BiggerPockets Podcast 147 with Johnny Youssef Transcript

Link to show: BP Podcast 147: Turning “Weird” Properties Into Cash-Flowing Monsters with Johnny Youssef

Josh: This is the BiggerPockets podcast, show 147.

Johnny: If you’re like me and you’re like thinking outside of the box and how can I get an opportunity or I can think outside of the box and make much more money, my only advice is…

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Josh: What’s going on everybody? This is Josh Dorkin host of the BiggerPockets podcast here with my co-host, Mr. Met himself, Mr. Brandon Turner. What’s going on Brandon?

Brandon: Did you say Mr. Met himself?

Josh: I did.

Brandon: Is that a thing?

Josh: That is a thing. The guy with the big baseball bat is Mr. Met.

Brandon: That’s funny, I didn’t know that.

Josh: He’s our guy, he’s our mascot.

Brandon: Apparently there is a world series going on right now and I didn’t even know about it until this morning I found out last night there are 14 Indians and everybody in the world watched it but me. I don’t know.

Josh: Its hard. It was a great game and I lost, we lost. Had I only not gotten from the couch to get that drink game would have gone differently. People think that. People are so superstitious about their sports. Honey do not talk to me! If you talk to me during this game, we are going to lose. People do that. That’s nuts.

Brandon: For a while I believed that, not really, but I used to say that if I watched the game whoever I liked lost. I never saw a game that my team won. No matter who it was, I’m watching the game and lose.

Josh: Big fat loser.

Brandon: I’m just loser, that’s just how I roll. That’s why last night I watched the Mets.

Josh: Damn it. How are you doing?

Brandon: I’m actually in a bit of pain. Want to hear a funny story? I didn’t tell you this. This is a good story.

Josh: If you are in pain it brings me joy.

Brandon: I bought a treadmill back about month and a half ago.

Josh: We just bought one, too.

Brandon: I bought treadmill and at least I’ll go walk on it or jog on it and I started doing interval training where I put it on when it’s too rainy to go outside. I’ll run on speed 12 – the fastest speed. I run for a minute or 45 seconds and then I walk for a minute and then I run and then I walk and I just hit 12 the fastest it will go.

Yesterday I’m doing that, I’m on my second set and I book it on 12 speed as fast as I can go and then out of nowhere the belt broke, not the big but one inside of thing, and it didn’t just slow down it hard stopped. I smashed in the front of it with all my, somehow did a flip upside down, probably 360, landed on my knee then flipped back the other way and landed on my butt. It was the worst crash I ever had and I have burses all my legs now. It was crazy.

I’m sitting there on the floor going “Augh” and my wife heard the crash from across the garage, my office is on the other side of garage, through the garage, through the doors, my soundproof studio office here – she heard this loud crash and came running. I’m just lying on the floor this mangled pile of flesh. It was good but I’m feeling okay today.

Josh: That’s good. There is a weight limit on these things.

Brandon: Apparently.

Josh: You might want to return it.

Brandon: I bought it from a friend. It is a very good treadmill but it was at that breaking point. Anyway, that is my story and I’m sticking to it.

Josh: That’s a great story. Speaking of your story I have only quick question before we start getting down to the show here. I’m sitting here talking to you and you have this ugly brown sheet behind you. I don’t understand. This is live on YouTube, not live but it’s on YouTube, people can see it.

Brandon: Check this out. I’ve got a cardigan. It’s like a blanket and you can see there is more blankets.

Josh: My grandma used to make me knit shoes.

Brandon: Really?

Josh: Yes.

Brandon: That’s amazing. What I have I built myself a little audio recording studio here because…

Josh: Out of sheets and grandmas knit blankets instead of the egg cartons you were supposed to.

Brandon: I’ve got hollow core doors like the ones you put on your house, it had bunch of extra in my garage so I lined my desk with these hollow doors so I’m in a box and I covered them with blankets and whatever I could find in the garage.

I’m now in a little soundproof made up studio because I’m recording the audio for the new book on rental property investing. Every day I’m trying to od an hour a day and I’m recording audio or audible book that should be out pretty soon.

Josh: Awesome.

Brandon: It’s going to be awesome. I actually have first printed copy and its two inches thick. It’s pretty awesome. It’s exciting.

Josh: Listeners stay toned this is coming out soon. Get ready, get your copy. We have two books outstanding. Can we get to the show?

Brandon: Let’s get to the show. Today is awesome show, actually. I never say that. I really mean it this time.

Josh: Today is a great show and again ahead of time big thanks everybody for listening this is show 147 of the BiggerPockets podcast featuring Johnny Youssef. Before we get to the show let’s get todays sponsor.

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Brandon: Big thank you to our sponsors, always.

Josh: Todays Quick Tip.

Brandon: Todays Quick tip is to watch this on YouTube because you will see my ugly sheet hanging behind me.

Josh: Watch it on the YouTube. On the YouTube we have all the other shows. Not all of them but almost all of them, we are catching up. we’ve got lots of other videos, too. Check us out

Brandon: we have a new course that just got launched on BiggerPockets – you can go take beginners guide to real estate investing. It’s a video course put together.

Josh: Video course the ultimate beginners guide, totally free. Check it out.

Brandon: Let me know what you think, we are developing new courses that are free for you guys so check it out, see what you think and let me know.

Josh: Let’s get to the show. Today’s show is featuring Johnny Youssef. Johnny is a real estate investor 29 years of age who has been investing in the last seven years and has built this pretty cool empire out of nothing and really clever guy who is just very smart.

