BP Podcast 088: Investing with Your Spouse, Managing Financials, and Growing Your Team with Matt and Liz Faircloth 

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Today we’re thrilled to chat with New Jersey real estate investors Matt and Liz Faircloth on The BiggerPockets Podcast, covering everything from the challenges of working with a spouse to purchasing a 10,000 square foot office space!

Matt and Liz have been hooked on real estate since buying their first single family home in 2002. After years of self education, their fair share of learning pains and a healthy dose of hard work, the couple now owns over 100 units and has accomplished around 15 fix and flips. Employing a team of 11, their mission statement is to “revitalize Urban America” and to “transform lives through real estate.” Pick up some great tips on building an empire from the bottom up, choosing the best kinds of financing and earning that all-important track record of success. It’s all here, so don’t miss out!

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Sponsor

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Links from the Show:

In This Show We Cover:

  • How Liz and Matt got their start in real estate as an engaged couple
    BiggerPockets-Podcast-Cover
  • The pros and cons of working with your spouse
  • How to successfully get organized
  • The importance of making a business plan from the get-go
  • The ins and outs of bookkeeping in a home business (program recommendations included!)
  • What you stand to gain from a tax deferred exchange
  • The thrills — and challenges — of buying a 10,000 sq. ft. office space
  • The all-important skill of flexibility (or “learning to pivot“)
  • How to gain wealth through commercial real estate
  • The intricacies of private equity, private lending, forming LLCs & LLPs (and more!)
  • Proof that you CAN see 20-40% returns with no money down
  • How to add value to a real estate investment team without putting money up
  • The definitive guide to finding great employees for your business
  • Why modular homes may be your safest bet
  • The worst rehabbing nightmare ever (involving lawsuits, water damage — and a total lack of foundation)
  • And so much more!

Books Mentioned in the Show

Tweetable Topics

“So if the game plan goes wrong, have a B, have a C, have a D.” (Tweet This!)

“Do things that you’re good at and that you enjoy…bringing your real passions to a task is key.” (Tweet This!)

“Single family home, multi family home — whatever your plan is, get really good at it.” (Tweet This!)

Connect with Matt & Liz

 

About Author

Thanks for checking out the BiggerPockets Real Estate Investing & Wealth Building Podcast. Hosts Joshua Dorkin & Brandon Turner strive to bring top-notch educational content and interviews to our listeners -- without the non-stop pitch prevalent around the industry. With over 80,000 listeners per show, the BiggerPockets Podcast has become the biggest real estate podcast in the world. But don’t take our word for it. We’re the top-rated and reviewed real estate show on iTunes — check it out, read the reviews on iTunes, and get busy listening and learning!

27 Comments

  1. Lots of good stuff on this podcast, thanks Matt and Liz! I really liked the discussion on how you have grown your business, employee wise. As a new investor, I don’t have to worry about employees, but I find it interesting to hear about how big you where when you started hiring people and the evolution of your business from there. Further, I liked your emphasis on getting a good accounting system in place now, while it’s easy, so that as you grow bigger it doesn’t become a ginormous task to conquer. As well, I liked the suggestion to enter receipts nightly versus once a month.
    Further, I liked the discussion on how you two work together without being at each other’s throats. I will be partnering in this with a friend, and we are very complementary to each other already. However, as we figure out our business structure, it seems like it’s a good idea for us to have very clear roles and responsibilities so we each have our area of ‘expertise’ and know where we bring value to the business.
    Looking forward, my biggest take away from this is your emphasis on deciding my ‘WHY’. I’ve definitely thought about this, but I think you made it very clear that understanding your why is what is going to get you through the tough times. I think I need to keep doing some self-exploration to fully understand my why.

    • Hi Kayla – We are glad you enjoyed the show! It was an honor to be on it and a lot of fun for both of us. You really had some good take-aways from the show, I’m glad it was of value!

      You are right, having a WHY is so important. I have found that your answer to WHY do I want to invest in Real Estate needs to be deeper than “I want to make money”. Liz and I are investing so that we can free up our time to make a difference in people’s lives.

      Best of luck!

  2. Congrats to your success and the addition to the family Matt and Liz. You touched upon who you generally have for private lenders i.e. folks with self directed ira’s , but could you explain who typically is drawn to a private equity type partnership, as this involves a longer time frame and I would imagine larger dollar amounts no? And aside from larger units what other types of investing do you use private equity partnerships for?
    You also mentioned setting up LLPs with your equity partners but I was unclear how you set up the entity with your private lenders ?? do you set up a LLC ? Lastly , what is a realistic cost to set up an LLC/LLP and have you found that they get cheaper the more you do.. I have been told this . Thank you for sharing on Bigger Pockets.

    • Hi Elizabeth – thanks for listening, I’m glad you found it to be of value!

      A Private Equity investor is only different from a Private Lender in what they want to get out out of the investment. A Private Lender’s main goal (normally) is preservation of capital through a stable investment with a solid return. For Private Equity, my investors typically are looking for an alternative investment. They may have money in the stock market or other investments, but are looking to diversify their money in other things.

