Brandon: This is the BiggerPockets Podcast Show 294
David: We did, for the first time I had done this, since like what I call the BRRRR strategy but better. So we’ll call it better than BRRRR. Is a –
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Brandon: What’s going on everyone? This is Brandon Turner, today’s host of The BiggerPockets Podcasts. I guess I can stop saying today’s host because I am the host today of The BiggerPockets Podcast. Anyway, here with my partner- in-crime, Mr. David Greene. How are you doing?
David: I’m good. I’m just basking in the shadow of the host of The BiggerPockets Podcasts.
Brandon: Well, you can say, like, today’s host instead of tomorrow. I’m not going to be the host. I’ll probably still be here next week. But, anyway.
David: You are Mr. BiggerPockets. I mean, if you guys ever see Brandon, how tall he is, his pockets are literally like three feet long. He’s like Paul Bunyan in person. When I mean BiggerPockets, I mean Brandon Turner.
Brandon: That’s actually my dream. It’s to become Paul Bunyan. Thanks. I want to be Paul Bunyan when I grow up. That’s exactly it. Better than you and your BiggerPockets yoga pants which we talked about in today’s show.
David: You guys are not going to want to miss that. Trust me.
Brandon: Speaking of today’s show, I know we always say we have a fantastic show. This is the fantastic show. It really is. Today’s we’re talking with actually my property manager on one of my properties: my mobile home park. But he’s also a real estate investor. So we’re not really talking about him managing my properties.
I met him because he’s my property manager. But he’s also a really legit, awesome real estate investor and one of the best people at systems I’ve ever known. In fact, he’s started multiple companies that he doesn’t have to work inside of which is super, super cool, right? He talks about how to find partnerships in business, how to hire the right people. The conversation on hiring is one that could save you decades of stress. I’m not even kidding. If I would’ve had this twelve years ago, I would have saved the last twelve years of a lot of stress.
We talked about how we bought a motel that was less than desirable. That story’s fantastic. And, how we actually walked away with a hundred k in his pockets after doing something he calls the quote “better than BRRRR strategy”.
David: Better than BRRRR.
Brandon: Better than BRRRR. So anyway, Jessie McCue is our guest today. You guys are going to love him but before we get to the interview with him, let’s get today’s quick tip.
David: Today’s quick tip is “Quit worrying about what you’re not getting out of life and start thinking about how you can be the employee or the servant that somebody else needs.” We talk a lot on the show about as business owners we are constantly looking for talented people that are willing to do what it takes and help us grow. When you find that person, you just give them pretty much everything that they want.
Jessie himself was able to endear himself through a person who already had a property management company. He became so valuable that the guy said “Hey, I’m just going to make you the owner of this thing. Come on in.” Then Jessie had a similar situation himself with our friend, Ryan Murdock, who is referred to several times as the ninja – the real estate ninja on this show – because he’s so good at what he does.
Ryan has proven himself to be so good they can’t ignore you. When Ryan shows up, he gets whatever he wants. There is so much opportunity out there for you if you embrace the challenge and say “I’m going to get really good at what I do and I’m going to serve someone else” rather than asking “What’s it in it for me?” right off the bat when you don’t have anything to offer. Change your mindset and you’ll find that success will find you.
Brandon: I love it. I love it. That’s so, so important that if people did not understand what David just said, rewind that. Listen to the last minute again because it’s fantastic.
All right. Let’s move on with this because I want to get to today’s show. Bet you guys are going to learn a ton.
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Brandon: All right, last thing before we get to the interview, I want to invite you to one of the most important webinars that we’ve ever hosted here at BiggerPockets. It’s called How to Evaluate and Offer on Rental Properties? Here’s why it’s important: Because when it comes like- all the skills you can pick up as a real estate investor- whether you’re brand-new or you may be getting started, or you got a few deals, or maybe you’re experienced- I really believe one of the number one most important skills is knowing how to evaluate an offer on deals, right?
If you don’t know how to run the numbers, you don’t know what makes a good deal from a not good deal and if you don’t know how to offer you’re never going to get a deal accepted. I’m actually doing a live webinar this coming week on evaluating, running the numbers, we’re going to do some live analysis and on seven of my most sneaky tricks for getting offers accepted. In fact, one of the tricks- a friend of mine recently used- got their deal accepted on their dream house even though they were outbid.
If you want to know what that is and everything I’ll show this coming week got to biggerpockets.com/webinar to sign up for that one again, biggerpockets.com/webinar How to Evaluate and Offer on Rental Properties.
Now with that, let’s get to today’s show with Jesse McCue. Like I said, Jesse is one of my properties managers that- one of my favorite people in the world in the world in terms of managing properties because he is a rock star at it. We talk a lot about why he is that and how he uses that in all of his businesses. Without further delay, let’s get into this show.
All right Jesse, welcome to the BiggerPockets Podcast. Good to have you here.
Jesse: Thanks. Good to be here, Brandon-and Dave.
Brandon: and Dave. You know, he counts too.
David: Actually, my parents we’re going to name when I was first a baby was “Ann Dave”. Thanks for bringing that up.
Brandon: All right. As I mentioned during the introduction, I met you through Ryan Murdock. Ryan Murdock is my partner- one of my partners out on my mobile home park and you are currently managing my mobile home park and doing a fantastic job so thank you very much. You’re crushing there.
Jesse: Thank you.
Brandon: But I found out that you’re not just a manager- you’re also a real estate investor and that I know nothing about. All I know is that you’re the world’s best manager and so today I’m going to find out the other side of you. Why don’t we just start way back. What did you do before real estate and how did you get into it?
Jesse: Oh. Good question. My first entrance into real estate was through property management. It was through the search like most young people trying to find a career. I had done some random jobs. I had worked for the university that I had gone to school. I had done some assistant basketball coaching. The most serious job – I landed as a manager for a large resort management company and, like most people, had real world introduction of working the 70 hours-a-week for somebody else and started just looking for something else. Somebody I grew up with- not grew up with- somebody I knew from my childhood home. I was living in Florida and I knew somebody who had a property management company and he introduced me an opportunity to come work for him.
That was back in 2009. Once I started working in that trade, I fell in love with real estate and that’s how it began.
Brandon: Nice. Nice. So let’s talk about your first deal. What was your very first real estate investment that you bought for yourself?
Jesse: That was, that was a good one. I didn’t have a lot of money that time. I was younger, working as a property manager and I started getting the itch. I was learning from a lot of my clients, wise real estate investors like you two folks who I was doing all the ground work for. I was learning from them and seeing what they were doing and I just wanted to get into the game and I don’t remember how I got on it but everyday I used to read the public notices in the newspaper. I was looking at all the foreclosures and I used to drive by a lot of them. I’d walk through some of them
One day, the weirdest thing happened: one of them jumped out at me. It was a property we were actually managing. It was a nice three-unit building. I didn’t know – I didn’t have access to all the financials- so I didn’t know that the property was actually in financial distress. Everything looked good on the surface: well-maintained, good tenants. I went to the auction without the ability to actually buy it but I still went to it and scraped together the money just to put down on – I think they needed like 25 hundred dollars down, it was an easy one. Then me and my partner at the time were the successful bidders and I worried about the money after. So, yeah
Brandon: Jump off a cliff and build the parachute on the way down.
David: On the way down, yeah.
Brandon: Build a plane on the way down?
Jesse: Exactly what we did.
David: Let’s fast forward a little bit. Can you tell us where you are now? How many units do you have? What kind of different investments have you accumulated over the years?
Jesse: Yes. It’s funny. This show made me actually look at it. The other day when I was e-mailing you, I was off. I actually tallied them up so now: traditional multi-family, I’m up to 84 units- I think I told you 60. So I just miscounted by 20-something
Brandon: “Just 24 units, whatever. I forgot about that.”
Jesse: I got 24- you know anything, the largest is a 26-unit down to a duplex, so 84 units and then a nice commercial class-A office building where I’m sitting now. This is where our property management headquarters are. This is a class-A office building so other than us, you’ve got law firms, financial institutions – nice building- as well as a 67 room motel. So now I’ve gone from sitting in an auction trying to get a 3-unit to 84 units, a commercial, and a motel.
Brandon: That’s awesome. I want to dig into the motel because I remember you telling me a bit about the motel the last time we hung out. Is that the going to be the deep dive today or is that-
Jesse: Yes. You spoiled the punch line there but yes. That’s probably the most interesting one.
