Discover why so many successful investors support their investment careers with house hacking—and learn from a frugality expert who has “hacked” his way toward financial freedom!
Josh: This is the BiggerPockets podcast, show 88.
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Josh: What's going on everybody? This is Josh Dorkin, host of the BiggerPockets podcast, here with my cohost, Brandon Turner. What’s up Brandon?
Brandon: Not much Josh. How are you this wonderful week?
Josh: I’m actually sick right now.
Brandon: You’re always sick.
Josh: I’m not always stop—Scott here in the office was coughing all over my desk and got me sick so I don’t know.
Brandon: Yes, I think it’s just life of a parent. Parents are always sick because their kids are gross.
Josh: Yes, this is true too. Although, my kids are not gross.
Brandon: Your kids are always sick though, they’re like at school touching door knobs and stuff everyone.
Josh: Picking noses yes.
Brandon: My cats are so much cleaner than kids. It’s amazing.
Josh: Oh, I doubt it. I doubt it. Yes, yes.
Josh: My kids don’t crawl into little cat—kitty litter and then stand on my kitchen counter where I cook dinner. Doesn’t happen. That’s just nasty.
Brandon: Yes, yes, yes. Well cool.
Brandon: We got a great great show today. Definitely an awesome interview with a couple, an actual married couple who’s investing together.
Josh: An actual married couple.
Brandon: An actual. I know, they’re actually married and they’re investing in real estate. Yes.
Josh: Wow, wow. Yes, yes.
Brandon: It should be fun.
Josh: It is. It’s a good show and we’re going to get to that right after today’s Quick Tip.
Brandon: Quick Tip. Alright, so today’s Quick Tip is maybe something obvious, but I want to just emphasize that today is if you have a question about your real estate business or something don’t try to like, I don’t know sit there and try to figure it out on your own. Like, I’ve been doing that forever. I’ve been wondering like how do I get ACH transactions on my website. I’ve been wondering that for months and months and months. I’ll put in—yesterday, it occurred to me, Brandon, just go put a BiggerPockets forum question, “How do I get ACH transactions on my website?” I put it up there and I got eight replies yesterday alone and some really good stuff on there so anyway, if you have a question that you’re—right now in your business, you’re wondering about. Go today and go make a forum question. Ask it in the forums and see what people say.
Brandon: That’s my Quick Tip.
Josh: That’s great, BiggerPockets.com/forums and there is no such thing as a stupid question. I mean you know we look at Brandon here. Well, let me use a different example.
Brandon: Thanks. That was a great question. That was a good question.
Josh: No, I think it’s a good question and you know, it just shows like, you listen. I mean Brandon’s been around. He’s talked to a million people. He knows, you know, more than probably 99% of people out there.
Josh: Yet he doesn’t know anything. I mean none of us know anything. We’re all learning. We’re all trying to figure this out so there are no stupid questions. Go ahead and ask it and I guarantee you, there are other people who maybe thinking the same thing and not be—not asking the same questions so.
Josh: That’s today’s Quick Tip.
Brandon: Yes and it’s free. You don’t have to have like a pro membership to make a forum post so people—just go ask a question. It’s free. Do it today.
Josh: Yes, BiggerPockets.com/forums.
Brandon: Yes, but speaking of Pro, our Pro Benefit of the week this week I want to talk about real quick is something that we have talked about before, but I just want to emphasize BiggerPockets Perks. It’s BiggerPockets.com/Perks. You can get discounts, promotions, stuff like that. You can save a ton of money so if you are a Pro member and not taking advantage of that, head over today. See what you can get discounts on and you’ll probably save a ton of money so.
Josh: We’re adding new companies and if you’re a company that has a perk.
Josh: Get in touch with us BiggerPockets.com/Contact.
Brandon: There you go. Alright, so.
Brandon: Let’s get to out interview today. You want to introduce our guests?
Josh: Yes, awesome awesome alright so today we’ve got Matt and Liz Faircloth. These guys have been hooked on real estate since reading Rich Dad, Poor Dad back in 2002. They have been building their business up little by little to eventually come up to over a hundred units now. They’ve done over 15—around 15 fix and flips. They live south of Trenton, New Jersey. They’ve got commercial properties. They’ve done development. They’ve done pretty much everything.
Josh: They’ve been really busy and they’ve got a lot of great information to share with us today. Their mission statement is to revitalize urban America and to transform lives through real estate. Alright, before we bring those guys in, let’s really quickly hear from today’s sponsor.
Brandon: Alright, our sponsor today is 99Designs. Do you need a logo, business card, website or flyer for your real estate business? 99Designs, the world’s largest graphic design marketplace makes it easy to get a design you love. Just go to the website, tell them about the design you need and pick a price package. You’ve got multiple designers to compete for your business and best of all, you get to pick the best design so visit 99Designs.com/BiggerPockets and get a $99 power pack of services free. Again, check it out at 99Designs.com/BiggerPockets.
Josh: Awesome, awesome. Yes, those guys are great man. I—you know, we—we actually got the original BiggerPockets logo done from the predecessor of 99Designs, from the company that became 99Designs and we’ve used them for other stuff. It’s a really cool concept.
Brandon: It is. It is very cool. I like it so.
Josh: Yes, so if you’re looking for any of that stuff, definitely check them out, 99Designs.com/BiggerPockets.
Brandon: Alright, there we go. Well let’s get this going.
Josh: Cool. Let’s go bring these guys on board. Alright, Matt and Liz, Liz and Matt, welcome to the show guys. It’s great to have you.
Liz: Thank you. It’s great to be here.
Matt: Thank you so much. It’s great to be here.
Brandon: Yes, well thank you for being here. We’re going to talk about a lot of stuff today including you know, rental properties, we’re going to talk about flips, we’re going to talk probably about raising money and all of this stuff, but before we do, let’s just start very very early on. How did you get into this game or real estate?
Matt: That’s a—it’s a great—it’s an interesting story. We got started when we were dating back in 2002. Liz and I sat down with a few friends and played Robert Kiyosaki’s Cash Flow board game.
Matt: At the time, I was working as a traveling sales man and just our minds were blown by this game and it just really showed us the possibility of financial independence, passive income, and being able to lead a life that we really wanted to through real estate as a vehicle and first purchase was a single family home that I lived in, which you guys would call the house hack, right?
Matt: I bought a—right—bought a three bedroom, one bath, had a couple of my buddies move in with me and I was making 60 bucks a month and I was living there for free. It just completely just really set it into stone what the possibility of real estate was for us and we started getting educated. We started—we took probably about a year and took seminars, read books, networked, before we made our next investment purchase.
Matt: Then from there, we bought a duplex. I was living in Philadelphia at the time. We bought a duplex in Philly and you know that was our first rental deal. We bought that one while we were dating as well. You know, we started buying properties before we were married.
Matt: Which was you know, a bit of a risk, but it was cool.
Josh: You guys bought the properties together? Both names on it or?
Matt: That’s right.
Liz: Yes. It was a big step for us because we actually purchased it, you know, we had our first private money loan.
Liz: From my father, but you know, it was a big risk.
Liz: We were engaged, but we weren’t married so we both.
Liz: We both had a you know.
Liz: Take the step and make it happen. You know, but.
Josh: This feels like When Harry Met Sally.
Matt: It does kind of. Yes.
Josh: I mean lets—I think the first thing I want to really get into is working together in real estate and we’ve had a couple couples you know, over the 80 what it is the 88 shows and it’s always interesting to get that perspective. I think because you know, it really is so important to be in line with your spouse. If you’re not on the same page, things could go horribly wrong just in terms of—you’re going to be fighting, at each other’s throats so.
Josh: Let’s kind of start there. What does it take to work together and frankly what does it take to work together—I mean you guys jumped in without even being together right, I mean you were together, but you weren’t together.
Josh: Can you guys talk about that?
Liz: Absolutely. I think that’s a—it’s a great question. It’s something that we’ve talked a lot about, you know.
Liz: Because we’ve shared that with other couples, but.
Liz: We sat down in 2004 when we bought our first duplex and we developed a plan together. We developed our you know, I call it our why statement. You know, digging really deep to get really clear on why are we even investing in real estate. I mean we both like the vehicle of real estate, but getting really connected.
Liz: With what we’re doing and why we’re doing it. When we first started dating, we had such similar values about entrepreneurship, eventually wanting to you know, work for ourselves and build a business and we both had the same you know, spiritual values as well so we believed in you know, having faith and just persistence and what have you so we developed a business plan together back in the day.
Liz: We actually just found it because it was literally ten years ago.
Liz: What was really neat was we were looking at this plan that we wrote when we knew nothing and I have to tell you I say eight out of the ten things we wrote down. We achieved.
Matt: We’re not that far off. Yes.
Josh: Wow. That’s cool.
Liz: You know, ten years ago. It was really really neat, you know about goal setting, but when you see it in black and white so I would say that’s one thing. Number two I’ve had various roles over the years. Matt has always kind of been you know, our kind of president leader. You know, of the business, but I’ve always been either a you know, strategic kind of advisor. I’ve been actually in fulltime working with him. Part time, I mean I’ve literally worn every hat and I can say that the key is to really you know, just know your roles.
Liz: Keep things separate and just communication, open, honest, really clear communication.
