makes it better. Just like you said, when you looked at there was a range. You said $330,000 and $370,000. You looked at the $330,000 ones. See when I did that property, there was a range between $130,000 and $170,000. And I said, "Well, mine's going to be really, really nice."

Josh: $170,000.

Brandon:: Haha. $170,000 right? I think even it was more like $130,000 to $160,000. And I was like, "Well, mine's going to be really nice." And my agent was like, "Yes, it is. We can get $170,000." I'm like, "Yes, we can." And no, we can't! Because that's eraser math and that's what got me in trouble. That's one of the reasons I harp people all the time is to use the BiggerPockets calculator just because it makes the eraser math. There's no eraser on the computer right? Whether or not you use the BiggerPockets one, or a really fancy Excel one, the fact is when you do the numbers on paper and you have other people look over them, those things really help to get rid of that emotional eraser math. Anyway, that's why I push on that stuff all the time.

Josh: And you can find those calculators at?

Brandon:: BiggerPockets.com/analysis.

Josh: There you go. By the way, at the time of this recording, before or on, we are actually announcing, launching at some point, either just launched or if you haven't heard about it, we're going to launch our wholesaling calculator. It's done. It's beautiful. It's awesome and you can find it at the BiggerPockets/com/analysis if you are not aware and it's really, really helpful. Sorry, I had to plug. Got to plug.

Brandon:: Do it. Do it.

Jonathan: That's where I learned. All from plugs.

Brandon:: Nice. Okay good. Haha. I want to go back to some specifics. Kind of dive in a little bit deeper on some of the stuff that you've done that intrigues me. Mainly direct mail. Can we kind of dive in to your numbers. That's something that we hear about a lot on the podcast. A lot of people talk about using it successfully. But it's nerve-wracking to go and take all that money and just throw it into the mail and hope something comes. So you said at first you just kind of half did it and didn't really get a good response. And then you obviously got a good one.

So can I ask, what did you do that made that better and what kind of response is good? Like what do you mean by good? Can you go to details on that direct mail?

Jonathan: Sure, the first mailer that we did I found a tip on YouTube. People did is just they took a blank white paper and wrote on it and made photocopies just leaving out the person's name and the address of where they would buy. And they would put it on to I guess it could be yellow or white letters. Doesn't make a difference. It would just sort of run. George and I were sitting there and writing out the names and the addresses and writing out the things. We can't tell you exactly what our response rate was, at the time, I just didn't take it as seriously as I should have. But one top of that, it was just way too time-consuming. And I don't have the numbers to track what our response rate was from that first mailing.

The second time around, again, I got a lot of tips from the BP podcast. Like I said, as I was driving, I would just pause the podcast, talk into my phone and say, "Hey that's a really good tip." One for example I think was Jerry Puckett who he said, "We use these..." I can't remember if it was bright color or different colored envelopes and it just stands out in the mail and people open it and it's just a little more personal than a typical white letter. So we did that. I went to Staples. They have these self-stick, adhesive mailers. Bought a ton of those.  spent a lot of time with getting our mailer down and kind of the words and what we did. Our response rate has been, I think we mailed out about 3,000 to date or maybe a little more, so it's not a tremendous sample size, but we've been getting about 8% to 14% response rate on each mailer.

Brandon:: That's good.

Josh: That's not bad.

Brandon:: And they're letters. They're not postcards, right? They're actually letters in an envelope that you're sending out, right?

Jonathan: Yes, yes.

Brandon:: And did you consider the postcard idea? And if not, why did you go with the letter over postcard?

Jonathan: It's a great question. It's one thing that I think about a lot. I can't remember who said it but I believe it's on one of the podcasts someone said, "You know the postcards are great because it really eliminates a lot of the tire-kickers out there. You really only get the serious leads and it's a lot less money." And I think that's great reasoning. For me, I would see one of my bigger strengths is talking to people. I'm not someone and I never was someone on a sales call that could nail something down on the first one. I’d like to build relationships.

So the first deal that we got and again, I can talk about a few others, were really, once the person called, they may have been the tire-kicker for some, or they may have been someone that wouldn't really have responded through a postcard because they weren't really looking to sell at the time. But it was just once I got it, it was like, "Hey, are you looking to sell or just being persistent every week?" And I'd either send them a text or give them a call. You know a lot of times it was four letter words and stop calling me. "I told you my kids are doing the house. Don't bother me anymore." But hey, you know what. Until they tell me that, I'll keep calling them or texting.

