OPM Mastery

On this episode of the Invest Four More Real Estate Podcast I talk about what my current investing world looks like. I have a lot of things going on and I have made some big changes in 2016. I have 9 flips at the moment, I am headed to Florida in March to check out rentals and I am slowly making progress on a $500,000 flip I bought in November. I also have land under contract that I am thinking of building a subdivision on!

The end of 2015 could have been much better for me. I had some major problems with contractor and my project manager that slowed me down a lot. I was not able to get properties repaired in a timely manner, which slowed me down getting homes rented and flips completed. In 2016 I have completely rebuilt my rehabbing process and things are going great now. I have a couple of people on my team handling the contractors, repair estimates and check-ups. Things are getting fixed faster and cheaper than ever before.

Here is a great article on how to find a contractor.

I have 9 flips now since I sold one last week. I have 2 more that I am selling in the next two weeks and 2 more flips that I am buying the beginning of March. The flips have been working out great even though they are taking way too long to complete. The reason they are working out great is our prices have been increasing, so holding the properties longer has actually made me more money. We joke about this concept on some of the coaching calls I do about how a crazy market can promote negative ways to do business! I would never suggest holding properties hoping the market will increase in value.

I bought a $500,000 plus flip last year that I am still working on getting possession too. The house is occupied and there are some issues I cannot discuss online, but the house was a great deal. I should be able to sell it for $800,000 plus once it I can gain possession. The home is in great shape and I was able to view the interior a couple of weeks ago.

I have not bought any rentals in 2016 or have any immediate plans to do so. Prices have increased so much in my area that it is really hard to find any properties that come close to the returns I am looking for. Even when I see an awesome deal that I could flip, the numbers don't make sense for a rental. Property values have out paced rentals rates, which makes it tough to cash flow.

I have a trip booked to Florida in March to check out some new locations for rentals! It will also be a nice vacation with the family. In Florida I hope to find some locations that have great cash flow and possible appreciation as well.

I have some land under contract that I may create a subdivision on. I saw some land come up for sale a couple of weeks ago that was too good of a deal to pass up. I got it under contract right away and have been researching creating a subdivision and possibly building a house or two. I have never built a house and I have never created any subdivisions or done any land deals (except buying and selling one lot). There is the potential to make a lot of money creating a subdivision, but there is a lot of risk involved as well! I will keep everyone updated on how the process works and develops as the project progresses.

As many of you know I raised the price on my Complete Blueprint coaching program. I have gotten to a certain point where I spend a lot of my time on the blog. I love helping people invest better, but I only have so many hours in the day. I had to raise the price in order to keep my sanity and keep providing personal help to people. For my podcast listeners you can get 25 percent off the program using coupon code sale25.

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[00:00:58] MF: Hey everyone, it's Mark Ferguson with Invest Four More. Welcome to another episode of the Invest Four More Real Estate Podcast. I have a lot of exciting things to talk about today. Gonna give you an update on my business, what's going on, the early part of 2016, what I'm hoping to accomplish, some good things, some bad things. And yeah, go from there.

So I have a lot going on as far as rental property strategies, fix and flip strategies. I'm even planning, possibly a minor subdivision, probably going to be buying properties in a different location. All kinds of things going on. So hopefully I can catch you up, give you an idea of what's going on in my life, my investing, and yeah hopefully that will help you out in your investing as well.

So the first thing I wanna talk about, many of you are probably family with my Complete Blueprint for Successful Real Estate Investing. I recently raised the price on that just cause there's a lot of time I take on my coaching, on my investing and my real estate team. There's only so much I can do and I still spend as much time as I possibly can with my family. I have four year old twins.

So I had to raise the price on that just because of the sheer amount of emails I get doing coaching calls, different things, which is taking up a lot of time. But, I wanted to let you know, I'm adding some new features to it. So one thing that's going to be really fun is as soon as you sign up for that course, I'm gonna have you fill out an intake form which basically gives me a description of what your current investing, your real estate looks like and what you need help with right away.

So as soon as you fill that out, it goes directly to me, I can review that and email you back an answer within 24 hours of what I think the best thing you can do is right now, the best path you can take, the number one thing that'll help you get started right away. Either buying your first properties, or buying more properties, or changing strategies. I really love problem solving and that's fun for me. That's a new thing we have going for the Blueprint.

And then also, for my podcast listeners, I always like to give you guys a deal because I appreciate your support. So if you use sale25, you get 25% off the Blueprint. Again, it's sale25. All right, moving on. I've had a lot of exciting things going on with my fix and flip business. I have nine flips right now, I sold one last week, and then I am selling two more this month.

So I went kind of through a dry spell with selling my fix and flips because I had some contractor problems, some project manager problems. I will talk about that a little bit, but things are back in the flow, selling properties, things are getting repaired quicker, buying more properties. So I'm really happy with the way things are going in 2016 so far. So I'll just give you a few numbers on some of the properties I sold.

