BiggerPockets Podcast 279: How to Find Overlooked Opportunities in a Hot Market with Andrew Cushman

by | BiggerPockets.com

Are you ready to jump into real estate investing, but don’t believe you can find deals in today’s hot market? In this episode, we sit down with multifamily expert Andrew Cushman, who’s actively doing deals in today’s market — and turning big profits. In this show, Andrew explains how he’s finding deals, what metrics he uses to qualify them, where he’s buying today, and what his secret tricks are for finding the “overlooked opportunities” most investors miss — including how he found an amazing deal in the “trash can” for bad deals!

You’ll love hearing how Andrew creates millions of dollars in equity and builds relationships with deal-finders so that they bring him the best deals first. Be sure to download this episode and share it with your friends, so you, too, can master the secrets that the pros are using to snag killer deals!

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Read the Transcript Here

 Brandon: This is the BiggerPockets podcast Show Number 279.

“People work with people that they like to work with so if you want to make it, the most simplest thing is be likeable. And that doesn’t mean you have to turn yourself into Oprah and give away free cars and all this stuff”.

You’re listening to BiggerPockets Radio. Simplifying real estate for investors large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place.

Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online.

Brandon: What is going on, everyone? This is host today, Brandon Turner, here with my lovely co-host, Mr. David “Throw me a Line” Greene. Is that what we said earlier? I don’t know.

David: Throw me a rope.

Brandon: “Throw me a Rope” Greene! Anyway, how are you doing?

David: I’m doing good, man. I’m actually doing really good. My refinance is days away. I’m about to get more money and business is doing really good with my real estate agent business. It’s springtime and this is when everybody wants to buy and sell their houses and we have an incredible podcast, one of the funniest and best ones I think we’ve done in a very long time with a Random Six at the end that I think will have a lot of people laughing.

Brandon: We do. So listen past the music at the end of today’s show. You guys will like it. But before we get there, let’s get to today’s Quick Tip. So today’s Quick Tip is a little negotiation for you. So I’m in a little negotiation on a deal right now, one of the more expensive ones I’ve done and I’m negotiating back and forth, lost the deal a few times, got it back, lost it, got it back. Went back and forth a few times.

But here’s what I’ve learned, I guess, in this process. And I’ve known this but it was being so clear to me. The person who wants it the most always loses. So like, I had to like—I just kept losing in negotiations. I felt stupid all the time until I was like, you know what? I don’t need the deal. Whatever. There’s another one. My wife and I are like, we’re done. Let’s just not do it.

And all of a sudden, this power shifted to us and then like I felt it and all of a sudden, I can kind of get what I want. So anyways, in negotiations, oftentimes he or she who wants it most loses. So try to reposition in your head how bad you really want the deal and make sure you’re not getting too emotionally involved with it. And you know, it’s just a numbers game and you might find that you actually end up getting something. I think I might get it. We’ll see. Anyways.

David: I’ve got my fingers crossed for you.

Brandon: Thanks. So now without further ado, we’re going to jump right into this interview because it is so good, so powerful. It’s all about investing in large deals but even if you don’t care about doing big, multi-family deals like our guest today, Andrew Cushman does, you guys need to listen to this show.

We talk about a lot of things that apply to everybody, no matter if you’re looking for your first deal, second deal, fifth deal or a 500-unit apartment complex, this stuff applies across the board talking about how to deal with finding deals, how to get people to do things for you, how to overcome the struggles of contractors and property managers and all of that and rehabs—we cover everything.

So you guys are going to love this show. Andrew Cushman has been on the show before back in Number 170 and he brought gold back then and he brings even more today so you guys are going to love it. Without further ado, let’s hear from today’s guest, Mr. Andrew Cushman.

Mr. Andrew Cushman, welcome back to the BiggerPockets podcast. It is so good to have you here.

Andrew: It is awesome to be here. I see you upgrade your host to a more handsome guy, trying to boost the YouTube ratings, huh?

Brandon: We are trying to boost the YouTube ratings. Yeah, this is—I don’t even know where to go from there. But David is a handsome fella. I will agree with you there. I won’t tell Josh you said that. But let’s go into your story, what you’ve been doing. Maybe actually before we go into what you’ve been doing the last couple of years, let’s go to who you are for those people who didn’t listen back on Episode—what were you on before?

David: 170.

Brandon: 170. So for those who didn’t listen, what is that—three years ago or two years ago? Who are you? How’d you get into real estate?

Andrew: All right, Andrew Cushman. I used to be a chemical engineer but since I was a little kid, I knew I wanted to be an entrepreneur. I just didn’t know what that meant so I became a chemical engineer so I’d have a decent job in the meantime. Got married and then for about seven years or so, my wife and I tried various businesses that made a little money but didn’t seem like they were going to set us free.

And then we discovered real estate and trying to flip houses so we said this is something we can do. And what we picked was trying to buy pre-foreclosures. So people that were about to lose their house but hadn’t lost it yet. And what that meant is that involves making cold calls to people in financial trouble, which isn’t the best—people aren’t usually happy to pick up the phone and have a stranger be like, hey, let’s talk about your financial difficulties, right? And as a chemical engineer, I wasn’t exactly good on the phone. So it took me 4,576 phone calls to get my first deal.

Brandon: I remember you saying that. That’s crazy.

Andrew: Yeah, that was with the help of a paid coach and my wife coaching me, right? She’d be listening to the calls and she’d be like, when I’d hang up, she’d be like, okay honey, that was good but next time you might want to try to say it this way. So anyway, it took me a while. I wasn’t good at it. It wasn’t a natural skill. But we got our first deal, sold it. I made as much as I did at my job all year and I walked in and said, I’m out of here.

I mean, I was nicer to them than that. I gave them some time. But I mean, I quit my job. She quit two years later. We flipped houses full-time for like four and a half years through the crash, which was a great time to be doing it. And then 2010, we said okay, all of these people have got to live somewhere. They can’t buy a house. The economy is going to rebound. What’s going to benefit from that? Well, we said, apartments. So hired a mentor, went and did our first deal. It was 92 units in Georgia and went full-time multi-families since then. I guess it’s been six years almost. We’ve done just about 1800 units.

Brandon: Wow, all right. So we are going to unpack all that. I want to kind of start from where we ended last time we talked to you. I mean like you were doing some multi-family. You’d bought some stuff. You were having some success but now everyone knows the market is way too competitive today to find deals. So my guess is you’ve been sitting around on a beach just drinking margaritas for the last three years. Is that right?

Andrew: Exactly, that’s pretty much it.

Brandon: Good show, all right, guys. So this was the episode—all right, so what have you been up to since the last talk?

Andrew: I can teach you how to make the perfect margarita.

David: And the mojitos, don’t forget those.

Brandon: So what have you been doing?

Andrew: We’ve been buying more apartments. You know, it’s not easy but everyone’s heard before, if it was easy then everyone would be doing it. In this market—in 2010 or 2011, you could almost kind of go out and buy almost anything and if you held it a few years, you were going to work out okay. Deals were pretty easy. The funding was tough. Now, the funding is easy and deals are tough. So you have to go out and make your own deals and that’s what we’ve been doing.

Brandon: Oh, let’s think on that. What do you mean you have to go out and make your own deals because that’s something both David and I say all the time. But what do you mean by that?

Andrew: What I mean is the odds of you going out an finding an apartment complex that you can buy 30% off of its current market value is exceptionally, exceptionally low. So what you have to do is find something where you can go in and buy it and take advantage of overlook opportunities. What I mean by overlooked opportunities is you know, we bought one a year and a half ago. It was self-managed, from out of state, and the manager just had no—I mean she had good intentions but she had no idea what she was doing. I mean, everything you can do wrong, she was doing wrong.

So we had a huge management opportunity. And then also that property was a C+ property. There’s a small market. There’s only four other properties in the entire market—all four of them were A. So you had a C property with rent here and A properties with rent way up here and nothing in the middle. So that to us showed that there was a huge opportunity to spend some money improving that property and move it up to a B and we would have zero competition. So those are two very clear opportunities to create our own value and you have to look for that now. The market won’t carry you forward from this point.

Brandon: I love that. Can you explain what you mean when you say A, B, C, D neighborhood for those who don’t know?

Andrew: Yeah, A or especially A+ is the built in the last five or ten years. It’s the shiny stuff downtown, high-rises on the water. You’re going to pay $2500-$3000 a month for it. B is more of your working class, solid job, people that maybe could buy a house but just choose not to. It’s got a pool, it’s got a fitness center. It’s a clean property but maybe it’s 20 years old or 30 years old. C, that’s property that maybe were built in the ‘70s or ‘80s or even ‘60s. More lower to moderate income people who probably can’t get a house. They’re renters for life. Not necessarily by choice. And then D is if you go, you better be packing heat.