Josh: Nice. Relentless. Relentless. That's awesome.

Jonathan: I have a great little, quick story here--

Josh: You don't have any quick stories.

Jonathan: Haha. That's true. It's a long story.

Brandon:: Let's hear it.

Jonathan: But it's a non-business-minded friend of mine who is in his Master's program and he was just way too busy to date. And so this was about ten years ago when Myspace was popular. His methodology was, "Hey, I'm going to go out and every night send out a hundred messages to girls on Myspace," and he was telling me about this. And his response rate was about 10% and of the 10%, 7 of them are like, "Hey Joe, I told you to stop sending me this message.

This is the 9th time you're sending it to me." And of the other 2 or 3, he'd get his dates and he just didn't have time to date traditionally. So this is what he was doing and that was like, "That's brilliant. That's what we're going to do with our mailers. So we get people that are like, "Hey, four-letter words. Stop mailing." You just got to know that it's a numbers game.

Josh: I think there's a fine line between stalker and email marketer. I think your buddy airs on the side of stalker with Myspace. Just a little bit. Just a little bit.

Brandon:: I wish I had thought of that back in the day. Haha.

Jonathan: Well, he wasn't going in each profile. He was just, again, mass marketing. He would just copy and paste. He wasn't saying a name. "Hi, my name's Joe. I'd like to get to know you." And that was it. 

Brandon:: That's funny. 

Josh: Hysterical. I wish I had like a dating podcast because I'd want to put Joe on the show. That's awesome. 

Brandon:: I know. I want to like split test that now and I do all these. Have them say one message versus another. And I do all these marketing techniques with picking up girls. Wow. Amazing. Okay. So we talked about the direct mail a little bit. I have another question and now I'm drawn in blank. So Josh anything you want to jump in on?

Josh: Yeah. I'm going to move past direct mail. If we need to come back, we'll come back. IN the notes here, it talks about you being in the early stages of moving into office buildings. I wonder if you could talk a little bit about that. You're still pretty damn new at real estate, so what's got you interested in getting into office real estate and tells us a little bit about kind of where you're at.

Jonathan: Sure. So big picture is kind of I'd like to be a commercial buy and hold investor, refer to commercial as more of the mortgage sense of multi families included in that. And the office building, it's not necessarily that we want to be in office buildings per se, but one of the properties that we acquired, the second one that we're working on, the seller also owns an office building. Actually right next door to the property. And I would text her pretty much every week, if not more and just say, "Hey, are you looking to sell the office building yet? We'd like to buy." It was no, no, no. And all of a sudden, one day, it's "We're ready."

So we're still in the due diligence stage. There are some things that have come up that we weren't aware of before so it's still to be determined whether that deal will go through or not, but bigger picture - we're always looking to-- I don't want to say move to that space, because I don't see any reason that we can't flip and make this a scalable business while we're doing bigger deals. 

Josh: Okay. Really quick, you're not a wholesaler by definition, right?

Jonathan: No.

Josh: Okay. So what's interesting, I think Brandon: and I have had this debate a lot. Which is: "Hey, you know, the only people who are out there marketing, doing the direct mail are wholesalers." And that's typically what you hear. I love that you're the guy who's not really focused primarily on that and you're doing the marketing, using it for rehabbing, potentially buy and hold and everything else. And I think that's something buy and hold folks and flippers should be listening to. Like hey, you don't have to just wait for the wholesalers to come up with deals or to find these off-market deals. If you're out there doing your own marketing, they're going to come to you as well. You just have to be like Jonathan over here and his buddy, the Myspace stalker. Go, go, go, go, go, go. Call, call, call, call, call until they say yes or no. I think it's awesome.

Jonathan: I was just going to say and I think it goes back to your point originally, Brandon:, about partnering and where to look for partners. If you have complementary skills, which George and I have - and George has tremendous skills on the financial side and acquisition side, he's fantastic on that side - but just more our delegation is he's more on the rehab side of things. That might be a good way for people to start. I mean if you're wholesaling, you say, "Hey, I really want to rehab. Because I really want to make more money." And you're a rehabber, and you say, "Hey, I want to be on the wholesale side." It also hedges your bets a little bit right. George's financially invested throughout the deal, and as am I so we're really communicating back and forth the whole way through, making sure that it works on both ends.

Brandon:: Yeah, that's great. Like you said, I love partnerships. I think that's one of the most valuable ways to invest in real estate, especially if you don't have a lot of money to get started. And just when you're not good, nobody's good at everything. I'm not good on the phone. I don't really like it. And so like, if I was going to jump in to be a wholesaler, hands-down I would have somebody else to answer the phones.

