BiggerPockets Podcast 073 with Mehran Kamari Transcript
Link to show: BP Podcast 073: Investing in Rental Properties When Your Local Area is Too Expensive With Mehran Kamari
Josh: This is the BiggerPockets.com podcast, show 73.
You’re listening to BiggerPockets.com radio, simplifying real estate for investors – large and small. If you’re here looking to learn about real estate investing without all the hype – you’re in a right place.
Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com dot com. Your home for real estate investing, online.
Josh: What’s going on everybody? This is Josh Dorkin host of the BiggerPockets.com podcast. Here with my co-host Mr. Brandon Turner.
Brandon: Hey Josh it’s good to be home again. I was out on the road the last week.
Josh: That’s right. You were cruising.
Brandon: Do you want to hear crazy story, I haven’t even told you this story I don’t think. I sent you the picture.
Josh: Was it the a?
Brandon: The wolf. I went to this place called bear country USA. It’s in the black hills of South Dakota and it’s kind of like drive-thru zoo. There’s hundreds of bears just walk around. Anyway there was a wolf that was in there as well and we’re driving through tons of cars is driving trough but my dog was with me in the car and the wolf smelled that my dog and tracked us, circled our vehicle for hour and a half entire drive through the place. Started jumping on the car and it was probably the coolest experience in my life seeing this gigantic wolf. I’m going to put the video actually, I think I have a video. I’ll put the video on the show notes page of this wolf jumping on the car, it’s pretty cool.
Josh: Sounds like fun to me.
Brandon: It was awesome. Show notes BiggerPockets.com/show73 – check it out.
Josh: Awesome. That’s cool I hope that you had a good trip and it’s certainly nice to have you back.
Brandon: Thanks. It was good.
Josh: Today we got a pretty good show, I’m pretty excited. Before we get into it todays Quick Tip. Today’s Quick Tip is in all the show notes on the BiggerPockets.com podcasts, at least all the most recent ones, we do what are called tweetable topics. Tweetable topics are we basically grab a quick one liner, quick quote that’s got some valuable insight from out guest and we share it as this tweetable link. If you are a listener and have never checked the show notes jump on BiggerPockets.com/show73 or any of the other show notes and check out the tweetable topics and tweet them for us. If you don’t have tweeter, don’t know how to use it, don’t like it, whatever, grab it, copy-paste the quote and put it on Facebook or G+ and share it and help spread the word about the shows.
Today we’ve got Mehran Karmari. Mehran is a buy and hold investor who hails from Los Angeles California area but who actually invest completely out of state. Mehran was on the BiggerPockets.com podcast once before back on show 25 which was a newbie podcast and there we talked about getting his fist deal. Since then, in the last year, his business has really blown up so we had to get him back on the show to talk more about things like getting started investing out of state, overcoming struggles and a whole lot more so I think we should just bring him right on in.
Brandon: Cool. Let’s do it.
Josh: Alright, Mehran, welcome to the show. Good to have you back, finally for the full length episode.
Mehran: It’s nice to be here, I’m excited.
Brandon: Me too. For those people who don’t know Mehran was actually on our show back on number 25, our first newbie podcast where we interviewed four different investors. We are exceptionally excited to get him back here today because he’s no longer a newbie – he’s all grown up. We are going to talk about this journey. Last time we talked about was his first deal, how he kind of got his first deal and kind of got going so today we are going to talk about his subsequent deals and what it is that made him I guess more successful and thriving.
Josh: How did you get started in real estate?
Mehran: I talked about this a little bit on last podcast, I’ll just keep it short. Back in 2010 I made a decision that I really want to buy my own house. I was living with my parents and I stated buying some, doing some research online on mortgages, how to buy a house properly, all the things I need to look for and I came across BiggerPockets.com I think when I was searching on something about mortgage underwriting and I started reading some of the forum posts and I really got hooked on real estate right then. I eventually did buy my first primary residence in early 2012 and I started renting out the spare rooms. It really helped me kind of get a feel how land lording works, saved a little bit more money so that I could make a down payment on my fist deal which I did in 2013.
Brandon: Where do you live, what is your primary residence at?
Mehran: I live in Woodland Hills California. Its right here just big part of Los Angeles.
Brandon: That’s kind of area we can get 20-$30,000 houses, right?
Josh: I don’t think so.
Mehran: Not really. Maybe a garage.
Josh: Woodland Hills is pretty chichi. It’s a nice neighborhood.
Brandon: That’s cool.
Josh: You’ve got this first deal and you mentioned BP being helpful. Really quick yes it’s self-serving but I’ll ask anyway – how did the site actually come to be of assistance for you? Maybe you can just kind of fill us in a little bit on it.
Mehran: Prior to coming on the site I didn’t really think of real estate as an investment possibility. I head of landlords and everything before but I didn’t really think about it for myself. For me BiggerPockets.com was really big when it comes to exposure to real estate investing and I think since then it’s been really helpful for me for all my education and networking opportunities. I live here in California, I invest out of state but without being able to networking with people in other states online on the forums I wouldn’t be able to do what I’m doing today.
Brandon: We like to hear that. I’m exact the same way. People always say I’m glad Brandon you started the site, you and Josh. But what most people don’t know is I didn’t start the site with Josh I only started coming on board here two years ago. I’ve been a member for six or seven years.