Brandon: And there is no F, right?

Andrew: Generally not. I mean, we joke about it occasionally but anything below C, just stay away from.

David: All right. So Andrew, I know one of the things I love about you is that you just have so many details and specifics to share with people. Like what you just mentioned, that’s really, really good advice. The fact that these one likely have a fitness center, it makes it easier to kind of organize everything when I look at a property to kind of figure out what I’m looking at basically.

Can you tell us some of the things that you and your team look for specifically when you’re looking for overlooked opportunities that you mentioned? What are some of the red flags that stick out and you go, oh, I want to dig in deeper—that’s a really good sign?

Andrew: Self-managed is a great one. When you go from self-managed—well, I shouldn’t say that because I don’t want to discount—there are some professional operators out there that manage their own properties. So when I say self-managed, I mean someone that maybe owns one property or two and they think they can save money by managing it themselves. That rarely works. And we especially love it when it’s self-managed from far away. That just doesn’t happen. Or it doesn’t work well. So that’s an opportunity.

Another opportunity we look for is deferred maintenance, meaning maybe the property hasn’t been kept up well. It needs to be painted. I love seeing bad landscaping because that is—aesthetics is huge and that’s people’s first impression. I mean, that’s something we can easily fix. You just hire a landscaper and say, here’s $50,000 and do all this. I love seeing bad landscaping.

Basically, think of an opportunity as far as the physical aspect, is something that you can go in with a contractor and proper funds fix it. And increase your rents. If you’re buying a property that has bad plumbing, that’s not really an opportunity because it’s going to cost you a ton of money to fix and your residents aren’t going to pay you more because you put in new plumbing. So that’s the kind of stuff you’re looking for.

Can I add shutters to these windows just to make the place look prettier? Can I put in vinyl flooring instead of just white ECT stuff left over from the ‘70s? That’s the kind of opportunities I’m looking for.

David: You know what I love about that is that what you’re describing is very similar to what single-family investors look for. What we’re basically looking for is like small cosmetic things. When you go driving for dollars, you’re looking for an overgrown yard. You’re looking for moss growing on the roof because that’s a sign that whoever owns it is not paying attention to it, right? And wherever you find neglect, that’s where you find opportunity.

So what you’re describing it, these are what I look for. These are very small signs that are easy to fix but they’re indicative of the fact that the owner is not paying attention and is less likely to be savvy, right? They may sell it for less. They may be motivated to get rid of it. They may not even know what they have and I can go in there and buy this deal and then turn it into a great deal. That’s really, really good.

Listening to this podcast, you should go back and you should write some of these things down because if you find some of these small little signs, it’s going to save you a little time. You’re not going to have to analyze a hundred deals. You find out of your deals, ten that have these signs and those are what you’re looking for first. So I think those are some great overlooked opportunities. That’s a really good thing. Maybe we need to trademark that as the Andrew Cushman Seal of Success.

Andrew: I’m all for trademarks.

Brandon: Can you tell us what kind of neighborhoods you’re looking to buy in? Like when you get a deal that comes your way and you’re analyzing this is an opportunity here. I think that there’s some meat on the bone—how do you know what the demographics are that you’re looking for or what the numbers are you’re looking for in that specific neighborhood?

Andrew: Okay, the short version is, our ideal property is a C+ in a B neighborhood. But I can go over the specifics of exactly what we screen for.

Brandon: Yeah, that’d be awesome.

Andrew: You want me to do that?

Brandon: Yes, please.

Andrew: Okay, cool. So first of all, the first thing I’m looking for when I get a broker who calls me or e-mails me or whatever, we’re looking for something that is a hundred units or better, 1980 or newer, in my geographic area. And I mean, for me, that’s the Southeast United States. For someone else, it might be Texas or whatever. And we don’t want flat roofs. We absolutely will not buy properties with a chiller system. We don’t do mixed-use. We don’t do high-rises.

Brandon: What’s a chiller system?

Andrew: A chiller system, they’re most common in Texas and what that is, is back in the ‘70s, they decided with the technology I guess maybe it was true, but they decided the most efficient way to do air conditioning was to create this giant cooling tower with ammonia system, make cold water and then they pump cold water underground to every unit in the property and then blow air and that’s the air conditioning, which is efficient except you can only have cooling or heating. And if a system goes down and it’s August in Texas and it’s 100 degrees, every single tenant has no air conditioning. I will not buy one of those properties.

And you know, for the mixed-use and high-rise, it’s not that those are bad opportunities or bad deals. It’s that we want to be really good at one thing and that’s garden-style, single or two-story apartment complexes. Listen, I’m not saying those are bad things. I’m just saying when you’re looking at deals, pick your niche, focus on it, and be better than anyone else at that niche. Don’t get distracted by too many opportunities.

Brandon: I love that. I think every single person should hit that rewind 30 seconds and listen to that again a couple of times. Because that applies to everybody, right? Whether you’re just starting your first deal—how many newbies do we know or we meet at a real estate club or whatever and they’re like, so I really want to flip houses and I’m thinking wholesaling might be a good idea, too. And I love rental properties. And I want to buy some multi-families, too. And I’ll get apartments.

It’s like yeah, you can get into all that but like, pick one niche to start with and no matter where you’re at, just say hey, I’m going to do this and I’m going to be the best in my market at that one thing, at that one task. And it doesn’t mean everything else is bad.

Whenever I talk about how I bought a mobile home park last year, people are like, wait, are mobile home parks the best investment? I’m like, no. They’re just one investment that I decided hey, this is what I’m going to be good at. Pick something and go after it. Anyway, I loved that you defined that, garden-style apartments in the Southeast.

Andrew: Yeah, Southeast. You’re absolutely right. I mean that’s something, if I’ve got ten apartments in my inbox in the morning, I can go through and that’s instant, right? 1964, nope. Flat roof, nope. Nope. Nope. So let’s say I’ve got three properties that fit those criteria. Well then it’s like, okay, now what? So we’ve created a procedure that we actually, our office manager does this now and this is something that a new investor could do themselves. They could have a VA do it. They can have an assistant do it. Once you get it set, it’s very repeatable.

So the first thing we do is we want to buy in an area where the median income is $35,000 or greater. And the reason for that is we want our improved rents to be affordable. So generally, we’re buying something where maybe the rent is $600 a month or $700 and by the time we get done with it, the rent is going to be $800, $900, or $1000, right? So if you take $1000 a month rent, take that over 12 months, that’s $12,000 a year, right? Generally speaking, if someone is paying a third of their income to cover rent or less, that’s affordable. So $12,000 times three is $36,000.

So that’s where that $35,000 came from and basically what we’re saying is we want to make sure that at least half of the population will find our new renovated apartments to be very affordable so we will always have a good renter pool. And it’s absolutely critical. The further you go below $35,000, the tougher time you’re going to have getting residents and the residents you do get are generally going to create more headaches. The further down you go, the higher up the headache factor tends to go.

Brandon: That’s great.

David: That is so logical, it’s like beautiful. I mean, it’s just so simple how you look at that. You took all this, I don’t know, what should the median income be? Where should I invest? What should they be making? It’s like, just turn it into numbers. If this is what your rent is and this is how much they should be making, I would imagine if the rent dropped—like how much they’re bringing in. Let’s say it was only $700 a month on $1000, well then the median income could drop but you’re saying then your headache factor is going to go up, right?

And if the rent goes up, well then the median income has to go up and your headache factor is going to drop but it’s going to be harder to find people to rent it, most likely, right? Or the people that live there are only going to be buying maybe A or B properties, but not maybe the C that you’re looking for. It makes so much sense what you’re saying and converting this into like a logical decision-making process that removes the fear out of it.

I mean, Brandon, would you agree that’s usually what holds most people back from getting started with investing, is they’re just afraid they don’t know how to think or how to put these things together?

Brandon: Yeah, definitely. People are like, there’s just so much information out there and this guru said this and this guy said this and this person—yeah. I like the logic.

David: I like Andrew’s sharing not only where their numbers are but where their logic is behind it so that we can kind of apply that to our own deals. And this is something else that I think makes a ton of sense. Because I didn’t mention this but Andrew is probably, in the entire world of investors I know, the smartest, most respected one I know.

I say rock stars know rock stars. Andrew’s one of the rock stars and I’m just like the guy in the back that plays my drums and he’s the guy that wrote the music, basically. He’s so smart and so good with this and I learn so much from him. And he invests primarily in multi-family and I invest primarily in single-family but the principles of what we’re doing are the same regardless because it’s all real estate.