Josh: Interesting, interesting. You know, I used to work with my wife. She ran a school. She was my boss and this was before we got married. I thought it was fine. I didn’t have a problem, but people would always come up to me and say, “Josh, how the hell do you do it. I mean you’re with her all day at work. You go home you’re with her. You know, aren’t you guys sick and tired of each other?” I said, “It works great. We’re not tired of each other at all.” I do think it can be challenging for some folks to do that so how do you guys separate the work and play. How do you separate business from personal? Is there a separation for you or is it all just kind of combined?
Matt: As Liz said we did it once in 2009. Liz actually quit her job and worked with me fulltime and that did not workout too well because yes, yes, because we’re kind of on top of each other. We were you know, our roles were very intertwined. We didn’t have clarity of roles and so we ended up kind of running interference on each other a lot and.
Josh: Got you.
Matt: It caused a lot of strife to be honest and our marriage and our business and everything.
Matt: She went back to working 2010 and now, I think that the difference is we work pretty well together and the difference is that we have a bit of separation in that Liz has certain projects she’s working on. I have certain projects I’m working on and there’s certain things that we interact on and I also respect. We really understand and respect each other’s skills.
Matt: Liz really understands people.
Matt: I mean she just knows how to communicate with people and what really drives people so when I’m having a personnel issue, she’s the first person I go to.
Matt: She also has other skills sets that I really look for when I need a certain thing in the business and it’s vice a versa as well so I think we have a bit of that you know, separation.
Matt: We kind of do our own things we’re not like breathing down each other’s and neck because that didn’t work the last time we did it.
Josh: Yes, you don’t seem to have very good people skills, Matt.
Matt: No, no, awful. I spit on people is what I do. That’s how I communicate. You know, so yes.
Josh: I mean you guys eventually found those roles right? I mean this wasn’t something obviously—this wasn’t something that you guys just started with right? I mean it took time to figure that out. Do you have any recommendations for people if we’ve got, you know, spouses listening together or individually do you have recommendations on how folks can work together. You know, what has helped you beyond the I guess, figuring out what your skill sets are and kind of making sure that you’re not kind of overlapping or second guessing one another.
Liz: Yes, I would say two things. Do things that you’re good at and that you enjoy.
Liz: When I started working for him in 2008, I took on the bookkeeping of our business. Again, that’s something that I’m not good and I didn’t enjoy.
Liz: Right so and I just screwed things up all the time. I forgot to—I meant I forgot to pay mortgages.
Matt: That was a mess.
Liz: I mean it was a horrible—it was horrible.
Matt: It was a red hot mess.
Josh: That’s not good, yes.
Liz: Not good.
Josh: That’s bad.
Liz: I just—I didn’t have a handle on it. I’m not a numbers person and so anyway, I just, I think being good at something and enjoying it and bringing your real passion to a task is key.
Brandon: Now that we’re on that subject I want to kind of drift towards what you just said about accounting and I know this was—I probably was going to bring something way later, but you mentioned it now, you.
Brandon: First you did the accounting like the bookkeeping. Then you found you didn’t like it because this is exact same situation that my wife and I are in right now. She does the accounting for us, bookkeeping, she doesn’t like it.
Brandon: She’s good at it, but she just hates doing it I feel like. How do you guys do it now? Do you take over that part of things or do you outsource that? How does that look?
Matt: No, for me, I put my focus on building the business so I focus all of my time on raising and finding new properties to get into, but I have a fulltime office manager that works for us now that.
Matt: That does a lot of that, but before I even got. I’m not just saying that you know, if you don’t like financials, hire fulltime employee to do it for you, but what we started with was just hiring a bookkeeper and we were able to find one in a very reasonable rate and that was her skillset. She was great at it. In the beginning, we were paying her like 10 hours a week for managing something like 35 properties is what we had at the time. She did a great job with it and we’ve since expanded her role to where now, she’s now my office manager, but that’s—we started with the bookkeeper. An easier—it was even bookkeeping that will you know, run for books for you and that kind of stuff so.
Brandon: What exactly do they do? I mean you—we’ll talk about your business model in a little bit.
Brandon: Your business model and mine are pretty similar and so you know, obviously, I use these podcasts selfishly.
Brandon: I’m going to ask you.
Josh: I was going to say.
Brandon: Yes, this is how I roll.
Josh: Brandon wants to be totally selfish, but you know, must be nice.
Brandon: Yes, so I want to know, I want to know what does the bookkeeper do and what I mean by that is so obviously, I mean you know how it is like when you’re doing a rehab on a property, whatever, you get a ton of receipts going in and out. You got a ton of things. You got. Like at the end of the month, we sit down and I don’t know if I do this the same way as everyone else, but at the end of the month, we sit down and we look back on our banks statement and we reconcile what every single item was and we’re not always sure and we’re like, why did we spend $3,750 at Home Depot that day. I can’t find the receipt and then it’s just like.
Brandon: Is that what a bookkeeper does, like I mean do they call Home Depot and try to figure out what was going on?
Matt: It sounds like you’re doing hindsight bookkeeping. You know, like you’re looking back on the month on the 30th and saying.
Josh: Not good.
Matt: Okay, this is what happened.
Matt: We do—you guys, so I would recommend that a bookkeeper can get you into a position where you doing proactive bookkeeping, where you’re looking ahead and when a check needs to be cut, it gets entered into the system immediately. The system is whatever software you’re using. We use RentManager. You can use QuickBooks. You kind of have to trick QuickBooks into working around real estate, but there’s other softwares out there too. As soon as I have an expense it gets entered into my accounting software and it gets coded so it’s okay, what is this? Is this framing? Is this—it had to been work? Is this plumbing, you know, whatever, is it a real estate commission whatever it may be, it gets entered in the system and then I don’t have to look at it again until I run up and I run a report at the end of the month to see how we work financially to run my profitability statement. That’s the only time I look back.
Matt: Most of the time, you know, the expenses—as soon as the expenses hit, they’re in the system.
Brandon: That makes sense.
Matt: That’s what bookkeeper can do for you and they’re coding things and so you can run financial reports and that kind of stuff. These softwares will actually let you print checks. As soon as you put expense in, you hit the print button and it prints the check out so you don’t have to handwrite the check anymore. You just sign it.
Brandon: That’s cool. Yes, yes, I need to do that. I mean like I’ve talked about it for years, like and I tried it for awhile, you know, I got Buildium and I got AppFolio and I.
Brandon: I never really took the time to learn either. I don’t know, like we like would start one and never really jump in the full way. I tried Quick Books for awhile and yes, in the end, like I’ve still like. I mean it’s kind of like embarrassing to say, but I still use Excel for all of my bookkeeping.
Brandon: It drives us absolutely insane every month. Like it’s just crazy.
Josh: Here’s an easy way to deal with that, Brandon. If you don’t want to hire a bookkeeper what you can do and I used to do this ‘til I pawned it off to my wife who is not pleased about this either, but you know, I used—I mean for years and years, I literally, you know, if I would spend money, I’d come home. I’d have a receipt in my hand. I’d go into Quicken or Quick Books and I just enter it in. Every night, I would literally spend five minutes a night to just enter any receipts I had into Quick Books. That’s it. I mean that’s all it take is the discipline. You’re problem is going to be that you have all those back log of stuff, right?
Josh: What you do is you enter all the back log in at the end of the month. Okay, get caught up say the end of this month and then on the 2nd, at the—well the end of the day on the first, if you’ve gone out. You’ve bought anything. You just put those receipts in. The second you put the receipts again, you just make it part of your life. You train yourself, hey everyday, every time we spend money, we immediately put it in and then it’s handled.
Brandon: I bet you there’s just apps.
Josh: Or you could just hire a bookkeeper.
Brandon: Or hire a bookkeeper and I think there’s a company called Bench.co I think they’re called. I’ve been looking into a lot. I don’t know if anybody listening to the podcast has used them. I’d love to get a recommendation or what you thought of them, but yes, they’re like—it’s like Uber for accounting and so you can like hire one online. Like it’s all through the cloud. I don’t know so that’s an option as well. I’m going to look into, but.
Brandon: It’s reasonable. It’s like a $150 bucks a month or something like that. It’s cheap, which makes me nervous about it, but anyway. Anyway, so yes, I definitely think accounting is an issue that a lot of landlords and a lot of household person. A lot of real estate investors in general really struggle with because the way I—I mean the mistake I made is I didn’t set up right at the beginning and then I never really focused on it so I’m still running it the same way that I ran it you know, seven, eight years ago. I mean it’s a hassle at the end of every month. I mean.
Brandon: Takes us a long time. My wife spends hours and hours and hours every week on you know, that so anyway.
Liz: If I can just say something quick about that.
Liz: Since we do property management and we also do flipping of property. We use two different software so.
Liz: RentManager’s great, but you almost have to trick it to entering the data around rehab.
Matt: For flips.
Liz: For flips so QuickBooks I know is staying.
Matt: Yes, we QuickBooks for flips and then RentManager for rentals and the last thing I would say is that you could probably limp by in what you’re doing with using Excel and that kind of thing for doing expenses, but the next time you buy a new property, the properly entering that into a good accounting software something a bookkeeper could give way because you want to put in something for land value. Something that you can depreciate, you know, something for fixtures and that kind of stuff, which an accountant could tell you more about and that kind of thing, but bookkeepers can do all that. I mean, it is very complicated to do that of you don’t have the skill set.
Matt: You know, so.