If you are new investor haven’t started yet this guy has some stuff you want to hear. If you have been doing it for a while he gets in the stuff all about thinking outside of the box and so definitely recommend taking a listen and hearing what Johnny has to say. Let’s bring him on.

Johnny welcome to the show. Before we go anywhere I have to say we are recording the show right now. Its Wednesday, October 28th. Last night was probably one of the best baseball games I have seen in the long time. Sadly, your Kansas City Royals just by hear beat my Mets in what was in 14 innings.

Johnny: We just started. Wait for tonight man. It’s on. We are good. Everyone here is freaking out about it.

Josh: Was it crazy in the streets of KC?

Johnny: I wasn’t out but just social media – literally everyone today is “I didn’t sleep last night taking a nap at work” everyone just stayed up, went crazy and we are all waiting for the final win because we are going to go crazy.

Josh: Us New Yorkers at heart we don’t need naps. It’s good to have you on the show despite you guys took game one. We will be victorious in the end but let’s get into the show. Let’s talk about you.

Brandon: Johnny who are you, what do you do, how did you get into real estate?

Johnny: Johnny Youssef here. Originally born in Egypt. My dad was in business. He had a lot of businesses there so I just grew up in the family that is just entrepreneurial always thinking business and then when we moved to the us my dad has started over from the beginning.

How I really got into real estate is when I was in college and that was back in 2006-2007 and there were homes for sale on college and I just crunched some numbers and went to my parents and said “Hey if we buy one of those properties instead of renting all throughout the college I can rent it out to my friends, they can pay the mortgage and I will just manage it and I don’t have to pay rent.”

Even though the prices at the time were high, return wasn’t great but also the time everyone could get mortgage. My parents applied for the mortgage, got one and that’s really how I got into it. I stared managing the property I was living it. We owned it and I had renters in it and my parents really liked the idea and before I knew it they bought six homes next to each other. I don’t know how they got mortgages for them but at the time everybody got the mortgages if you wanted to. Before I knew it I was 20 years old and I was a property manager for 35 students and that’s how I really got into it.

Josh: What inspired it? Was it just “Look at these houses” and literally bell rang in your head? You hadn’t had any real estate experiences or business classes that haled about it.

Johnny: I would say honestly the biggest thing that inspired me is that just idea that rent was money that was being wasted and I was aware of that. Our first year of college I’m just looking at money wasting away and I didn’t know anything about return, about how to find good property – we didn’t know anything about that. Just once we crunched the numbers it just made sense that buying even a worst case scenario its sill more beneficial than renting and not investing in that.

Josh: You went to school in Kansas City?

Johnny: No actually we moved from Egypt to Virginia and I went to VCU. Then I did the rentals in Virginia and then after buying so many house I was like “Snap I should have gotten my real estate license because if I had gotten my real estate license I would have been an agent and would have made $20,000 in commission. Thinking about that was totally just got an agent that sold us the seven houses.

I got my real estate license in Virginia, really I just sold one house in Virginia, I got my license primarily I wanted to move to Kansas City to do an internship with a church. I just needed some money to be able to make the move. I just literally got my license, sold the house, made the money that I needed and then a week later I moved to Kansas City. My plans were not to get into real estate in Kansas City but once I moved here and looked at the market just I felt stupid not going after it.

Josh: Do your parents still have those properties in Virginia?

Johnny: Yes, they still have seven properties in Virginia.

Josh: Right on. Cool. You are in Kansas City, you went out for this internship and suddenly it hit you again what the heck am I doing I need to get into real estate again because this is such a good thing. How did that go?

Johnny: I did the internship, it was six months and the plan was to go back. Then looking at Zillow and different websites I was finding houses for 25,000 30,000 and that was in 2009 so that was when everything was going downhill. My idea was I just want to buy little $25,000 house here even if I plan to move back to Virginia I’ll just have a rental here. Once I did it made sense to do it especially parents homes were 200-$250,000 each so that was literally 10% of the prices in Virginia where we were.

I connected with an agent and after I connected with her a got to know a little about real estate market I just did the math and I was like “Okay I can go back at Virginia and get a regular job nine to five or I can see and see the opportunity and go after it.” Decided to get my real estate license in Kansas City and mostly I got it not for paycheck, I got it because I wanted to learn but in that I took a niche that no one in the office that I was in would take on.

Office I was working on as a realtor everyone wanted to sell and buy for clients that were moving expensive houses but no one wanted to hob the investor that wanted to look at 30 properties for $200 checks in commission. I was the new guy, I was 23 and I just went after every agent and I just said “Look, if you guys have any investor that wants to buy a house and you guys don’t want to deal with it because it’s a lot of pain for not much commission will take them”

That’s really what got me into the investment niche because here I was before I knew it I had tons of investors and even first time home buyers who couldn’t qualify for more hand 40-50,000 loans and even thought the commission was a lot less I went after understanding that market, helping them and had great connections form that. That’s what got me into investment niche.

Josh: That’s awesome. I love that, you just hustled and took the leftovers but the beauty is that the leftovers if you put it all together there is a whole lot of it, isn’t there?

Johnny: Absolutely. That actually got me into starting leasing division and it was the same thing. My broker came to me and she said there is a niche for leasing against especially with the economy a lot of people going to foreclosures, people couldn’t qualify. At the time in 2009/2010 she said “Look do you want to start a leasing division? No one wants to start it and I have been trying to get someone to do it in the last couple of years.” Again because it wasn’t worth the moment. You are showing houses for rentals an you are making $300 checks.

Because I already had the investors and I had the investors who wanted to buy more but they needed help with renting it I said “Hey let’s just start that” that really helped me understand the market and understand the investment and understand what to look for, understand everything as far as ROIs and all that and it has also helped me understand how to lease and what sign so it was free education and I was just really paid for it and it really got me into knowing how to start from finding a property all the way to renting it successfully.

