BiggerPockets Podcast 059 with Paul Tschetter Transcript
Link to show: BP Podcast 059: Mastering Multiple Real Estate Investing Niches and Getting Started with Paul Tschetter
Josh: This is the BiggerPockets podcast, show 59.
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Josh: What's going on everybody? This is Josh Dorkin, host of the BiggerPockets podcast. Here with my co-host, Brandon Turner.
Brandon: That was nice. That was really nice.
Josh: You like that?
Brandon: I do.
Josh: It's like my Michael Buffer intro for you.
Brandon: I don't even know what that is. You make all these references. I don't even know what you--
Josh: "Let's get ready to..." You know, that guy?
Brandon: Oh that guy. Oh that guy. Oh that guy. Do you like my new mic?
Josh: Yeah, I do like your new mic. I'm glad I got you one.
Brandon: Yes, thank you for my new mic.
Josh: Now you can sound half as good as I do.
Brandon: Yeah, it's something to strive for.
Josh: Yeah. It's been kind of a cool week this week. We've had a bit of a milestone. I wanted to really quickly share which is 160,000 members on the site.
Josh: Yeah, that's kind of cool. Things are moving along. Lots of new folks coming to BiggerPockets, learning, making moves, doing deals. It's awesome, as we like to say.
Brandon: Awesome. Take a shot.
Josh: Yeah. Yeah. Yeah. Take a shot. Take a shot. So we got a cool show today. I think people are going to like this one. We've got a guy who's kind of a jack of all trades. And before we get to that, I know Brandon wanted to share a
Both: Quick tip.
Brandon: Alright, this is my quick tip because today I learned a lesson. I don't know if it's a lesson but whatever. Today, a house came up on the market in my town, my little town, for like $39,000 and it's a really good deal in this town particularly. I looked at it and it was already gone by the time I saw it, quickly gone, I think. I looked at this house a year ago. It was just a vacant house in my town I drove by and I walked down the outside, popped my head through the window, looked around, I thought, "I should contact the owners." And then I just kind of left it at that and I didn't do it. And now a year later, it goes on the market and sold right away.
So my quick tip is if you're thinking about doing something, don't just think about it - do it. If I would have done it a year ago, do it. Or I would have it. Yeah, motivation. Go do it and stop thinking about it.
Josh: Yeah, exactly. Exactly. That's a good tip. Good tip.
Brandon: Thank you. Thank you.
Josh: Cool, cool. Alright. Well, we're going to get a lot of great tips in the show featuring Paul Tschetter. Paul is an investor up in the Washington area.
Josh: Yeah he's in the rural side of the country.
Brandon: This is our first guest from my neck of the woods.
Josh: Nice, yeah.
Brandon: I don't think we've had a--
Josh: Well, why don't you introduce him then?
Brandon: Alright, I will. Alright, Paul Tschetter is an investor from the Whidbey Island area and he is a jack of all trades, like Josh said. He does a lot of different kinds of investing so we're going to cover a ton of stuff today.
Josh: Good show.
Brandon: With that, before I bring him in, quick reminder everyone: go to the show notes page at BiggerPockets.com/show59. You can ask Paul questions about his adventures in real estate. So with that, let us bring him in.
Josh: Alright Paul. Welcome to the show, man. Good to have you.
Paul: Hey, great to be here. Thanks for having me.
Brandon: Yeah. Paul, would you want to-- why don't we start by what is your last name? How do I say your last name? Because I couldn't figure it out earlier.
Paul: It's Tschetter like the cheese, but it's obviously spelled out funny or messed up.
Brandon: Alright, yeah. I had some trouble with that.
Josh: Why are you picking on my guy for his name, man? That's a little childish, I think.
Paul: I'm used to it.
Brandon: You know, that's how I roll. I know people are looking at the title of the podcast, I mean like, "Paul... T, T, the number seven, the letter Q..."
Paul: Come up with an original way to pronounce it, I'll see if I've heard it before.
Josh: Nice, there you go. There you go.
Brandon: I'll work on it. Well, cool.
Josh: Alright, man. So Paul, tell us how you got started. You've done a ton of stuff in real estate. How did it all kick off?
Paul: Well, it's a long story but the quick version is I've wanted to be a real estate investor pretty much since I graduated from college, which was in the last century, I guess. Out of college, I figured I should probably get some education on real estate investing. When my first job was-- I went 4:57 for an apartment broker, who specialized in selling apartment buildings in the Bay area. I just kind of worked as his grunt slash right-hand man, you know, getting it on the market and helping him with listings, and marketing and all that stuff. Worked for him for about a year and really learned a ton.
Brandon: Nice. How did you find that guy originally? Do you remember?
Paul: You know Josh I think it was, I believe it was on Craigslist. Way back in the day.
Josh: Oh nice. Now did you start doing that with the intent that someday you would become a real estate investor or was it, "Hey. I want to get in the business. Let me kind of dance around and try different things.
Paul: Good question. I didn't really know. I mean, I talked to some brokers and kind of knew that one way that people got started is just kind of become an expert in a niche and making some good money doing that and then ultimately kind of converting over to become an owner. So that opened up, maybe the path was being a broker but it was just mainly just to start my education. Yeah, I thought when I get paid a little to learn kind of get to street-- you know learn how somebody's actually rather than going to school. I'm more of a kind of hands-on guy.
Brandon: Nice, nice. Okay so you're working there. Did you get your license or were you just assisting another thing?
Paul: I was just assisting. I kind of started that process but pretty quick I realized that that wasn't the right path for me.
