BiggerPockets Podcast 090 with Matt, Romeo and KC Transcript
Link to show: BP Podcast 090: My First Real Estate Investment – A Newbie Podcast With Matt, Romeo and KC
Josh: Live from New Orleans this is the BiggerPockets podcast, show 90.
You’re listening to BiggerPockets radio, simplifying real estate for investors – large and small. If you’re here looking to learn about real estate investing without all the hype – you’re in a right place.
Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets dot com. Your home for real estate investing, online.
Josh: What’s going on everybody? This is Josh Dorkin host of the BiggerPockets podcast here with my co-host Mr. Brandon Turner. What’s up Brandon?
Brandon: How are you doing Josh?
Josh: I’m good. This is new format for us this week.
Brandon: Yes, this show is kind of cool – a little bit deferent. I think you’ll like it.
Josh: I do too. Quick heads up everybody this show is a live show. We got three guests coming to you and you’ll get to meet them all shortly but Brandon and I had a conference in New Orleans called FinCon – the financial blogger conference and we did live on air podcast at the show and what you’re going to hear here today is that podcast. Definitely check it out there is some good stuff in there and we hope you like it.
Brandon: Before we do I just want to give a shout to our sponsors of today’s show and that again is 99Designs. If you decided to take a leap and start your own real estate business you are probably knee deep in setting up financing and getting licensing and ironing out budgets but you may find that creative side of the brain is craving some attention. Luckily 99Designs is here to kick start your creative side with powerful logo, business cards, website, social media design. You’ll be able to promote your business both in person and online starting the right way. Visit 99designs.com/BiggerPockets to get $99 power pack of services free. Again that’s 99designs.com/BiggerPockets.
Josh: That’s a great deal and we are big fans of 99Design so definitely check it out guys it’s a great offer and I certainly encourage you to check it out. 99Designs.com/BiggerPockets.
Brandon: Let us get to the show. Today’s show is another newbie podcast in another words people on the show we interviewed at FinCon like we said earlier and these people all new to real estate investing. Haven’t done dozens and dozens of deals. They’re all on their first or maybe second or third deal but they’re all just getting started so they have some really good insight into that kind of how to get going so definitely check it out. I think you guys are going to like this interview. Let me go ahead and hit the play button here and you guys sit back and enjoy this interview with three newbie real estate investors.
Josh: This is the BiggerPockets podcast coming to you live from the FinCon financial stage here at FinCon 2014. I am very excited to be here with my fabulous co-host - the man, the myth, the Sasquatch Mr. Brandon Turner. What going on Brandon?
Brandon: Hey how are you guys doing today? That was actually my nickname in high school was Sasquatch. That’s actually what my friends called me. I wasn’t hairy though but I was tall.
KC: You’re pretty hairy.
Brandon: I’m a little hairy now.
KC: Was it The Sasquatch?
Brandon: No it was Sasquatch. I didn’t need the before. Everyone’s probably wondering listening to this right now what the heck is this, this is really different from usual. Josh do you want to explain?
Josh: We are here at FinCon. FinCon is a financial blogger conference, lots of amazing financial bloggers that are applauding us right now. These guys are the elite, the best of the best, the financial pioneers. These are amazing writers and folks in the financial community so we got a conference of financial bloggers and we are really excited and three of these guys have done real estate investments and are all semi active in investing. We are all here to talk about real estate. Anyway we’ve got Brandon, we’ve got me, we’ve got to my right Matt from New Jersey, we’ve got Romeo from Detroit. If anybody is listener of our podcast you know that Romeo is about to get it. Then we got KC right next to Romeo there and KC is up in Rochester in upstate New York area and all these guys are out there investing in real estate so todays show is going to be a little bit deferent so why don’t we get to it. Do we have a Quick Tip?
Brandon: Our Quick Tip for today is actually very simple. It’s simply check out the show notes which you can at BiggerPockets.com/show90. Definitely check out the show notes today because we are going to have links to all these guys’ websites and all their good stuff so if you want to check them out. We are going to have good time and this is a newbie podcast. These guys some of them have been doing this a little bit of time but this is our third newbie podcast and these guys haven’t be doing it for 20 years, they don’t have 200-300 properties, they are just getting started. We are going to talk with all of them today, interview them one at the time and explore how they got started and how they got their first investment.
Josh: Let’s get this thing going. To my right we have Mr. Matt from Jersey. Of course you guys know I’m a New Yorker so Jersey is our toilet bowl.
Matt: That is fair enough.