Brandon: All right. I want to get into that later but we’ll come back to that because that is a lot of fun. You started picking up these properties, that first one you said, was that a single-family house- that very first deal?
Jesse: No. It was a three-unit at an auction- a boring auction, nothing exciting at courthouse steps. It was in a law firm’s office. I’ve never done it before. I was really uncomfortable. I just in there and there was only one other bidder and you go back and forth. That was it.
Brandon: Did you remember what you paid for it?
Jesse: Yes, I do. It was a three-unit and again, one of the reasons I was fortunate was I started purchasing when the market was not what it is right now. This was 2012 and I paid 70,000. It was just bizarre because the person across the table from me was talking to me about all the renovations he’d probably have to do. I think he was a flipper because there was no public viewing of the property and I was the only one that knew this is a turnkey, nice operations so there was no renovations to be had.
So we paid 70,000 for an up and running three-unit building. It was a home run. It just takes one home run to get the momentum going, right? So when you have one good one it becomes a lot easier from there.
Brandon: All right. So you got this first property, you decided it’s working out pretty well. When did you – I want to go into more properties – but when did the property management business come in? How many did you have before you started your own property management? And how did that come out?
Jesse: Yes. That started growing. What happened for me was my business partner now who had hired he, he had hired me with an understanding that he was looking to actually get out of property management. He had maybe 150 to 200 units under management at the time. He was a successful commercial broker so he was looking to just focus more on that. He had some of his own properties and I think at the time he just was burned out of property management.
Then when I started working for him, I was you and hungry. We just kept picking up more units. It went fast from maybe 200 to today we have over 15 hundred. So it’s grown quite a bit. That transition from instead of me someday taking it over, I think it re-lit a fire in him and he started enjoying it again and we have fun. To this day, we ended up just becoming 50-50 partners instead and it’s been pretty fun.
Brandon: Nice. So you grafted your way into an existing management company, took it to a whole new level, and then now the guy’s enjoying it as well. He still works in the business or you both work in the business? How does that play out?
Jesse: We both work in the business. I like tease him that he – air quote- “works” in the business. He’s here everyday and we’re both in the property management business till everyday. Honestly the business has grown where we don’t do much day-to-day though. Honestly, we have pretty sweet gig. We love coming to the office. We love being around the people we work with so we’re still here but a lot of the stuff we used to do- taking the call, chasing tenants, renting- we more both just oversee it, run reports, and make sure that everything’s done.
David: I want to ask you how did you recognize “this is someone I could be a good partner with?” What is it about that person you saw and you said “I want to partner with them. I think we’d be a good team”.
Jesse: That’s a great question. I think it was through a series of events when you get into different situations with somebody and you realize they have similar judgement with you. Whether it was looking at a new business opportunity, he had something similar to me where we both don’t sweat the small stuff. If you’re ever going to be in a business partnership, that’s the biggest thing I can preach is neither him or I ever get stressed or in fights about the small stuff. We both just have a big picture on things.
That was it. I just found that we never fought about little things. He had one major quality similar to me where if there’s an opportunity, he wasn’t scared of it. “Yeah, let’s go it.” If there’s some crazy guy with a beard from Washington who wants to look at a mobile home park- and we don’t do tons of mobile home parks. Yes, let’s go look at it, why not? What’s the worst that could happen?
We both just have that mentality. We both go to a lot of business opportunities that don’t turn to anything but it was worth going.
Brandon: I just love that mentality in general. This idea of “say yes to things” or at least like “explore every option” because you never know what’s going to come of it. I told a story a few weeks ago about the whole reason that I have the mobile home park because I said yes to coming out to New York to speak at some event which ended up being a really really horrible- I guess, like, my daughter got sick and it was a really stressful time because the whole trip my daughter was sick.
Anyway, that deal led to me hooking up with Ryan and that led to connecting with you and connecting – getting in that mobile home park and all that stuff, right? Just because I was open to the opportunity. So many people are just “No, I can’t directly see a benefit of doing that one thing therefore I’m not going to do it.” Anyway, I love having that just kind of abundance mentality. I guess – David, do you want to jump in? I cut you off there.
David: Well, yes. Jessie you mentioned that you guys are both kind of hands-off the business right now. It’s sort of running itself. I know you also own a cleaning business as well as a property management business as well as all the units that you own. I’m intrigued by how you set your business up so that you own a business, you don’t have a job and you’re working on the business but you’re not working in the business. Can you share with us a little about how you guys built this thing so that it’s not something that’s requiring all your time and attention yourself to make it profitable?
Jesse: Yes, that’s another good question. I think I – it’s a simple answer that you just have to learn to do everything yourself first. That’s how I look at it. Whether the cleaning business, I never woke up one day and said “Hey I want to have a big cleaning business.” It was an opportunity that presented it from property management. So we’d have clients that if you’re managing the building, you’re still the one getting all the calls. Whether it’s heating, lawn care, snow removal. The first time that I was having trouble with the ninth cleaning company that wouldn’t clean the common areas we’re supposed to. I hired my own person. I said “Screw this. I’m just going to hire my own person.” Then you do a good job and then somebody knows about it and then somebody else asks you “Hey, will you just give us a quote to do it?” You go do it. Then I quickly realized though, “I don’t want to do that forever. Keep running around supervising cleaners.” It’s not the easiest thing. Anybody with a growing business would tell you scaling the business is the biggest challenge. But at some point, you have to be willing to take a financial step backward to take two steps forward and that’s what we’ve done. It’s grown to where we have large cleaning accounts that have onsite supervisors. I’ve got some managers over them and it’s growing to where we have over 50 fulltime employees just in the cleaning.
Jesse: Yes, it got to the point where I ended up looking for a good general manager because we needed that kind of help. Again, that’s a financial step back for me. You’re not going to pay someone minimum wage to run an operation like that. I was surfing around LinkedIn. I headhunted a few people and actually just poached some people that were in the business much longer than me, interviewed some people and found somebody who had been the general manager of a larger cleaning company as well for years. Now, he’s kind of doing that for me now. That’s the challenge.
Brandon: I want to know what have you found successful in terms – I mean you obviously built this cleaning business. Now that it has other people running it, you built a property management business. You have your own real estate deals. What kind of tips you have for people that are on the same wall: I want to start hiring people; I want to find good people to run my business. What’s worked really well for you and what’s worked really bad?
Jesse: I would say I put in abnormal amount of effort into the hiring process. The person who does HR for me now, she tells me I’m insane because that’s all the effort into hiring and then everything else works out. I mean, I’ll interview as many people as it takes for a position. I’ll phone interview. If you want a simple position, it could be a receptionist. I might have to talk to 25 people on the phone. You might have to interview 6 people in person, check all the references. If you’re not excited about hiring, don’t do it. Just start over. I’m pretty insane on the hiring process. It pays off though. If you come to our headquarters here, that’s what probably what I’m most proud of. It’s the people that are here. A lot of them I think are smarter than me. For example, guys like Ryan Murdock used to be an employee here.
Jesse: I was very fortunate for the time he was here because we have talented people like that. Insane amount of effort into hiring.
Brandon: You’re not the first person I’ve heard to say recently to me because that’s a- when I hire people it’s usually like “You have a pulse”. I mean I’ve hired good people but I would say it’s more have been by accident. I’ve rarely hired – a few people hired, and this goes for contractors or actual W2- like I’ve rarely ever hired more than two people ever for one role. It’s like, “You’ll do”. I’ve heard of people say that “It’s higher rated people. Spend an absurd amount of time on that. Really dive in.”
How do you- is it just like an excitement thing? Like “Man I’m excited I’m excited about this person that they fit everything.” Because I think to just go “Yeah, I think they’ll be fine” is what I say to people all the time. “Yeah, I think they’ll be fine” instead of “They’re going to be the best person ever” or is that what it is the “You will not hire less than the person ever”?
Jesse: Yes. I would say “best person ever” unless you just are “this person’s going to be awesome.” That’s what helps because if your organization is going to grow then the people that you have you get really lucky because they grow with you. We have people here that are doing a lot. One of the guys for example that’s become a property manager/leasing agent and has a much more serious role here now. He used to work maintenance for us. I’m talking cleaning out nasty apartments, in the van, maintenance. As we grew and we used to only have one full time leasing person and I saw a need for another one, he was an all-star. So we just brought him on board and he’s been doing great.
Same thing, person who was being our front-end receptionist person. She now runs all of our homeowners associations. We manage quite a bit of large homeowners associations in the area. She’s rock star at that too. Almost everybody on our team has grown with the organization so that makes it pretty fun.