Brandon: That’s what one of the things that’s stopping me now is that I look back and I have to—you know, I have all of these properties now that I have to go and back enter in years of information to try or at least the year of information to try like so like—it’s almost like not worth it. Every time I just get overwhelmed. I’m like ugh, this is so much to do and I just—I stop and like I’ll do it next year.
Josh: I’m actually glad that you bring this up Brandon because you—you know, you are probably 95% of our listeners. Maybe even more. I mean I’m guessing most people who are listening to this show are probably not as organized as they should be. If you’re one of them, honk your horn while you’re listening to this. Yes so you know, I think it’s really important to hear that, listen, this guy Brandon, oh my god, it’s Brandon Turner and he’s telling me he’s totally disorganized. Oh great, it makes me feel good. I’m sure it probably does.
Brandon: Yes, maybe.
Josh: You know, take this time guys. If you’re listening and you are like Brandon and you’re disorganized, get it together. I mean really, this is a good opportunity. This is kind of you know, if you do one thing, if the show does anything for you, you know, get out there, get organized. You know, get Quicken, get QuickBooks, get something and start to put it together because you know, you do not want to be Brandon in this case.
Josh: You know, in other cases you might, but in this case, you don’t.
Brandon: No, you don’t want to be me.
Matt: What I would add on to that. What I’d—final thing to add onto that Josh, is that there’s always so much time in a day.
Matt: If you free up yourself from doing this financials and running the books and that kind of thing, there’s so many other profitable adventures you can get yourself into to grow your business. That’s when our business really took off was when I started delegating and giving activity I was doing including—that Liz was doing including the books and that kind of thing that I was able to get into other things.
Josh: I could say the same thing about mine.
Matt: Yes, yes.
Josh: I could say the exact same—I mean you know, I hired that guy, Brandon and he started tapes himself and you know we’ve got I don’t know how many fulltime people. We, you know, things are great.
Josh: I can actually focus on what we have to focus on, which is awesome so yes, that’s really really good advice. Well, cool I mean lots of great stuff on you know, working together and delegation. Well, you guys started this thing with a house hack followed by duplex, right?
Josh: Okay so what came next and what kind of deals do you guys do generally?
Matt: What came next was our first 1031 exchange, which I don’t know if you want to put a pin in that and explain what that is, you’re going to.
Brandon: Yes, why don’t you?
Josh: Yes, please do.
Brandon: Just in case.
Matt: Sure, we sold the duplex in Philly and instead of paying capital gains tax, which we would have to pay if we just took the money and put it in our pocket. We rolled it into another property so it’s a tax deferred exchange where you get to not have to pay income tax, but you got to take all the proceeds you make on the property and roll it into another investment. There’s a lot of rules around it, around time and around money. The bottom line is the new investment needs to be at or above what you sold all the prior property for and you got to roll all your proceed into and you got to do it within I think, it’s a 180 days.
We sold the property in Philly, the duplex and we rolled it into a pair four families in Ewing, New Jersey, which is not too far from where we live. We’ve since acquired more of this four families in that block they’re on that we’ve expanded our business to the point where we were probably about 80% of residential. For our portfolio, we also own—we bought an office building and we converted it into a small business center so we’ve got 18 different companies that occupy the building. We’re actually sitting here talking to you from it now so we occupy it ourselves, but we have all these different companies that occupy this space and it’s this really cool networking and social environment as well that—it’s full of mostly young entrepreneurs that are all doing everything from you know, law firms to not for profits to other real estate investment companies that occupy the space so.
Matt: That’s a patch on our portfolio, you know.
Josh: It’s like a co-working space?
Brandon: Yes, that’s what I was going to ask.
Josh: Okay cool.
Matt: Yes, it’s not an open platform though so you’re not sitting next to the guy that’s running the law firm. You have the—we all have private offices and everything.
Liz: If I can mention about that, you know, 2008 I think we purchased it. It’s a 10,000 square foot building and an organization at the time had the space so they ended up moving out and we rented you know, Prother and Laws and Matt showed me that with this, you know, one tenant in this building we’d be you know, cash flowing amazingly.
Matt: Oh yes.
Liz: We were both excited, you know, this would be the biggest purchase, awesome, awesome, well, we ended up just sitting on the property for awhile.
Liz: Low and behold in 2008 and even now, not many people, not many companies are looking for a 10,000 square foot building in Trenton, New Jersey so.
Matt: Yes, that was a big mistake. It was probably one of our biggest mistakes when first got started is we looked at the current snapshot of the market and assume that that would be the market.
Matt: For several years out and so to give numbers, we bought the building for $50 a square foot, which is a really cheap number for New Jersey and another good rental number is around $12 a square foot. If you run the numbers and for rent, it would be $12 bucks a foot per year and that works out to be a really great cash flow for the property and I showed it to Liz and she’s like that sounds great. Let’s do it and then 2009 came along, you know, and with what the market and so we kind of got tired of sitting on this vacant building that nobody wanted to come and rent from us at 12 a foot and we had to jump back and put and change our plan.
Liz: Really broke up the building.
Liz: Into small offices out of a need, but you know, it was just one of those examples of many times that you you know, you think one thing around this is the right investment. This is the right path and you kind of learn.
Liz: In a new way.
Matt: You got to.
Liz: You have to figure it out and quickly.
Matt: You have to figure it out, yes.
Josh: That’s awesome. That’s awesome. You know, I think it’s so important to talk about that the ability to be flexible.
Josh: The ability to adapt your plan and you know, I think that’s hard for new investors. It really is, you know, coming in, you say, “Oh listen. This is my plan. This is what I’m going to do and if it goes wrong, oh my god, the world’s is going to blow up.” Right so that’s why we really try to talk a lot about this, which is you know and I think we have the whole last chapter of our Ultimate Beginner’s Guide, by the way, BiggerPockets.com/Ubg is the Ultimate Beginner’s Guide. It’s a free guide. Teaches you all the basics of real estate investing. I believe the last chapter we kind of talk about you know, having a need and having the ability to adapt and having multiple game plans. If game plan A goes wrong, have a B, have a C, have a D just so you can pivot quickly.
Brandon: Yes. I like that phrase “pivot.” I think that’s what Eric Reis from The Lien Startup.
Brandon: Uses that all the time like the word “pivot.” At times you have to change your investment strategy a little bit. I just—like a basketball player would pivot and move it a little bit different direction.
Brandon: I like that. That’s cool so tell me about like so when you said you divided the this 10,000—I mean I have a couple questions I want to jump back to the 1031 thing too, but while we’re on this, you divided them up into office building. Did you actually like you know, build walls in there and put a bunch of different offices. Is that what you guys did to construct it or was it already like that?
Matt: No, well some of the—so yes and no. Some spaces were cut up and there’s this big huge space in the back of the building that we turned into a seminar room. We put in a projector and a bunch of chairs and that kind of thing so that you know, people could come and do small—you know, presentations and that kind of stuff, but some of the rooms we already delineated and we just put separates lock on them.
Matt: That the tenants can you know, you get into the building with a key fob. There’s a bunch of common area in the building and you can walk into your privately locked office space and we put in some walls to add some—you know, to add a few more offices and everything like that here and there, you know.
Brandon: Are you doing better than you would have had—like that your projects were with the one tenant. Do you feel like as a multi-use place, are you getting better returns than you were had hoped or are you getting a little bit less?
Matt: Well, it’s interesting because you get, you know, it’s a double edge sword in cutting up a space like this because we didn’t put private utilities, you know separate utilities in. It’s kind of—it would be hard to put like 18 different of everything in each space.
Matt: You know, we bill out Cam, C-A-M, which is a percentage of the utility bill and a percentage of the maintenance to tenants. We try and pass as much at a long tri-tenants as we can and we get better rent per square foot of the offices so I might get, you know 25 dollars a foot versus 12, but it’s of like this little tiny office space that might be you know, like a ten by ten office. It’s renting for $250 a month. You know so by the actual per square foot from what we have, we do better, but you have to factor in all this common area, all these hallways, and all these things like that so how we base the whole building that will evolve in a rentable space.
Matt: It’s not rentable space when you’re just renting small offices. You kind of take a haircut. We ended up averaging out about the same, but you know, so that’s short answer to your question.
Josh: I work in a space like that. Our office here is in a similar type space and what they’ve done, which is I think really really bright is they’ve taken those empty common areas the hallways and they basically meet those quote “floating desks” or just kind of individualized desks. You can literally buy a desk in the hallway.
Matt: That’s great.
Josh: It doesn’t come with—it literally is a desk. You bring your—you know I think they’ll upsell you. I’m not sure exactly how it is, but they’ll upsell you like a locking file cabinet so you can put your stuff in there, but otherwise, the desk is bare. You know, people, they’ll leave monitors and stuff and nobody’s stealing their monitors, but it—it’s another way to kind of get rent back on that space and it’s great. I mean this place is completely full and it’s—I mean I look at it, I’m like man, I’m sitting here paying rent on an—I want to own this space. I want that.
Matt: What does that cost? What do they get for one of those floating desks in the hallway.
Josh: I think it depends. Some are I believe between $250 and $450 a month.
Matt: That’s great.
Josh: Yes so, but here’s the nice thing. People don’t—people who were you know upstarts, upstart companies. I don’t want to deal with rent, utilities.
Josh: All the headaches. I want to pay one bill. I want to make my life really really easy. You know, so that’s what these type of things. Regis is the big national.
