BiggerPockets Podcast 112 with Mark Updegraff Transcript

Link to show: BP Podcast 112: “Little Old Lady House” Investing with Mark Updegraff

Josh: This is the BiggerPockets podcast, show 112.

"I'll be able to do new business ventures because I freed up my time, because I built this source of income where I can pay my bills, and then I can go out, and I can do something else."

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Josh: What's going on, everybody? This is Josh Dorkin, host of the BiggerPockets podcast, here with the man with the plan, Mr. Brandon Turner. What's going on, Brandon?

Brandon: Speaking of plans, I've been doing this 100-day challenge lately. It was actually a website called 100DayChallenge.com. It's like every day, I wake up in the morning and I do this hour-long goal planning, setting milestones and goals, every seven days. Anyway, so I set out, I had 5 big goals for myself for the next 100 days. I set them all, and then today was day 7 of it, and so I did my first weekly review. I realized just by the act of doing that, of working my plan every single day, I'm 85% to every one of the goals. I'm almost—

Josh: That's great!

Brandon: Yeah, and I'm like “why didn't I do this 5 years ago?” Now I'm thinking, a few weeks back we talked to Grant Cardonne about big goals, right? This is exactly what he was talking about 10X. Anyway, I just wanted to share that because I'm pretty--I was pumped this morning when I saw almost all of my goals are met already, and I'm 1 week into this thing. So I'm going to double or triple or 10X every one of those goals.

Josh: That's great. That’s great. I keep running across things--reminders of the same thing. I unfortunately don't have an hour in the morning to do that because I have children screaming at me.

Brandon: I force myself to wake up an hour earlier than the earliest I have to be up. I'm forcing myself to be up. It’s miserable.

Josh: I know, I've got to do it.

Brandon: Yeah.

Josh: One of these days, man, I'll start jumping on that 4:00 AM wake-up call, 3:00 AM and making moves...

Brandon: There you go. 

Josh: Yeah, yeah. Awesome.

Brandon: You're making moves anyway. You've always ... you're a little more productive than I am, I think.

Josh: Nah. Well, we've got an interesting show today, some cool insights from a successful and very opinionated (let's put it) gentleman, Mark Updegraff. Mark's a good guy. He's been around BiggerPockets for a long time, and he's helped a ton of folks on the site, and we're definitely excited to have him. 

Brandon: And he's wicked smart.

Josh: He is wicked smart. Wicked, wicked smart.

Brandon: Wicked smart. 

Josh: Before we get into the show—no, he's not from Boston, Brandon— but before we get into this ...

Brandon: Sorry.

Josh: Why don't we get into today's Quick Tip.

Brandon: Quick Tip! All right, so on episode number 92 of the BiggerPockets podcast, I actually shared my story of how I bought, how I invested in real estate all the way up to this point. In there, I talk about how I bought my apartment complex for pretty much no money out of pocket. After I did that show, I got a ton of questions from people, and ever since then people wanted more details.

I actually sat down and wrote up every single detail I could think of in the entire process, and then we decided to turn it into a Kindle book. It's our first Quick Tip book, and it's titled How We Bought a 24-Unit Apartment Complex for Almost No Money Down. You can get it in the Kindle store for 99 cents.

Josh: Oh yeah.

Brandon: What a deal. You can read it in under an hour. It is a Quick Tip, focus on quick. It's a quick read, under an hour, and as of today's recording—Josh, I don't know if you saw this—but we are the number 1 Kindle book on Amazon in the real estate investment category. 

Josh: Oh yeah, oh yeah.

Brandon: Number 1. Yeah, that’s awesome.

Josh: That's great, great. Yeah, we're selling a lot of these 99-cent books. 

Brandon: Woop woop!

Josh: They're awesome. It's great, and you know, we love putting stuff like that out for folks to consume. 

Brandon: Yeah.

Josh: Just go to—what is it BiggerPockets.com/24?

Brandon: Yeah, the number two-four. BiggerPockets.com/24. It'll redirect right to Amazon. 99 cents. If you did read it, leave me a review. That'd be cool. Moving on!

Josh: Pro tip!

Brandon: That's awesome.

Josh: Pro tip! Pro tip! This week's pro tip of the week. All right guys, it's no secret that Brandon does a free webinar almost every single week on various topics related to real estate investing.

Brandon: I do.

Josh: Yeah, yeah, yeah. If you are a Pro member, you can head to BiggerPockets.com/ProReplay and watch replays of all of them. So, Pro members, head over there right now, check it out today, and if you are not a Pro member, you can sign up today by visiting BiggerPockets.com/Pro.

Let me just make a quick note for those of you guys who are like 'aw, you're going to make everybody become Pro to listen to your webinars" (that's my old lady voice) ...

Brandon: That's good. I like it.

Josh: Was that good? Our webinars are free. They're free, and there's replays for a week, but after that, if you want to access all the archives, you will have to upgrade. Again, you can find those at BiggerPockets.com/ProReplay

Brandon: There you go. All right. Let's do our trivia question first, and then we'll get to the show. Last week on the BiggerPockets podcast, we spoke with Jefferson Lilly, a San Francisco investor who's running a remarkable investment company focused on mobile home parks in the Midwest. He had a ton of great tips for all different types of real estate investors, not just mobile home guys. But one of the most powerful tips came when he shared his strategy for determining if there's enough interest in mobile homes in a particular area so he knows if he wants to buy there.

So the question today is: what website did Jefferson say that he uses to determine this? If you think you know, send an email to [email protected]BiggerPockets.com for your chance to win the digital version of the world's greatest real estate book of all time: The Book on Investing in Real Estate With No (and Low) Money Down. 

Josh: Nice. Well done, well done.

Brandon: Thank you. 

Josh: Awesome. All right. Before we get started, really quick: this is show 112 of the BiggerPockets podcast, and if you are a listener, we would love to get your feedback at BiggerPockets.com/show112. You can also ask questions to our guest, and there's links to listening to the show on iTunes, Stitcher, SoundCloud, things like that. So definitely go there and check that out. 

Otherwise, let's bring on today's sponsor, and then get to the show.

Brandon: All right! Today's sponsor is Landlord Station. Landlord Station provides online tools to small and mid-sized property managers and landlords throughout the U.S. More than 60,000 clients use their tools to make their properties safer and more efficient. They have comprehensive tenant screening, including credit, criminal, and eviction reports, as well as online rent payments, maintenance request tracking, e-signatures, legal forms, and more. All of their products are built specifically with the small- to mid-sized landlord in mind. They're great for people just getting started in the property investment business.

Learn more at LandlordStation.com and use the coupon code "BiggerPockets" to get 50% off on your next tenant screening report. 

Josh: Oh, nice!

Brandon: Yeah. That's cool.

Josh: Good offer, good offer. Right on! Let's get to the show. Today, like I said, we've got Mark Updegraff, so let's bring him on. Mark! Welcome to the show, man, it's good to have you.

Brandon: Hey, thanks guys. It's great to be here.

Brandon: Thanks, thanks. It's nice to have a guy with a good-looking beard like myself. Look at that. Yeah, look at that. He’s a handsome man right there.

Josh: Do I need to go? You guys want a room?

Brandon: You might want to start growing a beard! Come on! What's up with this?

Josh: Uh-huh, uh-huh. 

Brandon: Can you grow a beard, Josh? No answer? I actually did see a picture of Josh with a beard. You were dressed up. You were playing a homeless person, weren't you? Or a drug addict, or something on a movie?

Josh: I was, I was, yes.

Brandon: Yeah, and you had a nice-looking beard as well.

Josh: I had a nice, manly, red beard, yes.

Brandon: Yes.

Josh: Yes I did.

Brandon: It was red. But you're not a redhead, right?

Josh: You know, I've got a little, a little red.

Brandon: I would not have guessed that. Anyway.

Josh: We're going to talk about hair or are we going to talk about real estate?

Brandon: This is the lumbersexual show! 

Josh: Is this the home and garden show, or what?

Brandon: All right, here we go. Mark! You are an investor and a real estate agent, and you’ve been on BiggerPockets for 40 years, so we’re going to cover all that stuff today. You’ve been on longer than Josh has been on.

Josh: Nice, nice.

Brandon: So why don’t we just start at the beginning, though? How did you get into real estate investing?

Brandon: I just sucked it up and bought a house. Everybody else said “you’re crazy, man. Don’t buy a house, especially not where you’re buying it.”