David: You know, this principle of hiring, you hit it right on the head, Jesse. It is extremely laborious and labor-intensive. You have to be so picky. My first year at Keller Williams I was the rookie of the year of my office and I found out that I missed rookie of the year for the entire company worldwide by about the equivalent four to six houses in my area. If I would’ve sold four to six more I would’ve been the top agent in all of Keller Williams and I didn’t because I spent probably have of my time- half of those in productions and half of it was actually looking for help. Hiring an admin, training an admin, I’ve gone through five people in my first year that I hired, gave a try, and they failed.
I learned a ton. The main thing I learned is that “good” is not going to cut it. They have to be stellar. I’m thinking of all of these investors that have a bad experience and then they quit. Say “Yeah, real estate investing wasn’t for me; the agent wasn’t good; the property management company wasn’t what I thought; the rehab guy ripped me off”. You ask them “How did you find them?” and they’re like “Oh, I found them on Yelp. I googled and they were the first company I saw”.
These principles apply to everything. They don’t just apply to building and business. In your investing business, you’ve got to talk to a lot of agents to find the one that knows how to work with investors. You’ve got to talk to a lot of contractors to find the one that understands you’re trying to this as cheaply and as quickly as possible and you’re okay if they have to do this on the weekends or nights or something like that- they don’t answer their phone all the time. It takes work to find those good people but every business- whether it’s real estate investing or something else- is built on the people you put around you.
Jesse: Yes. That’s so true.
Brandon: One of the things that I look back on my life when I look back like when people ask me “What would you do differently?” looking back on my career. That’s 12 years. I’ve flipped a lot of houses and I bought a lot rental properties. What if I would have spent four months solid back 12 years ago finding a rock star contractor- the world’s best contractor and built a really good relationship and paid them really really well- maybe even brought them in house. That would have affected the next 12 years of stress and drama. Now granted, they may not have stayed and I would have had to hired someone again maybe later.
The point being had I done the work upfront instead of just “Oh, I found him on Craigslist. That guy has a pulse. He’ll do”. If I would have just set it up correctly in the beginning- It’s like the whole analogy if I was going to chop down a tree in six hours, I’d spend the first four hours sharpening my axe rightly. Yes, I think hiring anybody – and this applies to everything, right? Contractors, employees- anybody in your life. The work you do upfront will pay out dividends for years and years and years to come.
Jesse: I don’t want to act like I’m a hiring genius because I’ve made my mistakes. It’s funny, you look back. I hire someone and I don’t realize it all the time that they’re not the perfect fit but maybe six months later after your life has become super stressful and you replace the person and you find the right person. It’s like two weeks later, you’re like “Wow this really wasn’t that difficult. I just didn’t have the right person.” It’s hard to recognize it sometimes and I haven’t always done that but it’s when you get the right person in there, you’re life is just so much better- so much different.
Brandon: Do you have any tips for letting people go? I mean like, let’s say you find somebody, you put them on the bus and you find out they’re not the right person to be on your bus. How do you do that?
Jesse: I’ve tried to get better. I don’t know who said it but all the experts say “Fire fast”, right? I’ve tried to get better at that because once you’ve had people with you for a long time, there is no good way to fire them. I mean, you can- it’s not going to be fun. It’s just not but if you get better- I know. Luckily, in our office, on a management level, I haven’t had turn-over but on the entry level positions if you’re going to be custodian or a maintenance person, we’ve gotten a lot better at firing fast.
People have 30 day trials and that’s the time to figure it out. That’s the time to watch them like a hawk and just make a decision. It’s tough but we have to do it. You just tell somebody “This wasn’t a good fit” and move on.
David: You know, for everybody listening to this, I hope that what you’re taking out of it is there are lots of businesses everywhere that need good people. You can become a good employee. You can name your price and you can get whatever you want. I tell my employees all the time that work for me. I want to pay you $100,000 a year. Let me help you become so valuable to me that I pay you that or more.
Jesse: That’s a great point. I would say that’s probably been- that was the thing in my whole entrepreneurial journey was the guy that I was working for – now my business partner- he had so many things going on. He was an entrepreneurial guy. I just saw an opportunity selfishly for myself that I could myself invaluable to this person because he had his hand in so many things. Not many of them were organized well or going as well as they could be. Luckily I was young and I would work – didn’t matter – seven days a week, just do what needs to be done. If he had a fire to put out three hours away on some property the bank wanted him to go take a look at and he couldn’t be there. I would just do it. No complaints.
When you do that for anybody and now I’m in that seat that people that would make themselves invaluable to me- same idea. There’s no limit to what they could do professionally here. There’s so much opportunity if you have that mentality of “I’m just going to do it for them and I’m mean to do it better than they did”. You’ll learn and you’ll have questions that you need to learn but if you’re purpose is “I want to make your life better” not “Hey, I want to be wealthy. You figure out a way to pay me and I just want to show up and be myself. I don’t want to have to learn anything or change anything”. That’s the problem I find with most people that say “David I want to learn from you”.
Brandon and I talk about this all the time. When we say “What can you do?” and they’re like “I don’t know. Tell me what you need”. That’s not what we’re looking for. We’re looking for someone that can come in and say “I’m really good at all these things. Let me do it for you and then improve myself”. If you take that humble attitude of “I’m going to show you how valuable I am” I’m telling you, doors open for you everywhere. That’s how Jesse got in bed with this partner that he’s got and largely that’s how Brandon and I became friends. That’s how the best relationships are formed. You say you want to serve this person and you go in and show it and they say “Crap, I would never want to lose them. I need you now” –right?
“Here take- have all this, have half my business, have half what’s going on” and you create your own opportunity. I love that and I hope people take that to heart seriously that the world is not against you. There’s no conspiracy to keep you down. It’s actually the opposite like there is a huge need for people that give a crap and are going to work really hard to be that great employee. If you can be that person, you can have anything you want.
So, Jesse, after that triplex what was your mindset and what kind of properties were you looking after you bought that first one?
Jesse: After that, I got the itch. That first year- I’m just looking at the list I had right here- I didn’t even realize it. This has been a good exercise for me to write stuff down. I didn’t realize I did three deals that year. That first deal I didn’t have all the money to do it myself. That’s when my same business partner that I’m with in the management business, I went to him for help financing and it was a home run. Of course he wanted in on it. It was a great deal. Since then, I don’t think him or I knew that we were going to start buying properties together but we had fun in that process. It was a home run.
After that, we bought another – It was a two-unit after that. It was actually still the same client so I was on the lookout after that. It was one of my clients that their stuff was going to auction so I bought another duplex after that and then it was great because he had, at the time before this lost some interest and you know multi-family investing for whatever reason he had stopped doing it. A bank that we have a good relationship –on the same year- had called him about a really rough 16-unit building that they were going to foreclose on. The city was close to shutting down the building and they had reached out to us first to see if we would become the ones in receivership of the property. We went and looked at it, and because we had just had fun doing couple of deals together, he said: “What about this? Should we talk to the bank about making an offer on this?” and I was like “Yeah, why not?”. So that was the third deal on that year.
Brandon: That’s awesome. I definitely notice this theme of – and not just with you, though, the lot of investors- is this momentum, right? That first deal is really hard to overcome. You might have spent 20 years thinking about getting into real estate or few years or few months, whatever. Once you get it, it’s like what you said “I got bit by the bug now I’m going to buy my next”. This is why we always push people like- I don’t know “push people” sorry that word”- but encourage people. Just go get that first deal. Get it done. Stop talking about it, thinking about it, wishing you were going to do it and trying to get the perfect absolute home run deal. I mean, you had a home run deal your first deal. But even if it would have been just a base hit deal, it probably would have given you the momentum needed to go the next one.
Jesse: Then after that I became spoiled because the property management business was growing and I was just developing so many relationships that then more deals were coming to me. I started having clients that I had built good relationships with. They were looking to get out-whatever reason- and I was the first call. That’s been a theme. That’s the theme of my investment portfolio is the advantage of being in the business where I’m the first person to hear about stuff. That’s a good tip for anybody. They don’t have to start a property management company but being in the business- whether you’re a contractor, a realtor, a property manager- you know people and you know what’s going on.
Then I had multiple deals that way and what was good about that is buying from some of my clients. These were people that had more experience than me. They actually helped educate me on some of the different types of financing, the different types of owner financing, them taking a second mortgage or whatever it may be and the momentum just kept going from there.