Paul: There's more to the story, but it led to one of his clients. It was a buyer, or an owner, who bought apartment buildings. I actually moved back down to Los Angeles and got a job for this small apartment rehab. He basically bought small under a hundred units - 50 to 100-unit apartment buildings and they were just getting going down in Los Angeles area. And same thing, he kind of needed a right-hand man. A grunt, a new project manager and helping with rehabs and kind of overseeing vendors and helping a little bit out of the acquisitions and so that job with the broker kind of transitioned nicely to a job working for an actual owner and kind of seeing outside of the business.
Brandon: You know that job right there, what you did-- there's no title necessarily for it, like you said grunt, project manager - that's like 50 different job positions. But, that is the guy that every successful real estate investor I know is always looking for. That is a position, even though it doesn't have a title. I mean, I wish I had that guy and I don't know. I think all those people that are listening to the show out there want to get into real estate and don't know how to get started be that guy and you'll never have a problem.
Paul: Right. Absolutely. The pay wasn't amazing but it was like you got an MBA in a year. It was fantastic education.
Josh: That's awesome. So did you stay with him for a year or were you there for a longer time?
Paul: No, I was at both jobs about a year and the next part of the story, just to keep it brief, was I got married and I was kind of trying to figure out--
Paul: Thank you. But I ended up starting a - seemingly kind of random, but it did have a purpose and it was kind of targeted towards real estate - was I actually thought well-- I need to kind of build some capital myself and I'm an entrepreneur. Why don't I start a service business that kind of targets some aspects to real estate? The apartment industry or the commercial real estate industry. Many other companies stay connected to the real estate, continue to learn, continue my education, but also start a little company and build some capital so I can start buying. I definitely still wanted to still buy my own apartment buildings or commercial buildings or whatever.
So I started a little payment processing business back in 2002 and we targeted apartment manager companies - helping them collect rents and application fees and everything related to collecting rent, online or credit cards, ACHs and so we started this myself and another gentleman started a little service business, with that kind of in mind.
Brandon: That's nice. Obviously, you built it up to the point where you had the capital to kind of jump in and kick things off.
Paul: Yeah, ten years later. I've been doing that since 2002 and just the last few years have finally, after many kind of starts and stops of trying to just pull the trigger of my first deal. It's really not been till the last few years that I finally jumped in. I still have the credit card business but I'm pretty much full time now doing real estate investing.
Brandon: Cool. So how did your first deal-- you said it took what? Ten years? How did that first deal come up?
Paul: Well I finally the—the real estate market had really obviously dropped off in 2008 and I moved back up to Washington which is where I grew up around 2009. So when I got up here, I thought it's time. I'm tired of making excuses and I just finally made the plunge. We moved in to just north of Seattle, to a really neat place called Whidbey Island, which is--
Josh: Isn't that where-- was that War Game? Wasn't WarGames filmed on Whidbey Island with Matthew Broderick? Was that what it was called?
Paul: I've heard that. I have not been able to verify it but I've actually heard that.
Josh:>/strong> I feel like that's what it was called.
Paul: I think you're right. So yeah, we just started, you know finally bought my first transaction here a few years ago and I guess I could tell you a little bit about that.
Josh: Yeah, yeah. It's called Goose Island, by the way, as I look it up on Google here. So I was incorrect, apologies.
Brandon: I don't even know what you're talking about.
Josh: Oh, WarGames? Have you never seen WarGames?
Brandon: No. I don't even know what that is.
Josh: What are you like, twelve?
Brandon: Haha. Matthew Broderick's only movie I've seen is like Godzilla and Ferris Bueller's Day Off.
Josh: Paul, have you seen WarGames?
Paul: Yeah. That's an oldie.
Josh: It's a classic, man.
Paul: It's a classic.
Josh: Come on Brandon, get with it.
Brandon: Alright, I'll check it out. Alright so first deal, what was it like and what did you do?
Paul: So Whidbey Island is a very rural part of the country
Josh: Emphasis on the rural.
Paul: There's a lot of second homes and a lot of real high-- it's kind of a-- not a resort area but you know people from Seattle own homes up here, so it's kind of a retreat, second home type market. So in a more entry-level, traditional long-term rental, you know just real basic three-bedroom, two-bath type houses. So one of my ideas to jump in, was to actually buy manufactured homes and I own a few of those now and so I found - what I actually do to my first deals - I found a lot that previously had a home on it, that had been demolished because it was actually a meth house. And so I was able to pick up a lot from the bank for a mere $6,000 and that was my first transaction. And I had also started to put out some fillers to find a nice, late-model manufactured home to actually move on to the lot and improve it and either rent it out or sell it. That was the first transaction that I did up here.
Josh: Hey Paul, so was buying the property - was the house already raised at that point or was it still standing?
Paul: I literally bought it like a week after the they had gone through full-- I don't know if you guys are familiar with the process but it’s pretty extensive and expensive and the health department had just signed off on-- the lot was basically good as new. The bank had dealt with all the application, to the tune of $50,000 to knock the house down. So now I didn't have to deal with any of that.
Josh: Wow, wow. So clean and clear, six grand, you got this beautiful lot. You go find a manufactured home to put on it. And you had not dealt with any of this types of properties before, had you? The mobile?
Paul: No. It was pretty new. I hadn't done it. I just kind of have the idea and had seen that they'd make, for this area, there are decent rentals and just the ratios kind of work up here. So I kind of heard of people that would move up here, buy five acres and put a mobile home on it and down the road they'd finally build their dream house and they need to deal with the mobile homes. So that's kind of the type of thing that I was looking for, was somebody that had a five or ten-year-old mobile home and I could pick it up for cheap and move it to one of my properties as a rental. That's not exactly what happened but I ended up finding a nice mobile about a year and a half later and we actually just completed that deal about three four months ago.