Josh: How did you get going? You decided one day I am going to be real estate investor and you bought a condo? Correct?
Matt: Yes. I decided one day that I wanted to own a condo and then I became a real estate investor by default because of the 2008 crash.
Brandon: How so?
Matt: I bought on October 8th, I closed on October 8th of 2008.
Brandon: It was like going over the edge.
Matt: I literally closed on Black Monday.
Josh: That couldn’t have felt too good.
Matt: I basically bought at a peak so it was a brand new condo. I watched it being built.
Brandon: This was for you to live in?
Matt: This was for me to live in which I did for five years. Then I wanted to start my own business and I decided to leave. I could not sell it so I decided to rent it out. I’ve been renting it for two years now.
Josh: You bought a condo to live in, the market hits the skids, you’re suck with this thing for five years and you’re just living in it and now you decide to rent it out. What are you thinking, what goes through your mind? Oh my god how do I find a tenant? What’s happening?
Matt: Actually the easiest part was finding the tenant. I have a friend who is a freelance real estate agent and I guess they call them.
Matt: Unemployed guy. Someone who didn’t go to college. That’s terrible.
Josh: We would never say such a thing.
Matt: I didn’t go to college so that means nothing. I’m self-deprecating. He went out and found me a tenant within two weeks. It was pretty easy because my mom is an interior decorator so my house was very nice. Women were very comfortable staying over.
Josh: You still live with your mom, right?
Matt: I don’t. But she seriously did help me decorate it so I think the staging of the condo really helped me to get a tenant.
Brandon: You think you staged it to get it rented?
Josh: I never heard of that before.
Matt: I was still living in it so all the furniture I just kept it clean for two weeks. I had person in there every day. I worked from home so I just when someone was coming over I would just park my car down the block and just sit there and creepily watch them.
Brandon: What do you pay real estate agent to rent it out?
Matt: First month’s rent.
Brandon: Then did you manage it yourself going forward?
Matt: Yes. Now the place is only five years old so there’s only been a few issues with what’s happened to it maintenance wise. The garbage disposal went and when I say went you just have to put a little red button on the bottom and just few seconds.
Brandon: Its funny I didn’t realize that for the first five years of land lording. Every time that happened I replaced the garbage disposal. I didn’t know that there was stupid little red button on the bottom that you just press to reset. I probably spent a $1000 on garbage disposals then probably 20 hours’ worth just replacing garbage disposals.
Matt: I’m not a handy guy either so I just google everything. I go on google, there is little Alan key that you put glass in it. I just shifted it and it was turned on, it was fine and I know as far as maintenance there are just couple of things that I was able to do. It started smelling really bad in the pantry closet.
Josh: Was that because you were living there?
Matt: No am I bachelor. I had no food. I had a ketchup bottle and the mustard bottle in the fridge. Like that essential that you see on movies that is really my life.
Romeo: One of the things you pointed out you said Google. Google is real estate moguls dream. It has allowed us so much, not necessarily google but YouTube can save you a lot of time and a lot of money. I broke so many tools not going to Google or YouTube to figure things out and then you take two minutes and boom all you need is a $5 tool to fix something.
Josh: Exactly. I want to jump in here. You’re telling us this stuff that’s kind of boing so let’s jump to stuff that matters. We want to know how much for are you renting this place out first of all how much did you pay for the condo?
Matt: 180. Paid $180,000.
Josh: And how much were you able to rent it out for?
Matt: $1350 a month.
Brandon: Less than the two percent rule that everyone talks about. Which basically means month rent is one percent. One percent rule says that it should be greater than one percent of whatever the purchase price is. So 180 would rent for 1800 a month. You are getting less than that but that’s alright. Because you don’t have a lot of maintenance stuff. The most important question is do you get cash flow from this is or does it cost you money to own it every month?
Matt: It costs me $125 to own it. I pay that to association.
Josh: Ladies and gentlemen. This is why I continue to harp on not buying condos. Not buying anything in the major way. Association fees can destroy an investment. Association fees not only are these the regular fees that we’re talking about but the cool thing about condo association is this – they like to come up with things called special assessments. Great thing with special assessments is they can come up with one at any time for any reason for any price. Hey all of the sudden we are not going to just have to paying $300 a month in major way but here is $5000 special assessment because we want to rebuild a roof on your building.
Matt: That happens especially with clearing out snow.
Josh: Condo investing is kind of dangerous in that you have a lot less control over those costs. Other costs are more predictable. Capital expenses and things like that are semi predictable if you put money up front but that kind of fees can be kind of scary.