It was kind of a transitional area where there was still a lot of crime. It was a little run-down, but I could tell that there were some seeds that had been planted a long time ago. I’m talking 10, 20 years ago, people started getting into this neighborhood, and they had the same hope that I did. If you think of it as an exponential curve, they were at the very beginning of the exponential curve.

And so their real estate agents said “hey, this is an up-and-coming area. Buy a house, plant your flag, fix it up. It took a long time from when those initial people started buying those properties until when I entered. I just hit it at the right spot.

Josh: We’ll dig in more detail into everything, but back then to today, did you plant your flag at the right time, or what?

Brandon: Oh, hell yeah.

Brandon: Has that neighborhood transitioned?

Brandon: Yeah, it’s completely transitioned. Our values are up 100%.

Josh: Wow. Wow.

Brandon: Nice. You know, I’m going to start with a question I did not have on my list, just because I want to know. How do you know an upcoming neighborhood like that? I mean, what were the characteristics that define that neighborhood, that gave you an idea that you should buy there?

Brandon: That’s a great question.

Brandon: What do other people look for in that? Because I want that, I want 100%.

Brandon: I’d say independently-owned businesses. We didn’t really have any big-box stores at all. It was local folks that were part of the community, and really, they wanted to have their business near where they lived. A lot of people would just walk to work, and so it started with some friends of mine about 10 years ago. They opened up a restaurant on South Avenue, and other than their restaurant, which was called Open Face (I’ll plug them), there was a cheesecake shop that had been there since 1976, and they make the best cheesecake in Rochester.

Brandon: What’s the name of the cheesecake shop?

Brandon: Cheesy Eddie’s.

Brandon: You’ve got to plug them, man. Cheesy Eddie’s: go check it out!

Brandon: They were kind of pioneers. We had a restaurant that the women have since left. It was our favorite restaurant, my wife and I, called The Slice of Life, where we could get the buffalo tempeh sandwich. That took us to that neighborhood weekly, because it was that delicious. I’m not kidding you. That’s where we’d be approached. People would try to sell us drugs in the streets. We didn’t feel like it was super safe, but we loved eating there and we weren’t going to let it bother us.

So really, those were the only businesses in that area. Now, the whole commercial corridor is completely filled with market rate. We’ve got lots of bars, restaurants, shops. We have a bike store, a wine store, et cetera.

Brandon: But it takes a certain kind of person, right? Not everybody’s going to want to hunker down and live in an area that’s transitional, in an area that’s got a fair amount of crime. Some people like to wait until the end, right?

Brandon: They pay for it.

Brandon: They do pay for it. Other than for the potential of having people do drug deals outside your house, what real estate downside is there to getting in on a neighborhood like that?

Brandon: The downside is the housing stock is extremely deferred. I mean, we’re talking slumlords where—I’ve bought properties from one these slumlords. I won’t mention his name, but he was bragging about the fact that he moved somebody in and they didn’t have a toilet or a shower for three months. He’s laughing about it.

Brandon: Wow.

Brandon: I’m like “you’ve got to be kidding.”

Brandon: That’s crazy. What’s his name? Just kidding. It’s crazy, and the risk is that it doesn’t turn. I gambled on something like that years ago, and it didn’t turn and went the other way. I was like “okay, I lost. I’ll try again another time.”

It very well probably could have gone the other way.

Brandon: Right, but you should have a stable rent market so even if it goes the other way, it’s only going to go so far down when you get to Section 8 DSS. Unless you just can’t fill the unit.

Brandon: Right, right.

Brandon: So even in the worst parts of Rochester, people are still renting there. They’re not paying exactly the same rate, but you’d be surprised. They’re not really paying that much different because the subsidies kick in.

Brandon: Or they’re not paying at all.

Brandon: Well, someone’s paying.

Josh: Yeah, someone’s paying, right?

Brandon: Yeah, interesting. Section 8. I’m assuming that things have transitioned as well? You’ve got a portfolio, and as things have gone from transitional to better, presumably a larger majority of your properties were Section 8 at one point and that’s changed? Or no, not at all?

Brandon: No, I started out just saying “I’m not putting these people in these units.” If we want this neighborhood to become better, you can’t do that.

Brandon: Okay.

Brandon: You have to be part of the solution and not part of the problem. We do manage a lot— not a lot, but a fair amount—of Section 8 and DSS for other clients at this point, because we have a management company that’s getting close to about 80 units or so. Just the mentality difference between somebody that pays their own rent and somebody that has a subsidy is hugely different.

Brandon: Oh yeah. Yeah.

Brandon: They’ll seem like a great person going into the unit, and then all of a sudden they’re in your unit and things just completely change. They’re psychotic, racist, just absolutely absurd behavior.

Brandon: Yeah.

Brandon: It’s a shame.

Brandon: You accept them, you manage them for other people, but you don’t put Section 8 in your own properties? Is that what you’re saying?

Brandon: It depends on the location.

Brandon: Okay.

Brandon: If I can’t find somebody that’s not Section 8, then, yeah, I consider it. But we’re going to screen the same way. It’s not like every single Section 8 person is a deadbeat.

Brandon: Yeah, yeah.

Brandon: We have great Section 8 people that, you know, they’re going to school, they’re trying to advance themselves. Maybe they’ve been divorced or they’ve had some other situations in life where they need the subsidy to help get through, and those people are great.

But you have to really, really screen. We actually added another criterion to our tenant selection process where we do a final interview. So after we’ve gone through all the background, all the credit checks, employment verification, et cetera, et cetera, we bring them in and sit them down for a half hour and just talk to them.

Brandon: Really? That’s fascinating. I’ve never heard that before.

Josh: What do you talk about? What kind of questions, what are you trying to get to? What’s the goal?

Brandon: The goal is to provide enough open-ended questions that they’re going to stick their foot in their mouth at some point, and then we’re going to say “okay, we’ll be in touch.” Basically, that shouldn’t happen. It should only happen maybe 5% of the time because we’ve done a very good screening process on the front. But then we just want that extra step, just to say “okay, maybe this is the person that looks good on paper, and then all of a sudden is a nightmare to deal with.” So we like the half hour to really get to know them and kind of let them really tell us about themselves, and just figure out if it’s the kind of person who’s going to end up being a difficult tenant.

Brandon: Yeah.

Josh: Since implementing that process, and I don’t know what your eviction rate was prior, but have you seen an improvement?

Brandon: We typically don’t take it to eviction. We’re very transparent with the tenants when they’re coming in, so we go through our policies up front so they know we take our business very seriously. If they mess around or deviate from what we expect, we are going to go down the eviction route.

Luckily, since when I got started, I did a few evictions of my own, but that was more me learning the business, learning how to screen tenants better. Now that we’re a management company, we haven’t really had to evict anybody.

Brandon: That’s awesome.

Brandon: Now we’re evicting—I apologize, we did evict 2.

Brandon: Okay.

Brandon: And 1, it was where the person bought it with this tenant, so we did not place that tenant. Both of them actually were with tenants that came with the properties and not people that we placed.

Josh: Okay.

Brandon: That’s great. I’ve had the same problem. My first eviction was with an inherited tenant. Kind of a similar situation where we bought the property, and she was a Section 8 tenant and had definitely had the mentality of a Section 8 tenant. It was a little crazy.

Anyway. So fascinating! Can we actually before—normally we start with talking about your first deal, and I want to kind of go (we’re kind of getting deep first, but I like that). So I want to talk about the property management side. You mentioned that you kind of have a property management company. You manage 80 properties. I’ve heard—property management companies in the past have told me (I think Clothier said it in his episode) that it’s hard to be profitable unless you have 350 or 400 properties under management. Do you find that you can still do it, you can still have a property management company with a small number of units?

Brandon: I’m going to be subsidizing it until I get to that magic number.

Brandon: What do you mean by that?

Josh: So what Chris said is true, then?

Brandon: Yeah, that’s absolutely true.

Brandon: Okay. That’s good to know. So in other words, it’s not necessarily profitable, but you’re managing your own properties under it, right?

Brandon: My own properties are treated just like every other client is, so my properties are held as LLCs and those LLCs are just like different clients.

Brandon: Okay.

Brandon: So there’s absolutely no difference between my properties and somebody else’s properties. They all go through the same systems we have. Right now I have 7 people on payroll, but I’m doing a lot of different things. I’m not just doing property management.