Josh: Chain that does this stuff, but yes, it makes it really easy. Listen, you guys can come in, you’d pay x amount of dollars. You’d pay one bill and you’re done, great, great, and these things are popping like crazy in Denver. I mean they’re really really popular here in town so. I love it, I love that you guys are doing it and I think it’s a.
Josh: Phenomenal, phenomenal model.
Brandon: Yes. Would you guys recommend other people getting like especially newbies, but anybody, would you recommend getting in the commercial or do you think that was a big step.
Matt: Yes, yes, I wouldn’t go to say all your newbies to go on out there and buy a 10,000 square foot office building per say.
Matt: You know I’d be okay with them taking the calculated risk because what it’s allowed us to do is carry a presence for our business. When people come to visit us, you know come to my office so you know, for the people that are working from home and that kind of thing. We’re able to carry a bigger presence of a much larger company by people coming to see and sit in our conference room and.
Matt: Being able to do closings here in the building and everything like that has been really really cool and it’s been a great opportunity to network as well. The only thing I would say to a newbie is just be sure you’re running number and that you know, the most or all of your expenses are covered by your tenants and that you’re—you as a startup aren’t putting yourself into a position where you’re having to pay a bunch to be in this swanky office space because we—are able to occupy it. It doesn’t cost us anything.
Brandon: Yes, yes.
Matt: Because of our tenants so.
Brandon: It’s like house hacking, but for commercial.
Brandon: It’s cool so but anyway, I want to go back to touch on real quick, before we move on. I want to touch on the 1031 you mentioned and again, I’m a selfish person. I’m going to ask a question. I was actually talking with one of my business partners the other day about on of our properties and we have probably $30 to $40,000 of equity in this property after paying the real estate fees is we were to sell it. Like we’d clear about $30 to $40,000 in cash. They asked me, well, they said, “Well, I’ve heard something about this exchange you can do, 1031.” Should we do that? If we sell and I said, “I don’t even know like how much does that cost?” I mean I have no—I mean I know what they are, but I don’t—how much do they cost to do? Is it worth it on a $30,000 profit?
Matt: Let me ask you a couple of questions. What—what would you sell the house for? The property for?
Brandon: It’s probably. We have about a $190 into it and it’s about $140,000 is what we could sell it for. Somewhere [Inaudible][30:38].
Josh: Remember, he’s not in Jersey guys.
Brandon: Yes, we’re in—I’m in cheap area.
Matt: Right, yes, it’s probably like an eight unit or something like that for $120 right?
Brandon: It’s a triplex.
Matt: I’m so jealous.
Matt: Yes, right so okay, 140—if you’re making. You’re making 40 on the sale? Or 30 on the sale?
Brandon: In between 30 and 40. I think we have about 90 into it.
Brandon: You know if we got $140, there’s $50 and then paying.
Brandon: All the closing costs and stuff.
Brandon: It’s 30 to 40.
Matt: You and your partner would have to be prepared to bring a few bucks to closing. That’s all. You know, to buy the new thing because even if you’re new purchase was around 140, you would—you’d have to obtain a mortgage and you’d you know, probably—these days I’m seeing 70% LTVs, maybe 75 and that kind of thing and then you got to factor in closing costs and maybe some work you want to do and that kind of thing. I would just prepare them for having to bring a few dollars to closing. When I did our last 1031 exchange, the fee to this, you know, custodian.
Matt: I believe it’s what they’re called that holds the proceeds for you was somewhere in the neighborhood of $1,500 bucks.
Brandon: Okay, that’s not bad.
Brandon: I was thinking if it was going to be.
Josh: It’s not.
Brandon: You know, eight grand for that and I could pay eight grand in taxes.
Brandon: It would be the same, but that doesn’t sound too terrible.
Matt: No, it’s not too—it’s not too crazy and you parlay into—into larger things. I just—it sounds like for that deal, you might have—should be prepared to bring.
Matt: You know, some dollars to closing depending on how big a property you want to get into.
Brandon: Makes sense and we do have and we have a you know, we put a down payment on that—like a 30% down payment so we actually have quite a bit like that—we could probably do it, yes. Maybe I’ll do that. I don’t know. I’ll tell everyone in a few weeks if I decide to actually do it so alright, let’s move on. I want to. You guys did the house hack, the duplex, you bought the commercial. How many total units do you have now at rental properties.
Matt: Now, we have about 115 now.
Matt: That’s—there’s a whole big gap that I—that we haven’t gotten to in the end.
Brandon: Yes, let’s get there.
Josh: There you go. I actually bought four then they bought the 100 units so yes.
Matt: That’s right, the end, right.
Matt: That’s we did it, yes, right. No, we actually kind of plateaued. We had bought the—you know, the two four families. We had, you know, bought the office building.
We had bought a few single families here and there and everything like that. I think we had leveled out at around 30 units and we started getting into raising private equity of you know for—which, I’ll explain that whole thing, but people started coming in and investing through new LLCs we would set up and properties. We started out really really small. We were buying, you know, our first deal with a tenant in it—with private equity was two single family homes.
The guy gave us $50,000. We formed a new LLC. He was you know, a member of the LLC. Willing to personally guarantee mortgages and that kind of thing, but not wanting to do any of the things that needed to be done. I did all that. I didn’t front any actual cash. He did all—he fronted the money and I did all the things that needed to get done. It was a great partnership and then he started getting some of his friends in and we, you know, built it and built it and built it until with the last fund that we raised was about a half a million bucks. We’re in the middle of raising a million dollar fund right now.
Matt: Through doing that, we’ve been able to buy bigger and bigger properties that I wouldn’t have had access to with my own cash because honestly, Liz and I were tapped at about 2010 and we wanted to grow the portfolio and the only way to do that was by bringing in more capital.
Brandon: I think that’s where a lot of investors are at. I mean that’d where I’m at today, right? Like you get to this point where you kind of plateau and you can’t—you can’t get larger because you’ll never come up with the $500,000 down payment I need to buy a big apartment complex or whatever.
Brandon: At least when you got to kind of start thinking—I guess more creatively and—so maybe you can touch.
Josh: Well, really really quick on that.
Brandon: Go ahead.
Josh: I mean, like for those of you guys listening, the big guys like the biggest of the biggest of the biggest, this is how they do this.
Matt: Yes, right.
Josh: I mean a lot of—these guys are not just throwing, you know, throwing down you know hundreds of millions of dollars of their own cash to build these monster complexes and big sky scrapers. I mean this is how, you know, larger portfolios are built by the big dogs so.
Josh: You know, just putting that out there.
Matt: Yes. That’s absolutely true.
Brandon: Maybe you can explain the difference real quick between you know, when you’re raising money like this. When I want to go out and get money, you mentioned private equity and we mentioned you know, private lending. Is that the same thing? What’s the difference? When would you use each?
Matt: Sure private lending is short-term loan somewhere between six to nine months. We do that on our fix and flips. We typically will have between one and two fix and flips going in at any given time or we do a you know, a buy rental and rent and on a property. That’ll typically be a small multi or something like that.
We’ll buy it, fix it up, and then lease it out and then refinance it. To refinance the private loan out, but for private loans, I try and be in and out within a short period of time because the interest rates you have to pay because the money just starts to accrue over time for what you owe these and everything like that and quite frankly, most of the private loans that I deal with are self directed IRA so I want to give them their money back because they’re just going to get right back to me and the can’t keep the interest if that makes sense.
If I loan somebody a $100,000, if somebody owes me a $100,000, I’d pay it back $105,000 in you know, five months or something like that. They have to—their $105 is not there in their account because it’s an IRA, they can’t touch it. They’re going to loan me back $105. I can take the $105, turn it into $112 for them then they have $112 to loan me. My lending pool raises as I do deals with these guys. That’s why I really love doing private loans with self directed IRAs.
Matt: That’s that and then the equity piece is way longer investment. It’s typically five years is what I tell people they’re going to be in for.
Brandon: Okay and so those are usually more for you know, you’re going to buy something to fix it up, like a larger property, fix it up and then refinance it or sell it. Like a larger property?
Matt: Yes or it could be, we don’t do sales for the private equity. We want them to be—it’s more of a cash flow type of thing so we might go buy like a ten unit apartment building. We just did a ten-unit apartment building with some private equity. We bought it, did some work to it, but the beauty of it is we just got a mortgage going up front. We didn’t have to refinance it and that we just came in, we had it up private equity to purchase the property to make the repairs we needed to make and to go ahead and cash flow. We just send our investors a quarterly dividend check and they just to own a percentage of the building and so if the building made a certain amount of money in a quarter, they get a percentage of that. We just mail them a check.
Liz: Well, I think that’s the big difference between private lending and private equity. Equity you’re actually being partners and in the private lending side right, you’re in essence.
Josh: You’re the bank right?
Matt: Escrow statistics. You’re just a bank right.
Josh: Yes, so how do you structure, yes and I know this is going go a little bit above our heads possibly, the listeners heads and I don’t necessarily want to get into too much detail, but let me take that back. We’re not going over everybody’s heads, but you know this can get kind of complicated so how are you guys generally structuring your private, what is it—your private equity deals?
Matt: Sure, we use what is called a limited liability partnerships. It’s very similar to an LLC. It looks almost like an LLC except for it’s called an LLP and the difference is that there’s these limited partners involved and there’s a general partner, which is us.