The one I sold last week, I bought for $95,000 and that was from an auction. I bought that - oh I don't have the exact date - about six months ago. I put about $30,000 of work into it. It needed a new roof, new carpet, new flooring, new bathroom, some new siding, lots of work on that one. Of course paint everywhere. I ended up selling it for $185,000. So that was a good deal. I was pretty happy with those numbers.

The other one I'm selling in a couple of weeks I bought for $107,000. We put about $25,000 of work into that one. It needed paint, carpet, kitchen, had to do the sewer line, that was unexpected. Came up during the inspection but we had to re-run a sewer line, which cost about $6,000. That one, I bought for $107,000. We're selling it for $190,000. So those are good numbers on that one too. Happy with that all the time. Found that one on the MLS.

And then another one I'm selling this month I bought for $75,000, put about $60,000 of work into this property. And we're selling it for $220,000. So, on the surface those numbers look awesome, but that was an absolute nightmare of a property. Things may always seem like they go smooth with me, they do not. I run into my fair share of problems, I make my fair share of mistakes.

That one, it was listed for $100,000 in the MLS, I saw it right away. It was totally gutted. No drywall, no bathrooms, no kitchen, no electrical, no plumbing. Someone else had wanted to flip it, they either ran out of money or decided that they didn't wanna take on such a big project. So they sold it. I offered them $50,000, they countered at $75,000, I said, "Great. I will take it."

At that time I thought the house was probably worth $180,000 and I thought I could get fixed for about $40 or $50,000. But my first problem started out with, I didn't get anything started on it for about three to four months until after I bought it. It was such a big project, I had a lot of other houses going on. I waited to get everything started and I was kind of hoping someone might come along and buy it from me for like $100,000 without me doing any work, but that did not happen.

So I found a contractor who said he could do it. Said he had a huge crew, get it done in two and half months. He gave me an estimate for $50 some thousand, which I was pretty happy with. And yeah, got started, I paid him a deposit for materials, things were moving along, I'd check in every few weeks, his whole crew was there working. About two months into it I noticed we weren't anywhere close to that two and a half month time frame he'd given me.

So I asked him about it. Of course, normal things come up. Electrical's tougher than we thought, plumbing's tougher than we thought. But he still promised to be done pretty soon, maybe another month-month and a half. And what happened next was he was due for his third payment, third draw, and I paid him with a check. I turned in my invoice so my accounting person could file it.

She thought I hadn't paid him, she paid him again. So he got a double payment, which basically paid him up for the whole amount of the project. As soon as he got paid everything, he basically vanished. I mean he worked on the house, but I would show up, there would be nobody there. I would call him, he wouldn't return texts, he wouldn't return calls, basically this went on for months.

And he would return a text or a call about a week or two later saying, "Oh my partner is suing me, my life's falling apart. My wife's leaving," an excuse every single time. And basically, he was working there about one day every two weeks. So I should have just fired him right away, but I was tied into the property cause I'd already paid him, and I wanted to get my money's worth. Couple of mistakes on that one.

But basically it took him like six more months to finish the property. And I had a friend threaten to sue him. It was just crazy. So even though the numbers are really good on that property, the whole experience was not that great. And it took me a total of 16 months to get to this point, which is just really horrible. But it was finally to the end, I'm still going to make some money on it thanks to our market going up so much.

We found out after the contractor finally finished everything, he hadn't done a bunch of the stuff right so I left him a lot of really fun and happy reviews on Yelp and Angie's List and that's sarcastic for "I did not leave him good reviews." But what's done is done. I can move on and make things better and yeah, things are going much better now.

So I'm selling those three properties this month, I've got another one on the market that we just finished up. And then all my other properties are being worked on right now, so they should be done in the next month or so. Except for one of my flips, and this is my interesting, very interesting flip. I've talked about it a little bit before, but I bought a $535,000 flip that had a tenant in it.

So I bought the property knowing the tenant was there, knowing I'd have to deal with the tenant. Lots of things happened, but I can't really talk about all of it cause there may or may not be some legal issues going on. But long story short, the tenant's still there, they're paying me rent. They may be there until January of 2017, we'll see. We'll see how it goes, or even maybe a little longer.

But they're paying me rent, so I'm holding the property. That house is probably worth between $800 and $850,000 as is it. So it's really just a waiting game unless we come to some kind of agreement. But risky investment, you never know what you're gonna get exactly when you buy a house that's occupied. Sometimes you can get them out very quickly, sometimes you can't.

Sometimes there's other things going on you don't know about. But I'm still excited for the house. I saw inside the house a couple weeks ago, and it is in great shape. Needs almost no work. So if I can get possession at some point in the next year, I'll be very happy. The house is probably worth, like I said, we're guessing about $840,000. So that'll be a good one once that gets completed.