Josh: It’s been a year and a half. I singlehandedly started this almost ten years ago. Brandon doesn’t ever deny it when they ask him. He just nods his head and says yeah. I don’t have a chip on my shoulders.
Brandon: Not at all. I started the exact way you did, on the forums interacting, asking questions. I go back and look at my old questions and I’m like “Oh I was so stupid back then”
Mehran: I wish I could ask you guys to kind of hide or block my first posts. It’s kind of embarrassing.
Josh: Not happening. It’s funny you say that because you’re not the only one who has that thought but here’s the thing. Everybody started that way. Every single person. That stupid question that you had I think not only helps people but it should further motivate you buy going back and look at those first posts that you put up on the site and be shocked by what “stupid questions” you asked. I think where you are today and you’re like “Wow I could really school that young guy. Wait that was me.”
Mehran: That’s true.
Josh: Use it as motivation.
Brandon: Lets transition to what happened next. What stood out to you about real estate? You got some extra cash or whatever you’re trying to do, why not stocks, why not whatever else, why real estate?
Mehran: I was just hanging around forums, obviously, when I was in process of buying my first house and saving money. Just listening to the way people were talking about building cash flow, developing their portfolios, quitting their jobs making all this money. I was like “Man, I could do that too. I could have this control of my portfolio and really build wealth for myself and replace my income and just leave my job.” I was really sold on that dream just by hanging around the forums and talking to people.
Josh: What is it that you did or currently do, I’m not sure if you’re still working, and I’m assuming you are.
Mehran: I work in histology laboratory. It’s a medical laboratory where when someone goes in for biopsy they send in the specimen to us and we take the specimen and put under microscope slide for the pathologist to diagnose the patient.
Josh: They trust you with that material?
Mehran: Yes. Surprisingly they do. I put in a lot of work in that field so I’m confident in that.
Josh: That a new profession so that’s cool. I mean the one I didn’t know anything about.
Mehran: It’s good but because we have to get the specimen to people the next day our operations are graveyard and we’re there at night so to get everything back in the morning and that’s the part I don’t like about it.
Josh: That said that gives you a serious advantage. Back in the day, I’m going to talk about myself a little bit, I know everybody wants me to talk a little bit more about me once in a while so here you go. Back in the day when I was in entertainment business I worked all sides of the business. I was an actor, worked in casting, worked on production, did all sorts of stuff and one of the hardest things was finding the time if you’re working a job, go to auditions, do all that kind of stuff and one of my closest friends, actually the guy who initially coined BiggerPockets.com for me. He said it and I was like “I’ve got to use that” he was working graveyard shift and m like “Dude you’re crazy, you work all night long. How do you get anything done during the day?” he’s like “My body adjust to it. It’s the perfect thing for the business that I’m in. At night I go and I make money, I get back at seven or eight, I sleep for few hours then I go out all day long and I’m free the entre main part of the day. Then I’ll take a nap or go to bed pretty early in the evening” I think it’s perfect that you’re doing that. I’m wondering that you’re finding if your sleep schedule modifies a little bit to what he’s doing.
Mehran: Now that I think about it really does. What I do when I get home in the morning I pretty much do all my errands, all my business stuff in the morning and I just go to sleep in the afternoons. During business hours I’m pretty much available and it’s helped a lot with real estate like for closings every time I have to call property managers, dealing with anything I do it during business hours and I’m not at work so it has worked out pretty good.
Josh: That’s nice.
Brandon: For those people listening that are just starting out one thing that I recommend a lot is even if you can’t quit your job right now at least find a job that’s flexible enough for you to do your real estate investing. If you’re working at 9to5 that you hate real estate doesn’t have to be your answer for getting out of your job, you can just quit your job and find a better job. Or find a better job and then quit your job and then do that for a few years until you can actually quit everything. I think a lot of people think all or nothing but finding a job that’s flexible especially something like becoming a real estate agent. That’s a pretty flexible job and it’s in the industry so I’m a huge fan of that.
Josh: Don’t just go and quit your job. Please, please don’t just go and quit your job if you hate your job and you’ve been thinking about doing it forever that’s one thing but we’ve talked about this a lot with people on the podcast. A job is a great way to help you continue to get loans and things like that. If you’re thinking about quitting find pathway that will maybe get you to the next job which is kind of that stepping stone towards eventually quitting but don’t just say “I want to be real estate investor. I’m going to quit my job today” I think that’s an incredible risky idea, I think it’s a bad idea. I would stay away from that.
Mehran: I would definitely agree with that.
Brandon: What is your timeline for quitting your job? If you still plan that?
Mehran: I’m definitely planning that. I’m looking based on how things are going so far hopefully in the next four five years. Cash flow wise I’m about one third of the way there.
Josh: That’s great. It’s nice to hear you say four five years versus saying I want to quit in two weeks. Being realistic about what you’re doing is super important for investors wouldn’t you say?
Mehran: Yeah. Definitely. If it happens sooner – it happens sooner. I definitely want to set a realistic timeline and plan out my goals so that I can achieve it at least by that timeline.
Brandon: Some people do quit their jobs to do a flip. A real estate job like wholesaling or flipping. That is legitimate thing, it’s very difficult to try and make a living when you’re brand new at flipping and wholesale but it can be done. Just quitting just to be buy and hold real estate investor is pretty tough. That’s where you are, buy and hold?
Mehran: Definitely buy and hold.