The payroll is broken up into the brokerage side where I’m going to be bringing on an admin assistant probably tomorrow. That will be the administrative assistant on the brokerage side. Then the girl that I hired, she’s been there the longest at this point besides everybody that’s left. She’s kind of cross-training everybody else. Then we have an accountant, and we have 2 people on the maintenance/construction side, and 2 property managers at the moment.

Brandon: Are you doing that — and I ask this again, because I’m kind of in that spot. I’ve got a bunch of rentals of my own. We manage them ourselves. I don’t want to always manage them ourselves but I don’t have any good property management companies around here and they cost a lot of money. Is that why you’re doing it that way right now, is to try to save on your own property management costs?

Brandon: I’m not saving. I’m paying the same price that everybody else is paying.

Brandon: Okay, so it’s kind of—so is the goal then just because you want to build a property management business as well?

Brandon: I want to build the best property management business and maybe we can make it franchiseable. Who knows?

Brandon: Okay, cool.

Josh: Great.

Brandon: I think that’s great.

Josh: Can we circle it back? Because I think it’s interesting, but let’s—you bought that first house, it was in a transitional neighborhood. You get in, and it’s 10 years later or so. It’s worth double. What about your first actual dedicated investment deal? What was that? How did you decide to go from just buying a house to buying houses, or whatever else it is that you are buying for investment purpose?

Brandon: I think I kind of knew, going into that first deal, that that was going to be my path. I was going to try to acquire as much cash-flowing property as possible over as short a time as possible. Because I felt like the window was open, and we should be—everyone should be— taking advantage of it. I just wish I had more money, you know? Don’t we all, but to do some of the stuff that Grant was talking about, the bigger. I’d love to be doing 1,000-unit complexes and stuff like that.

I think it’s wide open for the entire spectrum of real estate. I’m just dealing with what resources I have available. I’m trying to make the best of my resources and then advance in the real estate business as quickly as possible because I don’t know how long this window is going to be open.

Josh: Yeah. What was that first property, the first non-primary residence that you picked up?

Brandon: That was the one I was talking about in the transitional neighborhood. We actually bought our house first, and in hindsight, I wouldn’t have. We’re still in it. We’ve been here for a while. We paid $125,000 for our primary, which doesn’t make sense from an investor standpoint, as far as renting it out.

If we do leave this house, which we probably will because the school district is bad, we’ll keep it and rent it. We’ll probably get between $1600 and $1800. But on a $125,000 purchase, it’s marginal rate. Maybe 6 or 7%. Something like that. But it’s in a great area. It’s gone up in value, so I’m not bothered by it.

Josh: What’s the process as a new guy who’s buying properties in a not-so-great neighborhood? Presumably you’ve made a mistake or 2. You’re here talking to the 40,000 listeners we’ve got (or so). What would you tell somebody who came up to you and said “hey, you know, I’m thinking about going and buying in this neighborhood that I think’s going to turn around. It’s kind of rough right now. You have any advice to help me not screw myself, not get myself into a lot of trouble. How do I avoid all the big headaches?” What would you tell them?

Brandon: Know why you think it’s going to turn around. Don’t just think it’s going to turn around. You’ve got to have some facts to back it up. The neighborhood that we’re targeting right now is right next to the number 1 employer in Rochester. To me, it’s a no-brainer.

We’ve got Xerox going out, we’ve got Kodak going out. We’ve got all these major players that are exiting the city. I’m not going to buy in an area where they’re losing jobs. I want to buy next to the area that has the most jobs. Using common sense is a good thing. Right by the university, this is where we’re buying. They found a body in a trash can last week on Magnolia Street, which is one of the streets that we buy on.

That’s unfortunate, but I believe that, together with the university and Rochester’s strong hospital and the city, working together, there’s definitely a much stronger police presence in that area, and you can tell. The university is pumping lots and lots of private capital into development in that neighborhood. It’s not going to happen overnight. It’s going to be, I’d say, 20 to 30 years down the road. But when I got into this, I wasn’t looking for a quick buck. I decided early on that the property that I buy is just going to stay in a portfolio. I’ll probably never sell it. It will probably just go into a trust, and the trust will go to the beneficiaries.

Brandon: Gotcha, gotcha. Are your clients or your tenant primarily individuals buying for themselves, or is it students that you’re renting to who are your tenants at this point?

Brandon: We just have an incredible marketing campaign, and we take as many leads as we can. We treat it just like real estate. You get a buy/sell lead, it’s a broker property, it’s the same as getting a tenant lead. So we’re building CRMs to deal with all these leads to be able to archive them, to drip them, to call them, to really get the best qualified tenants even if we don’t have a place for them yet. At least we know when we have that place, we’re going to call the best ones. So we’re putting them into our CRM. We’re doing all of the pre-interview stuff, which is a huge advantage.

I don’t know if people out there just do a regular application process, but have a pretty thorough pre. So you do it on the phone, and you’re not wasting your time showing the property. You’re going through a lot of the stuff that’s going to weed the people out ahead of time and that’s when we run it in the CRM. Even if we don’t have something to place them immediately, we’re going to follow up with them later as soon as we have another unit that becomes available.

Brandon: What you’re telling me is you’re finding tenants for properties that you may not even have at this point.

Brandon: Exactly.

Brandon: And you’re putting them into a database and when something comes up, you can hit those 5 or 10 tenants and say “hey, 5 or 10 guys, here, this is available. Are you still looking? We know you’re awesome. Yeah, move in tomorrow.”

Brandon: Yeah, but it’s more like 100 to 500 because the leads just keep coming in.

Brandon: Yeah.

Brandon: We just have a system in place for the people that are taking the calls, the property managers. They’re doing this live, so when they get the call they’re getting the data that they need to put it into the system. Every lead that comes in, we archive.

Brandon: That’s great. What—

Josh: How long is your turnaround, typically on a vacancy? Sorry, Brandon.

Brandon: When we do our screening process, we try to get the people that are going to stay longer, so that’s one of the questions that we ask them. “Do you move a lot?” All those questions to kind of pick at it. Most people don’t care, they’ll just tell you the answers. “Oh, yeah, I like to move around.” Okay, well, that’s not good for you if somebody else is going to tell me they’re going to stay here for a while.

Brandon: You mentioned 2 things that I want to talk about. First, the marketing. You have a kind of an amazing marketing machine that drives in a lot of leads. What do you do for your marketing? How do you get those leads consistently coming in?

Brandon: Basically, it’s through the brokerage. We meet lots of buyers and sellers. I’ve only been a licensed agent for 2 years, and so I don’t have a client base. So I’m building a client base. We did heavy marketing on Zillow, Trulia, primarily. You guys know BiggerPockets is amazing for the investor leads.

Zillow or Trulia? The beauty about those is people don’t care, they just click. It’s tenant, it’s a buyer, it’s a seller, and they click. I get tons of tenant leads through my Zillow and Trulia as an agent. At first, I was just like “oh, sorry. Can’t help you.” And now, I’m like “here, call this number.” Then Kaitlyn picks up the phone and she gets all the details.

Brandon: That’s a unique idea. I’ve never heard that before.

Josh: So how, exactly? What’s the strategy? Are you just listing yourself in the zip codes in Trulia and Zillow as an agent and wait for the phone to ring?

Brandon: The phone rings non-stop.

Brandon: Interesting. Maybe I can push on that. There are a lot of agents that listen to the show. Would you say advertising on Zillow is a no-brainer everyone must do?

Brandon: If you want to be the best agent.

Brandon: Okay. Not in your area.

Brandon: It’s a marketplace thing, right? Like it or hate it, it kills me that all these agents hate Zillow. I mean I just don’t understand it. This is where the eyeballs are. This is where people are so you want to be where the people are. So, if you’re an agent, you’ve got to be where people are looking for properties to rent and buy and sell. Saying “aw, I’m not going to be on Zillow because they’re stealing leads?” They’re not stealing anything! There giving leads away.

Josh: Yeah, it’s huge for branding. I go around and people recognize me. They say “oh! I saw your face on such-and-such a house.” I’m like “excellent! You want to buy it?”

Brandon: That’s funny.

Josh: You know what I mean? Like “let’s go. Let’s go. What’s your name, what’s your phone number, what’s your email address, let’s get you in the database and let’s sell you something.

Brandon: That’s awesome. That’s awesome. All right, the second thing I wanted to talk to you about is the marketing side of things. The pre-interview. We had a guest, I don’t even remember who it was, but back a couple months ago, talked a lot about the pre-interview, and I think it was Marsha Maynard. Yeah, right?