      Most of our Private Equity investors have cash or are able to get it from another asset they hold. An example of that would be real estate they own free and clear or nearly free and clear of any mortgages. They can access the cash through a home equity line, which will carry an interest rate much less than the returns on the investment. the dollar amounts vary. Most small private equity partnerships including the ones we assemble have a minimum investment of $25,000 to $50,000. The timing varies also. We have done projects with a 5 to 7 year time window but are assembling one currently with a 2 year time window. We typically invest in small to mid sized apartment buildings but have also done small mixed use buildings (store front and 3 to 5 apartments above it). We have also done funds that invested in tax liens and a fund that invested in private loans.

      The only entity we use is an LLP. The investors come in as Limited Partners, and we are the General Partner. Both of these roles are defined in the operating agreement prepared by our attorney. We set them up through the web portal with the department of the Treasury in the state of incorporation (New Jersey for us). Yes, it does get cheaper as you go along because we can use the same formation documents over again, we just have our attorney review them which is cheaper than having them create it from scratch.

      Thanks again for listening! Keep in touch on BP!

  3. Very good content in No.88… thanks for the podcast!

    I noticed in the beginning that there was a lot of discussion about bookkeeping.

    I use QuickBooks and would highly recommend real estate tax attorney, accountant and investor John Hyre’s course (very affordable at $299) — The Real Estate Investor’s KISS Guide to Bookkeeping. It is set up for Quckbooks. It’s also a highly beneficial guide, especially for buy and holders, because there is a very lengthy process to breakdown a newly acquired property into various pieces when you first set up the property in QuickBooks. But there are nice advantages for doing it.

    To borrow a paragraph from the manual, after showing a financial chart of a rental over 28 years… “Did you notice the shorter-lived asset produced the same tax savings as the 27.5 year asset- but a lot faster? The ability to take the tax savings up-front is normally MUCH more valuable than spreading the same savings out over nearly three decades. That’s why depreciating an entire property over 27.5 years is crazy from a tax standpoint… there are shorter-lived assets built-in to each rental property that will produce accelerated tax savings IF BROKEN OUT ON YOUR BOOKS.

    John Hyre is based in Columbus, Ohio and available at http://www.realestatetaxlaw.com. Again, highly recommended.

    He also used to have a similar manual for entities called… you guessed it… The Real Estate Investor’s KISS Guide to Entities.

    Hope this information is helpful! If anyone has another recommended real estate investor bookkeeping guide, I’d love to learn more about it.

    BP Rules!

        • Hi Greg,
          I saw your comment, so I wanted to follow up since I am also very familiar with Rent Manager. It is a great system and we have had a lot of success over the years with it. It is very scalable too. You began utilizing it when we had a few properties and we continue to use it with managing over 100 units. Here is the website. http://www.Rentmanager.com
          Please feel free to message me any further questions and I would be happy to help you!
          Thanks,
          Liz

  4. I appreciate how you touched so heavily on the accounting aspect of this business. It has motivated me to start outsourcing more of my books and paperwork! Really enjoyed the entire podcast, thanks!

    • Hi Jonna,
      We really appreciate your comments. Once we began to outsource the bookkeeping, I felt a big weight lifted off my shoulders! Just keep focused on what you are good at and enjoy doing and figure out how to outsource the rest! Not always the easiest to do but well worth it!
      Good luck to you!!
      Liz

  5. Hi Matt and Liz,

    I learned a lot from this podcast, thank you so much! I am a relatively new RE investor, currently invested in Lambertville New hope, Flemingotn nj area. I am also interested in Trenton but not sure about managing and appreciation…

    maybe i will learn from you in the future.

    steve

  6. Hi Steve,
    Thanks for your note! How funny that you invest in Flemington – that is pretty much where I grew up!! My husband and I have been investing in Trenton for close to 10 years. We would be happy to connect with you soon and share any wisdom we can with you!
    It is always nice to meet local investors!
    Please let me know!
    Best,
    Liz

  7. patricia hinojos on

    Just listened to the podcast. Very helpful. Thank you.
    My husband and I are somewhat newbys and I was interested in your mission statement. Can you expand on the “transforming lives through realestate” part of it. Do you provide any special services or information to your renters along that theme? (Other than a great place to live)

    I’m thinking of providing awareness of community resources and events to our apartment renters.

    • Hi Patricia,
      Thanks for your email and note. I am so glad you enjoyed the podcast!! The inspiration behind our “mission statement” was to make it general enough that it applied to our investors, our team, and our tenants. We want to transform the lives of our investors by giving them amazing returns; we want to transform the lives of our team by creating a thriving team environment; and we want to transform the lives of our tenants by creating a quality living environment that they call “home.” One of the “incentives” we have given our tenants is a contest called “tenant of the quarter.” If they pay their rent on time for an entire quarter, their name goes in the “hat” and the winner gets a gift card to a local restaurant. At the end of the year, we put all names who paid on time for entire year in the running for a flat screen TV. Tenants have really enjoyed this contest.
      Thanks for your great question. I am open to any ideas you have as well!
      All the best to you!
      Liz

  8. Great content…as always!

    Matt, can you provide any insights on “modular building” on vacant lots? Specifically, which companies have you used? What is cost/sq. ft vs. conventional methods? What are construction lead times? ect.