Brandon: Let’s talk about that. What types of financing have you used now over these 80 some units? What are some of the different things you’ve done?
Jesse: After that first year, I had a stretch in a row of some clients that talked to me about purchasing. I said “Yeah, I’d like to buy the building but I don’t know if I could do it” and we did some owner financing. I had one person who want- it was his decision to do 100% owner financing. He just liked the idea then. I guess it helps to have the relationship. We did 100% financing. He was retired and he wanted a steady return on his money. So to him, he just liked the – I think we did 5% at the time- so he just liked the 5% return. To this day, I still pay him on that property and it’s been tempting because I’d actually like- There’s a lot of equity there and the market’s appreciated so I’d like to refi but he doesn’t want me to so I’m not going to. Why? I mean, it was a good deal for both of us.
I did some of that and then as the property management business grew and the cleaning business grew. I was fortunate to be financially strong. I’ve done more. Just put 25% down because properties look a lot more attractive when you have 25% down so I just like making a return.
Brandon: Do you work with the same bank now every time you buy something? Do you shop around trying to find the very best rate? How do you handle that?
Jesse: Good question. Primarily, the same bank. There’s been a second bank that I’ve worked with. Local banks, I’m a big fan of that. Relationship banking so you know your commercial loan officer. Sometimes you might be able to get a quarter point better somewhere else and that’s good for some people. I like working with the same people-they’re usually very competitive. It’s easier to get things done and get things done fast. So, local banks.
Brandon: I totally agree. I generally don’t – some people might criticize this – I don’t even hardly look at interest rate ever when I’m going for a loan. I’m closing in on a triplex today. I have no idea my interest rate- none. I never ask once. I know it’s like sub-five. I know it’s below five. I’m like “It’s fine”. It might make my payment but I would rather work with people I like, like banks I like working with and lenders I like working with than get very rock bottom lowest rate.
David: You know what I find is that the people that are really successful at anything they do tend to have Brandon’s mentality. I never hear the people who are just crushing it that are worrying about really small details like their interest rate, and then you’ll see newbies that are like they’ll talk to 19 different banks to find the one with the absolute lowest rate and they’ll go with some online company that doesn’t have any customer service. I see this as a real estate agent because then something goes wrong, and we’re trying to get the deal to close and the person lives in India and they’re on a different time schedule. They don’t answer their phone.
They don’t care if the deal doesn’t close because you’re one of 400 people. That’s why they’re so cheap is they’re just doing a lot of volume. There’s something to be said for understanding what’s the 20% of actions that give 80% of the results and sweating the interest rates is not one of those things. If Brandon not worrying about the rate gets him another 50 deals over the course of his life, he’s way better off for having that mentality than the person who never took action because they were stuck on those really small details.
I think, you Jesse, running the business that you’re running and the operation the size you are- you probably had to learn the same thing: “Yeah, it will irritate me when little things don’t get done but is it worth letting it slow me down from growing?”
Jesse: Well actually, we paid- it’s funny. We had a loan that was 5.75% and I don’t think we knew it for a year. We casually complained to our loan officer once and he was like “Yeah, it’s a little high. Let me see what I can do.” And then he brought it down for us a little bit.
Brandon: I’m going to totally try that. So on that note, one thing like- when we talk about the interest- another lesson, a huge lesson I learned and maybe you learned this as well or maybe you don’t but I used to look for the lowest insurance as well. I would switch insurance every year or so because they told “Shop around. Every year your rates go up”- which they do but I had like four different insurance companies when things expiring at different times and I wouldn’t renew one. Once I found out that I went like six months without any insurance on a property at all. That kind of stuff I learned that it’s just not worth doing it. I have one agent now. He handles 100% of my stuff and every problem just goes to him.
You can actually go back into my old forum posts like on BiggerPockets from years and years ago. I’m just sitting there railing about how much I hate insurance. I think when we started the podcast five years ago I used to talk about that. Today, Caleb back home, back home insurance Montesano-everything. Like, he just does everything.
Jesse: I’m the same way. Me and my partner both. We have an insurance agent. If I don’t like the price and I know enough now to know what stuff should cost and if I don’t like it, I’ll just shoot him a quick email and maybe he was not on top off it. He’ll go back to shopping around and talking to people and then he’ll get back to me and be like “Yeah, you’re right. They had the deductible too low on this. Too much on this and bla bla bla” and get it down to where it should be. I don’t have time to be on hold with Allstate or whoever for- you just got to go to your agent.
You guys talk about a lot on this show which I am a big proponent of when you guys talk about building a team. Having – I’ve got a good CPA, a good attorney, a good insurance agent. That way, you’re just one quick email away from someone who cares enough to help you.
David: What Brandon and I do is, when we’re faced with these problems, we ask ourselves, “Does this face heavier or does this feel light?” It’s a way of like, if you have a problem that comes up, you’re like “Oh, yes, I can fix that.” And you’re excited about it. That’s the step you should be doing. It doesn’t feel like work. It isn’t draining you.
If you’re like, “Oh my god, I have to do this again” and it’s really a three-minute or thirty-second phone call, that’s just not something you should be doing. We all have things that we enjoy and we have things we don’t. There’s people that do stuff you don’t enjoy. If you’re doing too much of that, you’re going to lose your hunger and your drive and your desire and it’s going to cost you so much money over the long term.
That’s a question Brandon and I will use when we’re talking about something. “How does this make me feel?” If it’s “Do this, feels heavy”, I don’t know why but just picking up my phone to make the call, the phone chose 500 pounds. “Okay, let’s find someone else to do that. We’ll focus on the stuff that we enjoy.”
I have a question for you, Jesse. What’s the worst deal that you’ve ever done?
Jesse: The worst deal. None of them –I’ve been fortunate- none of them were bad. But I do have one that didn’t go according to plan. It was two duplexes side by side and they needed a ton of work. It’s kind of a theme for me. It’s finding these properties that are good deal but you got to do the heavy lifting.
They needed work and the seller agreed to owner finance it because my plan was I was going to save my money. Instead of putting 25% down, I wanted him to carry the notes so that I could save my cash to put it into the building. I had this plan for the four units. I think I calculated like $50,000.00 worth of repairs. One side of one roof, some foundation issue, heating and the units were all occupied but they were really bad but they were paying.
I was like – I remember I had this spreadsheet saved. I can probably find it where. I was going to have to pay something like $8000.00 a year in repairs and maintenance I have budgeted for the next 6 years. Instead everything on my list that I thought would go wrong in those 8 years went wrong in the first six months.
I put almost $50,000.00 into the building out of my own money in the first six months. Looking back on it now, financially it’s good but that first 6 months was a real kick in the stomach. Everything I thought would go- The furnace was old but I thought it was going to give me a couple years. It gave me a couple weeks. The roof that I thought – I didn’t see any major leaks, but it was old – I thought that was going to give me another year. It gave me another day.
All these things went wrong. Two of the tenants moved out right when I bought it. I planned on – I think, “Woah, they’ve been there a long time so hey shouldn’t both move out in the first six months.” But they did. That made me do total rehab. I was just sitting in there shaking my head and questioning my decision. That was the worst one. If you have, that’s the moral to when you buy these money down deals. They can work but you have to have some reserves. You can’t be overleveraged and then when things go wrong, you have no money. Luckily, I had some reserves to get through it. I hated it. But now looking back, if I run the numbers now that I’ve owned that one for four years, it’s all good. But it was a really crappy six months. That’d be the worst one overall.
Brandon: I found the same is true when you buy these fixer uppers. A lot of times I would look at them and think “Well this has got a number of years left. I’ll do that later” but almost every time I just end up having to do it all right away. I don’t know if there’s a “spirit of remodelling” that takes over the property and it’s like “Well, let’s just fix everything then at that point”. With that said, the properties where I go through and just thoroughly fix them up – I mean make them all good at the beginning, you knock out all the rehab at one time. You might go years without a problem. I mean I have properties right now I haven’t even sent a single contractor over there for six, seven years because it was all done right at the beginning. Those are my best properties, typically because it’s not wearing me down.
Another reason we like the BRRR strategy so much and all three of us do a bit of that. Where you fix them up ahead of them, you have reduced maintenance repairs for years.
Brandon: Super cool. Let’s go and talk about – you know it’s not often we have an actual property manager on this show so I want to pick your brain on a few property management topics. Obviously you’re not the one answering phone calls anymore but you still know how the business is run obviously. You know you’re final system’s hope. I hope and my mobile home park depends on that.