Josh: You need this guy.

Brandon:: Yeah, you would answer the phones for me. I don't know. I can put together the financing really well, but I don't know the phones? I just don't like people. Haha. No, I think that's great. Going back to Josh's point where you just said about only wholesalers typically do direct mail, but man. If you do the numbers. I'm a huge fan of planning future, right? I love the idea. I wrote that book, it's in the BiggerPockets file place called like Seven Years of Seven Figure Wealth. It's like my seven-year plan for if I buy this property, and then I buy this one and then I buy this one, and I buy this one and I told them all into the next one and blah blah blah, right? I love that forward thinking, "let's plan the next 7, 10, 15 years." The reason I bring that up is because the idea of adding direct mail marketing into that can rocket off your results so much faster than what normal people do. If you're paying market rate and you had to wait for the market to climb as a buy and hold investor, imagine if you can get 20%, 30%, 40%, 50% off of a deal and then go further from that point and try to do those long-term. It's amazing how fast you can grow when a buy and hold investor applies the flipping or wholesaling principles to their business. It's crazy. So anyway. It's cool to see that you're doing that.

I want to wrap up with one more question before we head on to like the Famous Four and all that. We've kind of touched on this throughout this podcast a few times, but I want to know, is there anything else you can add to how has BiggerPockets helped you in your business? Anything you want to add on to that just because I like [inaudible] [46:05] people talk about us?

Jonathan: Haha. I mean it's hard to say. There's a laundry list of things that it's done. It's been really one of the driving factors of how are businesses succeeded. Like I said, I've had my partner there. I've learned really how to value deals. I've learned...

Josh: You're on the spot, boy. Come on. Haha. It's okay. There's no wrong answer here. Just say you like hearing Brandon:'s voice and I think I'd be happy.

Jonathan: Oh I did tell him that at one of the meet-ups that he came to. And I was like, "Brandon:!" Because I listened to the podcast, especially when I got started, really just about every chance I could get, if I'd be taking my daughter to school, I'd listen to the podcast. If I'd be shaving, I'd listen to the podcast. Obviously, when I was driving I listened to podcast. And it was just easy ways. Because the way I look at BiggerPockets, and it's really one of the biggest tools for our success in our business, but I encourage people that are on the site to use it as a supplement. You got to take action and consult with BiggerPockets. Being on BiggerPockets all day, it's a lot of fun and it's great and you'll meet some amazing people and I think to get started, it's worthwhile. You need to know the education piece, but at some point you got to get out and you got to get started.

Josh: Whoo. We're having technical difficulties. I'm sorry. This message can't be relayed. What? What was he talking about, Brandon:? I don't know.

Brandon:: I don't know.

Josh: What?

Brandon:: Are you drunk, Josh? Haha. No, I think your point is--

Josh: You are correct. You are correct.

Brandon:: Right on.

Josh: I didn't mean to interrupt you. Just you know. You were totally speaking counter to everything that I said. Haha. I'm just kidding. No, he's right. You got to get out. You really can't just sit, and sit, and sit, and think and think, and think. At some point, you got to pull the trigger. Brandon: talks about it every other episode and apparently just shot me with his little finger gun.

Brandon:: I pulled the trigger, come on.

Josh: Yeah, but that's really, really good advice and I'm glad that site's been so valuable to you and your business. That's great. That's really great.

Jonathan: One other thing I'd like to add that was a great tool is I started a meet-up. Again, I think it was one of the quick tips or whatever it was. Became a Pro member, that was pretty fast since I dove into that. And that's been amazing. I've been able to post things in the Marketplace. I've been able to really start this meet-up. That's one of the benefits I think of the Pro member account, that you can post in the meet-up spot. And I think there was times where we had maybe even 40 people there. One of the people that's come, that's one of the first books I read in real estate was Frank Gallinelli, is a semi regular at some of the meet-ups. That was a nice endorsement.