Brandon: What does that mean to be a buy and hold real estate investor?
Mehran: I buy properties and I hold them for the long term and I rent them out in hopes of achieving cash flow. I’m not selling the properties, I’m holding them.
Josh: You’re in Woodland Hills, right? Property there is not inexpensive so I’m guessing you’re not buying in Woodland Hills?
Mehran: No. The money doesn’t run that deep in my family.
Josh: Where are you investing?
Mehran: I invest out of state. I invest primarily in Milwaukee Wisconsin right now.
Brandon: We had Dawn Anastasi on the show back but well point in the show notes at BiggerPockets.com/show73. Dawn’s working there as well witch I believe you and Dawn worked together on a lot of stuff, correct?
Mehran: Yes, we do. We work together pretty much all the deals I’ve done there except the one I’ve worked with Dawn.
Josh: Really? Dawn you obviously met through BiggerPockets.com?
Mehran: Yes, I met Dawn on BiggerPockets.com.
Josh: That’s pretty awesome. You guys are working out of state with Dawn. How did you guys actually get to know each other on the site there?
Mehran: Dawn was pretty active on the forums also. I always saw her responding on different threads, talking on different posts and I remember she made a post in the marketplace saying that she’s seeing a lot of good deals in her market and I’ve already seen all the help and advice she gave on the forums so I reached out to her, talked to her, sent her a message, introduced myself and we kind of vetted each other a little bit and decided to try out a deal and its worked out.
Josh: That’s really awesome. Tell us about that first deal with Dawn?
Mehran: She kind of already had a deal in the pipeline. I think it was a two bedroom one bath house. We split everything 50/50. We bought it for 21,000, put three or 4,000 into it and is running for 750 right now. The tenant’s been there ever since we bought the property and we haven’t had really any problems with him.
Josh: You guys are 50% partners?
Brandon: We’re just going to interrupt your regularly scheduled broadcast here on BiggerPockets.com podcast to bring you our sponsor today on the show.
Our sponsor today is Pensco. Did you know that right now you can invest your money from an old 401K or IRA in wide variety of real estate investment options including residential properties, commercial properties, flips, roll in and even debt such as mortgages and tax liens? With a Pensco subtracted IRA investing in real estate opportunities easier than you could ever imagine and Pensco makes it possible. Call Pensco trust today at 866-818-4472 for a free real estate investor’s guide or learn more at learn.pensco.com.
Brandon: You were talking about you found Dawn, on the site, you did your deal to working out pretty well but I want to step back a little bit and just say how should other people do that? One thing I want to point out you said you saw that Dawn was posting helpful things. You saw that she was involved, that she gave good answers. What do you recommend for people looking for partners and wanting to invest out of state via a partner?
Mehran: I would definitely recommend that they first be active on the forums themselves so when they reach out to somebody that person kind of already knows who they are. I think that made a big difference also with Dawn deciding to work with me because I was pretty active on the forums also but I would definitely suggest working with someone or looking for someone who’s already doing deals on the market, knows market really well and kind of has same investing philosophy that you do so that you guys don’t have too much friction when it comes to making all the decisions when you do partner together.
Josh: That’s really good advice. How are you guys diving up your roles, the two of you?
Mehran: We’re both scoping out the MLS looking for potential deals but Dawn handles physically visiting the properties, inspecting them, she does the book keeping, property management. I try to handle the insurance side of things and just dealing with banks and lenders. Pretty much most of the things that I can do here in California.
Josh: How many properties you guys have together?
Mehran: We did the first two deals 50/50 and because I think she had other things going on also so lately we’ve been trying different structure where I’m paying her finder’s fee for doing all the due diligence and other things up front before buying the property and then she’s getting compensated for the property management on the back end of everything. She’s been helping me manage the properties.
Brandon: Let’s move on and talk about specific deals you’ve been doing since then. First of all how many deals have you done so far?
Mehran: I have nine rentals and now we’re working on the tenth which is going to be a flip.
Josh: You’re flipping in Milwaukee?
Mehran: Yes, it’s a flip in Milwaukee.
Brandon: I definitely want to touch on that.
Josh: Ironically didn’t we have a J. Scott flipping properties in Milwaukee as well?
Brandon: He also flipped at a distance.
Josh: Do I have to do my fist flip in Milwaukee, is that the thing? Is Milwaukee like the new flip capital?
Mehran: I guess. I’m trying out the first one for me so well see how it goes.
Brandon: Why did you decide to flip that one?
Mehran: The portfolio lender that I’ve been working with that’s been financing all my deals they pretty much told me that I’m expanding too fast and they want to give it a couple months to make sure I’m not in over my head so I figured why not try a flip right now while there’s a good deal around?
Josh: You’ve been working with portfolio lender and presumably you bought quite a few properties in fairly short amount of time but these are all properties that are positive cash flow on the order of sounds like several hundred dollars per month for each of them, correct?
Mehran: Yes. For some reason I just think they want to make sure I don’t bite off more than I can chew. Just give it a couple of month’s making a payments. I think I bought four properties financed through them since 2014 started and they just want to make sure everything stabilized and I get them rented out.
Josh: Are you fully rented on the properties you have right now?
Mehran: Everything is rented except for one unit a triplex that I bought two months ago. We’re just finishing up the rehab and I think we’re starting to market for tenant already.
Josh: Is Dawn helping you mange rehab side of that?