Why do you think- what are the things that separate you and your company from all the property management companies that are not- I mean there might be other good ones in your market but there’s a lot of bad ones everywhere. So what makes a good property manager a good property manager?
Jesse: That’s a good question. Honestly, I joke with a lot of our clients that we’re not that awesome but everybody else is terrible and they all agree. I’m teasing a little bit- I think we’re awesome. I wish I knew why there are so many bad ones because there really is. In our area too- sorry for anybody who’s listening in this area but you’re not very good. I don’t know. I would say that one thing we do is we try to treat- we just have a mentality, philosophy that our client- just treat that you would if it’s your own.
Honestly, in the property management business isn’t a huge cow all the time. Not everybody can afford to pay too much for management so maybe for us we’re lucky that both my partner and I like the networking aspect of it and we both like to invest in properties and that’s a big carrot for us being in the property management business but I just don’t think there’s enough people that run it the way they would if it was their properties. That’s just how they analyze each one.
Then I don’t know- for whatever reason if it’s an industry that not enough modern, high-tech, smart entrepreneurs have gotten into because, for example, I know a major thing for us in spring boarding – the number of units we can handle – was adding good property management software. I did a sales presentation to somebody yesterday in our office on the nice big screen TV they would show them on. I was showing them an example of our property management software owner portal and the different reports they could run and the things they could see and they were just fascinated by that. I don’t know if they’d enough –it’s not that complicated but not enough people are doing that.
Brandon: Yes. It’s definitely an industry ripe for disruption, I guess in a lot of ways.
Jesse: Huge. Huge. Yes. I mean it’s so bad. We have a lot of calls of people that have property two hours away from us that want us to do it and I’ll say “no” because I don’t say a way on some on them to do it. They’re like “There’s nobody in my area” and they’re two hours away and they’re still asking for help. There’s a lot of opportunity in the industry.
David: So what do you do if you’re trying to find a good property manager but you don’t know what to look for? What kind of questions do you think someone should ask to figure out if they’re a Jesse or if they’re everyone else?
Jesse: Great question. Besides the obvious “Do you have any references?” its amazing how, just like you said when you’re trying to find a contractor how many people don’t even check references and just do a little bit of due diligence. What type of properties does their reference have? Actually talk to their reference and then ask them some questions about “How do they handle their maintenance?”. How do they handle their financial reporting? I mean, so many of them that I know in this area call themselves property managers but it’s like a guy in a truck with a lawnmower.
That’s not a property manager. I guess I would just go visit their operation. This doesn’t mean that you have to be with some big fancy company but I mean, do you have the internet? That’s step one. Talk to these people. Ask them in particular how they handle all the little details. Just ask them one step at a time. How are renting the unit? How are you showing it? How are you screening tenants? If somebody gives you a security deposit, what are you doing with it? Where are you putting it? You know, just the little logistics of it matter.
Brandon: One thing that really- I’ll tell you what really impressed me when I came into your office. I came out there to look at the mobile home park, right? Then Ryan took me into your office and I love the fact that was a nice office, first of all. It was very welcoming. I thought “Okay, tenants will like this. That’s great”. We walked around. I looked at the property management software in the management and I was like “Okay well they know what they’re doing with management. I can go and see reports. That’s great”. But what really got me was your key room and here’s why: Jesse has this room of the most organized key system I’ve ever seen. It’s really really awesome.
Jesse: The whole room.
Brandon: The whole room. But what I loved about it was it told me you were a systems guy and that’s what impressed me. The problems with property managers, I believe, spend way too much time reading property management books and not enough reading business books. That’s kind of an analogy, right?
Brandon: To be good at business, to own a good bakery, you don’t need to be good a baking- you need to be good at business. To own a good plumbing company, you don’t need to be a good plumber- you need to be good at running a plumbing business.
Jesse: You know what they say: McDonalds hamburgers aren’t good, right? But-
Brandon: But we like the systems. Yes. Exactly and that’s what I look for most in a property manager is what kind of systems do they have. I’ve had some property managers that I thought would be really great- they weren’t, they were horrible because they didn’t have any systems. They didn’t have any- like everything was “fly by the seat of their pants”. Is that a phrase? I just made that up. That’s a phrase, right?
Jesse: Yes it is.
Brandon: Anyway, they just make decisions on the fly. They don’t have a process and there’s one thing that I try to communicate when my wife Heather and I wrote that book, the book on managing rental properties. It was like: Every single piece of your business should be systematized, and processed, and documented so there are no decisions made on the fly. Everything is– anyway. So that’s one thing that impressed me about you. Good job on your systems.
Jesse: Well, thank you. The key room is awesome and anybody who’s been in property management, like any system you’re building, it starts with doing something you hate. It causes you a ton of stress and then just thinking “How can I make sure this never happens again?” For me that was the tenth time I was somewhere with no keys, locked out, with a plastic bag of a 106 keys and I just vowed: “This moment will never happen again”.
Brandon: That’s really how all the best systems are created.
Jesse: That’s how it was.
David: You’re so right about that.
Brandon: Like the David’s thing. It was like “Does that feel heavy?” Every time when I try to do the same thing: plastic baggie full of 50 keys and I’m like “That feels so heavy and so irritating it gets me so angry.” I have not said, in fact I just ended up hiring property managers because I was like “I’m just not going to open doors anymore.” It was how I made it light for me. It was like “I’m never going to open another door again, ever”.
Jesse: The other part with the systems is a big thing that I’ve learned is accountability. You need to know in all these processes how you can track who dropped the ball. That’s just not to get people in trouble- it’s just to learn from it. Why did this mistake happen? Where did it break down? Everybody in your organization should know who is responsible so if something as simple as a key is missing, so should have a system in place so you can track who had the key last. Was it the guy showing the apartments? Was it the maintenance guy? Was it the plumber? Was it the person at our front desk. Accountability is huge for systems.
Brandon: So true. I wrote a blog post a couple of years ago. I’ll see if I can dig it up and put it in the show. I think the title was If You’re Unhappy, Your Systems Are Broke. The basic idea that in any area of your life where something stresses you out and if you had a good system, it wouldn’t stress you out. I mean, obviously that’s not true for “my daughter hates me” kind of thing but like in business area of your life. Something stresses you: your system sucks and the good news is you can fix it.
Jesse: For property management, going back to your question, David about what questions to ask. In this day and age if you have a decent portfolio, I would say the number one question you should ask is what software are they using. Find somebody who has a good software because then you can have any report you want. You can have days vacant, delinquency, anything you need at your fingertips. For me, I know if it was me, if I got to the point where I was travelling around the world like you two big-timers then that’s what I would be doing. What software?
Brandon: Yes. What do you guys use? Rent Manager right?
Jesse: We use Rent Manager.
Brandon: Yes. I’ve used that one now. I’ve used Buildium. I’ve used AppFolio. I think I’m liking Rent Manager probably the best because I like you. I don’t use it personally but I use it the report- the owner portal through you guys, through my other Ohio property. I like the way that’s laid out. They all kind of work.
Jesse: Another tip for anybody starting out small: Rent Manager’s I think the most scalable for cost because you pay per license so you can- if you’re just a one-person show, you can still afford this small monthly payment because you just need one license. It makes it easier to get started that way.
David: I don’t know why rent software is so freaking hard to understand. I cannot be the only person out there in the world who gets his reports from the property manager and it’s like I have to do work to understand what I’m even reading. It is the worst user interface. I open it up and I can maybe find the property address and then it’s got the tenants’ name like seven different times with different debits and credits and I cannot tell if something’s wrong or if that’s what it’s supposed to look. Then you ask your property manager like “Oh yeah, it’s all in the statement. Just pull it up and just read it.” It’s like telling me to go read a… I don’t know what this Latin means.
I can read it but my brain doesn’t comprehend it. Whoever solves that problem first of “This is just normal. You just pull it up and see exactly what you’re looking at” is going to dominate that entire market. It’s so frustrating. I can’t be the only one.
We never really talked about it like that before.
Jesse: That’s why I would- When you ask your property manager what they’re using for software, make sure it’s something that web-based because most of the web-based software like AppFolio. It’s not bad. Rent Managers is my favorite. They update their program each year. At least it’s an improving process. It’s not just one old DOS system that’s never going to change. They come up with upgrades. They’ll email you that there’s been an upgrade.