Josh: Yeah, Frank's awesome. That's really cool. And that's awesome. Here's what happens, right? You have the option to go and attend other meet-ups, other groups. You said, "You know what. I want to have a group. I'm kind of the guy who people think of as the connector, right?" So you become the connector. Now everybody knows you. Everybody in your area sees you as the man and turns to you when there's opportunities. I think it's a fantastic idea. If you're a real estate investor and there's not a meet-up, or even if there is a meet-up, there's room for 2, 3, 4, 5 meet-up in the areas. Have your own. Put your own spin on it. You become kind of the master in that domain and it's great for business. So great idea. Great idea. And I'm glad again that the site kind of came in handy to help you to do that. That's awesome. Good stuff. By the way, I got an email from somebody who's an English teacher and she said to me, "You know Josh. You and Brandon: say this "awesome" word," and as Brandon: is holding up--

Brandon:: Haha. I told her I was going to print it out. The list. We got impressive, remarkable, all-inspiring, formidable, stunning, mind-blowing grain, unbelievable, outstanding, stupendous, superb, marvelous, phenomenal, magnificent, all good and swell.

Josh: Well, that was a magnificent quote.

Brandon:: That was a superb email from that lady. So we're going to attempt to use more vocabulary. Yeah, I love that. I actually meant to talk to you about that, Josh. I was going to joke with you earlier. We never touched on that. That's funny. Anyway, moving on. We got to get out here. Let's go to the world-famous...

Famous Four!

Josh: By the way, this is show 107 of the BiggerPockets podcast and you could check out the show notes at BiggerPockets.com/show107.

Brandon:: Alright, famous four. You know what these are. You listen to this show a few times. So I probably don't even need to say it, but I'm going to. What is your favorite real estate book and why? I added that.

Jonathan: I'm going to name two just because I think both have been really important. The first one is Jay Scott's Book on Flipping Houses. That was a very actionable book that really gave us solid, step-by-step on what to do. You don't need to read the whole book to start taking action. You can go chapter and start doing it. He gave a lot of good tips I think also on wholesaling which you wouldn't think of. So that was very instrumental when I was starting out. Also Frank Gallinelli's book on-- I have it written down somewhere because it's a pretty long title-- What Every Real Estate Investor Needs to Know About Cash Flow and 36 Other Key Financial Measures.

Brandon:: Josh makes fun of me because my title is so long with How to Invest in Real Estate with No or Low Money Down. Frank takes the cake on that though. Haha.

Josh: We'll let you and Frank have a title-off.

Brandon:: We might. Next book is going to be like 400 words. Alright, very good. 

Josh: Awesome. Business book. What is your favorite business book and why?

Jonathan: So I'm also going to say two over here. How to Win Friends and Influence People. Dale Carnegie was great on just relationship building. Just one quick, there's a poker tip that I love. Poker's not a game of cards played with people. It's a game of people played with cards. And I think the same thing applies to real estate. It's really not a game of properties played with people. It's a game of people. So be good to people. Learn how to treat people and I think that's a lot of what Dale Carnegie's book talks about. 

Brandon:: That's awesome. I love it. What else do you got?

Josh: Stupendous. Haha.

Brandon:: Striking.

Jonathan: Stunning.

Josh: Yes, yes. Alright.

Jonathan: And the one is a little off the cuff here but I think for Wall Street Journal. Just reading the paper, doesn't need to be everyday but it just shows you how to run a business. It's really the big players. What are they doing? Debt and equity and everything else you need to know. I know it's not a sexy, fluffy kind of book that people are going to go out and be inspired but it also helps to know what's going on in the world especially when investing in real estate.

Josh: Nice.

Brandon:: I love it.

Josh: You know what I would say? One of the things I used to read when I was like 16. 

Brandon:: You can read? Haha.

Josh: Yes. Um. Boy. When I was 16, I came across the Forbes. It was sitting somewhere and it was the Forbes 400 or something like that. I just got to reading and I was like, "Omigod. This is so inspiring." I read the stories of the richest. The richest list. And every time it came out, every year I got excited until I knew every richest person in the world and their stories weren't new to me. But hearing these new stories for me was always really inspiring. It's kind of similar to Wall Street, but you know just hearing kind of, "Hey, this guy started with one doughnut shop and now he's got Dunkin Donuts." You know, the biggest franchise in the planet. How do you do it? Figure it out. Anyway, a little off set but great. Awesome. Hobbies. What do you do for fun?

Jonathan: I do expensive things so I don't get any time-consuming. So I don't get around to doing them as much as I'd like. Travel, skiing and golf. Obviously, love spending time with the family.

Josh: Fantastic. Where do you ski?

Jonathan: On the ice coast.

Josh: The ice coast. Nice.

Brandon:: What's the ice coast?

Josh: That's East Coast. All the ski slopes are made of ice. 

Brandon:: Nice.

Josh: It's very different skiing back east versus skiing in the west. It's like night and day.

Jonathan: I grew up in Miami so it's been something that I've taken up in the last six years.