So he’s taken information that he and I share back and forth about what we’re doing and then we just learn to apply it to the niche that we’re in. It’s all the same principles and logic but it has a different application and that is why it’s so important that you learn your niche and you study it and you get good at it. It doesn’t mean that listening to the guy that does—like, Brandon buying a mobile home park.

The same principles that work in that will work in multi-family use and applying it in a different way. That’s what makes real estate so cool. The three of us invest in different kinds of properties can all benefit from talking to each other. And I could probably go on and on about that forever but—

Tell us a little bit more, Andrew, about in the recent right now, in the last year or two, the kind of deals you’ve been looking for. Where you’re finding them, what you’re focusing on. What’s kind of like your blueprint for how you’re running your business right now?

Andrew: Yeah. What we’re doing now is—do you want me to finish going through the screening criteria first? You want me to kind of jump over to that?

Brandon: Yeah, I’d like to.

Andrew: Okay, it can be pretty quick. And just also, for the median income, where we’re getting that is City-Data.com and RichBlocksPoorBlocks.com. The other thing we look—yeah, it’s $50 but it’s good. We like to compare the two and make sure because sometimes the data is skewed. Also, we want to make sure, and David, this actually is getting into your question—this is how we’re figuring out where we’re going and what we’re doing. We want the poverty level to be—we want less than 15% of the population to be under the poverty level.

We want to make sure we are not buying in the flood zone. We just go to the FEMA website, pull up the flood zone maps, find our property and make sure we’re not in a flood zone. We also want to check and make sure that we’re in the low crime area. So the easiest way to do that, go to Google Maps, grab the little yellow man, drag him and drop him into the neighborhood, see if he gets robbed, right? If he doesn’t get robbed, you’re good. No.

We just go to Trulia and they have heat maps. It was red and orange and now they changed it to blue and I don’t know how that makes sense but maybe dark blue is high crime. Maybe that means there’s more cops there, I don’t know. So if it’s anything less than low crime, we’re just not going to do it. And again, this is a screening procedure. If you’re buying property, you don’t rely on Trulia. You go visit the police department and you talk to them. This is a screening. So I should make that clear.

Now, David, back to your other question about opportunities, if we pull up a property on Trulia and just the property itself is dark blue and everything around it is green, that’s an opportunity. Because you can bring a property up to the neighborhood, but you can’t bring a neighborhood up, right? So that means if we fix the property, then there’s an opportunity there.

The other thing we look for, and this is important, it’s from USA.com and there’s tons of other sites, too. But we look at the population growth. If you’ve got negative population growth, stay the heck away. Generally, we want to see the population growth that exceeds the national average. So over the last ten years, the national average was like 9.7%. If that town that we’re in is growing faster than that, that’s generally a good sign.

So most of the towns we’re investing in is growing at 25 to, in some cases 100% of the population growth in a 10-year period and so if we have a property that checks off all of those boxes, now I know we’ve got a good market. We’ve got a property with opportunity and we’re going to go and analyze that deal.

Brandon: So Andrew, at this point, how much of the work you’re talking about are you doing? Because all of this screening stuff, technically an assistant could do a checkoff. Are you doing this or do you have somebody that’s doing this for you?

Andrew: No, our office manager does 100% of that.

Brandon: Nice. And that’s just like, otherwise, you just get bogged down in some of this stuff. That’s something that can apply to real estate, people doing smaller deals as well. Like I don’t look at every deal that comes into my market. I don’t have to even filter through them because for example, when my agent knows to not send me stuff that doesn’t match my criteria—he only sends me, for example, multi-family properties in this area because I’m only buying multi-families in this area.

So like, set up systems in your life where you don’t get bogged down with data. That would just be advice to everybody. Find ways to like either get other people or automation or tools or whatever to quickly filter through those things so you don’t have to spend all your time just filtering. You should be sitting there looking, okay this one meets all the basic criteria. Now, I’m going to dive in deeper. Do you agree?

Andrew: Oh, absolutely. In fact, I have a draft e-mail set up with my criteria so that anytime I talk to a new broker, I can copy and paste that and say yeah, here’s my criteria. And usually, that comes up. They’re like, what are you looking for? Oh, I’ll talk about it with them on the phone and say hey, I’ll send you an e-mail so you’ll have it in your system, exactly what we’re looking for. It saves them time. It saves me time.

Brandon: Love it.

David: I think that the most important thing that anyone can take out of this is that it is not your agent or your broker’s job to know your criteria and send you stuff that will work. It is your job to communicate to them what you’re looking for and why, and train them how they can help you. The people that are successful, they do a good job of this.

Like I know Andrew is very, very good at communicating with rock star agents and brokers and explaining—and we’re going to talk about more like how he does this and what he’s done to build up his reputation but part of it, this is what I want, this is why I want it. This is what to bring me. If you bring it to me and it makes sense, I will buy it.

So everyone knows that they’re incentivized to work with Andrew. He doesn’t get upset and say, oh this is crap. Why’d you send me this? It’s the wrong color on the heat map, right? Get out of my life, you swine. You’re not worthy of me. But I see so many newbies do it the other way, right? They go to the agents and they’re like, yeah, there’s no good deals. They’re not sending me good deals. They’re sending me stuff that’s blah blah blah. But they didn’t communicate what a good deal means to them.

All of us have different criteria. There are some people that want something turnkey. They want it to be great and just be 1% properties. As long as it cash flows a little bit, they’re happy. There’s other people like me who want a lot more meat on the bone and we’re a lot pickier about the stuff we get into but we know how to make it into a deal when it doesn’t look like a deal. You’ve got to learn what your criteria are and communicate that to other people effectively and then screen the people you’re working with to make sure that’s someone who’s qualified to give it to you.

Andrew’s done this for so long that he’s got this like—you guys watch Game of Thrones. You know how they talk about the little birdies, the little network of spies that are out there that bring all the information back, right? He’s got like those people everywhere that are out there looking for deals for him, finding the ones that meet his criteria and bringing them there. So he’s not spending eight hours a day filtering through crud that is never going to work and burning himself out and that’s just one of the reasons I love to talk to Andrew.

Because he can spit out little tricks like this all day long. I’m looking for this, I’m looking for this, I’m looking for that. He knows just what he’s looking for because he values his time and he doesn’t waste it on the wrong stuff. I mean, I just think this is awesome.

Can you give us a story of one of your most recent deals like how it came across your path, what the process was like as you analyzed it, why you liked it, why you bought it and then what you did with it?

Andrew: Yeah, you know what? We talked about Whiskey Creek, the one that was like 18 months ago—did I give specifics on that? I think we talked about that earlier?

Brandon: No, I don’t think so.

Andrew: Okay, perfect. So we bought this deal 18 months ago. It’s outside of Augusta, Georgia. 96-unit property. It was built in late ‘80s, early ‘90s, which is that’s the ideal timeframe for what we’re looking for. It was self-managed by somebody from the Midwest. This thing was out in Georgia. The manager was just kind of out there flying by the seat of her pants, taking cash payments. Every time something needed to be fixed, she’ll just go get what’s on sale at Home Depot or Craigslist. So nothing matched anywhere. And because of that, the rent was pretty low. It was full. It was stable. But the rents were nowhere near where they could be. They hadn’t been putting money back into it.

Brandon: How many units was this?

Andrew: 96. And it’s funny, we talk about relationships and everything—it’s funny we used this as an example. This one was actually different. You’re not going to guess where I found this deal. The trash bin.

Brandon: The what?

Andrew: The trash bin of multi-family. It was on LoopNet. But here’s why. And this is why, especially in this market, you have to be a preschooler and you’re on your toes all the time, right? So you’re looking everywhere you can. So what happened is the owner didn’t trust brokers so he listed it for sale for owner on LoopNet.

So those criteria that we went over earlier? I have that set up on LoopNet so if something hits LoopNet, it sends it to me. Number one, I’ll see it. The real reason is because I was like, typically it was going to be that broker was listing something I like so I’m going to talk to that broker if I don’t know him. That’s the real reason I use LoopNet. But I saw this thing was listed by owner and I’m like holy cow.

So I called the guy. We built up a good rapport. Within from the time I first called him to being under contract was five days. So we bought it for $4.05 million and it was 96 units. We put—this was 18 months ago. We put $950,000 into and based on the current net operating income today, 18 months later, we’re about to do a refinance. We are expecting it to appraise for $8 million.

David: That sounds incredible. Can you go over a little bit about what you mean by net operating income and some of the metrics you’re using to know this was a good deal?