Josh: Nice.

Brandon: Obviously it worked out well for you but do you recommend that other people get their real estate license as well?

Johnny: Depends on the person and what they are looking for. For me I was a young guy it didn’t hurt much. It was totally worth it for me. I see people who overthink should I get a license and I’m like guys a whole thing is going to cost you $1000. It doesn’t hurt. In one sale I was able to get my money back.

If you are someone with nine to five job and you have a family and you are really looking for investment, you may not need real estate license but you will need for sure a relator that you could trust.

Brandon: That’s for sure. How did you get into your own rental properties? I’m assuming in Kansas City then is that where you ended up buying your own properties?

Johnny: Yes.

Brandon: Tells us how did you get into that part.

Johnny: That’s actually people say all the time you need the money to be able to get into real estate but I am a prime example of it – I didn’t have any money and I got into it. I started really after year of work I applied for a loan, I applied for an FAG loan I wanted to buy my own house and in the process I was looking and I was really looking for something where I can have equity in it. Something that I can create value that way I can make money out of it and start investing in other things.

That’s when I found the duplex. Foreclosure, really good deal, needed a lot of work I definitely because it was my first time I underestimated the work needed. I said hey I can buy that turn the other side and the big thing for me was creating value. What’s the great thing about it was it was renting previously $600 a side - each side $600. It was making $1200 a month. I bought this duplex it was right across the bible school that I did the internship in and I was able to fix it up and rent it one bedroom for $300 and it was five bedrooms each side because I finished the basement too. Before I knew it I had ten bedrooms and I was making, if we count myself as paying rent, I was making $3000 a month plus they were paying for utilities. I turned this property from 600 one side to 1500 – more than double.

That’s really how I got started because then what I started doing is I stated saving cash and on top of that I was able to go back and get a line of credit against my house because I created value so I was able to get $60,000 credit witch got me another house rental. That’s really how I got going and that how I did flips and rentals for a long time.

Fist property I bought with the money I was able to save $20,000 from work and from rental income that was coming because my mortgage on it was $500 a month so when I’m making 3000 and my mortgage is 500 it’s not a bad deal. I took that money and I bought little town house and I started just very small flip and it just kept growing and growing and from this townhouse I did a bigger townhouse to a three-bedroom ranch home to a five bedroom two story houses.

I actually used the same money that I started with, 20,000, and I kept growing it into flips to I think last one we sold was 180,000. That 20,000 just kept growing with me.

Josh: That’s unbelievable.

Johnny: Thank you.

Brandon: What does it look today? How does your portfolio overall how many units do you have and how many flips have you done?

Johnny: How many units I have right now? I have 17 units and as far as flips I probably flipped about somewhere between 12 to 15 flips so far and that is in five years.

Brandon: That’s great. Did you do your own work or did you hire contractors to do all the rehabs on all these projects?

Johnny: No, I hired contractors. I did not want to mess with that, I didn’t want to touch it. I would mess up pretty bad.

Josh: How was that experience?

Brandon: I was going to ask that. What was it like?

Johnny: I learned hard way, again, BiggerPockets is amazing because you don’t have to learn the hard way – just read and learn. For real. I wish I had that five six years ago.

First duplex I bought of course it was emotional buy I did the math and it made sense and I’m so glad I did it but once I started flipping it I didn’t know what I was doing. I was getting expensive things, expensive cabinets for rental but anyway one big mistake I did was I hired the wrong people that told me all the promises, told me how much is it going to cost but I didn’t hold them accountable, I didn’t sign anything with them. There were 70% done with the project and then they were like hey we gave you small estimate and we can’t afford to leaving so I definitely learned the hard way.

I would say my advice is when you are buying especially if you are just starting its going to be tempting to be emotional about things. You are going to go against the guy that just seems really nice or you may go after guy who promised you the lowest bid, you are going to get emotional about what to buy, pay extra for things that aren’t necessary. I encourage you especially if its investment, if it’s your own home that’s one thing, but if its investment just stick emotions out and be able to just asses what you are doing and a I definitely encourage everyone sign with however you get and ask people for references and get several bids and hold them accountable with signatures and dates. Big thing is never give someone the final payment until they are completely done and you are satisfied. I did that, too.

Brandon: I think I made every one of those mistakes you said. Multiple times.

Josh: These are mostly lower-end properties, correct?

Johnny: Yes.

Josh: For somebody who is new, who is listening thinking about getting into lower end properties what is the level of finish you should be doing? I’m assuming you are going to furnish and refrigerator but what else? What other utilities, what other appliances are you going to supply, what level of appliances? Can you talk about that little bit?

Johnny: Yes. One thing really quick even though they are lower income properties they are not in bad areas. A lot of my properties are in good blue collar working people. I was able even I’m telling you examples of buying $20,000 properties but after I grew I was able to buy 50-60-$70,000 properties so I say my rentals average when I buy them about $50,000.

The reason I’m saying that its really appealing to some people to just get the cheapest property that’s typically in the rough area, section 8, and I tell people their return is going to be the highest but you have to deal with a lot of pain. You have to deal with maybe bullets gong on your house. There is one of my clients just went in different direction and he went and bought the rough areas and he got greatest returns but he has to deal with things like that.

In order to answer the question, I would say one thing I look at is I look at the items I’m going to buy when finishing and I ask myself is it the best in the neighborhood or not. If it’s the best is it way too much or not. My point is I try to do the best for the neighborhood so I have the edge and I’m getting the best renters in the neighborhood for the highest income coming in, for the highest rental rate but at the same time if the best in the neighborhood is homes that had been updated ten years ago I’m updating them now. I don’t need to put granite I just need to make it nice and it will still be the best.