Brandon: I’m curious also, today do you think it’s worth more than you paid for or are you under water?
Matt: I’m under water by last time I checked 8000.
Brandon: Here is what I like about you. A lot of people have a choice and I’m not raging about people who choose one way versus another.
Josh: And we are not busing his chops. I mean we are but were not trying to pick on him.
Brandon: What I like about you is you could have just put your hands up in the air and say I quit. Walk away. Screw this. But you didn’t. You are going to take $125 loss sure but I like to think that over time that price will go up, hopefully. I’m not saying you should go up and guy property with money but the fact that you are making good on it and learning a heck of a lot in the process is awesome.
Matt: I was subsidizing $250 per month. I dropped it to $125 just for the HOA and I refinanced in March but I already paid in five years into it and I did streamline refinance, dropped my interest rate from 5,8 to 4.5% and did not extend the term of my mortgage.
Josh: Really quick can you explain what streamline refinance is.
Matt: From my understanding streamline refinance is way for them to come and refinance your home without there’s no closing cost fees, they don’t come and asses your home, they don’t do appraisal so it was all just paperwork. It was all kind of done by fax machine.
Matt: That’s what I assume it was.
Josh: I’m going to ask the question. The question is you’re bleeding money on this property you’re holding on to, why are you still holding it? Why not just unload it, take your licks and move on to the next one?
Matt: Because I think it can make money. It’s a new property and I think there is potential to make passive income from it at some point.
Josh: Could you then not sell it? Do you have any cash in the property left?
Matt: No. I’m in the water for $8000.
Josh: Still upside down. You’re going to hold on and wait it out.
Matt: My mom wants me to sell. My mom was my real estate agent when I bought the property. She worked for the company and it’s a nice property, she worked for a nice builder. She wants me to sell it and walk away from it and she also wanted me to refinance at 30 years and I said no that going to cost me extra $13000 a year per the total price of the mortgage and I saved $8000 by doing streamline refinance and only doing it for 25 years. I just took advantage of lower interest rate. That is all I wanted.
Brandon: You got a great low interest rate now and I’d like to think you will probably come out ahead because real estate is very forgiving asset class. You can kind of screw up and pay a lot of money but over the long run you are playing the mortgage as well and over the long I think that you will do well from it. You learned a lot in this process that your next property will be a whole lot better. We all met here three days ago and the reason that we wanted to have you on this show s because your story is story of millions of Americans out there and I like the fact that you used real estate investing to turn your story from tragedy into something that’s going to be a positive thing someday. There is not always just I just this is a positive outlook that you did and that was awesome.
Matt: Thank you.
Josh: Another thing that is interesting about you is you are accidental landlord. That’s what we call it. You are guy who lives in a place, you’re turned upside down how do I salvage this? I don’t want to go and destroy my credit, I don’t want to do all these things I’m going to rent out the house and bring some cash flow and basically do what I can to salvage it. It’s scary. There’s a lot of accidental landlords out there and the problem that I see is the most of them is unprepared for what’s to come. That’s why we do the show, that’s why we do what we do because we want to help people like you to try and take your situation and can we take this and make it successful. Whether its listen I just got a job, I’m in a military, I bought a house I’ve got to move. Why would I sell it maybe I could get some extra money or whatever it is. It’s pretty cool. I know I wish you a lot of luck. I know I give you grief, your mom’s great. I haven’t met her yet but I’m sure she’s awesome because you are too. We really do appreciate the story. Do you have any tips that you would give to somebody else who was in the similar situation to you?
Matt: Learn to do it yourself. Google is great tool as we said early on and I think just going in and YouTube has a lot of offer. I was able to watch a YouTube video and install a garage door opener. I didn’t actually go through with it but the video was really interesting.
Brandon: You can teach me then.
Matt: I’ll send you the link. I just think you should do it yourself. I don’t think you should hire company. I don’t know if anyone has special interest in this area but the middle man companies will handle the maintenance, you pay them certain fee, property manager, yes. Thank you for telling me the word property manager. That thing, yeah. I would say if you have one property, two properties even try to do it yourself. Once you start moving up I think obviously you would need something like that it’s a lot of handle.
Brandon: We are going to go back and do our Famous Four at the end of the show. Hang around everyone listen to the end.
Josh: Before we go on to Romeo I’m really excited we got Chris Guthrie in the crowd everybody give Chris Guthrie a round of applause.