Mehran: Yes. She’s been helping me project manage dealing with the contractors, things like that.
Brandon: You got nine properties so far and when was the first one? When did you buy first out of state property?
Mehran: The first out of state property was the one we take about on the last podcast in Indianapolis. I closed on that in April 2013.
Brandon: It’s barely been over a year now.
Brandon: Its’s funny it seems like two years because I’m thinking 2013, 2014 but when I think about it it’s only been 14 months.
Josh: Was it 11 deals or nine?
Mehran: Nine deals and the flip were working on is the tenth.
Josh: That’s really impressive first year.
Mehran: That’s what happens when I got on BiggerPockets.com behind me.
Brandon: What typical numbers are you looking for? How much you typically buy them for, what kind of return are you looking for, how much are you putting down? Let’s talk about the details on those.
Mehran: I buy properties two different ways. I either do straight finance purchase or I’ll buy property all cash. Fix it up and refinance it out and keep it as a rental. On single family homes I’m looking at properties between 20,000 and 40,000 depending on how many rooms are there in the house. For multi-family I’m trying to keep it at 25,000 a door, two to four unites.
Josh: Milwaukee is new Detroit. 20,000 a door.
Mehran: I’m not too familiar with Detroit but never had any problems with crime or renting things out. No vandalism.
Josh: It sounds like a pretty solid market for less expensive rentals in an area where economy is pretty solid.
Mehran: There’s definitely bad areas in Milwaukee like in any city but that’s why it’s really important to connect with people that live there, that do invest there, that do know difference between good areas and the bad areas. You can go east of one street and everything would be bad and just west of that street is a good rental neighborhood. You really got to get that on the ground knowledge.
Josh: I think that applies anywhere. If you’re new investor and you’re listening to thins definitely keep that I mind. If you’re investing outside of city you’re familiar with you definitely need to work with somebody or at least spend time on the ground to know block by block by block at least what properties you’re looking at. If you’re unfamiliar you can really quickly find yourself in trouble.
Mehran: Definitely. I flew down there in September last year and I kind of buy in this one mile radius area. I just went in my little rental car just up and down every single street with a map. Any street that kind of looked not shady like I’d want to buy there is just check it off the least and: “I’m not going to buy on that street.” I just drove up and down all the streets.
Josh: That’s a really good idea.
Brandon: That is a really good idea.
Mehran: Now when I see it on Google Maps or MLS I kind of have an idea what that street was like and just a good sense of what I’m looking at.
Josh: That’s a really fantastic idea. Then you can always refer back to it, say you go on Google Maps and you see property that might look good and say you didn’t have the thing to cross reference you might forget and say “Oh no” but this gives you a good reference point at least.
Mehran: Yeah, because Google Maps isn’t updated every year or something like that. I think last time they went through that area in Milwaukee was in 2012 so a lot can change in two or three years.
Brandon: You were the one who talked about in your last podcast we did with you that’s how you found your first property was Google Maps. Essentially that’s how you toured the neighborhood, right?
Mehran: That’s how I toured the neighborhood, kind of just looked around, checked out the street and seen if it was well taken care of. Kind of like the layout of the land to get familiar with it.
Brandon: I love that idea. It reminded me the other day Josh actually sent me an article about Detroit and it was Google Street View of 2008 and 2010, it was crazy. We’ll link to that in the show notes at BiggerPockets.com/show73.
Josh: Only if Brandon can find it.
Brandon: I’ll find it. It was on business insider, I think. It was crazy you can just see the decline of these neighborhoods over the last five years through googles eyes it was insane.
Josh: I have to disclaim and say “Yes were dogging on Detroit again” I’ve been getting a lot of articles how Detroit is starting to turn around and its fascinating but Detroit is just picture of any city that’s in decline. That’s why we use it – it’s easy.
You had mentioned you have this triplex so you’re doing multi and single-families?
Mehran: I have one triplex, two duplexes and six single family homes now. I co-own two of those with Dawn.
Josh: Was the investing at the distance, I’m assuming at first there was probably kind of nervous, kind of intimidating?
Mehran: It was definitely intimidating. Investing in generally was pretty intimidating at first but the more I learned about the process and how to do it right the easier it’s become to pull the trigger on each deal. I think that usually it’s the fear of the unknown that hold people back from doing that type of investment and that’s what I love about BiggerPockets.com because anytime I have something that I don’t understand I can ask a question and it get answered and it really helps me move forward on making deals and making offers.
Brandon: The whole theory on community based education, learn from there people rather from one source, one guy somewhere in the Bahamas who’s lame speech teaching.
There’s probably a lot of people listening even the majority of people listening live in Seattle, LA, New York, big cities where you cannot invest locally very easily. Cash flow is nonexistent pretty much. What would be good first step do you think for somebody who is in that position, who lives in LA and cant invest? What’s the first step they should do, second step – what do you think person should do?
Mehran: I think the person should look into potential markets that have good price to rent rates on their rentals if cash flow is their thing. Study that market a little bit like the macroeconomics – how’s the employment, how are jobs growing or how’s the population growth, is it steady, is it growing? Then narrow it down to maybe two or three markets and then try to network with people on BiggerPockets.com that live on these markets and learn more about them. You really have to have that first hand boots on the ground knowledge before you do decide to invest in particular market. I think that’s definitely the first stop.