Brandon: What’s funny about that is that I don’t think I’ve ever mentioned those to anybody but I recently actually in, well, I sort of hired or enlisted for pay Ryan Murdock. So Ryan’s my partner in my mobile home park. But my Ohio property, I have the same problem. Every time I get these reports, and I’m like, I got to spend a half hour trying to understand them. Then, like, it says “Repair” and I’ve noted to repair it. Every week I’ve got to call the property manager and be like “Whoa, what was that for? What unit? What was bad? Didn’t we do that already last month? I have no idea if they’re ripping me off. I don’t really.” So I hire Ryan. I’m like, “Ryan, I just want you to do what you do for the mobile home park. Send me an email every week in plain English. What’s working, what’s not.” He’s like, “Yes. The rental came in. This is what happened, this is what didn’t happen.” I’m like, “It feels light! It feels so good! That’s what I need.”
Jesse: Do your people in Ohio know what’s coming? That hell is coming with them? That Ryan will get to the bottom of it and he is a real estate ninja?
Brandon: Yes, I’m looking forward to that. He’s actually going to be flying out there in a couple of weeks. I actually had him fly out there. He’s going to meet with the property manager and just, I was like, “I just don’t want to deal with that anymore. I’m going to have somebody who likes doing that work. That feels light to Ryan. He’s going to go through – I hope so – he’s going to go through there and do all the stuff that I don’t want to so I can go buy more mobile home parks or more apartment complexes or whatever, right? Do the things that make you feel light. Stop doing that makes you feel heavy. That’s the theme of today’s show.
Moving on. This- We’re not quite done with the show yet. We have a couple more sessions left. The next, I want to move over to the new segment of the show called “ The Deep Dive”.
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It’s time for the Deep Dive. The Deep Dive is a part of the show where we dive deep into one particular deal and we ask you a series of questions to really get in depth on one of your maybe good or one of your bad deals. I don’t know. We won’t find out until we get down to depth, as they say. We need to get more puns by the way for the deep dive. We’ll work on that. So let’s get down to it.
The first question is What is the deal? That’s actually not- I should probably add that to our list here. What is the deal? We’re talking about the motel right?
Jesse: Yes. I think I’ll just choose the motel because it’s the most interesting and bizarre deal I’ve done where people might find it entertaining.
Brandon: All right. The motel. How did you find the motel? Walk us through that.
Jesse: My electrician. He was a mutual electrician. He was doing all the work for the owner of the motel at the time. Does a lot of work for our property management company. Good guy and he put us together. That person was having a lot of issues that he thought I might be some help to so he basically called me for some free advice. I was helping him through it, built a relationship. Basically, there’s a lot of electrical issues that city was not happy with there and code enforcement was coming down on him very hard and he hadn’t really been through that before. I’ve been through that many times so I gave him some counsel on that.
That’s how I met the guy.
Brandon: So was this- tell us about the actual state of the motel before you got it. I mean this is good, nice? I mean this is a Marriott? Or this is, you know, not that.
Jesse: I would say the exact opposite of very nice. Everything I find requires a little bit of work but that’s where the deal’s are, right?
David: So this the hotel that in my previous profession we would’ve been doing a stakeout on to catch illegal activity. Basically.
David: So the property was in a nosedive and you stepped in because your electrician told you about it. That’s awesome. Great job working that relationship. How much did you pay for it?
Jesse: We paid 500,000.
Brandon: How many units was this motel?
Jesse: 67 room motel / extended stay.
Brandon: Maybe this is a good time to ask this question. Motel is a very different business model. Even though they seem like real estate as real estate but it’s not, right? Motels are very different than owning real estate. At least that’s how I always assumed it is. Is that true? What made you want to jump into a motel versus keeping with just rentals?
Jesse: One, the challenge. It was interesting. I saw nothing but upsides. Every time you have an opportunity to make something better than what it is. Why not? Yes. The business model is very different. What appealed to me was my background at the time obviously was property manager. I also, in a previous life, had worked as a manager for a resort management company so I knew enough about that to be dangerous. This place had been running where half the rooms had kitchenettes in it and a separate bedroom so they were more like one bedroom or studio apartments and the previous owner had been running half the rooms as long term by-the-month rentals. That was the cause of his problems because then he was getting into a whole new world.
I guess in the past, it hadn’t been that way. He was doing nightly and weekly rentals. Now when he started doing lots of 30-day rentals, he had lots of code enforcement issues, for the first time ever had to go through eviction processes and did not like it anymore. So, enter me. There you go.
Brandon: Okay cool. Negotiation. How did you negotiate? Did anything fun happen in that process?
Jesse: Yes. So the negotiations it was really hard to put a number on it because the city was literally so close to shutting him down for not complying a lot of the electrical because it needed to upgraded, people’s breakers were tripping all the time, the fire suppression system needed to be upgraded. How do you put a value on something that is in such a bad spot? The city was getting upset. The police were there so much but its got such a nice piece of real estate. It’s on a busy road so when we negotiated, we really just sat in a room together.
Keep in mind, backing up, he didn’t call me to sell it. He called me for some help on different advice on how to deal with some of these multi-unit issues which he’s now running in to. From there, the conversation grew to where he doesn’t like this project anymore and he started looking for other projects and that’s what created the opportunity: He found another motel in another part of the state he wanted to go focus on.
Then he said : “You know, would you be interested in buying?” “Sure, why not?” like you guys said “Say yes. Say yes to things”. You know? Obviously I was sceptical. He was a little bit intimidating but that’s kind of a theme for me. I think is if its intimidating or if you’re not comfortable doing it, you should move forward. That’s a good sign you should move forward and try.
Brandon: Where did the 500 come from? Was that his number he threw out? Your number you threw out? How did you come to that?
Jesse: So, we sat in a room and I just talked about all of my concerns. My business partner was with me and we talked about all of our concerns and we asked- and anytime when you get somebody else to throw out the first number, there really wasn’t a fancy spreadsheet on this at all. We asked him start and he said he would take, you know, the key to this too is that he was looking to make something happen sooner than later. He said if we were able to close relatively soon, he would take 500,000.
Just at that point our gut instinct with the location of it and the upside, we knew it would be a lot of worked involved and a rough road but we knew that if you could scoop this up for 500, you can’t say no.
He threw it out there and we just said “Sure, let’s do it”.
Brandon: So you realize you need $500,000. How did you come up with that? Who funded it?
Jesse: Good question. This is where I learned, again, the power of actually saving some money. I know a lot people on this show are big into creative financing, owner financing, and no-money-down deals and all that. That’s great and I love all that stuff too but if you just keep working hard in whatever you’re doing to still work towards that Dave Ramsey mentality of building some cash and less debt , you can put yourself in positions. That’s what I have done so my partner and I- the only way we could make it close as fast as he wanted was we ended up paying cash for it.
First time I had done something like that. So we put down quite a bit of money. You have to have some savings for something like that.
Brandon: Well you bring up a good point. I don’t want to spend too much on it as well. Let’s bring it up. Yes. Real estate is not- I mean, yes, it’s a way to build wealth and a way to invest wealth. It’s not the greatest way to make income.
I say that like if you don’t like your job or you’re not making much money at your job, yes you should invest in real estate but it doesn’t mean you shouldn’t also build a business as well or get a better job or move laterally over to somewhere else where you can make more.
You need to make good money. It sure helps to make good money. If that means starting a cleaning business, then go start a cleaning business. Build it up. Become the best cleaning business. Make some money. Save some money and go invest in real estate or go flip houses. That’s a business as well.
Whatever you got to do. People are like :”Yeah I make nine dollars an hour and I want to go and retire next year”. That’s going to be really tough.
David: If you want a girlfriend, you can find one with a pizza-stained shirt and food in your beard. It’s possible you can just go really impress someone with your personality and maybe they’ll see through all that but if that’s your goal why would you make it harder on yourself by stinking and wearing nasty clothes. You could also change your shirt and you’ll have a lot more luck.
That’s the way I look at most investing. Like, yeah, you can do it with no money if that’s your only option and you don’t have another shirt but having a good job where you get good money makes it easier to get financing. You’ll feel less stressed and less pressure to hit a homerun on very first deal because you have a little bit of a cushion and then as you grow it starts to open up more doors.
That’s what we see when Brandon and I talk to people. They started off slow and then they built momentum and that led to a cleaning business like we have been talking about Jesse has that and a property management business and that led to having a key room and people like Brandon were like “This is the most amazing thing I’ve ever seen.” It kind of goes from there, right? It’s easier to find a girlfriend with a clean shirt. That’s all I’m going to say.
All right. Jesse, next. What did you do with the property once you closed on it?