Brandon: He’s a good buddy of ours. We are going to talk to Romeo next. Romeo is from great city. Are you from Detroit or you live there now?
Romeo: Born and raised.
Josh: I’m sorry.
Romeo: Don’t worry. It’s a great city.
Josh: Are you living there still?
Romeo: You can get real estate for $1000.
Josh: Is that a good idea?
Romeo: Definitely not but if you want to started in real estate a $1000 there you go.
Josh: So I should go buy a property for $1000 because it’s cheap? Are you trying to get me broke?
Romeo: I’m just trying to get you the experience.
Josh: That’s a bad idea people. Not that if anybody here works for city of Detroit please do not shoot me.
Romeo: They would not come to financial blogger conference.
Brandon: Tell us about yourself. How did you get into real estate?
Romeo: I really believe in real estate. Just like Matt I started in 2007 I purchased my first property. Right into 2009 is when I had to leave the area where I purchased the property and of course in 2009 it wasn’t a great time to sell your property. I tried at the time but I was under water by at least $30000 so okay what am I going to do and I decided to rent a property out.
Josh: You are in the military?
Josh: Were you serving at the time?
Romeo: Yes I was.
Josh: Were you overseas or local?
Romeo: I was in Kings Bay Georgia.
Josh: You were at a distance from your hometown and when you decided to get into this you didn’t actually do a property in Detroit you did it in Charlotte?
Romeo: When I really got into real estate my first property I purchased was my primary residence in Kings Bay Georgia. Then after Kings Bay Georgia.
Brandon: That was accidental landlord?
Romeo: That was the accidental landlord. Then I got into something else. After Kings Bay Georgia for two years I kicked myself and I said you know what, I have to redeem myself. I purchased this property $30000 under the water but I really believed in real estate as asset class so I started looking to what am I going to do next. Unfortunately next place moved I wanted to purchase the property there but instead of purchasing property there I rented it. I rented and took the time to learn about real estate before I can get into it again. Eventually I moved from Kings Bay Georgia I went to Connecticut New London area and then from New London are I went to Charlotte.
Josh: Where’s Waldo? Where did you go next?
Romeo: Exactly. Right now I’m in Charlotte.
Josh: I think there was like San Diego I was thinking wrong childhood thing.
Romeo: In Charlotte that’s when I decided I have to decide whether I want to rent or whether I want to purchase the property again. Of course Charlotte was booming area and no one knows about that so I decided I was going to purchase primary residence again In Charlotte. I said worst case scenario I know all about this one percent rule worst case scenario if I can’t sell it this time at least I will be able to rent it and not be under water.
Josh: I want to ask again on the accidental landlord thing. For you what was that experience like? Hey I got this house, I’m going to deicide to rent it. What goes through your mind – is there fear, is there excitement? Talk about your feelings. Your lady’s here she wants to hear you talk about your feelings.
Romeo: I was sad. No. The reality of it was it was easy to rent my property where I’m at. Many accidental real estate landlords in military areas they don’t do too badly relatively speaking. They will be able to find the renter however they don’t necessarily find a renter that’s going to pay their full mortgage but they find renter none the less.
Josh: Subsidized, at least partial.
Romeo: Exactly. That’s kind of what I did. I said I just went to property manager that only charge 8% of the rent that was brought in. It wasn’t too bad. I started off I was about $250 under water later on I did a hard refinance and that got me to the point where I was $50 under water.
Brandon: You have one or two at this point? This was your first, right?
Romeo: That was in Kings Bay.
Brandon: Then you move to Charlotte. Did you buy one in Charlotte as well?
Romeo: I did. I bought one in Charlotte. That was my second property.
Brandon: you lived there, you’re rented the other one out. It was a property manager. What was that like? Those two are near each other right? What’s it like rental property far away from where you’re at? I’ve never done that?
Romeo: Again that’s when I actually recommend property manager. If you are in the same area of the home that is great because you can go and check on it as long as you give your tenants heads up you can go there, check, do projects for yourself. I had to rely on my property manager. My attitude was as along as my rent was paid and I was seeing my check in account then I’m good.
Josh: Was that a good idea?
Romeo: It turned out not to be a good idea.
Josh: Okay let’s talk about that because that one of the thing I like to rave about. A lot of people thing I’m going to pay property manager and as long as I get the rent paid we are good to go. Really quickly talk about what else do you need besides just the rent paid? Because a lot of stuff can happen, right?