Brandon: I printed hers out and I use it.

Brandon: Oh, really?

Brandon: I was like “I don’t need to reinvent this. Here you go, here you go Kaitlyn. Here it is!”

Brandon: I love it. I do the same thing. I was like, “hey, Heather.” Heather, my wife listened to this part, and she listens to most of these shows, anyway. We write down exactly what she said, and then let’s just do that. We started doing the exact same thing. Maybe, do you remember what was all on there? What are a few things that you ask? Or is that a question for Kaitlyn?

Brandon: That’s a question for Kaitlyn. I mean, we tailor the document, and it’s kind of like a system where I like to ask them a lot of questions, and get feedback. All of our documents we’re constantly editing. Our lease? I’m sure it’s the same with you guys. The lease is never done. We were just editing it yesterday. Putting “oh we need this in the lease.” It’s the same with all of our documents. It’s like a living, breathing document. We started with Marcia’s as our baseline, and we added some stuff that we thought was relevant about the moving around, et cetera, et cetera. We just keep working on it.

Brandon: Just a quick tip for people. Quick tip! We started doing that as well. We put everything in Google Drive now, Google Docs. We keep everything there, and one of the nice things about that is as you edit your documents or whatever, Google will keep track of everything that you edit. It’s in the cloud so you can go get it anywhere, from any phone or operating system. Anyway, there’s a little tip for you.

Marcia’s show, by the way, was 83, so you can listen to that, people. If you’re a landlord or want to be, BiggerPockets.com/show83. You can get there and that was filled with some good information. Cool. All right. Moving on.

Josh: On the marketing side: so you’re on these marketplaces, and I know one of the things. You’re obviously also on BP. I remember, I don’t know, it was a couple of months ago and you had put something up. You’re getting the bulk of your leads now from BiggerPockets for your brokerage side. I was just curious: how is that happening, how are you doing that, what exactly do you do on BiggerPockets to get leads? I’m just interested generally in hearing more about that, and then we’ll talk more about your investing side and rentals.

Brandon: I go on to the BiggerPockets, I type in my zip code, and I look at all the new people that joined, and I send them a message immediately. That’s the secret. Then I just try to start a conversation with them, see where they’re at, what they’re looking for, seeing if you can help them.

Brandon: In the message you spam them with a lot of “buy my99-cent course,” right?

Brandon: I am the worst at communication. It’s the one thing that we’re really trying to focus on this year in the business. So just getting better personal communication. Because you’re so busy, it’s hard to follow up with every single person on a regular basis and give them that personal touch. Which is why I have, why I’m building out payroll so I can delegate some of that stuff where they know that my team members are just as important as me and they’re handling some of the back-end stuff that needs to be handled. They can also handle some of the personal communication.

Brandon: Nice. At the end of the day, you go to BiggerPockets/meet. You can enter in the zip code, you see who’s there, jump in. “Hey, what’s going on? I’m Mark. It’s nice to meet you. I see you’re in my area. I’m also in Rochester.” You dig up a conversation and then one thing leads to the next and suddenly you guys are working together in some way, shape, or form. It’s just as simple as greeting them and kicking up a conversation without pitching them anything, right?

Brandon: Exactly. They’re looking for somebody that’s a professional, that knows what they’re doing. When I sit down to talk to them, they can tell that I’m not screwing around. I’m investing my time with them to figure out if it’s somebody that I want to work with.

Brandon: Yeah.

Brandon: Whether or not they want to work with me. Or not. I need people that are serious and understand how this business works. The best deals, I can’t sell them to every single investor because they’re not ready to go. They don’t understand that it’s like, I need to write this offer right now. If you’re not ready to write the offer, I can’t call you. I know if it’s this kind of client or not.

Is it an investor that understands when a deal presents itself, you have to take advantage of it? Or is it the kind of client that says, I don’t know if they want to be more in control of the deal, or if they need to see the deal, or if they don’t understand. I’m a market professional. I know the value of the house. What are you going to tell me? That’s just kind of how it is. I don’t know.

Brandon: Yeah. From that kind of branching off of that topic, working with an agent. I want to ask you, when you talk to a person and you’re trying to decide if you want to work with them, like you just mentioned, how does a new investor encourage you to want to work with them?

Josh: Good question.

Brandon: I think I made a comment on BiggerPockets recently. Basically, if you start talking about creative financing, et cetera, et cetera, that just means that you’re beginning and you have nothing.

Josh: Ouch! Brandon!

Brandon: What? That’s all right.

Brandon: If I can find somebody that’s going to be creative and do creative financing, I’m not giving it to you. You know? I can’t even find that to begin with. It’s like, “get real.”

Brandon: Sure. So if they’re like “hey, can you hook me up with a private lender who can get me a $0-down loan,” then they want to work with you. It’s not something you want to work with at that point.

Brandon: There’s all different ways to look at it, right? Hard money lenders, if they’ll lend this person money, if a hard-money lender will lend it to them, sure. I don’t care. They can get hard money. They can get whatever they want, but I’m not going to run around and call all these sellers and say, “hey, will you carry a note?” “Hey, will you carry a note?” “Hey, will you carry a note?” Forget it.

Brandon: That’s actually a really valuable point, too, that as a creative investor, if somebody’s going to be a creative investor, you have to do all the work. Creative investing is exceptionally difficult to do. Hopefully my book that we talk about all the time, hopefully it conveys that this is not easy. This is not fun.

Brandon: And it’s not fun for an agent.

Brandon: No, it’s not fun for an agent. Yup.

Brandon: Even if … I don’t mind creative financing as long as the buyer doesn’t have to have creative financing. We’ll find you creative financing if we can, sure. I’ll ask the question, but you need to be able to buy something. If you have to have creative financing, I’m not working with you.

Brandon: Yup.

Josh: Yeah.

Brandon: I think that’s a great point because so many people are just like “I want to get involved in real estate,” and then they talk to their agent. Then they go and look at 40 houses with their agent, and in the end they put in an offer and find out they can’t actually afford it. They don’t know what they’re doing. It just wastes your time as an agent.

Brandon: I did that one time, and I’ll never do it again.

Brandon: Once! Once! One time.

Brandon: I won’t say his name either, but if he’s listening to this, he knows.

Brandon: Okay, how about this question? This is something that a friend of mine brought up the other day. A friend of mind is a real estate agent. He was showing properties to a guy for the longest time, you know, building a relationship, helping them get better and better with investing. Then at the last minute, the guy went and got his real estate license and just bought it himself. Do you fear that?

Brandon: This is like the other girl said the other day. It’s thick skin, man, you’ve got to have thick skin. I’ve got clients that I know they’ll stick a knife in my back the first chance they get. I’ve got to suck it up and keep smiling, and say “oh, yeah, la la la la la.” They’re going behind my back trying to find for-sale-by-owner. I’ve got my lender calling me. He’s like “I’m going to put you on conference call. Don’t say a fricking word.” I’m like “all right, I’ll keep it off you.” I listen to the conversation: “oh, yeah, you know, we’re looking at some for-sale-by-owner. We’re going to need that pre-qual sent over to us so we can maybe put in some offers.” This is after I’d shown them 500 houses. I’m like “oh my God. Let’s just close a deal and they you can move on your way and I’ll move on my way.”

Josh: Which makes no sense from a buyer’s perspective, because you don’t get paid from the buyer, you get paid from the seller, so I don’t fully get that, but

Brandon: Exactly. I just shake my head, and I’m like “that’s a person that is no longer working with me.”

Brandon: Yeah, yeah. You’re a broker, right? You’re not just an agent? You’ve got your own brokerage. How does that help you with your own investing?

Brandon: With the brokerage, I have to have it for the management company, so that’s why the brokerage license hangs under Updegraff Management. All of my sales still go through ReMax Plus at this point, a ReMax franchise. I’ll probably move from ReMax at some point. ReMax is a very expensive company, but I’m just so busy I haven’t dealt with that at this point.

Brandon: Do you recommend other people become a broker, or at least an agent, or do you think people are better not? If they’re going to get into investing, do you recommend that they should get their license?

Brandon: That’s a good question. It depends on the individual. I would say, being a real estate agent is not an easy job. It means you’ve got to work all the time. You have to answer your phone when it rings. That’s the secret, and it’s the same for wholesaling, and all of these other things. I go to the free meetings, and I talk to people, and you’d be amazed how many people just let stuff go to voicemail and say they’re going to follow it up later.