Andrew: Net operating income takes your actual revenue and subtracts your operating expenses and operating expenses is just what it sounds like. It’s just the cost to incur paying the manager, paying the water bill, evicting people, just the day-to-day operating expenses of a property. It does not include putting on a new roof. That’s a capital expense. So when we’re looking at a property like this one and when we bought it, we said okay, the net operating income is down here or I think it was like I don’t know, $20,000 or something like that.

And we said okay, if we put this much money into it, we can bring in professional management and then raise the rent and keep expenses about the same, all that rent increase, increases the net operating income. Because there’s two ways to improve net operating income—increase your revenue and decrease your expenses, right? And so in the last 18 months, on average across all floor plans, we’ve increased the rent 41%. So our top line revenue went up 41%. Our expense stayed about the same.

So now our net operating income is more than double what it was when we bought it. The market has stayed the same because apartments are valued based on the net operating income and we doubled the net operating income, all of a sudden, our property is now worth double. And we did put in $1 million dollars into it so the physical asset’s nicer and all that. But that’s how we do that and that’s how anyone can do that and not bank on the market carrying you. You can buy in the hot market and still do really well if you find a way to create your own value.

David: So one of the things that I always tell people is you need to understand how properties are valued because single-family properties are valued differently than multi-family properties. When you buy a single-family property, the banks are assuming that you’re buying in it to live in. Even if it’s up to four units, they just assume you’re buying it to live in. So how do they know how much it’s worth? Well, depending on what other people would pay for the same property so they use comparable properties to determine the value.

Multi-family property, they’re assuming you’re buying this as a business and so they value it like it’s a business. The NOI is like, what’s my cash flow? What’s my profit before I put a mortgage into it? Because we know, and Andrew understands they look at it differently, he knows the way he adds value to his property is not just to rehab it for the sake of rehabbing it to make it look like all the other multi-family properties around. It’s to increase the NOI or increase the profitability of it because that’s how they value it.

So when I’m buying single-family homes, what I end up doing is looking for houses that are trash that I can buy and fix it up and make it look like the nice house down the street because then it’s worth more. Andrew is doing the same thing but not from a cosmetic perspective. He’s doing it from a business perspective. How can I go in there to improve the profitability of this so that it will be worth more?

But see, when Andrew does it right, it’s like millions of dollars in equity. When I do it right, it’s maybe tens of thousands of dollars when I do a good deal. That’s what’s so cool about multi-family. I just love how you break it down and it’s very, very simple. Like, it sounds to me that one of the ways that you saw this as an overlooked opportunity is because you saw that the NOI is abnormally low. Is that right?

Andrew: Yes, that and the key thing that we saw—there’s two key things. Well, okay, three. Number one, when we looked into this town, we saw seriously, 100% population growth in ten years, right? And then eventually when we looked into what was driving that and we realized it was going to continue, we were like, wow this is a good place to be. There’s a moratorium on new construction so there’s not going to be any more competition and there’s only four other A properties.

So what we do is when we’re evaluating the potential to increase revenue, generally, the best way to do that is to increase rent, right? So what we do is we create a scatter chart of rent, of our property and all the other properties and all that is, is we get all the data from each property in that area, we put it in Excel and each little dot represents the square footage of the floor plan and the rent that that property is charging.

And then we look at where our property sits and we tell Excel to draw a median. So it’s a trend line. And then what we do is we say, okay, our property is so far below that trend line, if we can just get it up to the median, that’s a $200 a month increase. Holy cow, there’s a ton of upside to this. That’s the primary way that we analyze how much potential there is in increased rent, and therefore, your increased net operating income.

Brandon: Yeah, that’s awesome. And if people want to know, there’s a book I read a long time ago. I’m sure you probably read it, Andrew—I don’t know if you have, David—it’s The ABCs of Real Estate Investing by Ken McElroy. This like whole concept made a lot of sense when I read that book. It’s really like, if this is blowing your mind and you’re like, I don’t get it. What is NOI and you’re still confusing about all this that he’s saying, go pick up that book and read it in an afternoon.

In fact, that was the book that I read on a Saturday and then on Sunday, I told some couple I wanted to buy apartment complexes and they were like, oh, we have one we want to sell. Like that’s the book that was like the perfect—anyway, if you’re at all confused about how this whole thing, evaluation, NOI, increasing this, decreasing that works, it’s a fantastic book I recommend checking out. We actually had Ken McElroy on the show back years ago now, but if you want to find that, just go to BiggerPockets and in the search bar, just type in Ken McElroy and you’ll find that.

Yeah, super cool. So I love that deal. I love that you didn’t pay absurd too much or you didn’t like rob the guy of the deal when you bought it. You just bought a good deal. You just bought a solid property for what it was worth. You made it better because you found something undervalued, like improvable, and then you made it worth more. And just rinse and repeat. That’s like what you’ve been doing all ever since.

Andrew: Yeah, that’s basically been our business model the whole time.

Brandon: Yeah, I love that. Maybe, can you walk us through some of the struggles that you go through in trying to build these apartment complexes? What are you struggling with?

Andrew: You mean in terms of what we currently are struggling with now or just as far as maybe a new investor or mistakes?

Brandon: I would say you personally for the past three years, or two years since we last talked to you. What have you had a problem with? Oftentimes, the reason why I ask this is because a lot of times on the show, we hear like everything’s so awesome for investors all the time but I kind of want to like, is everything always awesome or do you get stressed out about anything? Is there anything that you’ve learned that you were like, that’s a lesson. I guess now I know that.

Andrew: Just listen to the theme song from The Lego Movie. Everything is awesome. Always, all the time. No, we can do a whole podcast on challenges and problems. We’ve already talked about how hard it is to find deals. That’s the number one challenge right now. Another big challenge is good contractors. It’s not—we tend to rag on contractors a lot. It’s not that they’re bad people. It’s just number one, there’s not a lot of them left. After the recession, a lot of those guys went to different industries.

And so they have more work than they can do and they’re pulled in all these different directions. Some of them are trying to do jobs that they may not be qualified. So getting good contractors has always been a challenge. It’s particularly tough now and especially in markets like Houston where you’ve got an additional demand from recovering from Harvey and things like that. So contractors, that’s definitely a challenge.

Getting good staff at the property level. Finding good property managers and good maintenance guys, also very difficult. In fact, the average amount of money that we budget for wages is up significantly in the last couple of years so that we can attract good staff because the wrong staff, it doesn’t matter how good your deal is, if you bring the wrong people in to run it, forget it. It’s just not going to happen. So I mean, that’s absolutely critical.

And then you know, financing. Generally speaking, debt is pretty easy to get right now but you still have to make sure you choose the right lender for your deal and what you’re trying to do because otherwise, they can pull out at the last minute basically with no recourse to them and you’re sitting there holding the bag. No matter what the market is, you really got to make sure you pick the right lender and you’re working with them and communicating with them. They can definitely give you some challenges.

Brandon: You know what’s so fascinating about this, Andrew, is that like the same struggles that you’re going through, trying to buy 100 or 200-unit properties is the same struggle that I’m going through and David’s going through trying to buy, and the newbie who is trying to get their first deal is struggling with. Like, finding good people, finding good contractors, finding good deals, it’s all—and then finding the right lender. Those things are across the board.

And so anyway, I think that’s important. I think you made a really good point as well where you mentioned, you can buy an amazing deal. You can get a fantastic investment property. You can do all the right work setting it up. You do all the work—you stumbled across this fantastic opportunity and then you put the wrong person in charge of managing it, it was all for nothing. You can completely destroy and investment with the wrong people running it. And so I would encourage everyone like, don’t just look at the front side.

I mean, that’s why my wife wrote an entire book on property management because it’s so important. Whether you’re going to do it yourself or whether you’re going to hire someone, it has to be done and it has to be done well. Can I ask how you’re finding—when you go to a market, how are you finding contractors at this large scale?

Are you just opening up the Yellow Pages online or whatever? I don’t know if they have Yellow Pages but you know, is that how you’re finding these property managers and contractors? How are you finding these people and how can our listeners also find people on maybe smaller deals?

Andrew: Our primary method is referral-based. So if I was a newbie going into a new market, I would do the exact same thing that I do today after being in the market for six years and that is, I’m buying an apartment complex or I’m buying a five-unit or a 200-unit. It doesn’t matter. And I’m going to talk to the broker that’s selling me the deal.

I’m going to talk to the property management company that’s going to manage it, or is managing it. And I’m actually going to talk to the lender, too. I’m going to take those three and I’m going to say hey, I want to do this, this, and this, on this property—who are the top two or three people that you would recommend to do that job? And get that list from each one of those three people and ideally, the same name is going to pop up multiple times.