Brandon: If you want to go into a market that’s the very first thing I would do – find a market that I want to go into and then find somebody in that market to connect with. It might take several people because some people are just weird. If you call Josh Dorkin in Denver who knows what you’re going to get. You find a right person, you start connecting and if people, this is probably opening me for stuff I don’t want to do, but if somebody wanted to come into my area to invest I would tell them here’s the good neighborhoods, here’s the bad ones. I don’t have some weird complex I don’t want more investors in my town so leave. I would say “Sure, here’s the places to stay away from, here’s the place to go to.” I would say there was majority of people that are active on BiggerPockets.com are the exact same way. They love to share. They’re proud of their town and their accomplishments so they’re going to share where the good and bad spots are.
Josh: That builds trust in you as a person by not being greedy about the information by being somebody who is willing to help out your fellow investor even if they are some of a competitor I think it’s only going to help you out.
Brandon: First step was finding location and you want to find somebody in that thing, what else do you think is good to do for a newbie?
Mehran: When you think about buying houses you need to have the information that you need to make a decision that that’s a good market and once you have that you need to get everything lined up where you can actually make a purchase. Who are you going to use for your insurance, who is going to be the lender, who is going to help you as an agent. We defiantly start to line those three things up and then just start looking for deals and do your due diligence on the deal and shoot an offer if you find one that you like.
Josh: Lets go into team building here for a second because I think that’s something that we do cover from some perspectives but when you’re jumping into a market at a distance, picking a team, figuring out who’s going to be on it is definitely a challenge I know I’ve experienced it. I guess you were lucky because you found one partner that was local. Now the one person who you can trust who can really do all the legwork who can do the vetting, the in person vetting. You don’t know somebody until you shake their hands it’s kind of the same. What other advice you might have for some of the listeners for finding team members at a distance.
Mehran: To be honest I wouldn’t be investing at a distance now unless I had a partner or boots on a ground to actually vet those people in person. I never really had to hire a contractor on my own from a distance so I wouldn’t know. Most of the people I work with, my agent, my CPA everyone I met on BiggerPockets.com so the people I already developed relationship with online, that’s defiantly helped me so I would suggest that if you’re going be doing it at a distance try to connect with someone on BiggerPockets.com.
Josh: By the way this is not a paid commercial for BiggerPockets.com. Even though it sounds that way.
Mehran: I’m not getting paid for this it’s just pretty much every avenue in my investing I’ve done through BiggerPockets.com. It’s such a great resource and I can see a lot of the problems people have with investing, I’ve done few BiggerPockets.com meetups here in LA, and every time people come up with questions property management – how do you do this, how do you find lawyer and I found all those things on BiggerPockets.com.
Josh: How are you finding your deals? You said you scour the MLS. Are all your properties bought off MLS?
Mehran: So far everything been trough the MLS. I’ve gotten some yellow letters, actually it’s kind of funny from wholesalers because I’m an out of state landlord I’ve called them back and told them to put me on their buyers list but I haven’t got any leads trough that yet.
Brandon: That’s actually kind of a cool strategy. When you get yellow letters you call them up.
Mehran: Two of the yellow letters were from BiggerPockets.com members. I searched their names and they’re actually members on BiggerPockets.com.
Josh: Mostly you’re doing MLS, there’s a lot of markets where you can’t do that. You’re not going to MLS and find decent rentals that don’t need incredible amount of work so it’s kind of cool. Is there always an overabundance at least now in that market of rental properties and to follow up on that what kind of numbers are you seeing on the rentals? Are these 2% deals?
Mehran: Definitely 2% as a minimum. They all meet the 50% rule because the houses are so cheap but there isn’t abundance of deals on MLS but with that said there’s abundance of deals that also don’t make sense. A lot of this properties are so shot out that repairing them wouldn’t make that much sense to what their value is now.
Brandon: Are you repairing every one? Is every one I need of a lot of work?
Mehran: No, not everyone. We try to keep the repair budget somewhere around 5,000 unless I’m doing a full rehab like I’m doing now. 5 to 10,000.
Brandon: How are you financially structuring? You said you have portfolio lender but are you coming with repair money, are you guys coming out of pocket with it and then putting 20% down I’m guessing?
Mehran: Like I said before some of the properties I buy straight as a finance purchase so I’m putting 20% down and getting a loan and any rears that will come out of my pocket. On the all cash purchases I’m buying all cash, putting all the money in repairs on my own and then refinancing it later to get the cash back out.
Brandon: I’m a big fan of that strategy when it works. It can be tough getting refinances I don’t know if you faced that.
Mehran: I had some challenges with appraisals on the refinances. It seems they are doing them a little differently than when you are just buying the house straight.
Brandon: I agree. They tend to be alto of more conservative the second time around.
What about your due diligence process? You find a good deal, we talked about how you find them, how are you doing due diligence? Obviously you have a partner, boots on a ground, but what stuff do you do what stuff does Dawn do and how does that look?
Mehran: When Dawns going out to visit each property she’s inspecting it, trying to figure out how much work needs to be done, what is it going to cost in and out, shell take a lot of pictures, pretty much put together a scope of work and while she’s doing that I’m just getting the basic information like the property tax bills, estimating what it’s going to cost to insure the property. I’ll ask her what the market rent she thinks it would be for that property so that we can kind of get all the numbers we need to run the deal. When she’s out there she’s basically looking the big ticket items like how’s the condition of the roof, how’s the sighting, electrical panel, HVAC, water heater all those things – any big things that could kill the deal. If things check out and its price loan off well fix some things and if the numbers make sense on my spreadsheet then I’ll make an offer on the property.