Matt: Limited partners just have to—their obligation is to put their cash in and the reason that word limited is in there is they’re limited to the amount that they invest so they can’t lose any more than that than their investment. Nobody can—if the property ends up not making any money and the bank has to go and repo they’re not going to come after that person’s house. You know, they’re not going to come after any of that, that personal assets, you know. They may come after my personal assets because I had to personally guarantee the loan and that kind of thing, but we are on the hook for the management of the property, not—and the liability of the property, not the LPs.
Josh: They put up x amount of dollars each? Are you guys?
Matt: That’s right?
Josh: Putting up cash as well on these deals?
Matt: We typically don’t because we add different value to the partnership and that we’ve got you know, a track record. I have a management team of 11 people that manage the property that work directly for my company that are you know, employees of my company that I can control and you know control bid of return of investment of the property. We’re producing the leads. We’re also you know, when need to be personally guaranteeing any loans or mortgages that need to go on the property as well. That’s the value we’re putting and the structure is we will typically take anywhere between 20% to 50% of the project. Our LPs get you know, the other half of that and I break the percentages down really based on the return I want to see my LPs get. The more ownership they get, the better return that they get and so I kind of look at the numbers and say okay, well, how can I make a good return for these guys? You know, what percentage would they be comfortable with to make you know to make the money they want to make on this? The rest is for me.
Josh: What do you—so what does that end up being typically for you? I mean what percentage do you usually end up getting out of a deal?
Matt: For me?
Josh: Yes. Not you.
Josh: I mean I’m not—I don’t mean you, I mean you and Liz because I’m sure Liz is getting 50% of that deal, right?
Matt: She, yes.
Josh: I’m just want to make sure.
Liz: It’s 50%-51%.
Matt: 51% by now.
Josh: She better be getting 51%.
Matt: We’re a woman owned business so it’s 51%.
Brandon: That’s where we are too. My wife and I, she’s 51%, yup.
Liz: That’s right.
Matt: Yes, you never know right?
Matt: We as the company as in the partnership, the general partners let’s say, I typically take, let’s say we end up landing around between 20% and 40%. You know, ownership of the project.
Josh: For putting nothing down, it sounds pretty good.
Matt: It’s not bad.
Brandon: I think what’s key there is a lot of people think I want to go invest in a deal with no money down, like they know that’s the popular phrase and I’m going to do it. I don’t know the interesting thing is you may not be bringing money, but you are bringing something and I think you.
Josh: Well, exactly.
Brandon: You said that great because you know, you are bringing expertise. You’re bringing the guarantee. You’re bringing the deal probably. You’re bringing all the stuff together so.
Brandon: The cash is the smallest piece of that, you know. You’re still bringing a lot.
Matt: The cash just makes the deal happen, but you still have to have a deal. You have to have management structure. You have to have a lot of things in place to make these things profitable. I mean the cash is just that the vehicle to get it to where you want it to go so.
Josh: Well, really quick. Like I’m sitting here. I’m running a fulltime business right? I’m working 80 hours-100 hours a week on some weeks. I don’t have time to go out and do portfolio you know, to shop for property. I don’t have time to do any of that stuff. That’s where these types of deals come in.
Josh: I’m not alone in this. There’s millions of people just like me who are saying, you know, okay, I’m making eight percent in the market. Maybe if I’m lucky I’m making.
Josh: You know, a quarter of a percent in bank account.
Josh: Where do I park my money? Let me find guys like you who know what you’re doing.
Josh: Who’ve got the track record, who have experience and can take care of my money and help me out. Now that said, for the newbies that are listening, you’re not going to go and find a 50 unit apartment building and going to be able to raise this kind of money unless you know, unless you’re the best salesman on the planet. You really need to establish some kind of track record and demonstrate.
Josh: That you have the capacity and the understanding in real estate to be able to get people to entrust you with their cash and so I just want to make sure that we put that out there because we do see all these people who come on they’re like, I know nothing about real estate. I have no cash.
Matt: Give me some cash.
Brandon: That’s right yes.
Josh: I got nothing I know nothing and I want to find a money partner. Who’s going to money partner with you? I mean like let’s like let’s be real here. I know the gurus are teaching that you can do this. It’s total BS, it’s not going to happen so you know that only happens over time. It really really does and so that happens with time, with experience so I want to make sure that that I’m putting it out there to the folks who are listening that that’s the case.
Matt: I was just saying Josh, that that you’re absolutely right. We were in business for five years before we even thought about asking for private money or anything like that from anybody because we wanted to show that we had a track record. We wanted to learn what we needed to learn because the last thing I need to be able to sleep at night.
Matt: I need to know that my investor’s money is in are in safe places and they’re going to see good returns because I can’t, I wouldn’t be able to live with myself knowing that I you know, went and squandered somebody’s cash.
Matt: That so that’s something that I can know—that we can do because we’re in business for as long as we were so what I would say to your listeners, if you have a newbie that’s looking to get into this, find someone to apprentice with. That is doing this.
Matt: That you know, work underneath him. Learn the ropes if you don’t have your own cash. Learn the ropes from somebody who is raising private money, private equity and give him some of your time because that’s another thing is of value aside from cash. Give him some of your time to help them you know, build their brand and then you can learn how to do it. Then you got a track record.
Brandon: I think a lot of times reputation is kind of contagious, which if you don’t have it yourself, if you have the experience, you can grasp on maybe the word is like to somebody else’s experience by doing exactly what you’re saying.
Brandon: You know, so when they look at me, they don’t see me, they see me and the guy that I’m you know, tight with that I’ve been working deals you know for the last couple of years.
Brandon: I think that’s awesome.
Josh: I’m going to harp on that again, you know I think that’s really that’s just a phenomenal point and the reason it’s so good is this. I have people all the time who want to partner with me. All of the time in my business and they’re like, Josh, I want to partner. I rarely will partner with folks because I realize that the second that I’m in bed with somebody, I’m now in bed with somebody and what somebody—if somebody you know, if that guy turns out that person, that company, turns to be less than what I would want them to be, some standard that’s less than what I think is the standard that should be set. That’s you’re reputation that’s taking hit.
Josh: If you partner with the money guy who is scum bag, you know, by the way, you’re a scum bag now.
Matt: So are you. Right.
Josh: Welcome to the world. Yup.
Josh: Yes, so I mean, you know, be careful folks. I mean you are who you do business with. You really are and you know, I can’t press upon that enough from people to people to just be aware because you don’t want to get in bed with somebody shady.
Matt: You got to do a lot of research.
Matt: You got to Google people. You got to ask for references.
Matt: You got to ask for people that they do business with and you know, we partner slowly as well because we partnered quickly in the past and it didn’t pan out, you know.
Josh: Yes. Can you talk about that process on our last show, show 87, we got into that and.
Brandon: Yes, Nathan Brooks.
Josh: He ended up in a really bad partnership that cost him.
Josh: Pretty dearly and so I’d like I guess talk about how do you vet folks. I mean you said, you know, you do the Google searches and you do all this stuff, but you know, and you kind of get into bed slowly, but maybe you can walk us through that process. Especially for newer investors, how would you recommend they you know, if somebody says, “Hey, I got money.” You’re like, “Oh cool. Well, I’m desperate for money. Great.” You don’t just jump into bed with them right, I mean.
Josh: What’s the process that I should follow to start working with this person? What would you do.
Liz: Yes, you know, trust is obviously critical. Actually, the first money partner that we developed was somebody that I want to college with and I met him for coffee. We were you know, just kind of reconnecting, saying hello to each other and seeing how each other is doing and he said, “Oh what are you guys up to?” I think that’s also for newbies, you know, just share what you’re up. That’s always a great way to you know, to you know, who knows, get your next money partner.
Liz: I was sharing with him and he said I want to also invest. I’d love to talk to you both so he came out to you know, to Trenton and we both you know, met with him, but it was a slow. It was slow partnership so number one take it slow. Number two, really get a sense of who this person is, whether it’s references or just going to networking meetings with them. I mean I would just—I always, I’m from the employment world so I always say hire slowly, fire quickly and that’s the same thing with money partners. You know, move slowly and then you can grow faster, but don’t do it too fast. Especially of somebody wants to give you money quickly, that’s probably not a good money partner any way.
Liz: Number one, obviously like I said, you want to have that trust level. Number two move slowly. Number three I would say start out on a small deal together. You know, Matt and our money partner didn’t buy an apartment building initially or anything. We bought a single family home.
Liz: It was a very small amount of money. Even new money partner that we’re developing now always want to give us a small amount and say this works well. We’ll grow and you know grow together and I think that’s also a good sign of a money partner. If they want to give you a lot of money initially, they don’t know you and they want to move fast.
Matt: Something smells funny.
Liz: Yes, something smells funny so.
Josh: Yes, do you guys run background checks by the way?
Matt: On money partner? Well, people that are looking to invest us, I wouldn’t say that, but for people that we’ve done business with. You know, sometimes I wish I would have done that, but you know we haven’t done that in the past. If there were new partner that wasn’t just putting cash in, I’d definitely would look into that, but.
Josh: Like criminal and all that stuff huh?
Matt: Yes, yes, we have access to that kind of thing now. I mean it’s interesting to know, right? I mean.
Josh: Oh yes.
Matt: To what their background is. I don’t know what Liz. I would just say to just simply like good people typically know good people.