Romeo: That true. I think one of the things that you can do to leverage the fact that you have a property manager is actually have someone, maybe a friend if you can’t get to the area have a friend go check on a property, do your property manager and at least twice a year ago and check on your property to make sure property manager s doing their job.
Josh: This is Brandon’s wife calling live on the air. Come on pick up.
Brandon: Should I answer it?
Josh: You should answer it. She is Brandon’s property manager. Put her on speakerphone. But we can’t hear her. While he’s doing this on the property management thing guys a lot of problems can happen if you don’t take the time and energy to manage the manager and you’re not taking the time and energy to really fully vet and interview these guys. I know that’s where I messed up on several occasions. You want to be sure, you want to be careful, you want to know that they have good references from other investors that they’re doing their jobs and absolutely what Romeo saying is also finding some way to check on them, even the good ones, to make sure they’re doing everything that you want them to. I want to turn it really quick and go to the flip.
Brandon: Yes, you did a flip, right?
Romeo: I did.
Brandon: Let’s hear about that.
Romeo: The flip happened pretty quickly. I already had rental property in Kings Bay Georgia, I had apartment residence that I was living in in Charlotte and I’m one of those guys to get bored. I’m bored, you know what I want something to do. I went outside one day, talked to one of my neighbors and we were just looking at subdivision I was living in and we were just discussing about how many deferent properties were available. This was actually this year – 2014. He actually loaned some real estate books for me I read through those books really quickly and I went through MLS and I said “You know what? I want to buy me a property and I’m just going to flip it because I never did it before.” Of course I said I need to redeem myself from $30000 underwater I was in in Kings Bay. What I did I went on MLS, found a property, went through auction.com I don’t know if you guys dealt with auction.com what they do is they list a bunch of foreclosures in your area. I found one that I thought that was interested for me. The list price was $86000. I’m like okay what do I have to lose? I drive downtown Charlotte to the courthouse and I was expecting there was going to be a lot of people there looking for the same property that I was looking at. Come to find out there was no one there bidding on this property.
Josh: You were bidding against yourself?
Romeo: I was bidding against myself.
Romeo: Their rule was that you have to bid 50 more than their listing bid price. That’s what I did.
Brandon: You got it?
Romeo: Yes. Ten days waiting period and after ten days I got the property for $86000.
Josh: you got this $86000 property, never flipped a house before, what are you thinking? You haven’t been inside the property?
Romeo: I haven’t. I wasn’t in the house.
Josh: In auction you don’t get to see the inside. You don’t get to walk through it.
Romeo: That’s the excitement of it, right? You never know.
Brandon: It’s like Christmas.
Romeo: There might be newborn baby there.
Josh: Or something else. Dead bodies.
Brandon: What did you do? You walked into house, did you fix it up yourself and what did it look like I should ask first?
Romeo: When I went in it wasn’t too bad. What I was expecting for $86000 was three bedroom two bath home. When I actually went in there walked through turns out it was five bedroom two and a half bath home.
Romeo: I’m like “it is Christmas” I realized after initial walkthrough it was just cosmetic. I saw the carpeting was messed up, needed some paint and then we needed trash out. My though process was actually to call out get some contractors, do some bins, things like that but I ended up finding someone that does a turnkey rentals and contracting and things like that and they helped me out greatly. It was Ideal Investing in Charlotte so they told me they can do everything and all I have to say is go.
Brandon: So they did all the work, all contractors and they handled everything?
Brandon: Did they just bid a big price or how did you pay for that?
Romeo: Actually they only charged me $1500 to manage it.
Josh: Like a flat annual fee?
Romeo: No it was just a onetime $1500.
Brandon: They managed entire rehab for you for $1500. That’s awesome. I’m going to find that company.
Romeo: Then the rehab cost turned to be about $14000.
Brandon: You bought it for 86 and you got $14000 into it plus the fees and closing costs, right?
Brandon: Do you know what you had total cost at the end?
Josh: He’s got the computer.
Romeo: Total in the end I know what happened I ended up listing the home for 152900 and I ended up selling it for 146. Acquisition costs was 104000.
Josh: How long did it take to do the whole flip?
Romeo: I closed on the house 13th May, that’s when I first purchased it. The rehab began on 17th of May. The rehab was completed on the 5th of June. It was about ten days. We listed the house on 30th May, five days before the final walkthrough happened. Contracted on the house on 9th of June.
Josh: That amazing. For everybody listening who’s unfamiliar flips typically don’t got hat fast. Really, you need to plan for these things, its sounds like everything went right Romeo but in many and probably most cases they don’t.