Brandon: Let's talk numbers on that if we could. You said you bought the lot for $6,000. What did the home cost to buy and move it?
Paul: So the home was free - 99. Didn't actually have to pay for it. The guy, it would've cost him $5,000 to $6,000 to get rid of it. And it was in the 1980s, three-bedroom, two-bath. Needed some freshening it up, but it was worth my time and effort so we picked it up. I actually had secured a private loan from a local investor to do the project on top of that, so I ended up spending about $50,000 total to move it, place it, fix it up, put it a new septic system. So it was pretty involved but now we've got a rental. We go enter for about $50,000 to $55,000 and it rents for $1,100.
Brandon: Okay. So it's pretty much the 2% rule and you got that on Whidbey Island, which is an expensive area, generally.
Brandon: So that's cool.
Paul: It's hard to find even just a real basic three-bedroom home here for $100,000 or $200,000. That's kind of the--
Josh: Wow. So let me ask you, this was your first deal, yeah?
Josh: Okay so you've got this lot. You've paid $6,000 and it took a good year and a half before anything could happen. Did you do anything with the property in the meantime or was it-- I mean, $6,000, it wasn't super expensive so it wasn't really draining a hole in your pocket. But anything in the meanwhile?
Paul: No. I knew it would probably take some time if I wanted to get what I was looking for. I could have gone and bought what I needed for 30 or 40 grand probably, but I knew I needed to be patient. So just pretty much out there, moved a couple of times and just waiting. And in the meantime, I was doing other transactions. I wasn't waiting for that.
Josh: Gotcha. Here's my question. I hear mobile home, somebody who's never dealt with them, I think, "Oh, it's one of these things on wheels. You can move them around. Do whatever you want. Why the heck does it cost 50 grand to do?" Obviously you talked about the septic system, but there's more than one class of mobile homes, correct? I mean there's movable and non-movable.
Paul: Absolutely, yeah. There's a huge range. This is a double wide. It's not on wheels. To move them, they actually split it in two pieces and put axles underneath it. It's on a metal frame, but from the outside it really looks like just a very basic traditional stick-built home. We put them on a concrete slab and the concrete around the base as opposed to just the kind of wood or plastics. So it actually looks like a real house from the outside. There's triple wides, double wides and there's single wides. And the double wides are really what I'm interested in. Just because for the money and they feel similar to a stick-built home.
Josh: Take the case of the property you've got. So you've got this 5,500 bucks into it. You're making pretty good rental. Have you considered the other side of just owning a home at a park? Is there anything really different about that than what you're doing here?
Paul: You know I had looked into that too and I know a lot of guys do that. The nice thing about this is if you buy, if you do want to lease - and it's after, I believe it's 1978 or 1976, I can't remember the cut off - but if the owner occupied buyers can actually get financing for this type of-- when you take the mobile, move it onto a piece of property and attach it to the property, you can get conventional financing. So I like that just because it gives me-- and I'm holding it as a rental right now but down the road, I have an exit strategy and this type of home, I can sell it easily for $100,000 to $125,000 in this market.
Josh: Nice, nice. Now, a typical mobile home, it sounds like you can't get conventional. It's similar to like a car financing, isn't it?
Paul: You know, again, when you're in a park, there's different financing from what I understand, but then again I'm not an expert on that arena, but all I know is when you do attach it, you remove the title because the mobile from the factory has a title, and when you remove that and actually affix it to a piece of property that's owned, it becomes just like real property.
Josh: Right on.
Brandon: Can you share any mistakes you have made or things you regret if you were to go back and do it again, you'd do differently. On that first deal?
Paul: That's a good question. I probably spent a little too much money on the rehab. I mean I needed some updating and I probably went a little further than I needed to. It went pretty smooth and the reason is actually, in the midst of buying that property and actually getting this mobile home for that property, I had actually purchased another property and moved one of these already. This is actually my first-- this property I bought, but it was the second mobile home that I had moved. So it actually went pretty smoothly. I had used the mover before. I had used a lot of the same vendors, the concrete guy and the remodelers and contractors and all that.
Brandon: So you didn't do the labor yourself inside to fix it up?
Paul: I don't do any work myself. I've got some fantastic, local handyman and contractors and laborers and I have a really good team.
Brandon: Cool. And here's the question we ask a lot of people but do you have any tips on finding good contractors?
Paul: Since I'm just kind of a small guy, just through networking and Craigslist, I like working with just the small one-man kind of handyman type of guys that may or may not be licensed. Maybe I've just been really lucky but it's really been through networking. Talking to local property management companies and that I've kind of found the guys that I like to work with.
Brandon: Here's a kind of a specific question. I've never asked this on the show before but I'm curious. What do you pay? Like let's say you've got some sheetrock that got damaged from whatever water leak that happened years ago. What do you pay a typical contractor to go fix that up? Per hour, are you a 15, 50, 100 an hour? Like where you are at up there?
Paul: It kind of ranges from $15 to $30 and that's a huge range. But I've got more labor guys. Then I've got more skilled carpenters. It's really been that range. $15 to $30.
Brandon: Yeah. I think I want to start asking that question more often because I'm always curious. I paid generally like $20 to $25 in my area. Kind of the going rate for somebody who's decent. Licensed and bonded probably can do the stuff but yeah. Okay cool, so let's go back to your story. You did that first deal. And that first deal kind of spinned several deals. Let's talk about your second, third. Where did you go next after you bought that land?
Paul: Well, really about the same time I had two other properties in contract so I kind of came out of the gate swinging. Haha. There were just a lot of deals at the time and I had all the resources and financing to do a couple of deals and so roughly the same time as closing on that lot, I bought a conventional three-bedroom, two-bath stick-built house in the similar area. And then a month later, I also closed on an older three-bedroom, two-bath kind of farm house that is also kind of a traditional rental.