You can’t let it go to voicemail. You have to pick up the phone. You have to talk to the people. So if you want to be on call like a doctor, then go ahead and be a real estate agent. But know that if you don’t do that, you’re probably not going to do that well. Most people that are buying houses are—I converted a lead for Pittsburgh at 10:30 at night last night. The lead came in. I’m like “well, I’ll give it a call. I’ll see if she answers the phone.” She answered the phone, hit it off, so I set up some appointment.

Brandon: Nice.

Brandon: $300,000 house. 10:30 at night on Sunday.

Brandon: I tell you what, we’re house shopping and I don’t think I’ll go past 10:00. But we called our agent at 9:30 at night and said “hey, we just found something spectacular. We want to get in there tomorrow morning. Let’s make it happen.” He answers the phone, he’s on it. That’s what we want. That’s what we want. If he’s not on it, we have to wait. We don’t hear back until noon tomorrow and already 6 offers are in, he’s not going to work with us again or anyone else.

Brandon: Right. Being an agent, as soon as you’re an agent you’re just going to want more supports. You’re going to want the admin, you’re going to want other agents, and you’re going to kind of want to step back from that. Because it’s just a grueling, grueling job to have. Going all over the place, meeting all these people, all hours, all weekends, et cetera et cetera.

I’m looking forward to building this out where I still support my staff but I’m not the person that’s doing all-weekend-long showings and all that stuff. I need to have a life, and at this point, I have no life.

Brandon: Personally, I tend to not recommend that people get their license. I mean, if they want it, great. I don’t think there’s anything wrong with it. But I think a lot of times it’s best left in the hands of people who are good at it.

Brandon: Yeah, you’ve got to be a professional. You’re going to need to learn every single market in your area. It didn’t happen overnight. I was lucky that I had some investment experience, so I did know some neighborhoods. I didn’t know all the neighborhoods. Now I probably know the majority of the neighborhoods, at least the ones that I want to sell in, and a lot of the ones that I really don’t want to sell in, either.

Brandon: Yeah, yeah

Brandon: But some streets? I’m like “no, I’m not. If you want to look at something, find another agent. I’m not taking you to that street. I’m not doing it.

Josh: Interesting, yeah.

Brandon: Because I’m going to buy all of the houses on that street. You can’t see them.

Brandon: Nah. I’m going to burn them down. Just kidding.

Brandon: All right, all right, all right, all right. So, Mark, rental properties. Why do you like rental properties? Why are you buying them? Why do you work in that space? What is it about rental properties that kind of gets you going?

Brandon: When I first started out, and it’s the same now, I tried to build something where it’ll enable me to do other things. So I don’t have to keep doing the same thing. I’ll be able to do new business ventures because I freed up my time, because I built this source of income where I can pay my bills, and then I can go out, and I can do something else.

Brandon: Yeah, makes sense.

Josh: I love it.

Brandon: I love it, too. How many do you have right now, at this point? Do you mind me asking? Rental properties of your own? How many are you dealing with?

Brandon: About 50 units-ish.

Brandon: Are they all single-family houses, or are they multi-families? What do you buy?

Brandon: I think I’m going to start gearing towards apartment buildings like all the smart people are doing, right?

Brandon: I don’t know. The guy we had on last week’s show, and I know you haven’t heard it yet because we just recorded it …

Brandon: No, I haven’t.

Brandon: We just recorded it last week for the people listening.

Brandon: Gotcha, gotcha.

Brandon: We talked to a guy, Jefferson Lilly, who does mobile home parks. His whole point of the show was mobile home parks are better than multi-families. I’m halfway convinced that he might be completely right on that. Anyway, very compelling reasons. Anyway, if people haven’t checked out that show yet, make sure you do that. I’ll put a link in the show notes.

But let’s go on. Let me ask you: that’s a big number, 50. Most of those you’re saying are probably single family?

Brandon: Probably 70%, 60%.

Brandon: Okay, so how do you do that? How do you finance that many properties? Aren’t people capped at 4? That’s the kind of thing people say, is “I can’t get more than 4. I’m done.” So how did you do it?

Brandon: I’ve got hard money lenders, 2 hard money lenders that I use. I’m working with a commercial bank to take out the hard money and turn it into commercial. Commercial products, once you get past your 10, private funds, and luckily, houses of those values doubled. You can then retap that equity. There’s a lot of opportunity if you’re creative.

Brandon: So in other words, you use creative financing, you just yell at other people who use it.

Josh: I was going to say the same thing! I love that you called him out on that. I love that you called him out because I was going to say the same thing. You’ll do it, but you don’t want to take on a client who does it. Interesting!

Brandon: Well, it’s not the same kind of creative financing, right. I’m taking the value out of the increased appraisal value, right?. I bought at 50, it’s worth 100. Now I refinance it, and they give me 75%.

Josh: Yup.

Brandon: Yeah.

Brandon: I’m getting another 25. Boom. Then I’m taking that, and I’m using it for another commercial product.

Josh: We got to bust your chops, man.

Brandon: No, I know.

Josh: What’s your buying criteria? Some people say “hey, I want to buy houses where I can walk away with 100 bucks a door.” What’s your criteria? What do you look for in a house?

Brandon: It starts with the pro forma. We take 35% off the gross rents. That’s 10% vacancy, 10% property management, 10% capital reserve, 5% repair. Then we subtract out the operating costs per property so if it’s a single-family home, you don’t have to pay water. If it’s a multi, you pay water typically. We back all that out. That gives us our cash flow. We divide by an all-cash purchase, plus closing costs, plus rehab, and ideally you want to be 10% or higher. That’s the benchmark, and that’s just the paper.

Okay, so now it looks good on paper. Now we’re going to go look at the property. Now condition comes into play, because you’ll have 2 houses, side by side, 1 has been a rental for 30 years, 1 has been in the same family for 30 years. The 1 that’s been in the same family for 30 years is infinitely better than the 1 that’s been turned over 15 or 20 sets of tenants. Everything’s better: the moldings are better, the walls are better, the floors are better, the ceiling’s better, the fixtures are better. They might be dated, but they’re in much, much better condition.

Those 2 houses sell for very similar prices. They might only be a couple thousand dollars apart. But in reality, the value of all that stuff: the nice hardwood floors, the untracked plaster, is a lot. It’s a lot of value. So I go for the 10% and then I look for what I call “the little old lady houses.” What that means is the family has been in there for a long time. It’s probably a little old lady that’s still there. The rest of the family is gone, her husband has passed away or the last family member has passed away. Or even it’s been multi-generational where the family has passed the house down within, so their kids got it. Now they’re grandparents.

If you can find those houses, in my experience, they’re in far better condition than other houses.

Josh: That’s great.

Brandon: Really, really good. Yeah. Very interesting. All right. For somebody who’s just starting out, do you recommend starting out with rentals? Or maybe flipping houses? What path do you think is the best path for a newbie? Or is there one?

Brandon: I think buy and hold is a solid approach because you’re going to get an overall picture of the real estate process. If you buy correctly and you have a good team of people helping you buy correctly, you're not going to make a mistake. Because over the course of time, even if you pay a little too much for a house, it’s going to work itself out.

As far as the flips go, I think you can get yourself in trouble as a newbie. You should have a little bit more experience because it’s difficult to make money on flips. In my opinion.

Brandon: I see actually oftentimes that most people, in my experience, most people lose money on their first flip. Unless they’re lucky or they really did their homework and they read the book on flipping houses by Jay Scott. Even then, a lot of people lose money on their first flip.

But rental properties are a very forgiving asset class. Just like you said, you can make mistakes.

Brandon: As long as you buy it right, yeah.

Brandon: Even then. I’ve got a property right now I’m underwater in by 20 grand. But you know what? In 30 years from now, I’m going to be okay.

Josh: You’re looking long-term. That’s the key, right? And you’ve got to set your criteria. If you’re talking to somebody who’s looking “hey, this is a 1-year or 5-year,” and they’re not looking 30 years, it’s not forgiving in 1 to 5.

Brandon: Well, sure, but that’s kind of flipping. Even 1 year is a flip, 5 years is a hybrid, maybe, and then buy and hold long term. Most people should expect to be in at least 10 years.