Jesse: So, like most real estate people, we do like getting some of our money back so the first thing we did was meet with the local bank and see what we could do to refinance and it’s always fun to refinance after you’ve closed and you own the property. I’ve already bought it-it’s mine. We talked to them about our plans and there was a lot of upgrades we wanted to do. We did, for the first I had done this, I’d like what I’d call the BRRRR strategy but better. We’ll call it better than BRRRR.
The bank was willing to give us a loan based on an appraisal based on- the appraisal would be based on all of the repairs and I call it an “as-completed loan”. So the appraisal goes through and you provide him with quotes from contractors of what you’re going to the property and takes it into consideration with the quotes- I mean to the appraisal so we got an appraisal of- it was a little over a million dollars came back on the appraisal. So, again, the power of cash.
This person that was selling – I don’t want make it sound like this person wasn’t intelligent- he was a savvy entrepreneur. He just had something else he wanted to do. He wanted to cash out and he was good with that. He had owned it for a while. He knew he was giving us a deal. He was fine with that. This was no dummy we were buying from so the appraisal came in at over a million. The first thing we did was, right away, had a list of projects. Put over a 100,000 right back into it and then the property was cash flowing positive.
We were going put more money of that from the- so we back up. In the refinance they gave us 80%. So a million dollar appraisal we get a check for 800,000 on a $500,000 property. Not a bad week.
Brandon: That’s awesome.
Jesse: Not a bad day. Put 100,000 right back into it, though. Did our thing we always do: clean up the property, get rid of the riff-raff get rid of the previous regime so the old manager was gone the old maintenance guy was gone, brought in our own people. Actually – to give him some credit- when we first did this, we didn’t have time to do my insane due diligence of hiring somebody so I brought in the real estate ninja Ryan Murdock to run it for a month. He sat there for a month and unscrewed the place for us while I was hiring. He didn’t want to be there forever so he ran the place while I hired somebody to run it.
From there, the property started cash flowing positive enough that after what we decided to do was – we haven’t really taken much money since then because the cash flow was going into the building. If you do the math: we had 800, we paid 500, put a 100 into it then we each put a 100,000 in our pockets so that was fine. We were happy with that and now we really are just letting the property- any free money is just going right back into projects over there right now.
Brandon: Yes. That’s what we’re doing on the mobile home park as you know as well. All the money that we’re getting cash flow just gets dumped right back in there because we’re going to fix it all back up again and then it’s like that we talked about earlier, right? Get everything running perfectly right away and you will hopefully have years of just unencumbered beautiful cash flow.
Jesse: That’s the dream. Yes.
Brandon: That is the dream. Cool. I love it. All right. The outcome. That was basically the outcome. So let’s go the last one: Lessons Learned. What have you learned throughout this whole process good and bad?
Jesse: Two things. I would say the lesson learned was : Be good to your vendors because all the electrical work that was needed there – you can imagine which electrician we gave the work to once we bought the place. Be good to your vendors because – be somebody that’s good to work for – the people in the trade are connected- if they’re good at their job – they’re connected to a lot of people too. They know what’s going on in the industry too. That was one thing I learned.
I never expected to get a deal from one of my contractors. He didn’t just- the reason he deserves a lot of credit is he kind of vouched for me too. This person didn’t know me but he trusted his electrician. The electrician done a lot of work for him over the years and he said: “Oh this guy Jesse is a good guy. You ought to meet him”. Be good to your vendors.
I guess I touched on it. The other thing I really learned from- I never thought I’d be somebody who would pay cash for property. That goes against a lot of – you know- using other people’s money to get rich stuff that we all like to do but that was a big lesson for me on why I, since then, work hard on saving up more cash too. There may be a deal too good to miss and I’ll be upset if I didn’t have the cash there to do it.
David: This was a great example of “rock stars know rock stars”. The rock star electrician you used vouched for you as a rock star. The guy who owned the property sold it to you at half of what it appraised for and you came out like a bandit because you surrounded yourself with talented people. You took the time in the beginning to vet and train the very best employees and you set yourself up. That’s an awesome story how it’s supposed to work.
Jesse: Yes, absolutely.
Brandon: One more point before I move on to the Fire Round. You mentioned you know, this guy, he’s a smart investor, the guy who sold it to you. He knew what he was doing and I want to bring up. Good deals are not only found from motivated sellers who are losing their house because of a divorce and foreclosure and whatever.
Sometimes the transition from an investor’s one phase of their life into another phase, it’s worth it to them to get rid of a property and jump into another one. That’s what’s fun about real estate and another reason why I encourage people all the time to get together with other investors all the time. At least once or twice a month go to a meet-up. Meet with people. Talk with them. Find out what the older or the more experienced investors are doing. They probably have properties that they’re willing to unload so they can move into the next phase of their life and then it’s your phase. You’re starting where they were.
It doesn’t mean it’s a win-lose. Real estate can definitely be a win-win.
Let’s move on and let’s head on over to the world-famous Fire Round.
It’s time for the Fire Round.
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Brandon: All right. Let’s get to the Fire Round. These questions come direct out of The BiggerPockets forums and we’re going to fire them at you in a fast way here. Number one: This is the big general question you can go on for an hour I’m sure. How do you start a property management company? Let’s say somebody wants to start one. What are the first couple of steps they should be doing when they want to start something.
Jesse: I would say start small and be somebody’s – you don’t have to be their full property manager to the scale that we are but do anything for them whether that’s just doing the renting, whether that’s being the on-call maintenance person. You can strike a deal with anybody and you can start small that way. Find somebody who needs some help. Don’t charge a fortune. Build up a couple references. In fact, I’ll give him a lot of credit, my business partner now, he started doing property management when he was working fulltime as a supervisor for UPS. He was looking to get out of that and become entrepreneurial so he was doing that while being self-employed property manager.
He started small. He had a few people that he was just- as he likes to say, we tease him- one guy in his car with a briefcase. He would run around and any of the calls for the property would come to him. Just start small. Take care of a couple properties. Do it all: be the maintenance guy, be the person who runs departments and who takes the calls.
Brandon: Perfect. All right.
David: Next question: What is the expected turnaround for getting a property ready for a new renter by a property manager? I’m thinking they’re probably asking how much time would it take.
Jesse: Obviously there’s variables on whether it was wrecked or not, how long they’ve lived there or not but I would say that if you’re a good property manager it shouldn’t take you more than a week to turn something. That would be a long time for us to get it, what I call, ready to show. If you’re a property owner and you have nice units, you know that. If you have high rent, nice stuff, we show those things while they’re occupied. We have trucks moving out with another truck moving in.
It’s a little a bit stressful but those years typically take less damage. If you have somebody who’s smoked in the apartment for six years and wrecked the place a little bit, you should still be able to turn something in a week if you’re organized and get people in there.
David: Now, how much does your company charge to oversee that turn?
Jesse: Good question. That would be part of your management fee. The management fees- that’s probably a good question for people listening- what do property managers charge? I would see I’ve seen it on – you’re going to be on the low-end, probably going to be close to 5% on the low-end. That’s going to be somebody who has a bit of a portfolio. Not one house. Then you’re going to be up to 10% on somebody who has a smaller portfolio and that just gives you a rough estimate for people to look at.
That’s not just us. I think other the property management industry. That should be part of your management fees of them managing the turn other than you may have a leasing fee as well if they’re charging for doing the leasing.
Brandon: Makes sense. All right. I like this question. I’ve never thought about this in my life. I don’t know what I would do so I’m going to ask you so you could help know what to do if this ever happens. My property management company is screening new tenants. They sent me one that is otherwise qualified but has a 200 gallon saltwater aquarium weighing approximately 1,750 pounds. The pro, according to the property manager, is that moving this such a beast is a huge pain, they’re probably going to stay forever. The cons are fairly obvious: including crushing most flooring and possibly wrecking the day if it leaks. What do you do? Would you take a tenant with that big of an aquarium?
Jesse: Long answer: No. Put something in your lease that doesn’t allow that. I don’t know why. There are enough good renters out there. That’s my personal answer on that one.
Brandon: I’m thinking “Yeah, I would probably wouldn’t be there”. If couldn’t find a tenant and they were like the only qualified person I find, I’d probably just charge a quadruple security deposit or something, you know like, put down 5 grand, you get that back but that’s what this could wreck.