I also have talked about my project manager experiment in the last week. Did not go as I planned, thought it would be great to have someone managing all my flips, all my rental property repairs, managing contractors, building the system. And things just did not go well. So we parted ways, I no longer have a project manager.

I'm having my team manage our contractors, and things are going fantastic the last month and half so far, doing that system. We've got new contractors on board, we're getting a system created where we have subs who we can hire to do jobs, we're not relying on one contractor to do the entire job. So we'll have a sub for electric, plumbing, roof, HVAC, flooring, plumbing.

And then we're also trying to make it so that we have subs for drywall, subs for painting, maybe a kitchen and bath sub, windows. So we're trying to really separate out the jobs and do them individually so that we can get things done faster. We can have multiple people working on different jobs at the same time. And if you're hiring out individual jobs, a lot of times you can get it done cheaper than having one person manage the whole flip themselves, doing all of the work themselves.

That's kind of where I've run into the biggest problems. The house I sold, or I'm going to be selling, that had the contractor issue, he was doing everything himself; plumbing, electrical, HVAC, all of it. And he said he had a big crew who could handle it, but it just did not work out well. So we're really working on building a sub system. I think that'll be a much better way to handle the repairs going into the future.

Alright, for my rental properties, I have not bought a rental in a long time. I think it's been almost six months and that does not help me get any closer to my goal to buy 100 rentals. I'm stuck on 16, but that doesn't bother me too much because I have a lot of opportunities coming up. I've got some new strategies I'm working on. One of the reasons I have not bought properties here is because our prices are so high in Colorado.

I've said this a number of times, we have one of the highest appreciating markets in the country and our median price has gone from the low $100,000-$120,000, now it's up over $240,000 in my area. So our prices have doubled and it's really, really hard to find properties that cash flow now. Even when I'm buying below market value, even though I'm getting really good deals, the cash flow still is just really tight.

I find myself buying properties that aren't that great, need more work than I want, or they're not in locations that I like to buy in. So I have made the decision, I'm almost certainly gonna buy in another market. And I have a trip booked to Florida in March. So, we will see what I find down there. I had been looking in the Pensacola area, Orlando, Tampa, all over the place. Fort Myers, Jacksonville.

I'm going with my family, so we decided we'd make it a beach fun vacation while we're there. And then I could check out some properties too. So we're gonna end up going to the Vero Beach area, staying in Orlando for a bit too and mostly hanging out at the beach, having fun. But also I'll be checking out some properties, checking out some areas for rentals as well while I'm down there.

I know I have a few connections in the area, and we'll see what I can find. So in order to buy properties doing there, I could do it how I have been doing using my income from flips, from the real estate team to put money down, make repairs on properties, which I think I will do. But I'm also looking at ways to use my equity, I talked about this before on other podcasts. So I have a couple options.

I could sell some of my properties, 1031 exchange them into properties in Florida. Or I could refinance some of my properties here and use that money to buy some more properties in Florida. So I'm currently exploring both options, I have applied with Jordan Capital Finance to refinance quite a few of my rentals into 30 year fixed rate loans. So I'm waiting for them to get back to me on what they can do.

I think my whole package is with their underwriters right now, and then I've also checked into selling some of my properties. So my properties that maybe have tenants moving out soon, or aren't in the best areas for where I like to invest. And I'm looking to exchange those. So when I exchange a property, do a 1031 exchange, there's a few things you have to be careful of.

One, I have to make sure any cash I take out of the property is put into the new properties. So if I make $100,000 selling a property, I have to make sure all that $100,000 is spent on the new property, or properties. Likewise, I have to make sure the new property or properties are just as expensive as the property I sold. Because in a 1031 exchange, the debt is considered a liability.

So if you're reducing your debt, if I took that $100,000 in cash and I bought $100,000 property with that cash I made from the 1031 exchange, I would be wiping out $100,000 of debt if I sold that house for $200,000. So even though my cash is invested, I was wiping out $100,000 in debt, and that IRS would consider that a gain and I could be taxed on the debt I was wiping out.

So I have to make sure I buy - you know, if I sell a $200,000 house, I have to buy another $200,000 house or I could buy two $100,000 properties, three $75,000 properties, whatever it works out to be. So I think my plan is gonna be, sell one here, use that money to probably buy two or three at a time if I can, down in Florida. So I'll be exchanging one property here for multiple properties down there.

I'll have to find a really good lender, that'll be probably the biggest challenge. And obviously I want to find some great cash flowing properties that I can get a great deal on as well down there. So that's the plan so far on my rental properties, we'll see how that goes. My rental's have been doing great up here, but it's just too hard to cash flow right now and I know a lot of people across the country run into that. So we'll see how my adventure down in Florida goes.