Romeo: Actually it was a cash offer so I think that’s what made a difference. Typically when you do a flip you’re doing a flip so that someone can move in as a primary resident. Even Ideal Realty, the guys that mangled my flip, they have a whole stock investors that they deal with. They went and put it out into their network and someone came in and offered cash for it.
Brandon: That’s awesome. You had 104 in it, you sold it for 146. You made?
Romeo: I made $34000. I put my own money in it to acquire a flip but still profit was about $34000.
Brandon: That’s awesome.
Josh: If you do one of those a month at $30000 somebody do the math, that not a bad year.
Brandon: Before we move on, do you have any good tips for all the people looking to get into their first flip? What do you recommend people to do that maybe you did or didn’t do right?
Romeo: I recommended that people research it. You can never learn enough about it. Of course BiggerPockets has a great forum for that.
Josh: We did not pay him for that.
Romeo: You didn’t. You also have that great guide what is it – Ultimate Guide to Flipping so make sure to go through that and then just take action, go for it. Before you do that make sure you have enough capital so that if something goes wrong that it was a risk worth taking.
Josh: There’s a lot of people thinking I want to go flip a house and I’ve got nothing in my pocket. What do I do? I’m going to do it anyway. It happens but you run out of cash and it’s very scary. Very interesting stuff, thank you for sharing with us.
Brandon: Moving on to our last of the newbie podcast and this guy is actually a little bit interesting because he started real estate investing in a totally different way than anybody else we had on the show and I love this story. This is KC from Rochester area in New York. Tell us a little bit about yourself. How did you get into this and what did you do?
KC: I did well with some internet commerce business so I had some money. I reached a point where I saw I needed to diversify and kind of round it out a little bit so I started looking at real estate. I followed BiggerPockets as we all do and when on the forums a lot and I was looking at a lot of real estate, a lot of properties, but I wanted to jump into higher, I didn’t want to manage a lot of single units and stuff like that. I was looking at 24 units, I looked a few that were towards 50 units, nothing really higher than that but I kept looking through the whole upstate New York area.
Josh: Upstate New York price wise it’s not quite Detroit but it’s roughly that?
KC: It’s definitely a cheaper market.
Brandon: Cheaper than Detroit?
KC: Well not cheaper than Detroit. I looked for four years before I actually made my first purchase and it was kind of there were few that slipped through my fingers I should have grabbed looking back at it. Actually the very first place that I looked at I should have gotten it was an amazing deal. I was too new and I had no idea what I was looking at yet.
Brandon: I think that’s wise. You may have missed a good deal but given the alternative if it wasn’t a good deal you wouldn’t necessarily know it you would had a bad deal and that’s as bad all around. It’s better to buy no deal than a bad deal.
KC: I would have been sick I think because I just didn’t know anything. I eventually bought my first one was a 24 unit. It was $1,400,000 and it is good. I don’t know. There’s guys out there that do deals all the time and they find amazing deals .This was more of a I was able to identify there were inflating price little bit by not listing management fees and all that stuff. They were saying this is 14 cap and this is amazing. After all the stuff I looked trough I knew I’m like you’re not including management, you’re not including snow plowing, you’re not including anything. You are doing everything yourself and you’re saying you have 14 cap with a full time job basically.
Brandon: On the webinar I do every week for BiggerPockets I always talk about this. One of the biggest mistakes people make when buying if they believe the pro-forma which is the document the sales done. Oh I’m going to believe exactly what the broker, I’m not saying that brokers lie but brokers are big fat liars. Trust but verify. I just want to commend you for that. Good job.
KC: I’ve been looking for four years and following the forums and reading books and stuff like that so you know. Eventually I got to a point and I talked them down. I think they originally asked 1.6 or something like that. I didn’t talk them down tremendously. I talked them down to $1,400,000 it’s not cash cow it’s like in A neighborhood so it’s not one I’m going to get big return on but it covers its expenses and its payed out its mortgage.
Josh: Four years is not insignificant number. A lot of people got to year one year two year three they’re out of this business. To have the fortitude to stick it out my question is where you screening deals over those four years or were you kind of afraid to pull the trigger?
KC: I was screening. I was afraid at first. Honestly first year was more fear and trying to figure it out. Also when you’re looking at deals that are more, I think my minimum I was looking 20 unit to 50 unit and there’s not a million of those deals out there. I was looking every year maybe 8 deals a year kind of thig. There’s not any more than that. That’s pretty much it.
Brandon: Where were you looking? Was this MLS, was it LoopNet?