    You peaked my interested since I have 4 vacant lots in Northern KY/Cinti

    • Matt Faircloth

      Hey Dolf,
      We have a partnership with Simplex Homes in Scranton PA. You might be able to find something more local to you. The boxes from the factory can range between $40 and $60 PSF but you have to do a bunch of site work before and after. That includes building the foundation, running utilities to the site, providing a set crew for when the boxes show up and renting a crane, etc… You will also have to do some finish work at the seams where the boxes come together and may have to supply things like appliances and countertops depending on the factory you use.

      I have found that you will pay similar numbers to stick framing a house when it’s all said and done – between $80 and $100 PSF. It depends on the cost to develop the land you are on also. Things like well and septic versus public water and sewer will effect it, as will the type of basement you want to do – crawl space versus full.

      What I like the most about modular homes is the lead time. They can be delivered from the factory in 8 weeks once you have your permits from the local township.

      I hope that helps! If you have more questions shoot me an inbox message on BP.

      Matt

  9. Hi Matt and Liz,
    My wife and I really loved your podcast. We are very impressed with all you accomplished. We think your mission statement is wonderful. My wife and I need to rethink this after listening to you.
    I did find it interesting that much of your private money comes out of IRAs. Is that a structure you set up or do you use money that your investors put into self-directed IRAs and then pass to you for investing? I’m interested in putting some of my IRA money into RE, but the self-directed route seems expensive and painful. It seems to be working for your investors, so I was curious how its done.
    Thanks and best wishes for continued success,
    Joe

    • Matt Faircloth

      Hey Joe,
      I am glad we inspired you and your wife to investigate your mission and your WHY your are investing in real estate.

      There are many self directed IRA companies out there that act as a “custodian” for the funds. All we do is place the money into either private loans or equity projects once it’s held with the custodian. Some companies I have worked with in the past are Equity Trust and Pensco Trust. The fees are actually very nominal, you would be surprised.

      The only thing I would caution you on is that you cannot invest the funds into projects you are involved in personally or loan them to yourself for your own personal benefit. The funds have to be invested as an arms length transaction where you are not receiving any personal benefit outside of your IRA.

      Overall using IRA money for real estate is great because the investor gets the benefit of compounded interest, which can create exponential growth of their money. There is a bit of involvement required from the investor but it’s very manageable.

      I hope that helps! If you want to pick my brain further shoot me an inbox message on BP. I would be glad to talk further.

      Matt

  10. Matt & Liz – Thanks again for taking the time for this podcast. One surprise to me was your story about the Tax lien on your first fix and flip. I’d expect a title search to show a Tax Lien. What went wrong? Is there a lesson to be learned there?

    Re your blog discussion of “self directed IRA companies”, I hope it’s not against BiggerPocket guidelines for me to mention that Dmitriy Fomichenko, who introduced me to BiggerPockets, runs a company that might be of interest. I have a solo 401k that was set up for me by his firm.

  11. Daniel Alegre on

    Hi Matt and Liz,

    Great show! I just recently joined BP after a year and a half of getting our first “House hack” off the ground. My wife,my son(2.5yrs) and I live in Burlington city NJ and i work in Ewing as a technician. It took us a year to finally get a tenant but now that we do i really have desire to keep moving forward with investing. i would like to target both Burlington city and Ewing. My wife and i would love to sit with you both and perhaps get some direction. I am willing to take you both out to dinner/ lunch, paint, clean or whatever i can do for you in return as im not looking for charity just direction. I I hope to hear from you, my email address is [email protected]

    Thanks so much

  12. Julie Greene

    Great podcast Matt and Liz! I also work with my husband – we are trying to get re-started in RE after selling our double a few years back (that I now wish we hadn’t, but it actually simplified things for us during a time when we needed simplification, so I suppose I should just let that feeling go!). Your advice on knowing your roles, doing things you’re good at and things that you enjoy is definitely beneficial. Also, we started our business plan a month back and became sidetracked, so your podcast has reminded us to get back to starting at the beginning. I have been thinking about wanting to use my IRA for REI as well, so this has inspired me to do some research into what is possible/what isn’t. Thanks again!

  13. Thanks Julie for your note! Glad to hear you also work with your hubby! Glad to hear you are going to get working on your business plan again. Matt and I were just talking today that we need to plan a meeting time/date for 2015 and beyond planning before it gets to close to the holidays!! All the best to you. It is not always easy working and investing with your spouse, but I certainly feel the benefits outweigh the occasional challenges! Good luck to you both!! Thanks again for letting us know the podcast helped you! That is what it is all about!!

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