Brandon: Okay, do you mind me asking how much you paid for those?
Paul: Yeah. So the second transaction was three-bedroom, two-bath 2000-square foot and I paid $130,000 for that.
Paul: And that one, when we fixed it up. I think I put about $12,000 or $13,000 into it and that one rented out for $1,300.
Paul: Not a homerun, not a screaming deal, but I was able to - about six months after we did that - refinance it and almost the money that we put down-- we had a conventional loan on that and pulled most of the money out and it still cash flows a couple hundred bucks a month.
Brandon: Hey, let's actually talk on that a little bit a little bit because I like that strategy. Hey, for those people who are listening who don't know what that all means, can you kind of go through that a little more, detailed on refinancing it out?
Paul: Yeah. So this one actually I bought with a partner and we had to put 20% down. We had a traditional loan with a conventional bank and US bank. And so we had to put roughly $30,000 down, $35,000 down. And then we put about like I said $12,000 to $13,000 of our own money into it to fix it up.
And so we got it rented and we kind of let it do its thing for six or eight months. Then we went back to the bank, got it re-appraised. And I knew going into it that we'd potentially be able to do this because when we bought for $130,000 it actually appraised for $185,000. So we kind of had that data going into it. So we got it re-appraised and it re-appraised at $200,000 after we fixed it up and had it rented out in the market. I think it started to improve a little bit and so if it appraises for $200,000 you can do 70% to 80% loan to value on the property and so in this case we were able to put $150,000-dollar mortgage new loan to pay off the original loan on that property and at that point we paid off the loan and there was extra left over. So we obviously paid ourselves, took our money back out. So now we've got basically no money into this deal. You know it's not an incredible return but the market's improving and we're cash flowing a little bit and we have none of our money in the deal now.
Brandon: Yeah, so pretty much infinite returns at this point, you're just doing your profit, that's cool. I'm working on kind of the same thing right now that I wrote a post a while back about the ugly purple triplex that I bought. And we paid $70,000 for it. It appraised $90,000 when we bought it. The appraised told me, "This is worth a lot more that what I can appraise it for but there's just no comps right now." So that's what I'm hoping to do. Exactly the same thing. I'm hoping I can get it appraised for $120,000 - $130,000. Go out and get a 70% refinance and pull all of my cash and everything back out along with my partners. So it's the exact same story. It's one of my favorite strategies there is for investing with no money. Or at least getting your money back. Cool. So you mentioned partner. You were working with a partner on this. Can we talk on that a little bit?
Paul: Yeah I definitely am a fan of partners. I've done deals on my own. I've used different partners. One of my first partners, I've heard from a lot of people's relatives or friend or relative. And so we had an arrangement where we both brought some money to the table. I was doing most of the work and it's worked out really. Like I said, I bought different properties with different people.
Josh: Well, can we cover the way they treat you there because - say you've got a partner, you guys both bring money to the picture and you're doing all the work. The way I see it, he's not bringing everything so you're definitely not going 50-50 or are you doing like 60-40 splits or how are you working that out?
Paul: Well, I don't have one standard way of doing it. But with this first partner, it's a 50-50 partnership. I put a little money in just because I really didn't have a track record at that point. I mean, it was a family member. He felt like I needed to put a little bit of money into the deal. But since then as I've developed a track record, your deal structures can definitely change. You have more leverage. Now with the recent partnerships I have, I put little to no money in and my partners usually put most of the money up and I do the work and kind of have developed a track record to manage the assets.
Josh: Yeah, and you say track record and I think it's something that we hear over and over and over and over again on the podcast. I like to emphasize because I think it's super important for the new investors who say, "Well, you know I don't have a lot of money. I don't know what I can do here. How do I proceed?" You know ultimately, yeah maybe you turned to a family member. I mean we've covered a million ways to start out in finance, but as you proceed forward, you build a track record for yourself by being successful and demonstrating that you can do these deals. You're going to build trust in those people who are going to potentially lend you money or work with you, partner with you. And over time, essentially it just becomes easier and easier to do deals with less of your own capital.
Paul: Absolutely. This is so funny. Literally last week, I was at one of my jobs and one of my contractors actually heard me on the phone talking to one of my investor partners and this contractor start to kind of pulling me signs that, "Hey, what's the minimum to get into this thing?" I mean, it's amazing when you start doing stuff that people start finding you and again this is a guy that works for me all the time and he was interesting in parking some money in real estate. So we had a conversation about that.
Josh: And how did that particular person find you? Was it just you just tell everybody, which is something that I think people should do? Or was it just kind of word of mouth?
Paul: You mean the initial partner or?
Josh: No, no. The one you were just--
Paul: Oh, literally it was a guy that works for me. A contractor that's got some extra money and he knows what I'm doing and kind of hears me talking to my partners and he just asked, "How do I jump into this?"
Josh: That's awesome.
Paul: But it's all net yet. There's no website. It's all networking. My experiences, it's just networking and just doing what you do and you know at first, you're kind of seeking people up but after a little bit more people start asking you what you're doing and you develop a niche and a skillset that not everybody has.
Josh: So have you done hard money loans or other types of private money other than partnerships?
Paul: So I've done seller financing. I did the first manufactured home deal, I told you about that. That was actually what some people call soft-money loan. One challenge I have with the mobile is, I can't as an investor currently get conventional financing. That's one of the limitations to that strategy, at least currently. And so that was a gentleman who lent me private, his own private money but gave me a reasonable return. It's like I've got a ten-year loan at I believe it's 5%. So I've done that. And then I've got a project I'm working on now where I did my first hard money loan.