KC: LoopNet, I started getting in touch with some realtors and stuff like that. I started putting my name out there to people. This property was actually listed with a realtor and they didn’t even list it on LoopNet. I think he floated it to me because they knew I was looking and he eventually got it over to me.
Josh: You buy this property, was it fully rented? What was the occupancy?
KC: Its 100% rented. It’s always been. It’s in a great neighborhood. I honestly could raise rent.
Josh: So it was fully rented when you purchased?
Josh: One of the cool things about commercial properties for those people who don’t know it’s something called forced appreciation. You can actually increase value of property unlike residential zero one to four units that’s going to be appraised based on comps, commercial property is going to be valued based on occupancy, based on total rent collected. Not actually occupancy but what you’re bringing in. The nice thing about commercial property if you can purchase a 24 unit that’s got 13 units rented you are going to pay a heck of a less than 24 units that’s got all 24 rented. That said now you’ve got this 24 unit, you got rents come in. Did you put any money into the upfront maintenance of the property, any cap x to improve it?
KC: I did a little bit. Actually I should correct that where it was 23 units where I first got it but they had a maintenance shed that had full water hooked up and everything so I turned it into 24. That was really the only improvement I did. It was pretty pristine managed by a guy who was doing it all himself. He owned it for 30 years and he is just retiring.
Brandon: You don’t manage it yourself?
KC: No I don’t.
Brandon: You hire a property manager.
KC: Yes they do all of that.
Brandon: How was that been for you?
KC: It’s been great. Its husband and wife couple and she kind of handles all the rent stuff, he takes care of upkeep of everything around there. He plows it, mows it, and does it all.
Brandon: Do they live in one of the units?
KC: Actually they live in one of the units.
Brandon: So it’s not like Management Company it’s like resident manager that lives there.
Brandon: That’s cool.
Josh: Have you given them free rent?
KC: They get free rent and $500 a month or something like that and they take care of it all for me.
Brandon: I really struggle I have four resident managers and I’ve had problems with everyone. Do you have any advice for me?
Josh: Don’t hire a drunk.
KC: They’ve actually been there when I got it. They’ve been there forever and they are great. The husband is actually a cop so I was happy for that.
Josh: That might help. Keeping crime down.
Brandon: You got even more after that, right?
KC: About year and a half, close to two years later I bought a 32 unit and that one was a better deal. It was another B plus neighborhood, not quite A, but working class neighborhood.
Brandon: This is the one that you got smoking good deal on, right?
KC: No. I bought a house for a smoking good deal, you’ll hear about that. 32 unit was one where it was the rent was little bit less, it was still in great area but I got it for $1,320,000 and it’s been pretty good one. That one doesn’t have resident property but I have friend nearby who him and his wife manage it all for me. I don’t do anything with that.
Brandon: I think that’s awesome.
Josh: Your Company was doing well. Did you pay cash for these or did you finance them?
KC: I financed them. Both of them. I think 25% down on first one and I think I had to go higher on second one because they were looking my numbers and saying I was leveraging a little bit more. I think I put 30% down on the second one.
Josh: What it like getting loan on commercial property? Getting loan on residential property can be difficult but getting a loan on commercial property is a whole another ball game, right?
KC: I don’t know if it’s that much harder or not. There was more stuff involved than the regular stuff mortgage but it really wasn’t that bad for me. I think I went to five different companies trying to get a good rate and it worked out well. I was in interesting bracket too as well because as far as commercial loans go if I’ve gone a little bit higher I could have gotten some amazing government type stuff. I just barely fell short of that but it was still good.
Brandon: That’s awesome. I love hearing that story because I want to get in larger and larger units so it’s cool to hear that. I love that you started that way and that’s why I wanted you on. People think you have to start on condo or single family house but you don’t have to. If you have the money, if you’ve been successful in other areas there’s nothing working with doing that.
KC: I look at you though and you’ve done so many deals. How many deals have you done Brandon?
Brandon: I don’t know.
KC: Hundreds. You are like a deal man. I look at it I really want to make a lot of money in real estate you’ve got to start with deals – you’ve got to start small and work your way up and that’s how people get humongous. Whereas my strategy is more just rounding up my portfolio.
Brandon: That wealth creation is wealth preservation and think that is perfectly fine. Honestly you are probably going to build more wealth in a business that own, that you run, than in real estate unless you’re flipping house and that’s a business in itself or a wholesaler or something. When you have the money I think the real estate is amazing wealth preservation as well as accumulating wealth.