Brandon: I’d say the best deals are the cash deals. To jump in as a newbie and be able to purchase with all cash, if you can do that, then you have a shot of doing this. The lower-end market for flips is very saturated with people trying to do that. At least in my area, if you’re trying to flip something in the 80 to 130 price range, there’s a lot of people bidding those properties up. There’s really no margin. I almost think they’re either not making money or really not making much money. To take it to the next level, if you’re buying in $300,000 to $400,000 asset class, then it’s a different ball game. There’s more days on market, longer holding times, et cetera. So you’ve got to be real careful with how you do your flips.

I’m actually working on one where I’ll probably close it this week. It was a short sale, so I think that short sales are still a great opportunity to get some really good equity. Here, the banks got this short sale, they get an appraisal. The appraisal comes in at 240. The agent says “there’s issues with this house. There’s no way we can sell it for anywhere near 240. So they try and they can’t sell it. They bring it down to 230 and they can’t sell it. It’s a floating slab. The floating slab sinks about an inch right where the furnace is. The furnace is connected to the floor joists, and when it sinks, it opens up a crack in the furnace where all the CO2 is getting emitted into the house. The CO2 alarm is going off, the agent is on the phone with the bank freaking out. Like “this house is a mess! It’s a mess! We can’t do anything with this house!” So, they’re like “all right. The next $160,000 takes it!”

I pounded the table. I apologize.

We picked it up for 160. We got our offer in first, another offer came in because they were upset that we were so quick to act for 170. I don’t know how she did it, but we ended up getting it for 160, and we have enough room where we can fix all these things and we’re still going to put some money in our pocket. But I would say you have to have a lot of room, especially as you get into the more expensive houses. Because you just don’t know if you’re going to be on the market for 3 months, if you’re going to be on the market for 6 months. You don’t know.

Josh: Makes sense.

Brandon: Yeah. Great. Can I ask you what are your long-term goals? Kind of like my last question before we move on to the fire round. But what are your long-term goals? Where are you headed?

Brandon: I’d like to build up the portfolio. Kind of like Grant is doing. You know, he’s got $350 million in real estate. If you do the 10X, or whatever. So we need a billion dollars in our portfolio.

Josh: Nice.

Brandon: That’s not enough! Not enough!

Brandon: It’s enough. Ten billion. Ten billion. But I would like to get to the point where I could do some development, and kind of make my mark on development as far as how it’s designed.

Josh: Great.

Brandon: I like that, I like that. I want to head that way, too, someday.

Josh: For me, I’m just going to ask, on rental properties, that’s your bread and butter. Any advice for someone looking for rental properties, how to go about finding good rentals? I mean, what would your best tip be?

Brandon: Besides the old lady, looking for the old lady houses. That’s a great tip.

Brandon: You need to do the work yourself and not count on somebody else to do it for you. I’ve got a lot of clients that come and I’m going to try my hardest to find them a good investment, but I need their help as much as they need mine. I have say, 30 investors, and they all are on the market all the time for a property. When a good one comes, and it fits a certain person, I’ll give them a call.

But if you are really serious about locking one soon, you should be looking at these things yourself, and then calling me and saying “what about this one?” Then I can make a comment: “it’s a bad area” or whatever it is. But you really need to be involved, and you need to listen to me so you ask me the question about this piece of real estate. I give you my opinion, and we go from there. You have to trust your agent. I’m not trying to sell people things that I don’t agree with.

Most people that work with me say “Mark is really weird, because he points out all the flaws in the house. It’s almost like he’s trying to convince me not to buy it.” And I feel bad sometimes because they end up buying the house, you know, and I’m in there like “look at this! Look at that! Look at that!” And they’re like “oh, but I really like it.” That’s okay. We’ll fix it, don’t worry. You can still buy it.

Brandon: “This house sucks!”

Brandon: Yeah. I have a lot of fun, just helping people and being transparent about what I do, which is I just open the door. If it’s the house that you want, you’re going to buy it. I’m not going to pressure you into it. I’m just going to let you see it.

Brandon: There’s a dozen fantastic tips in what you just said. I love the idea that you’re saying that people have to do the work themselves. They rely on their agent, they want to sit back on their couch and get a deal emailed to them and it says “hey, Brandon, I got this deal for you. I already wrapped it up, negotiated the contract and everything. Here’s your repair list. Just go buy it. That’s what people want and that’s what they expect.

Josh: Oh come on, now.

Brandon: And it’s ridiculous!

Josh: “You know that’s what you’re going to get if you sign up for my course today.”

Brandon: That is what I will get.

Josh: “On my free automated software.”

Brandon: I get emails! You probably do, too, Josh. Every other week I get an email from somebody saying “hey, there’s this software. It says it will do everything for you and it’s fully automated. You’ll just have the properties to find.

Josh: “It’s only 5000 bucks!”

Brandon: “And it’s only 5000 bucks.” And every time, “what do you think of that?” And I’m like “You’ve already lost.”

Josh: Is that what you said?

Brandon: Yeah.

Josh: Breathe in their face.

Brandon: No, but a good example of what you’re talking about. Friday afternoon, no, Thursday afternoon I did a webinar on buying wholesale deals. People can sign up for my next webinar at BiggerPockets.com/webinar. So I did a webinar, and before that, I went and searched the MLS—not even the real MLS. I searched Zillow—for all the properties in my area.

I found one actually near me that I thought looked pretty enticing. Before the webinar I sat and analyzed with 700 people this 1 property. We went over everything I could find on paper about it to see if it was a good wholesale or a flip deal. Then, after I was done with that, I called up my real estate agent and said “hey, I just did this webinar on this property. Do you want to go check it out? It actually looks really good.” He was like “sure. No problem.” So we set up an appointment for this morning, Monday morning 4 hours ago.

We went and looked at it. Loved it. I love this house. It’s perfect. And all he did was show up. Now I came home, I’ll do the numbers tonight, and maybe I’ll put in an offer tomorrow. But he didn’t do anything other than let us open up the door because I brought it to him. I did all the legwork needed, I did the analysis, and my agent’s going to be there to support me throughout the process.

Anyway, if more people did that, I think they’d get a lot further along and they’d learn a ton in the process.

Brandon: And agents wouldn’t bitch so much about their investors.

Brandon: Yup. Yeah, because investors are a lot of work for agents, I would assume, at least the irritating investors or brand newbie investors are probably kind of tiring. Would you agree?

Brandon: I’d say each investor is unique and they have their own unique personality. I love working a lot with my clients who are investors. Absolutely love.

Brandon: Cool.

Brandon: And I hate working with other ones, and those will probably be the ones that I’ll no longer work with in the future as things progress. But you never know. Or I’ll delegate that down to somebody else. I’ll be like “I can’t stand working with this guy anymore.”

Josh: At least you’re honest about it.

Brandon: All the clients listening to this show now are going to be like, they get that Dear John letter from you later. “Dang it, it was me!”

Brandon: “Amber’s going to be working for you from now on.” Oh, man. No, everybody likes Amber.

Brandon: Well there you go.

Josh: That’s awesome. That’s awesome.

Brandon: Cool, cool. Time to move on. I think we’ve got the world-famous fire round starting right now.

It’s time for the fire round!

Brandon: All right, the fire round. People listening on the podcast can’t see this, so when we put this on YouTube—I don’t know. Every time we do the fire round, we always do funny gunshot …

Josh: Brandon always shoots me with his fingers.

Brandon: I always shoot you with my, yeah.

Josh: It’s this fake death.

Brandon: Yeah.

Josh: Terrible and cheesy.

Brandon: We’re pretty funny. All right! Fire round! These are questions straight from the BiggerPockets forums, and Mark is in the forums every day and you can ask questions to guys like Mark and other smart individuals by just going to BiggerPockets.com/forums. But we’re going to fire them at you, Mark, today here. Number 1: what are things to consider when selecting the ideal property management company?

Brandon: Insurance.

Brandon: What do you mean?

Brandon: You’ve got to make sure that your management company has the correct insurance.

Brandon: Interesting. Interesting. How do you verify that? Do you just ask them, do you think?

Brandon: They’ve got to provide proof of insurance.

Brandon: What kind? When I say “hey, do you guys have insurance,” and they say “yeah, we've got fire insurance on our building,” what do I say?

Brandon: You need general liability, and then need errors and omissions. You don’t have to, but …

Josh: Why do I as a client care that you as a management company have insurance? That protects you from me. What does it protect me from as a client?

Brandon: We’re sending people over to your property, so if they get hurt, you don’t want to have to put it on your insurance, right?

Brandon: Ah! Good, good.

Josh: There you have it.