One mistake I did when I started because I wanted to go after properties I put granite counter tops, I put extra stuff that wasn’t necessary. Now I just say if I put the nicest stuff there let’s put the lowest of the nicest stuff. I’m still the best but at the same time I’m not uptime the stuff that is not going to be bring me money back.

One thing I do I do couple of things to just be the signature I did. Recess lightning it doesn’t cost me that much, I really like hardwood floors. Most of the homes because they were older build they already had them so I told encourage everyone hardwood floors are the way to go. Carpet is cheaper but just plan every three, five years you are going to replace that. I do hardwood floors, then I just get the nice clean cabinets that are not high end that will last for a while.

Josh: That sounds great. I love the recess lightning thing., I think it’s one of the finished that most people don’t do on the lower end of the scale and I think you definitely would make the property stand out for somebody.

Johnny: That’s the thing. At first I was putting fans for example but I had investor that gave me really good advice and he said the more you put in the property the more you are going to get maintained requests. If you put a fan and a fan brake you are going to fix that. If you are going to put carpet even with normal wear and tear you are going to fix that.

At first I was going to put granite tile instead of the granite slabs because it’s really expensive someone out floor tile for granite but I just put them as kitchen countertops. I said that’s going to cost me just as much laminate countertops but then he told me that means every couple of years you are going to need to come and update them or maintain them.

What I do I try to find stuff even if it’s more expensive that’s going to help me not have to worry five ten years down the road. Recess lightning maybe is going to cost me little bit more in labor than fans at the being but I know that in the future it’s just the lightbulb that needs to be replaced. I don’t have to fix and repaid things like that.

Josh: Awesome.

Brandon: I was going to say my buddy Daren Sager always say “Tenant profiling your properties” it’s a big thing. I love that. Think what can your tenants do to it, how much are you going to need in the future. Do it right up front and you will save yourself tons of work.

Doing it right upfront does actually take much more money it just takes intelligent thinking about it planning. Like you said celling fans are probably more expensive than putting recess light or at least comparable in price but the ceiling fans they just break and kids hang from them.

Johnny: The one thing I do that’s probably unnecessarily to do but it’s my signature and It makes my rentals as almost a guarantee that someone walks in that they are going to rent it is I get stainless steel appliances. They neighborhoods I’m in, again, a lot of times appliances you go in are decent ten-year-old white appliances, plain, if I get brand new black appliances or brand new white appliances I will still be on top of it but for that $100 or $200 more once I get stainless steel appliances it’s as soon as the wife walks in she says “We are getting this”.

My rentals would be $50 to $100 sometimes $150 more than the average in the area but I get paid that money back really quick. Not am I only guaranteed a greater return but I’m also guaranteed a better renter. Renters that are willing to pay $150 more than comparable homes in the area are renters that care about the quality of living and that is all for me.

Josh: I love that you talk about the wife because in most cases fact to the mater is the wife tends to make the decision on at least in my case on everything.

Johnny: Absolutely as a realtor and when I flipped houses I learned to think what would the wife want. I would actually picture women clients in my head that I showed houses with their husbands and I would think okay most of them like white cabinets, most of that would really like this or that. Again you may be paying for appliances $100 or even $200 $250 up front but you are going to get it back in a couple of months of rent and on top of that you are going to get a better renter that will really take good care of the property.

Brandon: Love it. You mentioned return. Do you have actual number that you look for? When I do webinars people ask me that all the time. What kind of return on investment I should be looking for? Is 10% good is 5% good? what are you looking for?

Johnny: The market is shifting. Unfortunately, you don’t find any $20,000 homes in my area anymore. Things are going up now so I have to lower my expectations as things are changing. When I started the property I bought I was looking for the duplex I bought with student housing that I was saying I was looking for 20 to 22% return. I was able to do it. For regular home, single family three bedroom one-bathroom kind of deal I was looking for 15-16% return.

Now I’m looking more for 10 to 12 and single family if I can find it and the student housing is still out there so 18 to 20% so I’m doing pretty well with tit.

Brandon: I’m assuming it’s just your cash on cash return, your cash flow coming in? It does not account for the appreciation and stuff in the future.

Johnny: Yes, that’s just cash return.

Brandon: That is generally what I look for. When I look at if I want to buy nice property in a nice area I want better than the stock market so I want better than 10 or 12%. Knowing that the house is in the good area, it should go up in value, the loan is paid down which should help with my return, I get that tax benefits as well so overall the return is a lot better hand just that 10 or 12% that we physically see in cash flow.

Johnny: Absolutely. It’s a lot better than that. That’s just the cash.

Brandon: Cool. Overall you gave us descriptions of your properties. What is your favorite kind of property to buy – what are you currently actively looking for right now?

Johnny: That’s a great question. Because the market is shifting I’m actually in the process of examining everything. I don’t have only lower end properties. Robert Kawasaki in his book Rich Dad, Poor Dad I remember him giving an advice “Find an equation that’s fun and just keep going at it.”

My problem as an entrepreneur and I’m sure you guys can relate I just like different ideas and I end up diversified which is good but at the same time I feel like if I just focus on one and just keep going that’s where I can.

Josh: Avoid the shiny.

Johnny: Exactly. I would say I have different models that are hard, question to answer but m going my biggest thing that gets me going is creating value. Like I said earlier those duplexes the investors looked at and said okay these are $600 a side even if we dix them we are going to make $750.