Matt: Our, you know one guy that was our first investor that Liz went to college with, you know, knew other good people and so he had known these people for a long time and was able to give good reference for them as well so I tend to try and keep it within my network for the most part. You know, and if it’s not in my network, then I take along time to you know, sniff them and vet them out and that kind of thing so.
Josh: Makes sense.
Brandon: That’s cool. Well, can we transition little bit. I know we’re hitting on the 45 minute mark here pretty much and there’s a lot more I want to talk about, but employees and running a business, a company right. Do you guys have multiple employees I’ve heard. How many do you have right now?
Brandon: Okay, so I guess again because I’m selfish. You know, I’m at this point in my business where I have to like scale up or scale down and I’ve been saying this for you know, months now and you know, I guess how do you know it’s the right time to start hiring employees and who do you hire?
Josh: We’re talking employees versus using other like a company like a—hiring your own property manager, in house versus, hiring an outside management company.
Josh: Or hiring your own bookkeeper in house versus you know, shopping out to an outside. I think is that more specifically what you’re asking for Brandon?
Brandon: Sure, either way. I mean yes, I mean that’s all part of it because I have to do something no matter what so or just get rid of all of my properties.
Josh: Then move to Denver, which is.
Brandon: Then move to Denver and hang out at the co-working space with Josh.
Matt: I think I’ve heard that before.
Matt: I believe it was one of your podcasts, maybe I heard it somewhere else, but I did get the magic number is around 30 units. It is where you can swing an in house you know, employee or an in house operator to help you run the business and that so I think that that’s where it really shifted for us, is once we got above 30, then we could swing and start doing things in house. Before that, there really just wasn’t enough revenue coming in to support another paycheck. Whether it’s a W2 paycheck or even 1099 or whatever it is. We would just outsource everything that came in under 30 units. Just—you got to meet like handyman and that kind of stuff that can be your go to for things and they hire the bookkeeper for as many hours as you need and everything like that. Once we got above 30, we started bringing in house employees and that’s where it started making sense. We added more units. It justifies, you know, hiring more people once we purchased more so.
Brandon: Why do you think it’s better at least in your life? Why did you decide to go with hiring your own in house staff versus just you know, some third party property manager. Like why did you go that route?
Matt: Well, we have a certain vision for our company. We have a—we’re trying to create a culture among our employees and we’re hoping that that rubs off on our tenants to a point and our investors as well so we wanted to create more than just this thing that just you know made cash flow. We were trying to create a business with a culture. We have a mantra for our company, which is transforming lives through real estate and we really believe that. We have quarterly meetings with our employees and that, but the bottom line to your question is I can control it, manage it if they’re my people. I can you know, they’re employees. I can kind of tell them what to do and give them the parameters to operate within and everything like that. It’s very. It’s much easier to control a culture than it is for you know, all independent contractors that work for somebody else.
Matt: The next day.
Brandon: Do you have your own contractors in house or do you outsource that? Like you’re maintenance and repairs and stuff.
Matt: We have our own—we have mostly our own people in house. They try and do as much maintenance and repairs as we can, but we also outsource things like you know, major plumbing, electrical, licensed work and that kind of stuff.
Matt: We’re not licensed yet, we’re working on getting our contactor’s license actually so we can pull out our own permits and that kind of jazz, but we sub out the big stuff and we delegate the small stuff in house.
Josh: Alright, so you’ve got 11 employees I want to find out who is the first hire and who are the eleven.
Matt: Okay, yes.
Josh: Not any of their names, but you know.
Matt: If you want, we can bring them all in.
Josh: Bill and here’s Maria.
Matt: We’ll get them all in the room. You’ll talk to them.
Josh: Yes, yes.
Matt: You can interview all of them. The first hire was our office manager who started out as our bookkeeper and she was—has been fantastic and she really started doing the books and then grew more into really running the property management division of the company. We also have—I call her my tenant relations manager so when tenants call in with a maintenance emergency or when we have to collect rents or we just when your communications need to happen to tenants. It comes to the tenant relations manager.
Liz: Lease signings.
Matt: Yes, lease signings, renewals. She creates leases, she also runs out and shows properties and that so she’s really the point of contact between tenants and the business. You know, she’s the go to for anything they need that’s who they call. Then you’ve got you know, the office manager who—she reports to, you’ve got, my head of construction. We have a—because we do—we do fix and flips so I have a guy that runs all of our fix and flips.
When an apartment turns around, it goes into the construction department and those folks go and turn it around now. The construction department, there’s a handful of employees that do everything from demolition to painting to sheet rock to minor plumbing and that kind of stuff. They do—a lot of their time is spent either on a fix and flip or turning in an apartment and it’s—we’re able to maintain that many people because we have a volume by their you know, unfortunately, vacancies or fix and flips that were in and might have left.
Josh: How many guys is that—or guys and gals? How many people is that in construction?
Matt: We have gals too in construction by the way. Yes, so that is let’s see. I got to do the numbers right. I believe that’s seven.
Josh: Okay. Oh so the bulk of your team is construction?
Matt: Yes, it is because that’s you know for fix and flips we found that we can manage the process if we do as much of it in house as we can.
Josh: Got it.
Brandon: Yes. I think that’s wise. Hiring-trying to find good contractors is really tough.
Josh: We have bookkeeper, we have tenant relations, then we have the seven so that’s at nine who are the other two?
Liz: Me and you.
Matt: Yes, well yes, me and my business—my construction manager, Adam who also has a percent ownership of the company as well.
Josh: Got you. Got you. Okay.
Matt: I’m counting myself. I’m that eleven as well because I pay myself.
Josh: Oh sure.
Matt: As a W2 salary on top of passive income from the investments. I do take a W2 income too.
Josh: Sure, sure, no that’s great and you know it seems like the I guess your tenant relations manager really is your property manager slash, slash, slash.
Josh: Then you have the whole construction team. You got the office manager and then you’re doing the deal finding. You’re doing the fund raising.
Matt: That’s it.
Josh: Pretty much handling the money side of things.
Matt: Managing the different departments.
Liz: You’d call me like a half of an employee I guess.
Josh: Oh, you’re an employee, you’re an employee and a half.
Liz: I’m not actually getting W2s.
Matt: She’s really just a no one, but.
Liz: Well, I’m not getting W2, but one of my major projects is helping the property management team kind of firm up our processes, you know and really get a really strong process. We have pieces of the puzzle, obviously, but we’re at the point where we just need to kind of button that up more so. You know, in essence, trying to take some things off their plate because we have a lean team in house so to speak so I—that’s one of my jobs.
Brandon: Okay, cool, hey how do you find good employees?
Josh: That’s a good question. I wish I knew.
Matt: I’ll take that.
Josh: I mean I love my employees.
Josh: I do.
Matt: There’s so many ways to find good people. I think one of the key pieces that I actually use to identify and get really clear on your culture and who it is that you’re actually looking for, the type of person. Then specifically, get them clear on the job itself. In essence, you know, writing a job description, one of the big things that Matt and I and our other partner Adam had done earlier in the year was literally write job descriptions for every single positions so if we hired service technician, we’re calling a maintenance person.
We’re hiring this tenant relations manager, what have you. You have a really clear job description and then once you have a clear job description, in that job description, get really clear on what skills this person needs. Beyond skills because this is my expertise and the other work that I was involved in the consulting work is what type of behaviors does this person need to have? You don’t want a whole team of extrovert or introverts. You don’t want a whole team of dominant people because you know what they’re all going to want control so how do you really create a diverse team. Not just of skills and experience, but quite honestly, behavior and you know, you don’t need people all trying to be followers when no one is leading the team.
Liz: You know, and we’ve talked about that multiple times.
Liz: About you know, running construction sites and how you know we knew who was on first base type of thing. No one knew who was in charge.
Liz: Different circumstances in our career so getting clear on the job and then getting clear on the job ad and really writing a—you know really helpful ad and we’re going through this right now. We’re doing some hires and I took what Matt and Adam came up with and kind of doctored it up to say not just the you know, everything—there’s so many jobs available. You got to make yours different and really make it specific around your culture and the kind of team that you’re hiring and that these people are going to be passionate about what they do. They’re not just going to get a job. We don’t want people to just you know, taking a job from us.
Matt: They want to be a part of something, you know.
Liz: They want to be part of something bigger and getting clear on that vision of transforming lives. I mean it’s a big one.
Josh: Yes, interesting, interesting.
Josh: Yes, it’s funny. I’d say the last—for the last year, I’ve probably spent—I don’t think there’s been any point in, which we haven’t been hiring.
Josh: We’re constantly hiring right now and Brandon keeps saying to me, you know, this is the rest of our lives running this company.
Josh: You’re just going to constantly be hiring and it’s fascinating. It really is a fascinating challenging process and I really appreciate what you guys talked about on collaborating on the descriptions and the tasks and that’s something that we’ve done as well with our description, but what we haven’t done enough of is the last thing that you said which is diversifying yourself. Making yourself stand out more. How do you do it? You know, above and beyond, like for us, hopefully we do it by saying you’re working—you’re part of this amazing company that’s changing people’s lives. Here’s how we do it and here’s what out our culture is in that, but I think there’s even more and I think being able to know what you’re culture and what your company does and how you stand out is really the key and I—you know I think a lot of folks who are in that process struggle with that, you know.
Josh: What do we stand for? What makes us different? What—you know I got a boutique. I got a retail shop, you know why are we any different than the other retail shops?
Josh: Or you know obviously for this case in building and investment company, what makes my investment company.