Brandon: Cool. Is a mixed-use land development project a positive influence on surrounding property values? Will it affect my rental properties negatively or positively? That’s an interesting one.

Brandon: It’s going to depend on the mixed-use project. How much subsidized housing versus market rate housing? If it’s all market rate, then it will have an incredibly good effect. Then if it’s mostly subsidized, it could be bad.

Josh: Okay. Makes sense.

Brandon: All right! My next question! I’m starting my first brokerage, my real estate brokerage. The location is perfect. Any advice? Any dos or don’ts? I know that’s a loaded question, and probably you could go on for a while, but what’s your advice to anybody starting their own real estate brokerage?

Brandon: For the buy/sell side?

Brandon: Sure.

Brandon: If you’re starting your own brokerage for the buy/sell side and you’re in a market that’s got a lot of branding. Like Re/Max or in our area, we have Nothnagle. There’s a lot of people that don’t really care about anything else other than the fact that you’re with a reputable name. So if you’re going to be ABC Realtor, and nobody’s heard of ABC Realtor, it doesn’t matter because you don’t have that branding. So if you are going to be a broker, make sure you have a really good marketing campaign, make sure you’re doing a lot of branding, and make sure you have a lot of testimonials so the people aren’t going to be scared about using you and go to a Nothnagle or Re/Max as opposed to going with you.

Brandon: That’s a great point, because I do that. I never really thought about it before, but when I’m driving by and I see a for sale sign on a house and it’s listed by some brokerage company I’ve never heard of, I instantly think negative about that property, about working with that agent. But if it’s got, I don’t know, Prudential is one of the big ones in my area, or Premiere, or whatever, I’m like “Oh, good! I can work with John or I’ll be working with Eric on this one.” Anyway. I do it naturally just from an investor side, too. Cool.

Josh: Nice. All right. Submitting competitive offers. If I’m trying to put in an offer on a property against others that are all cash, and I don’t have all cash, how do I make my offer as appealing as possible to the seller?

Brandon: There are a lot of different ways to add strength to your offer. Especially if you don’t have cash, it’s really important that you add as much strength as you possibly can because you’re competing against cash. You would lift the mortgage contingency, and what that’s going to do is if you don’t get your mortgage, you lose your deposit. You’re also going to have to beef up your deposit. You might say “I know that I’m going to have to put 20% down on this property,” which is, say, 20 grand. I’m going to make my deposit 20 grand.

Now, obviously, don’t do this if you think that there’s a reasonable chance that you won’t get your mortgage. Because you’re going to lose that 20 grand. But if you’re confident, you’re very comfortable with your lender and you know that they’re going to be able to close this transaction for you and give you the money that you need, then you can remove your mortgage contingency. That would be the only way to compete with a cash offer

The other thing that you’re probably going to have to do is sweeten the pot a little bit more. Because apples to apples, if it’s the same offer (cash versus I’ve lifted my contingency), they’re still going to take cash.

Josh: Yeah.

Brandon: Yup. And it’s risky. It’s certainly a risky ploy.

Brandon: Yeah, but if you have the $20,000 deposit, they might take yours because they figure if his mortgage contingency fails, I get 20 grand. Then I can still sell this sucker. It’s a lot.

Brandon: You better hope. You just better hope your mortgage doesn’t fail.

Brandon: The best approach is to get your offer in before other offers, and that’s really the secret of why I’ve been so successful. I don’t screw around. When the thing comes through the listing, everybody sees it. I’m on the phone immediately with the agent, even before I know what client is going to buy it. I’m working a relationship with that agent so they know, and they know that I’m going to close the deal. I’m working with that agent, I’m letting them know that I’m bringing them an incredibly strong offer. I don’t know what the offer is yet, but I’m just telling them it’s going to be a strong offer because I know there’s value there and there’s going to be other offers. So I start the relationship right away with the other agent. Believe it or not, a lot of times that is all you need to do. The first person to establish a relationship with the other agent has an upper hand when it comes to closing the deal.

So make sure your agent is on the phone with the other agent immediately telling them that they’re going to bring them a strong offer.

Brandon: Love that.

Josh: Yeah, that’s great. That’s great. Otherwise, just as a quick follow-up, beyond the mortgage contingency, there’s other things like getting rid of all the other contingencies, theoretically. Shorter, quicker closes, stuff like that. Does that work, or no?

Brandon: I typically don’t do home inspections on my own properties. The first couple rentals that I bought, I paid an inspector to go out, and now as an agent I’ve been on a million of these things. I don’t personally need them. When I’m looking at a house to buy, I know what to look for. I’m looking for the same things that the inspector looked for, so I’m good. If my client wants to do that, they have a better shot at getting it than leaving it in.

If there’s no other offer, then I let them do whatever they want. I’ll even let them try to get a discount. The real hot properties, I advise: “okay, there’s probably going to be multiple offers. If we attack this now, I think we should attack it strong and get it under contract. Because in New York state, attorneys still have the final say. I don’t know how it is with you guys, but basically, the attorney on either side, the buyer or the seller, could disprove the contract. Disapprove the contract. So, if another offer comes in that’s higher, and they’ve already accepted your offer, all they have to do is call the attorney and say “please kill the offer that I accepted. I am now going to take this other offer.” And it happens. It happens more so with investment properties than with normal sales.

Brandon: Really?

Brandon: Yeah. And it happens with investors more than it happens with regular people. I’m working with a client. He comes into town, he’s moving to Rochester. I show him a handful of properties. Maybe 10 properties, we’ll say. We look at 1 of them, it’s in beautiful condition. It’s the little old lady house. It’s got an old gum wood fireplace, et cetera. It’s in a fantastic location. We’re kind of talking and he’s reviewing all his options. I’m saying “the one that I really like is this one, and here’s why, and I tell him why. The other thing is, it’s going to sell immediately, so you really need to get your offer in there if you want to have a shot at getting this.

A couple hours go by, and he says “you know what? We’ve decided. We want that property. Write it up.” We write it up for full price. I’m pretty sure he still had his inspection contingency in there. Not a big deal. We get the offer in. They accept the offer. They get another offer. He’s not cash, they get a cash offer and it’s higher. The listing agent calls me, he says “unfortunately, we got a higher cash offer. But the seller actually is a man of his word, and he’s going to stick with your buyer.” I’m like, “hallelujah.”

Brandon: Wow.

Brandon: But they did make us remove the mortgage contingency. Luckily, my client was in a position where he was able to remove that contingency and still be able to close it with cash if he had to. So he wasn’t risking losing his deposit or anything like that. We just waived our mortgage contingency, and he ended up getting the property. The person that tried to snake it from him ended up upset.

Brandon: That is fascinating! Fascinating!

Josh: Unbelievable. Unbelievable. New York, man.

Brandon: Eh, forget about it.

Josh: You know, I’ve lost some pride in my home state from growing up. That’s just shady-pants.

Brandon: It’s shady. Especially the meaty deals. Those are always the ones that end up attorney disapproval. Because people are greedy.

Brandon: Yeah, wow.

Josh: Wow.

Brandon: Okay, well, good to know.

Josh: What’s a contract?

Brandon: Yeah. What’s a contract when you have an attorney?

Josh: I guess I’ll write it on my napkin.

Brandon: All right. Moving on to the end of the show. Our world-famous.

Famous Four.

Brandon: These questions we ask everyone. I know you listen to our show, so you know what’s coming. Number 1: what is your favorite real estate book?

Brandon: I was thinking about this, and I already answered it on the first one years ago. It’s not technically a real estate book, but I’ll throw it out there because everybody’s said all the real estate books already. People want something to read, right? So how about The Fountainhead? You guys read that?

Brandon: I have not. I’ve never even heard of it.

Josh: If you listen to Grant Cardonne’s podcast, that’s a book that’s read by 50% of the population. Not the other 50.

Brandon: What?

Brandon: I did listen to his podcast.

Josh: It’s an Ayn Rand book and yeah…

Brandon: Yeah, but it’s about architecture. It’s about building beautiful things.

Brandon: Interesting.

Josh: That’s cool. That’s cool. It’s a thing. There are people who are like “Ayn Rand, oh my God, she’s horrible!”

Brandon: She’s a beautiful writer.

Josh: A little Gilbert Gottfried for you right there.

Brandon: Her use of the English language is just incredible.

Josh: No, that’s cool. What about business books?