I was able to look at something outside of the box and said we can actually do student housing and that will do more because students are looking for how much are they paying for room so that’s what I did.

Another property I bout and that is a unique one actually I’m selling it this week, I bought a property that none wanted to buy it was ten-bedroom house, six bathrooms, huge on five acres in a decent area but no none wanted to buy it because it used to be care giving facility and it just looked funky. Families didn’t want to but it because it lacked family home feel and investors didn’t want to buy because who’s going to look for ten-bedroom rental. What I did I looked at it outside of the box crating value and I said this is right next to different huge places that people come visit all the time – this would be great Airbnb Property. That was before Airbnb so it was great Bed and Breakfast without the breakfast. I looked at it and I said If I rent a room for $40 a night I’d make really good money.

I bought the property, furnished it really well, it looked really pretty and I put online where people can book online and I connected with different churches, different organization in the area where they have retreats, conferences, again it’s on five acres and I was able just in my first year I bought it for $150,000 because no one was wanting to but because everyone was thinking inside of the box this is too big for rental too weird for family to buy. I bought it for just 150 this huge property 5000 square feet and then I turned it into bed and breakfast and just in the first year I was able to Net profit $80,000. It was incredible.

Again challenge there you end up doing so many different things and now I’m in a place where I’m just selling the property because I got a huge offer on it. A care giving facility said we are going to come and we are going to buy it back and turn it back into the care giving facility. I did the math and said great I’m going to sell it. To answer to question is I say what I’m looking for right now in the stage of life I’m right now is I’m looking to give me good return but I’m also counting the cost of the time. How can I put it into my system? I think that’s the thing I’m looking for right now which is something that I didn’t look back in the day because I was looking for different opportunities.

Now that I have business in place I’m looking for something that I can put inside of my system and it’s not going to be a ton of headache even of the return is going to be a little bit less but put it into that system and keep growing.

Josh: I know you are in the proceeds of selling; I don’t know if you are able to tell us how much you are selling it for?

Johnny: Sure. I’m selling it for $342,000.

Josh: How long ago did you buy it?

Johnny: I bought it three years ago for 150 and I put about $20,000 in it. I had furniture in it for another 20,00 but I’m going to keep that furniture for different things. I’m going to say outside of the furniture I invested 170-180 and selling it for 340. I would have kept it that was one of the big lessons I learned on that.

If you are like me and you like thinking right outside of the box how can I get opportunity where I can think outside of the box and make much more money my only advice, make sure that whatever you want to do is not going to be an issue with zoning or neighborhood.

I had okay from the city but I did the mistake of just rushing into it and then I had that one neighbor that just loved having the property. The property was abandoned for years and he had horses living on the property, strolling on the property, he liked that no one ever went. So he went after me just pressuring me to sell it so I got to a point I’m just going to go and sell it. I’m going to encourage you if you are looking for something outside of the box just make sure you are doing everything with zoning with neighborhood so it does not come back regret butting to or trouble.

Brandon: Agreed.

Josh: You talked about systems. What systems were you refereeing back then?

Johnny: Right now when I’m talking about system I’m talking about how can I have a property that I can put into my spreadsheets with other properties that I have same maintenance process that other properties go through, that I can have same leases that other properties go through so that everything is easy as I’m training someone to handle leases or train someone to handle repairs it’s all under the same system, under the same side. If I’m trying to sell it, its all the same thing.

That’s what I’m trying to do right now because I found when I’m having a lot of different things like that bed and breakfast the issue was that I had to hire someone entirely different to handle clearing to oversee booking so I couldn’t put it under the system, it was its own thing so it felt like I was juggling different jobs. That’s what I’m talking about.

Right now I really have two different systems – one for flips and one for rentals and I try to have them under that. If they are going to be way outside of that then a lot of time typically just not worth it for me.

Brandon: You are still doing flips right now?

Johnny: I have slowed down. I don’t know if that’s just in my area. I think it’s more national thing but flips are kind of cleaning out and people are started to look into building now. I’m getting a lot less flips coming into market so I’m doing a lot of less of that. Probably do one flip a year if one comes up and it’s a really good deal I jump on it but it’s becoming a rarity.

I would say when I started real estate flips were a lot more appealing to me because I was looking money and oh my gosh I can buy this and sell this and then I three months I can make $30,000 this is so much better than making $700 check in rental. Looking back at it and now that I’m a little bit more sophisticated and educated I would say flips is a quick money but the risk is higher and also its not sustainable. People I know that just of flips and that are not interested in returns everyone I know are out of it now. They are completely out of the business.

If you are going to do just flips and not interested in passive income then you have to be willing to move from one place to another every five years or so because I think every five years or so typically the area will just be oversaturated with investors, you won’t have as many flips and you have to be willing to move around and that’s not what I was going for.

Brandon: That’s really good advice. Flipping is great, I enjoy doing it, its great to have that profit but that is all you really on and it can be difficult. That’s why the best flippers that I know are getting into rentals they are doing other things that are multiple streams of income knowing that flips will eventually dry up. They are great sometimes and they are not great other times. Lesson for all the flippers listening today. Diversify a little bit.

Josh: Diversify.

Johnny: Absolutely.

Brandon: How do you manage your properties’? Do you have property manager or do you do all yourself?

Johnny: Right now I’m training someone because I have enough properties where I wanted to be able to just focus on growth. I realize that past year or so I slowed down dramatically on focusing on growth because I have 17 properties that are keeping me busy.

I have heard this before and I think it was really good advice – the worst thing you can have is own five to fifteen properties. I was like “Why is that?” Because what I was told if you have less than five properties it can be hobby. You can have full time job, make income and that can be something on the side. If you have less than 20 properties than you are suck in the middle where if you still have a job you feel so busy and you are running around and fixing and taking care of things. If you don’t have a job, it’s not enough to make an income.