Josh: Better than the next one so something for folks to think about and write down if you haven’t written your goals, your vision, all that stuff. I mean it’s really important.
Matt: It’s got to be more than making money.
Matt: You know that can’t be the only reason why you want to get into this business or what you want to create out of that or the business.
Liz: I’d also just add too on the hiring part is a lot of people employers will say, well, you know, hiring and hiring and hiring and people aren’t staying in the positions. I would say that partially, it could be a hiring problem. It could also be a managing problem.
Liz: Actually, a motivating problem so you often hear people don’t leave companies. They leave people.
Liz: Not that everyone that leaves is about the person, but how you’re managing people, how you’re motivating people, something that Matt instituted with his team and something that was a suggestion I had was to meet on a monthly basis with your team. Take them out to lunch one on one. What’s coming up for you? How are things going? Communication is everything so yes, you can hire right, but then managing that and really keeping a team motivated and aligned is actually harder.
Liz: It’s easier to hire the right person in my opinion. It’s harder to actually manage and maintain because that’s the—I think the biggest challenge is for any small employer.
Liz: Or any big employer.
Brandon: I know I’m terrible at managing employees and that really is the thing that’s prevented me from hiring more people and building up a team is cause I just know that my weakness in life is telling people what to do. I’m really bad at it. Like and so until I figure that part out, maybe that’s the only way to figure that out is by doing it, but yes, I mean that took me like a year to get rid of my resident manager who was like a sexist pig that was like. I mean he was terrible and like it took me a year to get rid of him because I’m just terrible at managing so I don’t know that’s what’s prevented me. I’m—you know, people have different personalities and I’m definitely a peace maker and I have trouble.
Josh: You’re too nice.
Brandon: I’m a push over okay.
Josh: Yes. Nice.
Brandon: Alright, well, I have one more question before we go—before we kind of start to wrap things up and that is what is your future look like? I mean where are you guys headed? Where do you see your investment business going forward?
Matt: Sure, so we want to continue. We’ve been doing really well raising the private equity and we want to continue to do that and we want to buy, you know, larger and larger properties. You know, we—our biggest one so far has been an 18 unit, but we’d like to do you know, we’ve looked at a 22 unit, we’re looking at even bigger stuff. You know, 30-40-50 units and that kind of thing on the investment side because we’ve gotten pretty good at raising and we’ve been good presentation and it makes sense for investors to come in with us on that so that’s definitely one direction we want to go. For the fix and flips, you know, we didn’t even get so much to this, but it has become very frustrating with fix and flips and unexpected costs and how a fix and flip can really go upside down really fast. We did one property we found out that one entire side of the house had been eaten alive by termites.
Brandon: Oh man.
Matt: I mean it was all gone. It cost us an extra eight grand we didn’t budget for to reframe this whole side of the house so what we’re getting into is modular homes. We want to start doing instead of fix and flips, buying a piece of land and building a modular home on the piece of land and putting it up for sale that way because it’s a good way to you know, create a home for sale, but most things are predictable in a modular versus a fix and flip so.
Liz: I’d say the third arm of our business, which I’m kind of heading up and leading is creating some educational opportunities. You know, we have a lot of folks that come to us like, hey you know, how did you do this? How did you do that? We’re kind of excited about you know my background is training and development.
Liz: Kind of creating some ways to be of help to people and educate so that’s the other kind of new area of our business.
Brandon: Makes sense.
Josh: What do you—do you guys know just really really quickly. Have you ever heard of like this new thing now where they’re printing houses? Have you seen this stuff?
Brandon: I just saw that online the other day. I read an article about it.
Matt: Is it with the 3D printer stuff?
Josh: Now they have like—I think I saw in China, they’ve built these demo houses that are printed. They are literally printed with like some kind of concrete amalgam of something a rather and literally you can blue print the sucker and they’ve—these monster machines, huge huge things right.
Josh: They literally print a house. It’s amazing.
Matt: What a crazy world we live in. You know.
Josh: It’s wild.
Matt: I mean that’s so interesting. Yes.
Josh: It’s fascinating, cool alright. Well, let’s move on to the next part, which is the.
Announcer: It’s time for the Fire Round.
Brandon: Alright, the Fire Round, these questions all come straight from the BiggerPockets forums, which you can go and engage on right now by going to BiggerPockets.com/Forums and you should. First question is am I crazy, don’t answer that yet—to start flipping a property when winter is about to begin.
Matt: Yes, you know, it’s interesting and it depends on how long construction’s going to take. I think that if you create a product, of really good value. We’ve had. I have one house that’s sold that went under contract between Thanksgiving and Christmas and everybody says oh no nobody wants to move and nobody wants to look at houses that time of the year and everything like that. I don’t that you’re crazy. I just think that you need to plan for it and you need to you know, create value in the property because people need to move all of the time. There’s always somebody looking for house. You just got to have something that stands out and that is going to pop for—perhaps the fewer population that’s going to be looking for houses are running out of time. You’re not crazy.
Josh: Yes, nice.
Brandon: Thank you.
Josh: I don’t know. I’ll wait for a doctor to verify, but.
Josh: What would you do if you’re just starting out again with $25,000. You have $25,000 bucks, how would you build the business?
Liz: I’ll take that.
Liz: I think before, I hear a lot of folks have been trying to get more into the forums answering questions and what have you, just learning. It’s a great place to learn and develop your knowledge and skills, but you know, a lot of things I’ve seen out there. A lot of newbies will say what deals should I get into. I have exactly what you just said Josh, I have this amount of money what deals? What areas should I invest in? You know, before you go there, I think you know, getting really clear on your why. You know, why are you investing in real estate? I think I wrote this in one of the blogs that we write. I keep going back to it because you can look for deals and what have you and find the best strategy on real estate investing, but if you’re going to have challenges. You know, we put a roof on the house that ended up having to get torn down. You know when we first started and we made a lot of mistakes over the years.
Liz: You have to have come back to some sort what are we doing this for? We both align so becoming really clear and digging deep for newbies I think is something that I don’t see a lot of people doing and they get challenges and then they move on. I think real estate is such a wonderful way to invest that it’s a shame that people move on and don’t actually stick with it so. Then developing a plan and I’d also say with that $25,000 and developing a plan and then getting into whether it’s a single family or a multi family or whatever your strategy is become really good at it.
I think one of the biggest challenges we had was that we got involved into commercial property. We got involved with the residential property. Matt didn’t share this earlier, but we also bought a development you know, property we’re on a development, you know, piece of land. We were all over the place and that’s probably one of our biggest challenges when we started so become good at something and do it over and over and over again until you have mastered and then move on to something else. I wouldn’t—so many people get involved with so many things initially and I think that’s one thing we would have done differently was really master the multifamily and just done it over and over and over again. It’s not sexy, but it’s predictable. It’s where your success comes from so that’s just another side so I know.
Brandon: That’s great. That’s great. Alright, third question, do you have any suggestions for how to turn down a tenant with bad rental history. What do you normally tell them?
Matt: Alright, we just—you got to have protocol. I mean there’s procedures on that. You got to just write them a letter. I mean you got have that you got have a form letter on file that says, “Here’s why we didn’t accept you.” You check off a few boxes. You know, it depends on if they have an eviction or if just you know, whatever it may be, but you should—you know, first of all, I think that by law you have to have what your standards are for rental and you know, in the lovely state of New Jersey you do. That so we have rental standards here and in PA for our rentals in Pennsylvania as well and so if we reject someone, it’s simply because they didn’t meet our rental standard and so we have a form letter that has those things lined out. We just check off the boxes that it didn’t match and we just send them the letter.
Josh: Yes, yes.
Josh: That’s—you know what. I think that’s a great things for folks who are living anywhere that may not have rental standards, you know, really standardizing it because it protects you from you know, having people come after you for.
Josh: Discrimination or whatever else.
Josh: Here’s our—here’s our 20 different standards. Here’s the things you have to live up to you fail because you’re missing on one, seven, and twelve. Great.
Josh: Done, done, and done. Yes, nice, nice. Cool, investing in low incomes areas? Is this a good way to make money or something that newer investors should avoid?
Matt: It depends on management. If you’re—you know if you don’t have a thick enough skin to go and you know, sometimes there’s people you have to deal with and lower income areas that you may not want to—if you’re not prepared to go into those areas yourself and you know, after a showing or whatever it is. If you’re just getting started, you know, odds are you may have to do a little bit of the doing in the beginning unless you’ve got a property manager that can do all of that for you. If you’ve got a property manager that can handle everything soup to nuts and you’re willing to pay them to do it then you know, of course, move forward with it. If you don’t, you should be prepared to do it yourself, but I don’t have a problem with that per say for our business. You know, we do that. You know, we invest in lower income areas, but there’s plenty of good people that want to live in areas like that. They just happen to you know, make lower income.
Liz: We’ve never invested in an area where we’re not comfortable going.
Matt: Assuming we’re not comfortable going at midnight. I mean that you know.
Matt: That’s a little different.
Josh: That comes from going to him.
Matt: I’ve got to be able to go there. I mean a lot of our investments are in Trenton and there’s part of Trenton that are dicey, but we don’t do work in that areas because not only do I want to go—do I not want to go there, I don’t send my people. I don’t want to send my people there either so.
Josh: Isn’t that where Chris Christy lives? Yes. That’s a dicey part of town.
Matt: I think he does business here. I doubt he lives here, but yes, yes.