Brandon: Okay. Can we talk about that a little bit? How did that go for you?
Paul: Well, we'll see.
Brandon: Man, can I ask more specifically. What kind of rates and terms did you get for that?
Josh: And before we even go there, why did you decide to do that versus take on another partner?
Paul: Yeah, so this one-- I've wanted to just try it out as I'm still pretty new at this. I'm definitely gotten some reps in the last few years, but I just have wanted to for the right deal, you know I wanted to try doing that - hard money loan, because there's a bunch of benefits and there's a bunch of downsides to it. But it was a deal where I just made a really good buy. I bought it for 60% of what it's probably worth, as is. And then there's even more upside once it's fixed up and so there was enough of a margin there where I felt comfortable to use our money. So I'm in the midst of the project, we're probably two weeks from finishing it. And then at that point I'm going to try to actually re-finance it and put a conventional loan on it and if for some reason that ratios don't work or doesn't appraise for enough, I've got some sellers. It's a property that can very easily sell. So I've kind of got that as a back-up.
Brandon: And that's really important. We don't need to really dive into it real deeply, but the fact that you have multiple exit strategies for this potential flip or potential rental, it's perfect. It's cool.
Paul: I like having at least two, if not three exits. I'm pretty conservative, but I really try to have-- I'm trying to build a portfolio of rentals but it's nice to know that if you need to sell it, you can sell it and not be under water.
Josh: Okay Paul, so here's the deal. So you've got this property, your plan with these things is to re-fi it and get conventional financing. What would be the alternative? You said you had ulterior exit plans. What were the ones that you had in mind here?
Paul: The second exit would be to just to sell the house. I've even got people that have contacted me, just knowing the house in the area, that wanted to buy it. To see if somebody's remodeling it and it's a very desirable area. And so the back-up exit is just to sell it and sell it for profit.
Brandon: Okay, cool.
Josh: Sounds good. Hey, one more question on this particular one. You mentioned that this was a 60% deal. You know that's kind of tough to come by. A property with 60%. How did you come across this one?
Paul: It's kind of a glitch in the matrix, so to speak. I mean it's just a totally random thing. It's a property that I had had my eye on. The seller had tried to sell it maybe a year and a half ago and it was just in my database and I've been watching it. It was kind of a weird thing. It was one of these-- it was a reverse mortgage foreclosure. I'm not really, to be honest, that familiar with how that all works. But basically the person passed away and the bank just kind of sells it kind of what's left on the mortgage or what they're owed. You know to be honest, I don't really understand how all that works, but it just came on the market. It wasn't an inside deal or anything. It came out on the MLS and we wrote an offer the first day. They actually had multiple offers and people even had a written higher price offers, but just because of my track record and the guy that I used - the broker that I used - we were able to convince the seller to go with our offer because it was stronger.
Josh: That's awesome. That's awesome. Well, you mentioned your database. You've got this database of properties that you watch. What kind of criteria are you using for these properties? Is it absentee landlords? Is it foreclosures? I'm just curious to kind of talk a little bit about - how do you manage it? Because this property came on the MLS, did you have it tagged if this thing comes back on, to let us know? Or how do you manage all that?
Paul: So you have to understand I live in a very small town haha. I mean, it sounds funny, but literally when something comes on the market, one thing that I use is Redfin and they have a pretty good alert thing. So I've got my criteria in there and you can set up a user and they've got settings. I mean pretty much any property that comes on the market in Island county, which is our county, I know about it within hours of it coming on the market.
So that's really for this immediate market, that's kind of all it takes. I do have a CRM system where I do kind of manage data on some of the properties that I'm managing, but really, from our local market here, it's just kind of an alert type of thing where I get an email when a property fits my criteria, hits the MLS. You know, these foreclosures, other deals that come across my plate that aren't on the MLS, I've got this CRM system that I can kind of manage those leads.
Josh: Nice. So John Cougar Mellencamp was singing about you too, huh?
Brandon: I don't get these references.
Paul: I didn't, actually. I'll be honest, I missed that one.
Josh: Small town. "...small town."
Paul: Got it, got it.
Brandon: I don't even know.
Paul: Yeah, we're in a small town.
Josh: You have to be born in maybe the early '80s or like '70s to get that. Or any time before Brandon.
Brandon: Apparently. Josh, can we get back to real estate? Haha.
Josh: Listen. My job here is to distract.
Brandon: Yeah, yeah, yeah. Alright, I do want to point out something interesting. I mean, a lot of people who live in big cities or big areas unlike the rural areas that Paul and I live in, they might say, "Well, that's easy when you live in a small area. They know all the properties that come up on the MLS."
Josh: Yeah, must be nice.
Brandon: Yeah, I mean I know all the properties in my town when they come up because there's only a few, right?
Josh: Brandon, your town is like a block. You know you could throw a rock and hit the other side of town. So it's like you know, it's not a big deal when you live--
Brandon: It is a big deal. Here's my point though: when you're starting out especially, that's just defining area of the same size, right? If my area's a mile by mile, so not a block, but it's like a mile by mile. Go pick your farm area and make it a mile by mile and you've got the same number of properties. Ignore everything else. Pretend everything else doesn't exist. That's your area. That's where you set up your alerts. That's where you set up everything. You become the king of that area and branch out once you get some experience.
Josh: That's a great tip, Brandon.
Brandon: Thank you.
Paul: Brandon, that actually really speaks to me because I think that's why it took me ten years to get to starting is it is so overwhelming when you live in a-- wherever, Seattle or Denver. There's so many strategies and so many types of properties and so many ways to buy them, I was just overwhelmed. And I think that might have been part of the thing that help me get rid of this, you know it's a lot smaller area and a lot slimmer pickings.