Josh: Nice thing here, first off all these stories are different but we all have different strategy and I think what a lot of newbie real estate investors think or even folks that have been around a little bit but don’t necessarily know the direction they’re going is there is niches, there is strategies, what works for one guy isn’t necessarily going to work for somebody else. This is dependent on your age, your risk tolerance, how much money you’ve got in the bank. You go ask somebody “what should I do as a real estate investor?” If somebody tells you you’ve got to do this, this is the path, please do not give them a dollar first of all. Listen and then think about what else there is because there is a lot going on, there’s so many ways you can go and it’s all going to be depending upon you. There really is no single place to go, single path for anyone to take and we like to harp on that for people. Find your own path, figure it out and do what works for you. Listen if that first deal doesn’t work or it’s not going into right way try and pivot and look at another directions to go. This is really good.
Before we go we have our world famous Famous Four.
Brandon: We haven’t done that in a while because we have the recording.
KC: You didn’t see your hands were where you were making that high pitched sound.
Brandon: Don’t worry about it. We are going to ask short Famous Four because we have to get off stage here but we are going to ask two questions so it’s the famous two I guess. That is do you have any good book recommendations, could be real estate, could be business – whatever. Then where can people find out more about you?
Let’s start with Matt down here who we heard from first.
Matt: You want good book recommendation?
Brandon: And where can people find you.
Matt: Business or real estate? I haven’t read many real estate books obviously from my situation but I think business book I would have to say like everyone else Four Hour Workweek. That was kind of start for me.
Brandon: What page are you on Josh? I’ll have everyone know here that Four Hour Workweek Josh brought with to New Orleans to read on the plane and then he just didn’t read any of it.
Matt: You haven’t read it yet? Its ten years old.
Josh: Let’s clarify. I got on the plane and you set next to me and then you just kept talking and talking and talking.
Brandon: I think we were talking.
Josh: I am not quite done with that.
Brandon: Alright, where can people find you?
Matt: Moneymatters.com it’s a podcast and its website to talk about personal finance and all things money.
Brandon: Awesome. Romeo. Book and where can people find out more about you?
Romeo: Of course let me see. Real estate book I would say The Millionaire Real Estate Investor. I know people recommend that a lot.
Brandon: Gary Keller wrote that I think.
Romeo: Yes. But if you’re talking about just business book I would recommend The Wealth Number.
Josh: What’s that about?
Romeo: You never heard of it?
Romeo: Well it’s my book.
Brandon: Nice. Where can people find out more about you? Do you have a website?
Romeo: The website is thewealthnumber.com.
Josh: You do realize you are not supposed to plug your own book but whatever. You broke the rules, rules are meant to be broken. Let’s go to next guy.
KC: First The Wealth Number – great book.
Josh: You’ve got a quote on the cover don’t you?
Josh: Romeo is great author and this book is fantastic from Josh.
KC: Once you’ve done with The Wealth Number then you move on to the BiggerPockets forums because who needs the book after that. You guys are both going to send checks to my house. I really like E-Myth. I think the E-Myth was one that was good for me. E-commerce was business where I made a lot of money so I love E-Myth.
Brandon: Where can people find you?
Brandon: Alright guys this was great.
Josh: This was our first live show, the first time I’ve gotten recording next to Brandon.
Josh: Amazing we didn’t punch each other in the face.
Brandon: I thought something smelled over here.
Josh: I’m Josh Dorkin, signing off.
Alright guys that was show 90 of the BiggerPockets podcast coming to you live from New Orleans. God those payees were good man.
Brandon: Those were good. They were amazing. I’ve got a recipe to make them at home.
Josh: Did you buy a box?
Brandon: I didn’t but I bought a postcard that had recipe on it and I sent it to my wife.
Brandon: Subtle hint to her.
Josh: I was going to buy some at the airport but I don’t know. Anyway hopefully you guys liked that. We wanted to mix it up a little bit and try something new and hopeful the live person show worked for you. If not go back and listen to the other 89 shows that we’ve got that weren’t live and there you go. I just want to thank everybody for listening, we really appreciate it as always. Of course make sure to follow us on Facebook, twitter, G+, LinkedIn, Pinterest. If you don’t have account already on BiggerPockets please sigh up already, get involved and hangout with lots of great people like our three guys and that pretty much it. Check us put on the show notes at BiggerPockets.com/show90. Ask any questions you’ve got there and we’ll see you next week with show 91. Thinks for paying attention, thanks for being a part and good luck to you guys.