Josh: Beyond just email and phone calls do you guys have some kind of management workflow that you use? You’re doing a lot of business together, are there any tools you are using to help facilitate communication between you or are you just doing your thing through email and calls?
Mehran: Emails, primarily. We talk on the phone sometimes but mainly emails and Google Docs. We use a lot of spreadsheets and a lot of emails. I think it’s easier to keep track of everything on emails because you can just go back and search on it. If I talk about something on the phone I’m going to forget it in a week. It’s good to do everything trough emails but I would defiantly not be able to keep track of things the way we do unless we were using Google Docs or some type of online thing.
Josh: We’ve been using at BiggerPockets.com tool called HipChat and it’s this online chat tool, kind of like Skype but the cool thing is you can create multiple rooms. I’ve never tested this but I think it might be a cool idea, you create different room for each property and eventually you guys can have conversations about different properties in different rooms and it will let you know if there is a message pending in there and it also keeps history of all the discussions that you had. You can share pictures in there and it shows up in the thread. It’s really cool. What do you think Brandon that might be kind of a clever way to manage?
Brandon: It is kind of a cool idea. Obviously I think a full blown property management software would be best.
Josh: I’m not talking about the management side, I’m just talking about communication with a partner on your deals.
Mehran: That’s definitely a good idea.
Josh: The site’s called HipChat and we’ll put it in the show notes at BiggerPockets.com/show73 for those of you that are listening HipChat.com.
What are the biggest challenges for you in terms of investing out of state and I guess what would you warn newbies about in terms of investing out of distance?
Mehran: The biggest challenge I had so far has been with the fist purchase that I made, kind of just out of nowhere. It’s been with the management of the property, actually property manager in Indianapolis. I’m really big on bookkeeping and if it seems like I had hard time getting the monthly reports to me and having monthly rent disbursed to me on time I will just have to haggling her to get all the things that I need every month and it’s been pretty stressful.
Josh: Is there a reason you don’t switch and by the way I’ve been in your shoes and I feel your pain, why don’t you just find a new manager?
Mehran: I’ve been seriously considering it it’s kind of hard. It’s kind of easy to neglect that property when I have all this stuff going on in Milwaukee. I eventually do get the rent and the monthly reports and I probably should be switching the property manager but I just haven’t taken action for some reason.
Josh: How late are you getting the rent?d
Mehran: Maybe a month or so late.
Josh: What would you do if a tenant was a month late in rent?
Mehran: I would definitely file a notice.
Josh: Here is my challenge for everybody listening – This is show 73 of the BiggerPockets.com podcast, the show notes are at BiggerPockets.com/show73. I want you guys to all jump in and bust Mehran’s backside to get it together and find a new manager. We need to support him on this, we need to not let him slack on this so get out there and do it and hopefully everybody listening will help you push you a little bit on that.
Mehran: Okay, good. I’ll definitely say advice for new person starting out just know that property management has a power to make a good deal go very stressful or even a nightmare or go bad. Having a good property manager is really important, it’s just as important having a good deal and make sure to take the time to vet them out and if you have to get rid of one it probably makes sense to get rid of one sooner or later.
Josh: I will say for my own experience good deals can absolutely be destroyed from a bad property manager if they burn you or just mismanaged and so absolutely spend as much time you’ll spend vetting your deal vetting your property manger if not more because they’re going to be the ones that are going to be managing and running this thing for you.
Brandon: A lot of people listening to this show are just getting started. They’ve done one deal or maybe no deals so what do you think larger driving factor that motivated you to get action in real estate instead of just sitting by and letting the world go by like normal?
Mehran: Kind of like I was talking earlier. Being on the forums, listening everyone talk about their cash flow their building and quitting their job I just really got a feel for that wanting that freedom. I visualize it every day where I don’t I have to go to work, I can spend more time with my girlfriend, my family and I could just focus on other ways to make money and build my business so that is been definitely the most motivating factor. Just freedom.
Brandon: That’s important. You have your goal, what do you want. You also mentioned because you hangout on the forums there’s that famous quote that I love that just says “You are the average of the five people you associate with most.” I think if you’re associating with guys who are playing Xbox until 3:30 in the morning every night and that’s all you do for your life that’s who you will become. But if you are hanging around people who are motivated and trying to build something out of their life that’s who you’ll become. Associate with people who are likeminded whether it’s online or the real world, associate with people who you want to become.
Mehran: It definitely helps a lot because I don’t really have any other friends in my life that do invest in real estate or really do any investing. Just being around people that are talking about it all the times keeps you fresh in mind, keeps you from getting complacent in what you’re doing. It really helps in taking action on the next step always planning your goals and staying motivated.
Josh: You Mehran just said you don’t have friends who invest and Brandon I know a lot of your local friends aren’t doing that either. My question is to both of you guys – What do you think it is? You guys know people who know you. You’ve got people who know you’re investing, know that you guys are successful at what you’re doing, what’s the difference between those guys and you? Why is it that these people that we know who see that we’re all in real estate, were staring to do well, why aren’t they making it happen? Is it the lack of knowledge, is it the lack of understanding, what do you think that is?