Brandon: Again, I’m trying to think of things that people haven’t read, so recently I read a book called The Frackers, and it’s highly recommended. It goes through the story of 6 very influential people in the hydro-frack industry and kind of goes through the history of it. It’s an incredible book. It’s very businesslike.

Josh: I seem to recall you’ve got an interest in that space, don’t you?

Brandon: Yes.

Brandon: Like a business? You actually invest in?

Josh: I’m trying to remember. We’ve talked about this.

Brandon: I have my master’s degree in color science, which is part of imaging science and I was working for ITT Corp up until I got laid off when they lost a half billion dollar contract to their competitor, which they had for 26 years running.

Brandon: Wow.

Josh: Wow.

Brandon: So I got laid off, and I decided to go work for my father, who’s down in Pennsylvania where I grew up, about 180 miles away. When I got there, the hydro-frack boom was in full swing, and he had me doing some grunt work, which I didn’t really appreciate. But what it did for me was that it opened up my eyes to the possibility of Pennsylvania, specifically in regards to real estate.

So, after a couple of weeks of inhaling lots of carbon monoxide next to a diesel engine with no exhaust, I came back to Rochester. I started thinking about doing some foreclosures down in that area, which were these little podunk towns. So I started driving down to these podunk towns. Going into the sheriff’s office, they’ve got no computers. They’ve got a piece of scratch paper with what’s getting foreclosed on.

Then trying to find these properties! It’s like “RR 1, Box 178 on Route 479.” You’re driving around, looking for these things. I located one that had 10 acres, and it had a nice house on it. I went to the auction, did my own title search, made sure that it was good. Bought it from the bank for 150 when the woman who lost it had paid about 2 and a quarter. She paid 2 and a quarter before the hydro-frack started, and she was on top of gas. She had already signed the lease for the mineral rights, so we would be paid when they started extracting the mineral rights. She just hadn’t made any money off of it because they hadn’t started extracting it yet.

Josh: Yeah.

Brandon: So, since we bought it, they put a well across the street. Literally, you can sit on the porch and see the well, well-heads. There’s about 10 well-heads on that pad. It’s a very high-producing well, and we get paid royalties for the gas on top of renting out the house for $1600. There’s no rentals in that area, so I haven’t even had to market it. We’re there fixing it up, you know, and people just came up. No sign, nothing, like “what are you guys doing with this house?” “Oh, we’re fixing it up for rent.” “Okay, I’ll rent it. And, my company’s going to pay for it. Where do we send the check?”

Brandon: Wow.

Josh: Nice.

Brandon: Once that happened, I said “I’m not coming back to corporate.” I hate corporate. So I’m now out on my own.

Brandon: Nice.

Josh: Right on. Right on.

Brandon: That’s a good story.

Josh: The royalties on mineral rights, on the fracking. I’m just curious, what is that percentage? I mean, what does that look like? Is that better than rent?

Brandon: Yeah, it’s better than the rents, but it’s going to be based on how much they’re actually turning on and off. So as the price of gas fluctuates, they extract more or less based on that price, and so it depends on how much they crack the valve. If they open the valve, I get paid a lot. If they shut the valve down, I don’t get paid very much. The gas is going to be there, and they’re going to extract it. It’s just a matter of when they extract it, I get paid. When they don’t extract it, I don’t get paid.

Josh: Makes sense, makes sense.

Brandon: In the wintertime they extract more than in the summertime, because prices are higher. But the checks range anywhere from $80 when it’s shut off, to $1600 when it’s open.

Josh: Right on.

Brandon: Then the rental rate on the property is $1600, so that’s carrying the $150. It’s not like an incredible cash flow, but we know that we’re going to be getting this gas money for the next 30 years.

Brandon: That’s great.

Josh: Awesome, awesome. Cool! All right, what about hobbies? What do you do for fun, Mark.

Brandon: I don’t have any hobbies anymore because I’m too busy. I used to do flame working, so I’ve got a Herbert Arnold torch. It’s about 5500℉, and I can melt about a 2-inch solid rod of glass and mix all different kinds of glass in with it.

Brandon: Cool!

Brandon: Typically make jewelry for women.

Josh: Cool!

Brandon: Fancy! I’ve never done that before. I’ve never done that.

Josh: You’ve never taken a 5500° torch to make jewelry for your wife?

Brandon: I haven’t!

Josh: What kind of husband are you?

Brandon: That’s great.

Josh: You should be ashamed of yourself!

Brandon: I’m ashamed.

Brandon: Frisbee golf, also. I love frisbee golf.

Josh: Yeah, that’s right. I remember that.

Brandon: I try to get in as much as I can, but it’s not a whole lot these days.

Josh: Right on, right on. Cool.

Brandon: Cool. All right, my final question of the day: what do you believe sets apart successful real estate investors from those who give up, fail, or never get started?

Brandon: It just takes a lot of time and patience and dedication. Then you just have to be willing to make the sacrifice. Get it done. It’s almost mind-boggling. Every day, I’m just like “how in the world am I going to get this done?” And it just keeps getting more complex and more convoluted and crazier. Now I’m like “I’m the HR guy? Oh my God. I need to hire an HR guy. I can’t stand having 7 employees all bickering with each other.” It’s like, dear God, just do your job and stop arguing with each other!

Josh: You better screen those employees as well as you’re screening your tenants, man.

Brandon: Yeah, I know. I think, no matter what, managing people is the most difficult.

Josh: Oh, yeah. Oh yeah. That’s great. Mark, final question: where can people find out more about you. You’ve got a website?

Brandon: Yeah, we’re about to launch RochesterInvestment.com. So that’s going to be kind of our flagship where we talk about the Rochester investment markets, what we’re doing, if you want to link up with us. I think that I’m the best agent in Rochester, obviously.

Josh: Sure.

Brandon: Obviously.

Brandon: My second year, I’m in the top 20% of all realtors in the greater Rochester area, and I’ve got my sights set on just taking down these arrogant bastards that are …

Josh: Those arrogant bastards you have to deal with tomorrow after they’ve listened to you on the show?

Brandon: Yup.

Brandon: Oh, they already hate me. I’ve got some of their numbers blocked. They can’t even call me. That’s how much I hate them.

Josh: Wow. Hysterical. So what if you’ve got a client who wants to buy a deal from one of these pricks?

Brandon: We still write the offer. I point out all the flaws!

Josh: That’s funny!

Brandon: But I do that for all the properties.

Josh: Oh, I love it. I love it. Awesome, man, Well, Mark, it’s been a pleasure as always. Thank you so much for sharing your knowledge and wisdom with us, and we’ll look forward to seeing you back on BiggerPockets.

Brandon: Yeah! I appreciate it, guys. This was awesome.

Brandon: Awesome.

Josh: Hey, thanks a lot.

Brandon: Hey, thank you.

Josh: All right guys, that was Mark Updegraff from up in Rochester. I didn’t get to dig in on Rochester too much.

Brandon: I know! You didn’t!

Josh: Usually with my Detroit people, I rip a little bit. I see that rust belt as including Rochester, so I probably should have given him a hard time. But, I won’t.

Brandon: Hey, he’s kicking butt there, though. That’s awesome—50 units now, and growing a larger and larger property management business. Yeah.

Josh: That’s great.

Brandon: Good job, Mark.

Josh: Yup. So, big thanks to Mark. If you want to learn from Mark, obviously you can check him out on BiggerPockets.com as we talked about before. Again, this is show 112 of the BiggerPockets podcast, and you can check out the show notes at BiggerPockets.com/112.

Otherwise, jump on iTunes, please guys. Leave us ratings and reviews. They really help, and if you’re not already a member of our wonderful community, we certainly encourage you to jump in, get involved, and participate. Mark’s tip about what he does on BiggerPockets to build business locally is an amazing idea. I recommend everybody do it, you know? Go look up your zip codes, see who lives in your zip code and say “hey, my name is Josh” (you can use your name here, of course) “hey, my name is Josh, good to meet you. I’m a local guy. Welcome to the site.” And take the conversation from there. That’s how you build your network, that’s how you grow your business, and it’s a no-brainer. So easy to do. Our platform is designed just for that.

Brandon: And as they say, your net worth is in your network!

Josh: Ha, ha!

Brandon: Look at that.

Josh: All right!

Brandon: You can tweet that!

Josh: Well, that’s all I’ve got for you guys. Follow us on Facebook, G+, LinkedIn. We’ll look forward to seeing you, chatting with you there. Until next week, I’m Josh Dorkin, signing off.

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