Brandon: Oh, I love that.

Andrew: Yeah, and then what I’m going to do is I’m going to weed that list down to two or three, I’m going to have them come out and bid the work, and then choose from there. Even then, it’s not always going to work out perfect but that’s going to put the odds in your favor.

David: You know, something I was thinking about when you were talking about finding a good manager and how important it is, it’s kind of like putting all the work in to do the deal and find the deal and get the deal and then getting sloppy in the end. It’s like, these parents who put tons of effort and time into their kids. They feed them organic applesauce and they put the headphones on the mom’s stomach when she’s pregnant and have them listen to Beethoven and they get into like the best school.

And they do all this work and then like they hire a horrible nanny who has them watching MTV and stuff and not reading any books. Just these horrible habits that they then develop after you put in all that work. Your property manager is your nanny. That’s who’s watching your property and making sure that it runs well.

You do all this work and now you’re passing the baton off to someone else and now you want to make sure that that person who takes the baton is going to do a really good job with your baby, just like how you would. And that’s kind of the way that I like my property managers, you know. And I think that that’s a really good point that you’re making.

Can you tell us, Andrew, you’ve got this amazing system. You’ve got this mind that finds deals. I always tell Andrew, to me, he’s like the Navy Seal sniper of real estate. He just hones in on a good deal and boom, one shot, one kill and he brings it down. Tell us how you’re funding these deals. Like even the best snipers know that they don’t have ammunition. So tell us, how are you loading up so that you can go after these deals?

Andrew: Funding is a combination of typically agency debt. I mean, agency means Fannie Mae, Freddie Mac. We try to stay away from CMBS because let me tell you, BS is in the name for a reason. They’re the worst of the worst. It’s the worst loan process you’ll ever go through in your life. So we stick with Fannie Mae, Freddie Mac, or sometimes local or regional banks, especially if you’re a newbie and you can form a good relationship with them, local and regional banks can give you some great loans.

Odds are, it’s going to be a recourse which means you’re personally guaranteeing it. But I had to do that to get started and I was okay with it. Now, I don’t have recourse but in the beginning I did. It was just part of starting a business. So funding is typically, we’re doing light to moderate renovations so we’re usually getting some kind of renovation loans. The lender is going to give us 75% of the purchase price plus 75% of the renovation. And then the remaining 25% comes—we’re syndicating it and we’re pooling investors together.

We’ll write up a Proforma and put together a package and we’ll send that to our investor list and say here’s the deal, here’s the Proforma. Here’s the business plan. Here’s all the analysis that we just, you know, we just talked about a minute ago. And if you’re interested, let us know and we can discuss further. And the equity comes from investors. Some of it comes from us as the sponsors. And then we close and get the deal and get to work.

David: Okay, that makes a lot of sense. I can tell everybody I personally have invested with Andrew on three of his different deals and every single time he underpromises and overdelivers. That’s one of the reasons that I like working with Andrew so much. He’s someone that’s going to tell you, hey, this is probably what we’re going to do and then he goes out and way, way beats the expectations that he set for himself. Really, really good at what he does.

Can you share with us really quickly a couple of pieces of advice for how we can develop relationships with these lenders and give us deals like this or these brokers that have the deals and we want them bringing them to us first? I know that that’s one of your super powers is you’re just really, really good at finding people who are going to bring you the deal first. Can you give us some advice for people starting off, how they can do the same?

Andrew: You know, one of the things is there are other factors but if you really want to boil it down, people work with people that they like to work with. So if you want to make it, the most simplest thing is be likeable. And that doesn’t mean you have to turn yourself into Oprah and give away free cars and all this stuff.

Brandon: You get a free car!

Andrew: That probably would make you pretty popular with the brokers if you sent them a Tesla every time you get a deal, but that’s a little beyond my budget. I don’t know about you guys. So just think about what—the people that you like to work with, why is that? Well, they smile when they talk to you. When you’re talking, they actively listen.

They do things like if they say they’re going to call you back on Tuesday with a yes or no, they call you back on Tuesday with a yes or no. They don’t just disappear on Friday and like say oh yeah, I forgot about that. They are professional in all regards. They are trustworthy with small things and then that builds trust and shows that they’re trustworthy with the big things.

And so that gets back to if a broker sends you a deal and in the beginning, they’re just going to send you whatever because they’re trying to see if you’re real or not. So they send you a deal and what that means is you analyze it quickly and immediately call them back. My goal is within 24 hours. My goal is to respond to everybody within 24 hours. My goal is to call them back and say thanks for sending this, here’s why it’s not a good fit because this, this, this and this.

Who else maybe are you talking to that could be a good fit? Show that you’re responsive, you’re reliable, that you have logical reasons for the answers that you’re giving. And then of course also some of the stuff that you hear in various places, you ask about the kids and form relationships and that’s all true but most people, especially these days, are really, really busy. And in small talk, just for the sake of small talk, people can generally tell that that’s what’s going on.

So the key is to just be friendly, intelligent, meaning you know the language that you’re trying to talk and responsive if you say you’re going to do something, do it. If you said you’re going to call on Tuesday, and for some reason you absolutely can’t, you text them and say hey sorry, I wasn’t able to do that. I’ll get back to you on Wednesday. At least they know. They heard from you.

Those little things, being personable. And also just being authentic. Just be yourself. Everyone else is taken so that’s all you really can do anyways. And again, just think about, the people that I like, what traits do they have and do that yourself.

David: Is that going to be the name of your first book, Everyone Else is Taken So Just Be Yourself?

Andrew: Hang on, let me write that down. Actually, I’m pretty sure somebody else said something like that.

David: It was Dr. Seuss, probably.

Andrew: Yeah. I read a lot of Dr. Seuss these days with a four-year-old.

Brandon: I was going to say Abe Lincoln because everything can be attributed to Abe Lincoln. I’m assuming that he said that, clearly.

David: So let me ask you a couple of questions, Andrew, how many units do you have under management now?

Andrew: About 1200 because we sold 600 units.

David: Okay, so you’ve accumulated a total of 1800 over your career. You’re extremely successful at everything you do. Obviously everyone that listens to you can tell you’re the real deal. You’re not BSing us here. Tell me in your opinion, was it more important that you learned the numbers and the analysis and the tactical side of real estate, or was your ability to build relationships more instrumental to your success so far?

Andrew: I’m going to say the relationships by a hair because as the head of my business or the head of your business, you are the rainmaker, and without the relationships, it’s not going to happen. And the reason I hesitate to say it is because good analysis is absolutely critical. You won’t survive without that. However, good analysis can be outsourced.

You can hire a really good analyst to help you do that part. But you can have 18 fantastic analysts working for you but if you can’t develop relationships to get the deal and to have the pipelines of deals coming in, and to get good contractors and get good managers and to inspire your property managers to work well, then it just doesn’t matter. So I would say the relationships are probably more key. 

David: That’s what I thought you were going to say. And the reason I asked you is that you are the best analyzer of deals that I know, bar none. I think I’m good and then you show up and I’m like oh my gosh, I feel like this puny guy at the gym standing next to Arnold Schwarzenegger and his friend. And even you are admitting that the relationships are more important. In my opinion, analysis matters because you need to know it’s a good deal and you need to recognize it’s a good deal.

But there’s people that can tell you that. Just like what you said. There’s people you can pay to analyze deals that will tell you, or just friends you could have, which coincidentally you can build with relationships. But it’s more for your own confidence and your own self—the ease of okay, I know this is a good deal. I’ve analyzed it. It doesn’t actually build your wealth. Finding the deal is what’s going to build your wealth. Building the relationships with people that will bring you the deals and build your wealth. The analyzing’s only important so you know should I move forward or not?

And like you said, you can outsource that. if you really want to be wealthy, if you want to be successful, you’ve got to learn how to build your relationships with people. It’s so much more important than just becoming good at understanding real estate. I’ve had some people come to my classes or seminars I’m teaching or real estate Meetups and they know more about real estate than I do. I’m amazed when I listen to some of them talk.

They read every single book. They know everything that there is to know and they’re worth like negative money. They’re in debt because they don’t know how to do anything with that information that they have. Finding the people that can kind of get you started is so much more important and I just want to point that out because you’re the guy who knows everything about real estate and you’re still saying that they’re building the relationships have been more important for you.

I just think it’s really important for people to understand that, is that being likeable will actually make you money, as crazy as that sounds. Like when a broker finds a deal and his first thought is Andrew’s going to love this. I cannot wait to call him. You cannot buy that reaction from someone. That’s so important to get.