Brandon: Funny. Alright, last question from the Fire Round. What is your biggest horror story when it comes to rehabbing a property.
Matt: Oh man. That’s softball.
Liz: Where do you start? Start Brandon.
Matt: Yes, I think I put that on the forums so that you would ask me that question. I’ll be as concise as I can. We bought this property. It’s actually in the town we lived and I kept driving past it and saying like somebody is going to do something about that house because it was this old dilapidated property and it was—and I just said somebody is going to do something. I said, “You know what? I’m going to do something that about that house. I’m going to look into it.”
I had a title company that was looking for some business from me and so I gave them address. They looked into it and through a bunch of jumping around, I found out that the guy that owned it didn’t know he owned it because he was the grandson of the owner of record. The guy lived all the way up in Poughkeepsie, New York, but the long story short, the owner of record of the property, he had actually died in 1964 and had allowed a cousin of his to live in this house until like 1985 and then a sister of his moved in so a lot of rigmarole on taking ownership of the property, first and foremost. Then we once closed, we got sued by a tax lien holder and we had to go to court immediately after closing and had to pay something like another $10,000 after purchasing this property, right to this tax lien holder who just had a bunch of—these attorneys on staff that just—it cost them nothing to take me to court, but it cost me like you know $2,000 a day to go to court against these guys.
I just paid them to make them go away. Then we got under the property and started to fix it up and we put as Liz alluded to earlier, we put a new roof on it and everything like that and did all the gut work and we realized, “Wait a minute, this property has a bunch of water damage and it’s you know, we found out that like that the back of the property was sitting on dirt. There was no foundation in this—in the lot of this house.
Matt: Oh yes, you know, it’s what they did back then I guess.
Josh: That’s awesome.
Matt: Right, it’s awesome so we ended up having to tear this property down to the ground and build a new house on this site. We had already gone about halfway through the rehab.
Matt: We ended up having to demo this pretty new roof that we had to get put on the property. We had to take that off and all this framing that we done and everything like that. Take it all down.
Liz: This is right when Matt quit his job. I said, “What are you doing?”
Matt: That was right after I quit my.
Liz: What are we doing?
Matt: Day job to do this fulltime.
Brandon: Oh wow.
Matt: It was fantastic.
Matt: We did a building in brand new single family home. This beautiful house.
Matt: On this site that we sold. We’d lost money on the deal on that sale, but because what we learned, you know which was what I would tell the folks out there is that you know, we learned a bunch on that deal I still apply today so now I know how to stick for a house because I built—I did it. I know what not to do on a fix and flip because they’re pretty much the things you’re not supposed to do on my very first fix and flip so.
Josh: Wow, get it out of the way.
Matt: Yes, you know, get it—do it all—the mistakes the first one.
Josh: Nice, well you stuck it out. Now you guys are doing great so.
Matt: We did.
Josh: There you have it. Awesome. Awesome. Cool. Well that was Fire Round, lots of good questions. Great stuff. Why don’t we move on to the
Announcer: Famous Four.
Brandon: Alright, the Famous Four. These questions—we ask every single guest so you guys know what’s coming I’m sure. First question is and we’ll ask each of you separately if you want to answer separately if you have different answers, but. First one is, what is your favorite real estate book?
Liz: Sure, I’ll take that first. I would say, the kind of the follow up from Rich Dad, Poor Dad, which was called Cash Flow Quadrant and it was a wonderful book to get clear on—not just cash flow, but what kind of person and what kind of business do you want to create. It basically puts you know, employees and self employed and becoming an investor and it really gives you the ins and outs and when we created our business, we kept thinking are we an E and we use those words to this day. It goes into some specifics about real estate, but I would say, just from my thinking about real estate, it was by far one of the best books.
Brandon: What about you Matt?
Matt: I would throw out a book by Dolf De Roos called Real Estate Riches and he was one of Rich Dad advisors many many years ago, but he told some great stories in that book and it really opened up me to the possibility of real estate investing as well.
Josh: Right on, right on. What about business books? Liz?
Liz: Yes, I would say, E-Myth by Michael Gerber.
Liz: Is a great great way to think about your business so you don’t become one of those they say technicians who becomes the business and we all want to get into real estate because we’re you know, it’s hands off and we don’t have to anything. Well, we all know that you threw a lot of things.
Josh: Yes. Yes.
Liz: Like, but bottom line is you that you start to build something, processes, systems, etcetera and that’s exactly how we thought about our business. You know, how do we build this so it doesn’t need us. You know, we’re not there yet because you know, we’re far from there, but we’re getting closer.
Liz: We’re moving towards it, which is great.
Matt: We’re using that concept to build it.
Liz: It’s a great book to read early on.
Josh: What about you Matt?
Matt: I would have to go for The Secrets of the Millionaire Minds.
Josh: T. Harv?
Matt: Yes, T. Harv. We did the Millionaire Mind Intensive Weekend as well, but that’s just one of those—it’s just one of those things about shifting your consciousness around the way that give you money and for Liz and I, just reading that book and just really examining what he calls your money blue print and everything like and just—it’s really taking a look at, you know, how money is in my consciousness. It was great so.
Josh: Right on.
Brandon: Cool. Cool.
Josh: What about hobbies guys? What do you guys do for fun?
Liz: Nothing. No, we do a lot.
Matt: Real estate business.
Liz: Okay, hang out on my our nine month old. He’s my new hobby, but I would say, for me, I love playing tennis. You know, I love kind of training for races. I haven’t done one in awhile, but I’ve done some marathons and things like that and triathlons and things.
Josh: Oh, good for you.
Liz: Those have gone down a little bit since having my little guy, but I want to train for something in the spring so.
Josh: Cool, cool.
Liz: That’s for me.
Brandon: What about you, Matt?
Matt: Ditto for me. Yes, I did my first triathlon this summer.
Matt: On that and just spending time with my son and with my wife outside of work and not talking about work for a little while is a good enough hobby for now so yes.
Josh: Awesome. That’s great. That’s great.
Brandon: Alright, final question from me for the day. What do you believe sets apart successful real estate investors from those who give up, fail, or never get started.
Liz: Yes, I was thinking about this. There’s so many ways to answer that and I bottom line it—bottom line, it’s perspective because there’s so many times I can look over the last ten years that were so many reasons for us just to kind of say, “What are we doing? Why are we doing this? Just to kind of get back into the game and make it better and Matt doesn’t go—he doesn’t go into—we don’t go into properties now and you have to. We don’t take roofs off and then have to. We don’t make that mistake anymore. You really have to have perspective and a positive perspective. Not just positive, but like a realistic perspective as well and just keep making things better. That’s critical. If you don’t do that, I wouldn’t get involved, investing in real estate because we continue to make mistakes, but we keep continuing to keep our perspective positive and you know, solution oriented.
Josh: Nice, nice. No that’s great.
Josh: Well, listen guys, we really really really appreciate you guys coming on this show. Thank you so much for the time and you know, lots of good, pretty high level stuff here on the show so it was—I really appreciate it.
Liz: Thank you for having us.
Matt: It was a lot of fun.
Josh: Thank you, thank you. Where can folks find out more about your—find more about you? Do you have a website that?
Josh: You guys have for your business.
Matt: We do. Our business website is DorosaGroup.com and we’re—Liz and I also have active profiles on BiggerPockets as well.
Liz: We’re also weekly—weekly bloggers for the site so we’d love to hear from people.
Josh: Yes, leave comments, man. You guys—these guys are putting out really good content and definitely, definitely share your feedback with them.
Josh: On their posts. Well, thanks again guys. We really do appreciate it.
Liz: Thank you Josh. Thank you Brandon.
Josh: We’ll see you back on the site.
Brandon: Alright, thank you.
Josh: Alright guys, that was Show 88 of the BiggerPockets podcast with Matt and Liz Faircloth. Big thanks to those guys again. Really really cool show with some higher level knowledge shared and some really really good advice so we certainly appreciate it.
Brandon: I’m like totally motivated now to go get like a bookkeeper, something like that.
Josh: Dude, 88 shows man, it’s about time.
Brandon: I know. I know. It’s really bad.
Josh: Yes, you’ll do it.
Josh: You’ll do it. Next show, you know, everybody’s busting my chops about the book that I’m on page 175 of, that’s like—that’s a drop in the bucket compared to you not going and hiring out bookkeeper or finding somebody to do this stuff.
Brandon: I’m going to go call that Bench company today and just see what they can do so.
Josh: Do it. Do it. That’s awesome man. That’s awesome. Well, anyway guys, thanks again for listening, Show 88, if you’re not a member yet of BiggerPockets, we certainly urge you to do so. You get to hang out with guys and gals like Matt and Liz who are spending time in the community helping other investors out, linking up with partnering and doing business with other folks so the more active you are the more folks like these will get to see you, get to know you and want to work with you. I definitely encourage that. Otherwise, as I always say, check us out on all the various social networks and if you have not yet done so, please take a minute or two and jump over to iTunes, find the BiggerPockets podcast and leave us a rating or review. Those certainly come in handy and help us get more people listening and help us, you know, get more people educated into real estate doing better deals. Help us out if you can. That’s all I got. How about you Brandon? We done?
Brandon: We’re done. Let’s get out of here.
Josh: Let’s close it down, yes.
Brandon: I got a bookkeeper to call.
Josh: Awesome. This is Josh Dorkin, signing off.
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