Josh: Hey, so while we're talking about farming here, and for those people who are unfamiliar with the term - I'm not making funny with you rural guys here, okay? Farming is basically kind of the process of working an area. So what would somebody do to kind of set up a farm in an area that is a bigger city? How would you, kind of determine your criteria for what's the best one mile by one-mile plot that you should pick and that you should work on? Do you have any ideas, any tips on that?
Paul: Well, I don't know. I guess what I'd say is just pick a couple of zip codes. Maybe start with one zip code, or a couple of zip codes and just really try to be disciplined at becoming an expert in that area. I hear realtors that when they start doing their business that that's kind of how they start, is they pick an area. So as an investor, you just have to be disciplined because you get outside that area and there's just too many deals and it's kind of overwhelming. I guess that's what I'd recommend.
Brandon: I could add to that. Off the top of my head, I think different areas are obviously good for different strategies. Like my area's not great for flipping. I mean, I've done it but it's not real great for it. Other areas are amazing for flipping but they're not good for rentals because you can't get the cash flow. So I think you've got to pick an area that fits whatever strategy you want to do and I think a real estate agent, like a good agent who understands the investor mindset, can help with that quite a bit. Just asking them, "I'm looking for 1% or 1 1/2% or 2% deals. Where can I get those in this area?"
Josh: And of course you want to talk to a real estate agent who actually knows what a 1% deal is. Hahaha. I mean because those might be hard to find too, by the way.
Brandon: Yep, and that's true. If you can't find one, jump on BiggerPockets forums. There's people probably from every zip code in America on here. Find somebody who's in your area. You can get advice from them. I mean, if somebody asked me where's a good place to invest in Weston, Washington, I could probably tell them within a 500-mile range of where I'm at right now, what's generally good and what's generally bad. Or at least, good for flipping versus landlording or whatever. Just find somebody nearby and talk to them. Quick tip.
Josh: Quick tip.
Brandon: Alright, let's go back to your story. We kind of went off on a little tangent there, but I think it's important. Vacation rentals, we talked about that on the podcast a couple weeks ago with Matt Landell. And I hear you have a vacation rental or some vacation rentals?
Paul: I have a vacation rental that I purchased in the midst of all this stuff with a couple of partners. It's not something that I've wanted to dive into per se, it was just a property I've been watching for quite some time. It was an incredible buy and an opportunity. We kind of - I don't want to say stumbled into it - but I ended up being able to buy this property and it's a waterfront property on Whidbey Island and it's just an amazing location. It was quite a process to get that thing going.
Josh: It seems you're saying that it just kind of fell on your lap. You know the other day, Brandon was calling me and he was like, "You know, I don't know how it happened, but somehow I just like accidentally ended up with another property. It just kind of fell on my lap."
Brandon: Well, when you're busy, you're networking and you're in the world, it happens, right?
Josh: Ah, it does. It does. It's just funny to hear. So you've got this vacation rental on Whidbey Island that met some of your criteria and you said you've got a couple of partners, yeah?
Paul: Yeah, so man it's a long story. This one did not fall in my lap. It took three years to buy this property. I guess falling in my lap isn't probably the right way to--
Josh: That would be more of a case of patience. Extreme patience.
Paul: Some perseverance and patience, yes. But it's such a long story, but the quick version is I bought this one with actually my dad and another gentleman who I met through a mutual hobby, which is kiteboarding. We have a community people, apparently beyond that kiteboard, which is kind of like windsurfing. And this guy is a kite boarder from Seattle and we were having some trouble. Obviously, it took us three years getting this deal done and so I kind of ran it by him and again it's a long story but he brought some real expertise to helping us actually close on transaction and fix it up and was a huge part of helping us get the financing for it.
Josh: Nice. Alright so can you run the numbers?
Paul: So this one, it's such a unique property. We ended up buying this property. It's 200-feet, waterfront right on Useless Bay on Whidbey Island which is kind of the prime--
Josh: It's actually called Useless Bay?
Paul: It's called Useless Bay. Yeah, it's pretty cool. It's useless because it's extremely shallow. So you couldn't get a ship in there, back in the day. But we ended up buying this property-- the guy that I loan it for like $650,000 and it finally foreclosed and we bought for $305,000 and we put $115,000 to $120,000 into it. So we just got the property re-appraised and it came back at $800,000. So it's too bad I can't find more of those deals.
Josh: Yeah, for sure. So what does that rent out for? You're in it for now what? I've lost you since we've had six takes on trying to get this right here.
Paul: It's a lot different than a traditional rental because it's rented by the week or the month but we currently rent it out, I mean we just finished our first year. It came online March of 2013. So we just finished in our first year and we rent it out for - in the high season - about $300 a night and off-season about $200 to $225 a night. I think in the first year we did roughly-- I don't have the numbers in front of me-- but it did way better than expected. We were kind of thinking it would be half full last summer and it was literally booked all summer. I mean it's just an amazing isle. Amazing. It turned out great.
Brandon: Nice. Are you guys managing yourself then? Or do you have somebody taking care of it? That's actually applies to all of your properties? How are you doing everything?
Paul: I don't manage most all of my conventional stuff, or you know traditional 12-month rentals, I do not manage that. I use a local management company. I strongly dislike dealing with that part of the business so I just reel it into my budget and rely on a professional. We have a great working relationship. For the vacation rental, just because it's so different and new and I hadn't done it before and I live five minutes from the house, we are currently managing it ourselves. And we've had a huge success utilizing VRBO, not to plug VRBO, but they have a great system for marketing and for even managing the rental, the calendar and all that. So it's been pretty painless.