Is there anything else you can share, Andrew, with our listeners of things that you think a newbie should start working on now, to put themselves in a position where they can be more successful in their future?

Andrew: Yeah, some of the things we just talked about but then don’t wait until you have all the pieces together. You have to start taking steps. David Osborne, both you know and I think you’ve had on the podcast, one of the statements he says that I really like is “Don’t wait to buy real estate, buy real estate and wait”. So one of the first things you can do is, number one, decide what you are going to buy. Are you looking for a 10-unit or are you looking for 100-unit?

Are you looking for the high-rise or are you looking for garden style? Pick your niche. Figure out what that is. And while you’re building your team and team is your agents, your lender, property management, adding investors, all of those things—while you’re doing that, get out and start looking at deals. The best way to spot a great deal is to look at 99 bad ones. And so the minute it pops in your wait, something tells me this is good. I need to drop what I’m doing and look at it. That’s really what I would do.

Brandon: Man, I want everyone to hear that again. Like, the best way to find a good deal is look at 99 bad ones. Like that is so good for any range, whether you’re looking at the first deal or 100-unit property.

Andrew: And you know what, Brandon? You asked me before if this is one of the things I struggle with. That’s something I struggle with is when I’m looking at bad deal #95, the little voice in my head going, geez, this is a waste of time. Odds are, this deal’s not going to work out. This is going to be, I’m going to waste an hour looking at this or whatever. And I have to remind myself knowing it isn’t.

Because I don’t look at deal 95, I might miss deal 96 that is the good deal. And that bad deal number 95 that I’m looking at, that gives me a reason to call that broker back, have a live discussion not via e-mail, and continue to build that relationship. So that’s how you have to look at it. And it’s something I struggle with. I’m like, geez, I’m looking at 100 deals just to find one, you know?

Brandon: I would venture to guess that the reason you came up with all these criteria that you have and the things you use is because looking at all these bad deals and then analyzing well, what is it that made a bad deal, helped you to realize what you want in a good deal. So you know this information that’s now made you successful and you didn’t learn this from the few good deals.

You learned this from the thousands of bad deals that you looked at, that taught you what you want to avoid and there’s value in like learning stuff. That’s what I’m always telling people. It’s not just buying a deal and making money, going through it, a hundred bad deals can teach you so much about real estate that that’s going to make you millions of dollars in your future.

Andrew: Well said.

David: Well said.

Brandon: All right, let me go ahead and shift gears here and head over to the world famous Fire Round.

It’s Time for the Fire Round.

Today’s episode is brought to you by our friends at RealtyShares.com. I love these guys. RealtyShares is a real estate crowdfunding platform that allows accredited investors to invest in pre-vetted real estate deals online. So investors can browse and then invest in both residential and commercial properties that yield returns 8-16% annually. As a Realty Shares member, you can passively invest in professionally managed real estate investments in a variety of asset types and geographies for as little as $5,000, all from the convenience of your living room. So to learn more and to get started with a free account, just go to BiggerPockets.com/RealtyShares. That’s BiggerPockets.com/RealtyShares.

All right, let’s get to the Fire Round questions. These come direct from these BiggerPockets forums and they’re going to fire them right at you, Andrew. See what you gotta say. Number one—oh, I like this question. Help! I’ve got a million dollars to invest. I’m brand new. What do I do?

Andrew: That’s a great problem.

Brandon: So yeah, they must have stumbled across a million bucks or something. What do they do?

Andrew: Well the first thing is ask yourself do you want to buy your own property or hand it over to someone else to invest for you? So are you looking to participate in somebody else’s deal or are you looking to go get your own? Either way, I would say, find the markets you want to be in, figure out what kind of property you want to be invested in, and go look in those areas.

So you also—I would recommend, don’t necessarily—especially if you’re just getting started, don’t take that million bucks and throw it into one deal. Maybe break it into a couple of chunks of $50,000 or $100,000 and go invest as a silent partner or limited partner with somebody else. Learn the ropes. See what they’re doing. And then go and take your $700,000 or $800,000 that’s left and go buy your own deal.

Or with a million dollars, you might be able to approach somebody who’s got a smaller deal and say look, I’ll be money, you be operations. Let’s do this together. And as general partners, so you still have control and you’re still participating in that deal and then you can learn a lot. And then learn from other’s mistakes, grow your business much quicker. That’s assuming you want to be active. If you’re just looking to be passive, then split it up into 10 or 15 pieces and invest with good operators. So it depends on what you want to do.

David: What I love about that is every single hypothetical you gave involved a way that you can learn faster. It wasn’t just how do I get the highest ROI on my money possible when I’m done? Because you know learning is what’s going to make them wealthy in the future. That was an awesome answer. Good job. Next question, I’m just getting started with rental properties. Should I get a 30-year or a 15-year mortgage?

Andrew: My simple answer would be get the 30-year and here’s why. The reason people like to get the 15-year is for slightly lower interest rate and it pays off faster. So if you’re doing like what Brandon did and is buying it as basically a college fund, then a 15-year, that totally makes sense and I agree 100% with that strategy. But in general, I would say go with the 30-year because you always have the option to pay it down faster if you want to.

So you can get a 30-year loan and then calculate your own 15-year amortization table and pay it down 15 years if you want to. But if cash flow gets tight at some point in the future, you’re going to want to have the option of that lower 30-year payment versus the mandatory higher 15-year payment. So I would lean towards 30 years. That’s why, again, there’s exceptions but in general, 30 years is safer.

Brandon: All right. Next question, should I go solo or go with a big multi-family investor? Now let me expand before I let you answer. Basically the guy has got some money and wants to get into real estate. It’s kind of like the question we asked a minute ago but he’s basically wondering, when I look around—because he has a similar problem than I do.

When I analyzed a deal yesterday—this is not my question but it actually perfectly goes with it. I analyzed this deal yesterday and at the end of the day, like if I bought this for like $200,000 less for what I’m asking. I ran the numbers and even if I got it for $800,000, it’s like a 15% return, which is not bad. If I average annual returns, it’s like 15%, but I’m like, I look at some syndicators and I see their IRR projections and it’s like at 15%.

And I’m like should I really throw my money into my own deal, just to make 15% when I can do it with a syndicator? Obviously, you are a syndicator so like I know you might be biased towards syndicators but like how does somebody make up that decision and like, is there a percentage that one should go with versus another or a certain profit? How would somebody know that?

Andrew: I would go back to why you’re investing in the first place. If you’re just looking to create truly passive income, then I’d say a syndicator is the way to go. If you’re looking to learn—kind of learn from participating and observing, then probably a syndicator. If you want to really start your own business and jump in now, then it’s take that money and go partner with somebody unless you have some experience and let’s say you’ve owned some rentals, maybe a fourplex or whatever and now you say oh, I can take my money and I can go to a 10-unit and you’re comfortable and I shouldn’t say comfortable, because you want to be a little uncomfortable because if you’re not a little uncomfortable, you’re not growing.

So if you can take that money and just go to a 10-unit and you feel like that’s the next step, think about what you’re doing yourself. Hire a mentor. There’s other ways. You don’t always have to partner with someone. You can hire a mentor as well. So those are kind of the different options that I would say are available.

David: That’s very nice, very nice. Okay this is a two-part question. I just got a 30-unit apartment offer accepted. Now here comes the fun or hard work part. I have a few questions regarding physical inspections and due diligence that I’d appreciate some input.

Number one, should I just walk [Inaudible][55:54] and possibly bring one of the contractors who worked with me before or is it worth it to hire professional inspectors to inspect all the units or a selection of units? What’s the common practice for a 30-unit complex? And then I’ll let you answer that and then I’ll ask the second part.

Andrew: All right. So there’s a couple of pieces. Number one, absolutely walk every single unit. So the biggest property we ever purchased was 348 units and yes, we walked every single unit. Because I can guarantee you the five units you don’t go into, those are the ones that are the meth lab, the pothouse, and the mold-infested ones. Or the lady that has 53 squirrels in a cage, you know what I mean? Those are going to be the units that you don’t go into, guarantee you.

Brandon: The ones that the property manager conveniently lost the keys for.

Andrew: Oh, it’s always that.

Brandon: There’s like four I have still not been through with my Ohio apartment. I have not been in those four because they could not find the key, and the person wasn’t home. And we were closing on it.

Andrew: I’ll bet you dinner somewhere that one of those is a hoarder unit.

Brandon: Yeah, probably.

Andrew: Now, did I personally walk through 348 units? No. We brought in a team and we split into groups and we have a spreadsheet and now that spreadsheet is synced across all laptops so as they fill it in it all loads at the same time. But all you need, you can print out a piece of paper from Excel in a 30-unit and you can go in a team.