I’m trying to get out of that middle ground where I can have enough properties where I can quickly have full time management. Right now I just really finished training someone and she will be handling leases, she’s handling repairs so I can just focus on growth right now.

Josh: That’s great.

Brandon: I think that’s important point you’ve made there. There is that middle ground that’s awkward and I have experienced that for number of years now where you are not big enough to take on a full time employee necessarily but you are not so small that it’s easy to manage. It is a very awkward time so.

Josh: You have been awkward all your life.

Brandon: Still, it’s a thing you almost have to invest in yourself and say I’m going to go bigger or I have to go smaller. I don’t have a choice and I’m going to go ahead and take that risk of hiring somebody knowing that even if its part time to behind with that’s what I did I hired part time lady to answer phone calls and stuff like that I’m going to take that risk knowing that have to do that to grow my business.

Johnny: Exactly. It was hard for me because I was just doing the math and oh my gosh I can do all this do I want to pay someone this much money? But it just comes to a place where okay I don’t have to hire someone but I guaranteed I’m not going to have the capacity to keep buying and I felt it. When a good opportunity come out even if there are harder to find now where I am instead of getting really excited like I used to be I would be kind of town. I got to check this property but I don’t want another property. That’s when I knew, pay someone, don’t stop that hire someone.

Josh: First world problems.

Johnny: I know, right? Life is hard. I have seen a lot of people with money opportunities to buy. When I was a real estate agent and I was helping investors I have seen people back out of buying properties because of the hassle. It’s those things – do we want to hire someone; do we want to manage it? We like our nine to five coming home not worrying about it.

I would say the perks of being in real estate investment is freedom it gives me its way better than nine to five. I recently went to Egypt, I was able to raise money over online campaign and go to families that were just hurt by ISIS and all that and hand them money and spend time with them and go for two weeks and stuff like that.

I was able to do that because of the real estate. Nine to five friends of mine that had opportunities like mine can’t do that. Sure you can home at five o’clock and you can guarantee that you are not going to worry about anything after work hours but you don’t have that freedom so it’s definitely worth it.

Josh: It’s great you are using it for good. My god, there is some craziness happening out there and it’s good to know that you are helping out.

Brandon: Just to add to that point I had never thought in this way but a lot of people talk about financial freedom in a selfish sort of way. We talked about I can’t way to quit my job so I can go lie on the beach or so I can travel Europe for the rest of my life – it’s all me, me, me, me, me.

The other side of financial freedom is having the freedom to be able to help other people and be able to make a difference in the world where you can’t do that in nine to five job. I think that’s awesome way to look at it.

Johnny: One of my really good buddies he’s started flips the same time I did, he just started flips he wasn’t interested in passive income so sure enough he’s out of it now. I’ll tell you he was obsessed with that idea I want to be able to do flips and make 30-$40,000 at the time and go to Hawaii and I’m not saying those are bad, I went to Hawaii I like to enjoy my time but I’ll tell you one of the reasons he burnt out was actually not just that he wasn’t doing passive income its he was looking money as a way to make fun but eventually he had enough fun I think he felt like what he was doing he wasn’t passionate about it doesn’t serve a purpose.

I would say that wares out pretty quick. If your focus is just making money to have fun with it, you are going to wake up one day and say I’m not doing something with a meaning. Those are my thoughts.

Josh: That’s great. Johnny – vacancies. I know you talked you really wanted to get into how you minimize vacancies. Was that kind of where you are going you are putting stainless steel appliances and making just the best property or was it more to that?

Johnny: I’m so grateful because my vacancies have been really low. I really think so. Honestly guys in the last five years of owning student housing which is how many rooms is that? That’s 30 rooms that I’m renting for students. I had one room vacant one month out of all 30 for years and for the homes I’ve never had vacancy for more than two weeks.

I would say few things that really helped me – putting extra stuff that is not going to be way expensive but it’s going to give it edge. Stainless steel appliances, hardwood floors. I had couple of properties without hardwood floors, carpet but I spend that extra money but again it sells. When I’m showing properties I tell people we are putting hardwood floors because you don’t have to worry about your deposit. It gives people peace of mind. One thing is putting the extra stuff or making it nicer an average in the neighborhood.

Another thing I do and I do it ethically but I create urgency. When I’m showing people houses I get a lot of times and I learned that hard way in the benign where people would really like it and say “Its $100 more expensive that the rest but it is much nice but let us think about it.” Then I say “Okay just call me back” and then two days later they just go and negotiate and find something else and they call me back and I just wasted time. I always put urgency I tell people when I’m showing them that I typically have no vacancies.

If I have I try to put my showings in the same day back to back just to save myself from driving but I say I always blame it on the system, not on me. I’m the good guy it’s just the system. I say “I really like you guys, I’d love for you to have it, but I do have three other people that I’m showing it afterwards so I’d hate for you to lose it so please let me know if you decide to do it you are going to save me time showing me to other people” I’m the nice guy but I’m you have sense of urgency but I’m not a jerk about it because you don’t want to be that guy that’s like “Why don’t you sign now?” that is just a turnoff.

I put a sense of urgency, I make in nicer an average for not much more than average. Another thing is marketing. I don’t spend much money on marketing I mostly just take in really good pictures, I invest in nice camera because we all know and if you are looking for places for rentals a lot of landlords who do not know anything about the photography they go with crappy camera and the take picture of the wall and say bedroom number two and that’s it. I go in, I have nicer camera with zoom that can capture even a small room so I take pictures that look nicer and fresher.