Mehran: That’s a pretty good question, I think about that a lot actually.
Josh: Do you ever ask them? I ask my friends I’m like “How come you’re not doing this or why are you doing this?” I know a lot of people, a lot of my friends are actually investing but others aren’t and for me the ones who aren’t are typically so busy or they just don’t think bout it or they think they can’t figure it out. Whatever it is and I say “You got me, we’ve got this hub, and we’ve got this BiggerPockets.com. Jump on.” It never happens.
Brandon: I had dinner/desert with a friend of mine and it was the same guy I talked bout a while ago on the podcast couple episodes ago where I said he wants to sell his house, he’s really motivated, wants to do it quick. I might do it either lease option or sub tour, something with him just he wants to get out of his house and I told him last night. He asked me again “Will you just take over this I can’t deal with it I’m moving to a new house and I don’t want to deal with it?” I said “Why don’t you just do a lease option with somebody? I’ll walk you through the entire process, I’ll help you find a tenant, I’ll help you handle very single solitary aspect of it?” He said “Nah, I just don’t have time for that” He’s got so much equity and he’s saying I don’t have time for the hour it might take him to learn or to listen to a podcast on something. I don’t understand it, I really don’t. I set there “You don’t have time It would not take you long I will walk you through everything.” Nothing.
Josh: I think it’s the old saying “You can lead a horse to water”
Mehran: I talked to some people before and they’ll say “I don’t have time, I just had a new baby” In my mind I’m thinking “You just had a new baby that’s why you need to be doing this.” It’s just different way of looking at things I guess.
Brandon: That’s why I think the mindset stuff is so important. A lot of time the motivational post or motivational speakers get kind of a bad rep for being all fluffy but I think there is a time and a place for that motivation because it’s not enough. This is not a numbers thing. Real estate investing makes sense to everybody. Everybody knows it works and whole world pretty much all agreed this is a good way to build wealth so why does such small part of population do it? It’s something internal, it’s something inside of us that you either have it you don’t. It’s hard to encourage somebody to do that.
What do you suck at?
Mehran: I suck at public speaking. I think lately as I start to see that portfolio lender has tightened a rope a little bit I don’t know for sure that they’re going to open the floodgates and do more loans or not. I’m starting to look more to partnering up with people and I think right now the struggle I have is learning how to actually market myself right and put together deals with other people the right way. I kind of suck at that. I’m going to have to do that now.
Brandon: I’m the exact same way. I’m learning as well as I go. People often think because I’m on the podcast and sitting with josh that we know exactly what we’re doing here but were learning just like everyone else. I learned more from the podcast than anyone listening I think because I get to ask these questions. It’s a continuing process.
Josh: Here is my issue with the gurus – If you come across somebody who thinks they know it all please don’t listen to them. I think that’s the bottom line. We’re all learning, were all constantly picking up new tips and advice and ways to figure things out. If somebody things they know it all they’re know-it-all. That’s kind of bottom line and move on because if you’re not humble enough to constantly be picking up new things and learning then I don’t know. We’re all teachers to each other I think and we’re all students.
Mehran: That’s definitely true. Here I am ten deals in and I feel I don’t know that much at all.
Josh: Yet the 25,000 plus people listening particularly the new investor are looking at you as this guy that they like “Oh my god this guy has done nine deals and he’s working on his tenth in year and a half. How can I be like him?” While you are learning you are teaching a lot of people. We are all absorbing form you.
Mehran: I hope so. That feels good.
Brandon: If you could go back and give yourself one piece of advice when you first got started what would it be?
Mehran: When I first got started on 2010 and I didn’t buy my first deal until 2013 I would just go back and slap myself in the face and say “Get started sooner. Take advantage of these deals right now because in 2010 there was a lot of more deals than there is now.” That’s definitely what I would do – get started sooner.
Josh: You should also tell yourself to remind yourself in 2014 to fire that property manager.
Mehran: That’s a good idea too.
Brandon: We do have a book that BiggerPockets.com came up with, its free for anybody who wants to download it, it’s called Real Estate Rewind and it’s just eight or nine or ten people from the forums are telling exact answer to that question – What would I do if I could go back and tell myself something else? We will point to that in the show notes at BiggerPockets.com/show73. If people are wondering what that noise is my dog I sitting at my feet whining. I can edit this but that’s what that noise is. It’s not my stomach growling that’s him.
It’s time for the fire round!
These questions come straight from the BiggerPockets.com forums so Mehran you probably have seen these conversations.
I cannot qualify for conventional financing. Should I use hard money on my buy and hold property?
Mehran: I would say no. I’ve heard of some hard money lenders doing some buy and hold long term financing packages but I think it’s hard to find those and if you don’t have the ability to refinance to get out of the hard money loan as exit strategy then you’re just going to screw yourself. I would say no.
Brandon: Only if you can refinance out and you’re positive you can.
Mehran: Because buy and hold means you’re not going to sell the property so if you’re not be able to refinance it I think it’s a bad idea.
Josh: Do you suggest using existing equity to purchase second/third/forth property?
Mehran: Definitely. That’s what it’s there for. That’s what I’ve been doing. All the purchases I’ve made have been with tapping equity from my primary residence and I think it’s a smart move.
Brandon: Do you align more with Dave Ramsey ideology of all forms of debt are evil or Robert Kiyosaki ideology of debt is leverage and the more you can get the more you can do?