Josh: Nice. Hey, really quick. So you said you're fairly booked throughout the high season, what kind of vacancy rates are you seeing otherwise?
Paul: Well, it's still pretty early to kind of see huge patterns. But we've done, again, better than projected this winter even. We definitely have weekends that aren't booked but most weekends even in the off-season, are booked. Literally this summer, it's booked every day of the summer and then November through March, we try to get every weekend but occasionally we'll have a weekend where it's not booked.
Brandon: And how do you get somebody in there to clean it after each person? Do you do that as well or do you hire that?
Paul: I've got a team of three or four cleaning people that kind of one or two, that are consistent. And when they can't do it, I've got-- again, living here locally, it's pretty easy to find those pretty reliable people to do that.
Brandon: Cool, cool. That's very cool. Alright well, why don't we I guess move on. Start wrapping this up. But a couple more questions I have for you before we go, I wanted to make sure I covered this. Do you have any tips for people getting started? Because you went ten years you said, before you kind of did it. So what tips do you have for people listening that are struggling to get started?
Paul: You know, everyone has such a different road and path in their career and personal life, it's hard to say one thing but I think the only thing I can say is just you've got to - at some point, pull the trigger. I think we've heard this a million times on the BiggerPockets podcast that you can research, you can read books, you can do that for the rest of your life but there's a point in time where you just have to do it. You got to do your first deal. If you succeed or fail, it kind of doesn't matter. You just got to start somewhere. I think yeah, that's probably the best thing I could say.
Josh: That's great. That's great. Alright, before we run to the fire round, I do want to cover something that we have in our notes about you is you've also done commercial deals, right?
Paul: Yeah, my island's very small, so at some point I had to start looking beyond the island. It's super convenient for the traditional rentals but I started wanting to branch out. I've, in the last year, bought a couple of small warehouse properties that we've been able to sign, you know, longer term, triple-net type leases where there's not as much management or little to no management required. So the fact that it's off the island is not as big of a deal. Once it's acquired and leased, it's easier to manage.
Josh: So what got you to transition from-- well, you said you were running out of property because you called it your island, presumably you own everything on the island, that's what it sounds like.
Paul: Yes, that's right. It's my property. Haha.
Josh: Right, okay. Okay, so you own all the residential property. You decided, "Hey, I'm going to go spread my wings a little bit," and decided on warehouses.
Paul: Yeah, it's kind of random. I mean, again, it's kind of a long story but there were a couple of opportunities that came across, fell into my lap, came across my desk. Again, just seeing an opportunity to get some tenants on long-term leases. You know, they're nothing fancy. They're just small warehouse type properties. I just thought I'd try it and it's still very new. Less than a year. So I'm not claiming to be an expert in commercial property but we're just kind of spreading the wings a little bit and trying some other stuff.
Josh: And just really, really quick because I'm fascinated. I think most people who start in residential, kind of transition to apartment buildings. The transition to warehouse, did you have to do a lot of research? Is it fairly similar to a residential lease or-- fill us in a little bit on that whole process of transitioning?
Paul: I think in my ten years of preparation I ultimately wanted to own apartment buildings. And I think that's still in my radar. The challenge is in my market up here in Washington. It's extremely competitive, even to find small apartment buildings right now. I had, years ago, looked into more commercial type properties and I was studying everything I could and looking at triple-net leases and talking to brokers that did that. Even back when I was working for the apartment broker, there were guys in the office that did more commercial properties. I knew a little bit about it, but it was just kind of the opportunity presented itself and it was kind of looking forward. It was looking beyond my immediate market and just was able to find some really good buys and they were relatively easy to rent. Again, it's not something that I'm trying to build a huge portfolio or warehouses, it's just something I wanted to dabble in and see how it went. I'm still relatively a new investor and just trying a few different things out.
Brandon: Okay cool. Hey, Paul. Were you the one who contacted me a few months ago about a property out here in my neck of the woods?
Paul: That was me.
Brandon: Okay. Did you end up buying that?
Paul: It's another long story, but I've got it tied up. I've not bought it, it's in contract but there was an issue with the previous owner. And then an eviction process, so it's in contract but it's kind of a holding pattern.
Brandon: I bring that up not just to-- because I thought was you. But what I thought was cool about that was like you didn't necessarily know my area very well, but you found a property that was good, so went on BiggerPockets, found somebody in that area, reached out to me and I'm not interested in that property. I don't even know anything about warehouses or whatever. I want to recommend that people do that more often. If you don't know an area, just find somebody who's active on BiggerPockets, who does know the area and go ask them for their opinion. I don't know if I helped you though, but you know.
Paul: No, absolutely. I mean there's so many different angles and aspects when you're doing your due diligence and it was a little thing but it's a huge deal just to-- you know I just had a couple of questions about the area and a couple of emails and a quick phone call, you were able to kind of put my mind at ease about a couple of things. So yeah, it's huge. I mean, the networking is awesome.
Brandon: Cool. Good deal. Alright, why don't we move on to...
It's time for the Fire Round. Fire Round. Fire! Fire! (siren wailing)
Brandon: Haha. Wow.
Josh: Wow. He just cut you off.
Brandon: Yeah. He's been doing that lately. Alright, the fire round. These questions all come from the BiggerPockets forums and we're going to fire them at you and you can fire them back if you'd like. Number one. What is the worst financial advice you've ever received?
Paul: To put money in the bank and get a 2% return and that's a safe investment.
Brandon: Good, good. That's terrible advice.
Brandon: I mean, it's a good worst advice story.