Nicer marketing, better properties on the inside, sense of urgency and then the last thing I would say quicker at responding, sending documentations and making it easier for the renter to move forward without having it too complicated.

One of the things that are really complicated and I heard that from renters is a lot of renters you need to call their landlord and when you call their landlord their landlord says “I can’t tell you anything until you send me something with their signature” and that’s totally legal and you are supposed to do that. I do that but what I already have that form ready so when they are looking at the property I have them sign it that way we don’t have to waste extra two of three days of them getting it through the email, finding the printer, printing it out, signing it, sending it back. Just thinking how can I make the process fast and easy for them so they are encouraged to move forward they are not feeling overwhelmed.

Josh: Awesome. That’s great. At the end of the you are not just serving your tenants but serving them you are keeping them. That’s beautiful thing.

Johnny: Absolutely. One thing I do, too, and this is something I started doing few years ago and it worked out great is you know for Christmas I just don’t tell that to my tenants but I buy five dollar mugs that are just nice, I wrap them up and I just drop them off at their house. Again if you have 200 properties you can’t do that or maybe probably can afford to do that but I drop off just little gift for Christmas, it cost me 5 bucks. Once a year during in July I do a barbecue and I send invitation to all of tenants?

Those little things make tenants feel really loved witch I love to do but also it makes them feel like part of family. My rate of tenants staying and signing again is really high. I would say over 80% of my tenants renew their contracts for a second third year.

Josh: That’s great. I love that you talk about making your tenants feel like family. We had a show somebody else said the same thing doing the barbeque getting all the together and doing this like that it helped him a lot. I loved it. The little ting that you do that make it count that minimize your turn and keep everything great. It’s all about being creative and you’ve always done that it sounds like this whole thinking outside of the box you keep talking about. That’s awesome.

Before we move on I want to give one last question. We talked about this great business you built and doing great things - surely it hasn’t all been easy, surely it hasn’t all been positive. Do you have any tenant horror stories, any landlord horror stories?

Johnny: Tenant horror stories? Good question. The biggest challenge I had was with room rentals for students because I was able to rent that per room get higher returns biggest problem I had was I had some drama before with tenants. You have students living together and a lot of them didn’t know each other before moving in so you have fights and threats and all that but honestly nothing was really out of control.

Everything was easy and with room rentals what I had is get them to sign extra document of how they are going to behave, house rules, loud music or loud TV at night. It was easy to put them in place. I never really had anything worse than that. Now that I think about it it’s not too bad.

Josh: Right on. I’ve got the one last question and then we are going to move on to the fire round. Do you have any tips for new investors who are thinking about getting into the business? What would your best advice to those guys be?

Johnny: That’s actually great question because I have had a lot of people that were almost buying, had the money, had the opportunity and they baked out and I have three reasons why. I would say all of them have to do with wanting to have full control. Looking at investments as nine to five jobs. They want to know exactly what the salary, how many days are they going to have off of the year, that’s when I say you have to give away a little bit of control. Yes, with risk you have to educated risk I’m not encouraging anyone to do anything that are risky without studying and planning for them but at the same time my biggest advice is give up control if you are getting into this business you have to be willing to learn and be flexible and not be in control of everything all the time.

Brandon: I like that. I think that’s huge in every business. Just outsourcing and trusting other people can help you do the work if you train them right and delegating. Now always being the one who has the control in every single aspect because you can’t do it.

Johnny: When I say control it’s the person that wanted to go into this and know that their friend got 16% return so they are not going to buy anything until they get something 16% or higher. They find great opportunity and its 13%. I really had scenario like that they are not going to go into it because they want to be in control, they want to have the best thing and then once it’s out there they want to know exactly before even buying how much is it going to cost.

It’s good to have all that planning but out just have to be willing hey you are opening a business if the numbers make sense, if you’ve done your homework you have to be willing to give it up a little bit and learn as you go.

Josh: Excellent.

Brandon: Let’s move on to the world famous Fire Round which is sponsored by Fresh Books.

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It’s time for the fire round.

Where do you store cash reserves? Do you have them in savings account, money market, stocks, CD – where do you keep any cash reserves?

Johnny: Right now I just have them in the savings account.

Josh: Under your pillow.

Johnny: Under my pillow.

Brandon: That’s where I have mine too at the savings account.

Josh: What kind of real estate strategies are realistic if you are gone all the time. Let’s say you travel a lot, you are working road warrior sort to speak, what would be best real estate strategies?

Johnny: I would say if you are gone all the time start slow, one property at the time and you will definitely need property management or at least someone you can really trust that is not traveling around with you.

Brandon: How do I find good home inspector?

Johnny: Few things. Definitely Google. Research them. There are several websites where I go and get feedback. Mostly it’s been Google for me. Just googling and seeing what other feedback they are getting.

Another thing you can do is call trusted agents or maybe some of the best agents in your city and tell them who do you guys prefer for inspections? Find their credentials and definitely do not get an inspector who does not offer some sort of insurance.

Brandon: Interesting.

Josh: Why not? What’s your take on that?

Johnny: I like the inspector I use has insurance so if they damage anything while they are working or if they miss anything during inspection and there is potential lawsuit or anything like that they have insurance for their errors.

I had actually seen, it wasn’t with me it was with agent friend, where they hired an inspector and he was a really good inspector, he had insurance but they miss something really big with foundations. They didn’t notice that the foundation was in a really bad shape and they didn’t put that in their report. Couple of years later the buyer sued the inspection company and they actually went after the agent, too. But the great thing the inspector because they had insurance they were able to settle it outside of the court and not have to go through a lot of trouble with the agent. I would say insurance Is huge.