Mehran: Kiyosaki for sure. I think the leverage is one of the biggest benefits of investing in real estate and you’d be crazy not to use it especially when you’re just starting out. I can see down the line when someone’s looking to retire or they just wasn’t to keep things more stable maybe paying off their loans but taking advantage of leverage I think it really important when you’re staring out.
Josh: In terms of being buy and hold investor who do you think are most important people to have in your network and maybe who is the most important person to have? Talking agents, lawyers, CPA – that kind of stuff.
Mehran: That’s a tough question. I would say boots on the ground investing out of state that’s the most important thing for my business. Lenders are interchangeable but to really have a good person on the ground is probably the most important thing. Now after we’ve just came through tax time its close call between that and my CPA because if I didn’t have my CPA at tax time It would have been a nightmare.
Josh: I think I need a benefactor now the tax time is over to pay the tax bills.
Brandon: Do you think it’s smart to start with a condo as a buy and hold investor? Should I just buy a condo because they’re cheap, they’re only things I can afford?
Mehran: I’ve heard too many horror stories about condo associations and unexpected fee high assessments and things like that. I don’t think it’s a good idea. I like to be more in control of what’s going to happen to property and that’s what I like about real estate and just knowing association of people can just change everything for me I just don’t like that idea.
Josh: Rogue boards containing people on power trips are very good way to damage your bottom line.
Josh: What is the most important thing I need to look for in a real estate partnership?
Mehran: Integrity. I would say that integrity is number one thing. I don’t want to be in business with someone unless I feel they’re honest and they have principles they live by that they’re going to make good decisions even without me being there and that they’re always on the ball on that type of thing. I would say integrity is really import.
Brandon: I agree.
Let’s move on to the Famous Four.
These questions we ask everyone so you know what’s coming.
What is your favorite real estate book?
Mehran: How I Turned $1,000 into a Million in Real Estate in My Spare Time by William Nickerson. I really liked it a lot because he goes into the steps he made in building his whole portfolio from the first property to the last property and I just really liked that. It kind of helped me with my vision.
Brandon: I’m a huge fan of that book as well.
Josh: What about your favorite business book?
Mehran: Josh is going to be happy because I’m not going to name the ones the ones every ones name. Its actually audio book, I’m really big on self-development and this book is Success Mastery Academy by Brian Tracy. It’s taping of a seminar that he had and it’s really helped me a lot. I even listened to it before I found BiggerPockets.com its help me with goal setting, sales, understating money and investments more and just really good to kind of get your head in the right spot and stay motivated towards whatever tore doing in your life and its really helped me a lot.
Josh: Brian Tracy is really popular guy. I never listened or read any of this stuff but I certainly heard his name quote a few times. It’s nice to hear new recommendation.
Mehran: I would definitely recommend checking that out.
Josh: What do you do for fun?
Mehran: I’m really into food and martial arts. I’ve been training Brazilian Jujitsu for a little over four years now. Just recently about a year ago I started training historical European martial arts. Pretty much sword fighting. That’s been really fun. I pretty much just train so that I can justify all the food that I eat.
Josh: I was going to say are you combing martial arts and food at the same time? Are you shopping watermelons as they’re coming flying at you?
Mehran: I guess it would be cool to eat a piece of food while beating someone up. I really like hiking too. If I ever have any time I try to out there hit a trail and hiking. I haven’t done that much lately and I can definitely feel urge to go hiking.
Brandon: I’m calling you right there. The next BiggerPockets.com summit we have you and I are sword fighting on stage.
Josh: I would pay to see this.
Mehran: Your height is not going to help you as much as you think when it comes.
Brandon: It will, I’ve got long arms.
Josh: You think he’s a little short guy in elementary school that you were picking on? I think with sword fighting they cut the arm off.
Brandon: Maybe, we will see.
What do you believe sets apart successful investors from those who fail or never get started or just don’t do it?
Mehran: I think having courage and faith are really important. That’s what sets people appear. Fear is big thing that holds people back like we were talking about earlier and If the people know that that is the normal thing that is going to happen and they have the courage to go through with going on a deal anyways I think that’s going to set them apart and really the faith to know that If you put the work in that you’re going to reap what you saw. I know that as long as I keep hustling as long as I keep educating myself and putting my work in that I’m going to benefit from the rewards of that and it makes it easier to keep going forward and I think if people have that faith then they’ll get started.
Josh: Where can people find out more about you?
Mehran: Just BiggerPockets.com check my profile. That’s the best way to get ahold of me.
Josh: Before we go guys we just want to give another shout out to our sponsor Pensco. You could check them out at learn.pensco.com and find out all about their products and services. Otherwise big thanks to Mehran Karmari for his second showing on the BiggerPockets.com podcast. We really do appreciate having you Mehran. For those of you who are listening – Get out there, do it, make moves, jump on BiggerPockets.com, follow us on Facebook, Twitter, G+ and read the conversations, check out all the podcast, read the thousands of blogposts on the site and beyond that you’ve got to be active, you’ve got to be connecting, you’ve got to be communicating with people. Make it happen, talk to people and start building your business up. That’s all I got for you, this is show 73, I’m your host Josh Dorking signing off.
You’re listening to BiggerPockets.com radio, simplifying real estate for investors – large and small. If you’re here looking to learn about real estate investing without all the hype – you’re in a right place.
Be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing, online.