Josh: Oh cool. I used to ski race. For those of you who don't know that about me, I was a little ski racer back in Arkan. I raced, I was on the Hunter Mountain Ski Team.

Brandon:: Wow.

Jonathan: Nice. Haha.

Josh: Yeah, interesting stuff. Interesting. Cool. Alright, Brandon:. Final question. Let's let this guy get out of here.

Brandon:: Alright, what do you believe sets apart successful real estate investors from those who give up, fail or never get started?

Jonathan: So I've heard this question, I don't know, like I said 106 times plus another 30 on repeat or something like that. I'll try to give a little bit of a different spin on here. I think there's really three different personalities and the question I think there's people that never get started, people that give up and people that fail, there's a million reasons for each of them. Obviously, ever situation is different. For people that take action. For people that never get started, you got to take action. Use BP. Educate yourself and go out there. Like I said before, use BP as a supplement. It's great. Every step of the way, they're there. They have answers for you and that's kind of what's it's been for us. It's taken us from the beginning to kind of where we are today.

For people that give up, again we've spoken about this a lot, real estate encompasses so much. Use partners. It's so important to get that experience. Just a quick tidbit here. I've had people come out of the woodwork saying, "Hey, I heard you did your first deal. Let me know when the next one is. I've got money to invest." And I was looking for so many people on our first deal to get money for and it's like all of a sudden we did that first deal, we're experienced investors all of a sudden.

Again my advice here, and I know it's hard to say, but don't worry how much money you're going to make on that first deal. If you need to make a little less and give one of your partners a little bit more, if that's how you can get started, cause it's so easy to give up. There's so much going on in this space. For people that fail, again we spoke about this too, reputation's everything. Be good to people. You may lose a little on the short-run but it really comes back. People know who you are. They'll want to work with you. So those are kind of the three things that I would say to answer your question.

Brandon:: I love it.

Josh: I will tell you that in 106 shows, that is probably my favorite answer to that question. I thought it was fantastic. Nicely done.

Brandon:: Well done.

Jonathan: Thank you.

Josh: Alright, Jonathan. Where can people find out more about you?

Jonathan: BiggerPockets, best place to reach out to me. You can find there, email me. Message me, ask me anything. I'd be happy to help as much as I can.

Josh: Fantastic. Well listen. Thank you so much for being on the show. We really, really appreciate it and best of luck to you going forward. We're excited to hear about the progress and I know you'll be sharing updates with everybody on the success stories. So thanks for being a part of our world and for coming on the show. You went from listener to guest, see! Look at that.

Jonathan: It is possible. It is possible.

Josh: Nice. Alright, thanks Jonathan.

Jonathan: Thank you so much guys.

Josh: Alright guys. That was show 107 of the BiggerPockets podcast with Jonathan Makovsky. Jonathan, thanks again for being on. We really do appreciate it. Again Brandon:.

Brandon:: That was stupendous. It was superb and marvelous.

Josh: It was good. Wow.

Brandon:: I might even call it phenomenal and magnificent.

Josh: Why don't you give a shout to the nice lady who gave us those... Oh! Apparently you know, I forgot her name as well.

Brandon:: Amanda I think.

Josh: Alright. Well, big props to Amanda or whatever her name is for the awesome list. We're sorry that we forgot. Should we re-record this? Haha.

Brandon:: No, keep going. I'm going to figure her name out.

Josh: Alright. We're going. We're going to figure it out. Alright guys. Listen. Thanks again for listening.

Brandon:: Amanda! I was right. See. I pay attention. Amanda Cook, you're awesome.

Josh: Nicely done. Nicely done. And if you guys have tips for helping us out, we're always open for it. We are looking for some jingles to improve the show. So if anyone wants to put together a jingle for the show, put it together. Send it to Brandon: or I. Brandon:@BiggerPockets. Josh@BiggerPockets. Hit us up. Otherwise, as I say every week, if you are not already a member of BiggerPockets, jump on. Get active.

The show with Jonathan is proof as to why you should do that. It's an amazing place if I do say so myself. But it has nothing to do with me at this point. It's all about you guys. The listeners, the community and we love it. And you guys are amazing. Thank you for being a part of our world. Check us out on Facebook at facebook.com/BiggerPockets. YouTube. YouTube.com/BiggerPockets. twitter.com/BiggerPockets. Give us a shout wherever you are. That's it. Spread the word. BP Nation. Thanks for being here. We'll see you next week. I'm Josh Dorkin. Signing off.

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