Josh: Is it crazy to start real estate investing with a 14-unit property?

Johnny: I would say it’s not crazy if you know what you’re doing and if you have right people around you it’s possible. It’s scary. If you were told me that when I started I wasn’t ready for it. I would put tons of expensive granite counter tops and stuff and run out of money really quick. For typical person I would say it’s crazy but if you know what you are doing, if you have right people around you can make it happen.

Josh: Great answer.

Brandon: Why don’t we close us with our world famous - Famous Four?

What is your favorite real estate related book?

Johnny: E-Myth. I don’t know if you guys head of it it’s one of my favorites. You did. Good. Maybe it’s not as much real estate because it talks about business in general but I consider it my favorite real estate book because it just talks a lot about building systems, about how to be able to manage so when I applied to book on properties and rentals it helped me tremendously.

Brandon: We actually had Michael Gerber the author here on the podcast back three or four months ago.

Johnny: You did?

Brandon: Yes.

Johnny: I missed that episode. I have to check it out.

Josh: You said you were the big fan of the show.

Johnny: I listen to the 99% of the podcast so that was that one.

Brandon: It was episode 125. People can listen to that one at

Johnny: I’m doing that after this.

Josh: What is your favorite business book?

Johnny: I would say Rich Dad, Poor Dad. I know that’s everyone’s answers but that book I’m not a huge reader, you guys actually spoiled me because after BiggerPockets I don’t need to read anymore I can go in and find the answer and find help ad interaction really quick. Now why do I want to read 300-page book?

Rich Dad, Poor Dad was for me a great business book because it really just helped me with basics and I love that he Is just politically incorrect in everything he says. He just says as it is and that really helped me.

Josh: Politically incorrect like the hosts of what show?

Brandon: We are not politically incorrect; we are just offensive. There is a difference.

Josh: Hobbies – what do you do for fun?

Johnny: I love people so I’m usually really involved in my community and I have bible study and all that. People is what I do for fun. That sounds weird.

I like traveling a lot so I travel all the time. Again, I love my real estate because it gives me opportunity to do that.

Travel, people and I blog. I have a blog and I blog about anything but real estate because that’s how I get out and do different things and take time off real estate.

Josh: At least you don’t do people for business.

Johnny: No.

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

Johnny: I would say the things that would set you from being successful versus not being successful is being able to take educated risk and I would say the second thing is being teachable. You have to be willing to learn.

I have seen stubborn people who were just going until they hit the ground because they weren’t able to learn and adapt whether to market change or whether to mistakes they were doing.

Third is surrounding yourself with right people. Whether its right inspector, right repair man, right assistance. Surround yourself with people being able to learn from mistakes and being flexible and being able to assess risk well.

Josh: Perfect.

Brandon: I like that a lot.

Josh: Where can people find out more about you?

Johnny: I’m on BiggerPockets, I’m still growing there. I actually had a meeting with someone I met on BiggerPockets to talk business so that was great.

I’m on BiggerPockets but I’m also on my blog and Instagram, Periscope is the same username johnnyy. I stared Periscoping videos about real estate just helping people so I’m there, too.

Brandon: I’m going to follow you on Periscope.

Johnny: That’s awesome.

Josh: You better not mess up now. He is going to periscope him persicoping you.

Brandon: For those people who have no idea what Periscope is – what is Periscope, Johnny?

Johnny: Periscope is my new favorite thing and I think it’s going to be huge. It’s basically you can go live and your friends or followers can go on any time while you are live, they can watch you, they can comet while you are talking and they can give you some hearts so I love some hearts.

Brandon: I will give you some hearts.

Josh: He likes to do people, he likes hearts.

Brandon: This is just going downhill really quickly.

Josh: Alright Johnny it’s been an absolute pleasure, reapply really enjoyed the show. It’s kind of cool to hear your philosophies I think of everything else. Just kind of learning about how you think about things.

This whole thinking outside of the box is great and I think people should contemplate the idea if they haven’t already it’s awesome.

That’s for being on the show and thanks for being part of the BiggerPockets.

Johnny: Thank you so much it has been a pleasure guys.

Brandon: Thank you. We’ll see you around.

Josh: That was Johnny Youssef.

Brandon: Yes, it was.

Josh: Thanks again to him for coming on the show. Sadly, Johnny is going to be crying as his Kansas City Royals have lost the world series to the Mets at the time that this show has gone love.

Brandon: Are you predicting? You are going to look like an idiot.

Josh: I’ve looked like worst things before so it’s all good. Definitely link up with Johnny and thanks for listening to the show. Brandon, that was great.

Brandon: That was great show. I like guys who think outside of the box. I like guys that are creative thinkers and they don’t just accept yes or no and Johnny is definitely that guy. Thinks how to put together a deal when everyone else turns down something he’s going to figure out how to work and I love that.

Josh: His energy is just captivating. You just want to listen to him.

Brandon: His whole philosophy about financial freedom to be able to help other people I think that’s just inspiring so I love it.

Josh: Big thanks to Johnny. Alright guys thank you for listening show 147 BiggerPockets podcast – we are done, we survived yet another one.

Thanks for listening and we will see you next week.

If you haven’t already make sure to jump on, create an account, starts networking with other investors like Johnny, get on the forums and ask questions, answer questions, listen to the podcast, share the podcast, get out there, use the tools that we provided for you and doing so will help you be more successful. That’s nothing more to say than it’s a fact. If you use it if you own it, you are going to be more successful.

Lots of luck and I’m out. This is Josh Dorkin, signing off.

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