Now, if I was doing a 30-unit and it was my first one, yes I would personally walk all 30 units. Because I want to see them, I want to feel them, and when I bought my first 92-unit, I did personally walk it. As far as inspectors versus contractors, I have found that home inspectors tend to get a little lost in the weeds if you put them onto an apartment complex. And I’ll get reports that are like 15 pictures of outlets that, the plate’s crooked. The little stuff that yeah, we’re going to look at anyway.

So what I did was I walk it with three or more sets of contractors. When I mean three, if I’m concerned about the roofs, I have two or three roofers. If I’m going to upgrade the interiors, I’ll have three guys that are going to upgrade the interiors. So I have three contractors looking at it with us and then they’re going to not—what that’s going to do is number one, I’ve got three sets of eyes looking for problems that I might miss, and I will miss some.

That’s why I bring in other people that are experts at that thing. And then when I get their proposals in, you can combine two or three sets of proposals, that’s going to give you a pretty thorough picture of what you’re looking at. And more importantly, not just what’s wrong but how much it’s going to cost you to fix it. You want that data. You want to know that cost before you go hard on your deposit and you can’t get it back. So that’s how we do it.

Brandon: I love it.

David: Wow. All right, well you kind of answered the next part which was besides a general walkthrough of each unit, I think I’ll need to bring on specialists to check out the big items like the roof, the AC, and the water heaters. Should that actually be done? And your answer was yes.

Andrew: Absolutely. If we go under contract, let’s say we have a 30-day due diligence, I try to be onsite with our full team meaning lease audit, contractors, everything within five to seven days so that we can get all that information before we’re going hard.

Brandon: Fantastic. All right, well that’s the end of the Fire Round. Now before we get out of here today let’s get to our world famous Famous Four. But before we get to the Famous Four questions, let’s hear from Mindy Jensen to see what’s going on in the BiggerPockets Money podcast this week.

Mindy: Thanks for asking, Brandon. Tony Gayden grew up in a lower middle-class household where money and finances were not discussed. He sought comfort in food, eventually reaching 476 pounds and drowning in debt. Tony shares his weight loss journey and how he parlayed the lessons learned into successful debt reduction and finally starting to invest. Tony currently works his dream job with no plans to quit but uses investments to protect himself should his circumstances change. All right, Brandon. Now it’s back to the Famous Four.

Brandon: All right, thank you, Mindy. All right now, the Famous Four. These are the same four questions we ask every guest every week and I know we’ve asked you before. I knew because you were on the show before. But let’s see if they’ve changed at all. Do you have a current favorite real estate book?

Andrew: You know what? I do. I actually just wrote my first book on multi-family. It’s about 200 pages. They’re all blank and in the middle, it says go read David Greene’s book on long-distance real estate investing. And then apply the same principles to apartments because it’s basically the same thing. And then once you finish his book, go read Dave Lindahl’s Emerging Market in Multi-family Millions. Put those three together and you’ll have what you need to get started.

Brandon: Oh, good suggestions. I second all of them.

David: That’s like the best answer in BiggerPockets podcast history with respect to favorite book.

Brandon: So good. Put that on a plague and let’s have it immortalized in BP Headquarters somewhere.

David: I’ve got a challenge for everybody listening right now. If you can find the connection between today’s guest and my book because there is one other than what he just said on the podcast, e-mail me, let me know and I will send a prize to whoever gets it first. That’s all I’m going to say. I’m going to let you guys who on a wild goose hunt.

All right, no pressure after this, Andrew, but now you have to do just as good on the second question as you did on Brandon’s. What is your favorite business book?

Andrew: How to Win Friends and Influence People. It’s an old one. I think it was written in the ‘30s but technology changes, culture changes, but human nature does not change. It’s been the same for as long as we’ve been around and that book, everything we do—obviously, we do analysis but everything we do is relationship related from the seller to the contractor to the management to the broker, everything. And that book is probably—what’s in there is to me the most important thing in business.

David: Very good. That’s fantastic.

Brandon: Yeah, that’s one of those books I should reread every year because it’s always good to know.

Andrew: I do.

Brandon: Nice. All right, next one.

David: All right, other than making and selling popcorn in the kitchen with your wife, can you tell us some of your other hobbies that you have?

Andrew: Yeah, a couple of my hobbies are trying not to get outwitted by my four and six-year-old boys. And then I do have a very loving and understanding wife who lets me go surfing and backcountry skiing fairly frequently. I’m really just a wannabe athlete trapped in a nerd’s body so I’m not necessarily an expert at those things but I love doing them and they invigorate me.

Brandon: A lot of people don’t know this but me and Andrew actually went surfing together down in, what was it, San Diego or somewhere north of San Diego?

Andrew: Yeah, San Onofre. We should do that again although you’ll be adapted to that Hawaii water so I don’t know.

Brandon: You’ve got to come out to Hawaii and do it. Yeah, but me and Andrew went surfing and I learned very quickly that I was terrible at surfing and he was very good at surfing. That was my realization there. So next question. What do you believe sets apart successful real estate investors from all those who give up, fail, or never get started?

Andrew: Relentless persistence. I believe that’s what I said last time and I’m going to persist and say that’s still true. You know, the question kind of answers itself, right? It’s people who give up, don’t get started, or quit. In order to not do those three things, you have to persist and keep going and be relentless especially in this market. It is tough to find deals. It can get very discouraging. Unfortunately, it is harder than someone who’s been in the business for ten years. But it doesn’t mean it can’t be done. It doesn’t mean it’s not worth doing.

So relentless persistence, not letting setbacks make you quit. Not letting fear of mistakes mean you’re going to make mistakes. It’s human nature. I mean look at Chernobyl or the Hind Berger or almost any Nicolas Cage movie—mistakes happen. The key is, do you learn from those mistakes and make systems to not repeat them? That’s the key. So you make a mistake, something bad happens, persist through each and keep going.

Brandon: I’m stuck on Nic Cage.

Andrew: Yeah he may not have learned. Yeah, relentless persistence.

David: Much like Ben Affleck as Batman. Any mistake can be overcome with the right attitude.

Andrew: Exactly.

David: All right, Andrew. I knew this was going to be an awesome podcast. You did not let me down. You’ve done great. Thank you very much. Last question, where can people find out more about you?

Andrew: Sure. BiggerPockets, of course. I love being on BiggerPockets. I mean, I should be on there more. Of course, LinkedIn. Our website, you can just Google Vantage Point Acquisitions but it’s VPACQ.com. If you actually want to start an e-mail conversation or something like that, probably the best way is to just go ahead and submit it on the website because that will come to my e-mail inbox and I will get back to you. But of course yeah, connect on BiggerPockets and LinkedIn as well.

Brandon: Super cool. All right, Mr. Andrew Cushman, thank you so much. This was fantastic. This has been a year in the making since we were out there surfing, we talked about doing this. I’m glad we finally got to pull it off so thank you.

Andrew: Likewise, good talking to you guys.

Brandon: Thanks, buddy.

All right, that was our show with Andrew Cushman. That was fun. I haven’t laughed that hard in a podcast in a while.

David: Andrew is a fun guy and also very, very smart. If you’re going to hang out with anyone and talk real estate, I want it to be Andrew.

Brandon: Yeah, so David and I—people have probably heard us talking before but both David and I are in a club called Go Abundance. I don’t know, it’s like Club Weird. We’re like a group of people called Go Abundance and Andrew is in there as well. That’s where we get together a couple of times a year, hang out, and I learn a lot from Andrew and I really, really like hanging out with him.

Yeah, every time I hang out with him, I’m inspired to go do more stuff because he’s just crushing it even in today’s market. Again, we talked about that, right? Everyone’s like oh, there’s no good deals. You know, if he’s making it happen, so can you. But not you, David. Sorry.

David: I’ll just live vicariously through your deals and Andrew’s deals.

Brandon: Nah, you’re doing well. I’m excited for your refi to get it done. I’m excited for you to have a bunch of cash from all those BRRRR refinances so you can go out and repeat the process again. Maybe we can get you into some larger multi-families this time. You ready?

David: That’s exactly what I’m thinking. You’re on the same wavelength.

Brandon: All right. Well, good. Maybe we’ll turn ourselves into syndicators at some point. We’ll be like Andrew and we’ll start raising some big money and you know? We’ll be the next Andrew Cushman. #lifegoals.

David: #lifegoals. There you go.