Josh: In other words, what he's trying to say is thank you for the very good advice that you shared.
Paul: You are welcome.
Brandon: Yes, thank you.
Josh: Alright. So what do you say the best way to find comps for properties are?
Paul: There are obviously tons of real estate websites and you can kind of do it yourself. I tried to rely on the experts in the market. Whatever the market is, finding the real estate agents that I typically would utilize. I kind of poke around in the websites too, but I like to rely on people that know more than I do, so a lot of times I'll use agents.
Brandon: Okay, cool.
Josh: Okay Paul. So you partner with your dad and some other family folks. The question I've got is, should I partner with my adult children when investing in real estate? Do you think it's a good idea, bad idea?
Paul: I think it can be both. The key, I believe is - like in any business decision, you've got to treat it as a business also and you've got to get stuff in writing and you've got to have boundaries. As painful as it might on the front end, if you work that stuff out, you've got to write stuff down and what's expected of everyone involved. It's just a key. Because when stuff's going well, it doesn't matter. But stuff doesn't always go well and whether it's family or just a business partner, you've got to have everything in writing. Your partners of agreements formalized. So I would just strongly recommend that it can be a great thing, but you've just got to be very disciplined.
Josh: That's great advice, Paul.
Brandon: Yeah, good advice. Alright, final question of the fire round. My property manager is terrible at communicating with me. How do I get them to communicate better?
Paul: Two answers. One is if it's too much of a headache, I'd just find another property manager. That would be the first.
Josh: Good advice. I agree.
Paul: In my market, that's a little hard to do because there's only a couple of options but in a big city, you find a better one. I've got a great manager, and when we've got a lot more going on, what I've disciplined and what I've implemented is just having a weekly meeting. So you just have a stand-in Monday at ten o'clock, whether it's five-minute phone call or an hour phone call. you just get on the counter and you kind of force the communication to happen. At least once a week.
Brandon: That's a cool idea.
Josh: I think that's great. It's a good thing Brandon's not your property manager. He doesn't like attending meetings.
Brandon: Haha. I hate meetings!
Josh: God, meetings suck!
Paul: They do, but.
Josh: No, I think it's great advice. I think that's a good way to kind of train them and hopefully they're willing to work with you along those lines and do that. Obviously, you have the right to say, "You know what, if you don't, I'm outta here." Good stuff, good stuff.
Brandon: Well, let us move it over to the Famous Four
Brandon: Alright, the famous four. Again, these are questions we ask everyone. And Paul, you listen to the podcast, so you know what's coming. Number one. What is your favorite real estate book.
Paul: I've been trying for days to come up with an original answer but I must say that Mr. McElroy's The ABC's of Real Estate Investing. I'm sorry.
Brandon: That's alright. That's a good one.
Josh: Don't be sorry.
Brandon: That hasn't been said too often.
Josh: And you know what he was a good guest on the show. So yeah, I'm not displeased by that. Alright, what about your favorite business book?
Paul: I've got a bunch of favorites but I like Napoleon Hill, Think and Grow Rich.
Josh: That's a good book. Good choice.
Brandon: Good choice. Alright, I'll take your question that you usually ask Josh.
Josh: Oh, I'll ask my question.
Josh: I mean, I already know his hobbies. The guy was a wakeboarder, a kite boarder. He has no respect for windsurfing, the true art on the water. But you know, what do you do? What do you do for fun?
Paul: Oh, I've been in the water. We do a lot of fishing, kiteboarding, play a little golf. I've tried catch that a lot.
Brandon: In the water?
Paul: Yeah, water golf. It's a new sport.
Brandon: Sorry, couldn't help it. Alright, cool. Final question from me is what do you believe sets apart successful real estate investors from those who fail?
Paul: I would just say perseverance. There's ups and downs, like anything, and you just got to push through it. It's not easy. Sometimes it feels easy, sometimes it feels really hard. But I think perseverance is just the big thing. You just got to stick with it.
Josh: Good stuff. Good stuff. Alright, Paul. Well listen, we definitely appreciate all of your time and your energy here and putting up with me. So before we let you go, where can people find out more about you?
Paul: I'm on BiggerPockets quite a bit or you can find me on my website which is kingdomeg.com. That's E as in Edward, G as in Golf.
Josh: So the site stands for Kingdom Edward Golf?
Josh: What is the site about?
Paul: It's Kingdom Equity Group, it’s one of my companies.
Brandon: Not water golf, darn it.
Paul: Not water golf. Just straight golf.
Josh: Right on. Alright Paul. Listen, thanks a lot man. We definitely appreciate it. It's great having you on the show and we'll see you back around on the forums and of course on the show notes at BiggerPockets.com/show59.
Paul: Sounds good. Thanks guys, I really appreciate it.
Brandon: Alright, thank you.
Josh: Alright, everybody that was Paul Tschetter. You can check him out on our show notes at BiggerPockets.com/show59. Make sure to hit him up with any questions you've got. Hopefully you guys are enjoying these conversations that we're bringing to you, from the BiggerPockets podcast. Our goal here is to get as much information as we can from our cohorts on the show and to just really chat about things of interest to us and hopefully to you as well. We do appreciate you listening. As always, definitely check us out at BiggerPockets.com. If you're not already interacting, engaging, participating, I encourage you to do so.
And beyond that, try something new today. So if you're on BiggerPockets all the time and you're posting on the forums but never have on the blog, never left a comment for the author of an article who spends a lot of time bringing you really great content, leave them a piece of feedback or vice versa, if you're always on the blog, jump on the forums and help somebody out. Do something different on the site today and see what you can do and see who you'll meet. Otherwise, that's pretty much what we got for you. I'm Josh Dorkin, signing off.
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