Jesse: Yes. As you guys know, and you guys do a good job of putting legal stuff on the website for people on each state. There’s going to be state-specific laws about what you’re able to do and charge but if the tenant’s worth it and they’re super qualified, I’m sure that there’s some kind of financial arrangement that you can make to protect yourself against that water damage.
David: I am about to have my first renter. What are some do’s and don’ts that you would recommend?
Jesse: That’s a wide open question.
David: Yes. You’re going to have to be super basic with this one.
Jesse: So super basic. Hopefully you screen them. Hopefully you screen-
David: Well how about this. Let me mix it up a little bit. What are some of the common problems that you see with new landlords not anticipating something that could go wrong with the tenant?
Jesse: Sure. I would say- and most of these come from not screening- and when I say, it’s amazing how many very smart and otherwise in their life, clients we’ve taken over for who had decent properties and did it themselves before they come to us and when you take over, it’s a wreck. You find out that there was just zero screening.
They weren’t having them fill out an application. They weren’t verifying their income. You can ask people to verify. You can ask people to provide documentation of their income so you can make a calculated decision on who you’re renting to. If you don’t do that, the things you’re going to find is you guys talking on the show sometimes, are the professional renters. Beware of the people that know the system and they know how not to pay.
I guess a good tip- A quick one for people would be, I see this one a lot with mom and pop landlords is don’t be flexible on your payment terms. Treat it like a business transaction. It’s not being a bad guy. It’s just saving the situation from spiralling out of control. I see that a lot with mom and pop’s. If the rent’s a thousand, it’s okay to bring me eight hundred at the end of the month and then get me the two hundred seventeen days later and then six hundred dollars three weeks later.
Just don’t do that. Just stick to a system. Be upfront with your renters of how this is going to play out. This is what we do. I mean, it’s a business transaction. We’re very upfront with people on how it’s going to work out for you if you don’t pay.
We’re not the bad guys. We’re not out to get you. But we’re very clear that in our state, you have to wait fifteen days for a late fee. At the fifteenth day, you’re going to have that late fee. Somewhere between the tenth and the twelfth day, you’re going to have a notice delivered to you that says if you don’t pay in seven days, that this can escalate and go to court. And then, if we don’t have the payment by the end of that month, if you’re not caught up, we will send it to court.
Just be upfront with people with what you’re process is going to be to evict if you don’t pay and then stick to it. Don’t make it personal. Stick to it.
Brandon: I think everyone who’s a landlord right now needs to rewind the last three minutes and listen to it again because those are our two biggest rules in the world for managing properties. It’s like, screen tenants, and then be fair – be firm but fair, is what we say. Be firm but fair.
Jesse: Yes, firm but fair and it will benefit you if you end up- if you plan on growing too. I mean, that’s how we have to be as a management business. It’s nothing personal. We have to treat everybody the same. We don’t make exemptions. Everybody’s going to be treated the same and we’ll give everybody the chance to get caught up. But if you don’t do what you agreed to do, then we outrun the steps that will happen to you.
Brandon: Perfect. I love that. I love it. I think I’m actually going to make a blog post about that soon. Like, three- I’ll go all Three Rules For Making Your Management A Thousand Times Easier. And yes, it’s screen tenants, I’ll say manage expectations what you said, right? Let them know ahead of time and then be consistent or firm but fair. Do those three things and you’ll be a hundred times better than every other landlord.
Jesse: That helps you systematize too. That’s how we grow. In the beginning, I was micromanaging that stuff myself. The only way you can grow and pass those tasks on to other people is other people who work for us now know what the eviction process is. When tenants call and complain because they were served this late fee or that, they can just politely tell them “This is the process”. They don’t need to speak with me about that anymore.
Brandon: Exactly. This is the policy. All the time, I love that phrase. “This is what our policy is.” “Oh, okay”. Nobody questions the policy or the fact that I wrote the policy.
Jesse: Yes. They don’t ask that. I hope none of the renters are listening so they don’t call up the office and say “Hey, can I talk to who wrote the policy?” Thanks Brandon.
Brandon: All right. Moving on, we got to close this show on here in a minute but before we do let’s get to the world famous –
Brandon: Question number one: What’s your favorite real estate-related book?
Jesse: Real estate-related book. I’ll go back to something you said earlier where business books or something about business being real estate. I don’t have – I’ve read real estate books but none of them are as valuable to me as just business books that I’ve read. I would encourage people that are interested in getting in to this to read business books as well. I probably have to mention more regular business books which I’m kind of skipping to your next question. I think, right? Is business books.
One that jumps out to me maybe because I read it at a good time in my life. I was in college when I read Warren Buffet’s book The Snowball. That one kind of stuck with me where I had this idea of financial momentum in my head when I was younger so that just helped me kind of live my life in a certain way to live beyond my means, to save, to do some of the things which are important for anybody who’s trying to become successful.
That’s one book that jumps out to me. Another big one, and again these are ones I think because of where I was at my life when I read them. I was just out- I read that in college. I was just out of college when I read Tim Ferriss’ first book Four Hour Work Week.
There’s a lot of cheesy stuff in that one but the big picture of it hit home to me to just – That kind of awakened a little bit of an entrepreneurial spirit in me to look at income differently than how much can I make for an hour working for somebody else. That was a good book for me. I recommend for anybody who’s kind of stuck or looking to grow or learn a little more in their business life.
David: Yeah. He needs to only work four hours a week because his podcast is five hours long so he needs all that time to interview his guests.
Jesse: I can’t disagree with that.
Brandon: All right. Other than listening to five hour-long podcasts, what are some of your other hobbies?
Jesse: Hobbies? So, right now, to be honest, four months ago, we had our third child in three years so- Twins. We had twins first and two years later we had, what I’d call a super pleasant surprise in our life- our third child.
Jesse: Thank you. Yes. So our hands are super full right now. That’s one things that we’re working on right now is how to get back to some of our hobbies. That first three months can be pretty insane as you know. But before that, I really enjoyed playing men’s league basketball with a bunch of other old guys who still think they can play, like me. Getting still some of the competitive side out and exercising. I used to play with some other washed-up basketball players and hardly enough, kind of a funny one, my wife got me into hot yoga.
I was very against it at first but it feels great. I’m the only guy in the class 99% of the time but those are a couple of my hobbies.
Brandon: Not always a bad thing. Number four-
Jesse: It’s funny you say that. The first time we went I said to my wife, I go “Where are all the single guys? This is where they should be.” Tip for the single guys out there: hot yoga.
Brandon: Hey David, aren’t you single?
David: Yes. I don’t see myself going to a yoga class yet.
Brandon: You should totally try it.
Jesse: I mean, I’m terrible, David. I’m terrible. So don’t- you can do it.
David: If get some BiggerPockets yoga pants so like a “B” on one butt cheek and “P” on the other, something like that, maybe I’ll consider it
Brandon: I think we need to do a fundraiser right now. We’re going to do a GoFundMe for BiggerPockets yoga pants for David. All right. My last question of the day: Jesse, what do you think separates successful real estate investors from those who give up, fail, or never get started?
Jesse: I would say, that question, would be the same for what differentiates anybody who is going to be successful in life. I mean, real estate investing is, honestly, not that complicated. To me it’s a mindset. It’s the people who are willing to do something different, to do something they haven’t done before. You guys nailed it. I like what you guys talked about – saying “yes”. People that will go do something outside their comfort zone, that’s something I preach.
A lot of people work hard. I don’t think I’m the hardest worker by any means but one thing that I’m always willing to do is something that I haven’t done before. That’s the best way I would answer that one.
Brandon: Perfect. All right.
David: Tell us where can people find out more about you.
Jesse: Our website is www.maine – like the state – so mainerem.com and then you can find me on BiggerPockets too. Just Jesse McCue, Maine Real Estate Management is the company. It’s kind of a long name but I’m on BiggerPockets. I chat with people on the air. They can hit me up right there, it’s a good spot.
Brandon: Awesome. All right, dude. This was a ton of fun. Thank you so much for being a part of our show today. This is super cool and thanks for doing all the management for me out there in Maine.
Jesse: No problem. Thank you.
Brandon: Keep that going. It’s been good.
All right guys. Thank you so much for joining us today everybody for this episode of the BiggerPockets podcast here with Jesse and, of course, David and me. If you like today’s show, make sure you jump in to the show notes at biggerpockets.com/show294. You can also, of course, go over to iTunes, or Stitcher, or Google Play and leave us ratings and reviews there.
Without further ado, David, you want to take us out?
David: Yes. This is David Greene for Brandon fly-by-the-seat-of-his-pants-Turner signing out.
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