Brandon: All right, so thank you guys for listening. Make sure you’re listening after the music here. We recorded a quick Random Six, just random questions from Andrew. I think we might have only done five questions though. Maybe we did seven. I don’t know. Anyway. It’s good. It’s funny. Enjoy it.

And make sure if you guys are enjoying today’s show, make sure you share it with somebody. Go out to your Facebook or whatever, Twitter, and share this episode with somebody who might be interested in multi-family properties. Or just put it on your Facebook page because you never know who is friends and family with you that’s like, oh, that person is into real estate? So am I. Maybe we can work together. Maybe I can give them money. Maybe I can partner with them. Whatever. You never know until you start sharing real estate related contents.

So this is a good episode to share. You can view the Show Notes by going to BiggerPockets.com/Show279. So that’s a URL you can share on your Facebook. That’s BiggerPockets.com/Show279. All right, guys, let’s get out of here. From BiggerPockets.com, I am Brandon, here with my co-host, David “Throw Me a Rope” Greene, signing off. 

You’re listening to BiggerPockets Radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place.

Be sure to join the millions of others who have benefited from BiggerPockets.com, your home for real estate investing online.

It’s Time for The Random Six.

Brandon: All right, we have not done this in a little while but we’re going to jump in here and do the world famous Random Six. I don’t know. I don’t remember—do we have a sound effect for that? I think we did. Anyway. These are completely unrelated to real estate questions that we’re going to ask Andrew here just to get to know him a little better.

Number one, Andrew could you survive in the wilderness for an entire month?

Andrew: I believe I could. Yeah, actually.

Brandon: All right. I bet you could. I can see that. Let me follow up with that. What one tool would you need to have with you? Other than the clothes on your body, what one tool would you bring with you to survive for a month in the woods?

Andrew: Some kind of multi tool that has a flint striker on it so I can get fire started, too.

Brandon: All right, good answer.

David: That’s such a practical answer.

Andrew: It’s a way to survive, come on.

David: What animal best represents your personality?

Andrew: Does a liger count? No. I like the dolphins because they’re intelligent. They’re graceful. They’re strong. They love the ocean. They’re playful. I don’t know if I’m quite there but I guess maybe I could aspire to be a dolphin. Is that how it works?

Brandon: Good answer. I like that.

David: It’s funny you said liger and dolphin because last week, Brandon and I were at an aquatic park and they had these dolphins that were mixed with a false killer whale. It was like this hybrid supped up dolphin. It was huge. And it made me think of ligers which are actually humongous, awkward animals.

Brandon: And we had a conversation. Yeah, we talked about this.

David: That’s so cool that that’s what you said. You’re giving me major déjà vu.

Brandon: All right, what behavior makes you think a person is creepy?

Andrew: Well, a limp, clammy handshake is never a good start.

Brandon: I think that every time I shake David Greene’s hand, it’s just awkward every time.

David: That’s why they call me David “The Clam” Greene.

Andrew: Well, I’m going to leave that one right where it is. You know, that’s never a good start. Shifty eyes. I had a guy come up to me at a gas station in the desert at 11 o’clock at night wearing a hoodie and sunglasses and a partially concealed backpack and ask me for a ride. I’m like, I’m not so sure. Kind of shady. There you go.

Brandon: You didn’t do it? Where’s your sense of adventure? Come on, Mr. Be in the Woods for a Month.

Andrew: I offered to call him a ride and pay for it and he didn’t want that for some reason. I don’t know.

David: You don’t sound like a playful dolphin with that answer.

Andrew: I was in the desert. That’s not my element.

David: No your niche. Dolphins do not operate in the desert. Okay, which musical artist is greatly overrated? And I have one I’m really hoping you’ll say. And Brandon knows it but I’m not going to say what that is.

Andrew: Oh, that’s asking for enemies. Well I guess we can go with an easy one and say Kanye.

David: Ooh.

Brandon: All right. That’s a good answer. But Kanye listens to our show. I know he obviously does so he’s going to be upset.

Andrew: Actually, I take that back. He does have musical talent. I can say that. Obviously his personality is a little different. Can I change it and say who I think is dramatically underrated?

Brandon: Sure.

David: Okay, yes.

Andrew: Weird Al Yankovic. That guy is brilliant.

Brandon: I love Weird Al. The Night Santa Went Crazy is still one of my favorite songs of all time.

David: What’s your favorite, Andrew?

Andrew: Amish Paradise, still.

David: That’s a good one.

Brandon: In high school, we made a music video to The Night Santa Went Crazy. I should find that and put it on YouTube. It was good.

David: Okay, if anyone is still listening and you want to hear Brandon and I make a parody music video like Weird Al, put a comment in the Show Notes and let us know on the webpage that you would like to see that and we will put something together related to real estate for you. I think that could be funny.

Brandon: I don’t think that would be funny at all. All right. Next question, David.

David: Okay, what’s something that can’t be found or bought on the internet?

Andrew: Real love.

David: Oh, God. That was so fast, too. You’re so good, Andrew.

Brandon: That was really good. Let’s see if you can be just as fast here.

Andrew: I mean, according to my spam folder, other kinds can be very easily but not what we’re looking for.

Brandon: I want to see you respond super fast to this one, too. Don’t think about it. What’s the weirdest thing that’s ever happened to you in a car?

Andrew: Uh, nothing. Let’s see—

David: Is it Shifty-Eyed McGee asking you for a ride?

Andrew: Yeah, that one certainly ranks pretty high. Maybe some things I’ve seen driving through parts of L.A. Having people throw up in the car, that’s never fun.

Brandon: All right, we’ll take those.

David: That was a hard question.

Andrew: Yeah that one, I don’t. I’m usually by myself in the car.

Brandon: This is a true story, my wife when she was on her Bachelorette party back when we got married ten years ago, I don’t know, her and her girlfriends were driving around and they were at a stop light and all of a sudden, there were like a hundred—I don’t want to be insensitive—like little people? I’m not sure what the correct terminology is. Little people, right? Cross the road, all holding hands skipping and singing in front of her car. I don’t know, is that a convention or do people get together skipping and holding hands, running down the street? I don’t know but that, I love that story. I wish I was there.

David: Flash mob.

Brandon: Basically a flash mob of little people. Anyway, was that number five or six? I’ve lost count.

David: I think we’ve got enough.

Brandon: All right, let’s get out of here. Thank you, Andrew. That was fun.

Andrew: Take care, guys. Bye.

Watch the Podcast Here

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In This Episode We Cover:

  • Andrew’s backstory
  • How to make deals rather than find them
  • The ABCD neighborhoods — what are they?
  • What specific properties Andrew is looking for
  • His effective screening criteria for finding properties
  • An in-depth story on one deal
  • Net operating income (NOI)
  • Understanding how properties are valued
  • Challenges Andrew faced over the years
  • Finding great contractors
  • Andrew’s many rental property units
  • And SO much more!

Links from the Show

Books Mentioned in this Show

Fire Round Questions

Tweetable Topics:

  • “The person who wants it the most, loses.” (Tweet This!)
  • “You can completely destroy an investment with the wrong people managing it.” (Tweet This!)
  • “Don’t wait to buy Real estate. Instead, buy real estate and wait.” (Tweet This!)
  • “The best way to spot a great deal is to look at 99 bad ones.” (Tweet This!)

Connect with Andrew

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 180,000 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!

13 Comments

    • Andrew Cushman

      Luis,

      Yes, our first multifamily purchase was in the summer of 2011, so we have been doing this full time for just less than 7 years. You certainly could be in a similar position in 5-10 years, as I know guys who have done double what I’ve done in the same amount of time!

      Andrew

  1. csilla veress

    Thank you. Thank you.
    I have been really looking outside my market for a way to invest (living in the SFO/northern CA overpriced market) and there are such key points that are already helping me structure my searches. USA.com for population growth – thank you! Median home income information…the conversation was just really amazing. I saw you at the 1lifefullylived conference but this was even more impactful.
    Thank you. Csilla

  2. April Conaway

    I was so impressed with Andrew Cushman and all that he has accomplished… but then he made the comment about Weird Al and I thought to myself, “Dude, this guy is amazing!” Please, please, please do a Weird Al real estate parody!

  3. Mitch Conrad

    When you mentioned evaluating the potential to increase rent by drawing a trend-line on a scatter-plot of rent per square foot, what resource do you use to find rent and square footage for properties in the area?

  4. Andrew Cushman

    Mitch,

    In most of the markets where we operate, there is a data provider called ALN that we get it from. In most markets, your property management company can send you the data from a variety of sources. In the worst case scenario, you can get online and create your own rent comps data. In fact, in many cases we will do that to verify or add to the data we already have.

    Andrew

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