I'm also looking for other areas of the country too still. I've seen some decent properties numbers all over the place, but really if I'm gonna be buying properties at another location like this, I wanna be able to go down there and see them a couple times a year if I can. And so if I can buy at a place like Florida where it can be a vacation, we can have fun at the same time, that makes it so much easier than if I'm just going there to look at properties in Cleveland or somewhere where there's not a whole lot else going on.

Alright, for my real estate team we've been going really well. We had another agent coming on at the start of the year, but he ended up running into some issues. He's going back to Florida, so that's actually one of my connections in Florida. We're looking for new agents all the time, so right now we're really looking for a Spanish speaking agent who can help fulfill that need in our area.

We have a lot of people who contact us who speak Spanish, who we can't really help, we have to refer to other agents. So we're looking for an agent on our team who can speak Spanish and English. Our foreclosures, HUD Homes, way down with the rising prices. You know we just have very few foreclosures in our area, very few HUD Homes, and that's been my primary business as a real estate agent the last eight-nine years.

So for me personally, I am not doing much as an agent, which is okay with me because I can concentrate on the blog, I can concentrate on the flipping, on the rental properties. And then my team, the other agents on the team, they're doing really well. They're selling more houses, they're doing a lot of retail sales, really learning a lot. So I'm really proud of my team, they're doing a great job.

Like I said, I've mentioned it before, one agent on our team made over $100,000 his first year. Actually two agents did, and then we got a new agent this year who is - we'll see. He's doing really well. I don't know if he'll get quite there, but he's doing really well on his first year as well. So I do have a real estate training program too if people are interested, The Six Figure Real Estate Agent Success System.

So yeah, but it's really fun seeing the team sell houses and do work without me having to be personally involved in it. Another thing we really have had success with lately is we are Zillow premier agents, so we've used Zillow to give us leads and different sources of people buying or selling houses. Which has been okay. It hasn't been awesome, it hasn't been horrible either.

But we use Zillow's website kind of as an easy way to have our own site hosted by Zillow. They have their own IDX, which means a program that shows MLS listing in your website. Well we made the decision about a month ago - maybe it was two months ago - to move everything to our own website. So we moved it to FergusonGreeley.com, we have some articles we've been writing for the blog, did a lot of cool different things really focused on our team.

And ever since we moved from Zillow to our own website, our lead generation has gone through the roof. It's crazy. We haven't been gaining that much more traffic, we haven't been doing anything really different, but we focused on advertising our team. We're not advertising listings, we're not trying to become a Zillow that shows every house for sale, well almost every house for sale.

But we just focused on our team; who we are, what we do, what we're about, our experience. And we've been having people fill out our forms, call us, email us just saying, "You know, we really like your website. We're looking for a real estate team, a real estate agent to help us, and you really stood out because you focused on who you are, what you're about. It wasn't a website just showing real estate listings."

Which I think is what so many real estate websites have turned into, is just kind of like another source to find them on, just listing. And we wanna differentiate ourselves away from that, and so that has really helped our real estate team as well. Alright so, that is pretty much everything that's going on in the business right now. Oh, I forgot one thing. I am going into a new real estate investing "technique" we'll say.

I have 34 acres under contract out in the country. So it's about 15 miles north of me or so. Came on the market, was super cheap. I couldn't believe out cheap it was. I made an offer right away, got it accepted, but I have a couple options. One, I could probably flip the 34 acres, sell it, make a good profit. Or two, I can create my own minor subdivision. So I think I might try this and see how it works.

What happens is I have to apply with the county, this property is not in the city, it's in the county which is nice. I have to apply with the county, get some plans drawn up, make sure public water is available. So public water doesn't mean it has to be city water, but there's county water right by the property, so I'd have to buy water taps for the lots, make a little dirt road.

And then I could probably divide it into six or seven lots and then sell those for close to - well sell each lot for close to what I bought the property for in total. So there's gonna be a lot of expenses paying for the water. Water taps are about $30,000 a piece, getting a little road built, surveying of course, applying with the county. So there will be a lot of work involved, but I think it will be fun, and I think it will be really cool to kind of create my own little subdivision.

Another thing, it takes about six to seven months they said, to go through the approval process with the county. I have to have some hearings, let the neighbors chime in, see if they're okay with the subdivision. I have to go through all the planning, all the applications, and then the county commissioners decide if they'll approve the subdivision or not.

So it's a little risky. You know, you could go through that whole process and not get anything approved. But I think the risk-reward is there, and there is just a huge demand for lots, for land in our area. So we'll see how that goes. Alright, that's all I've got for today. A little shorter podcast, but full of great information I hope. As always, if you guys wanna shoot me an email, [email protected]. All my coaching, all of the systems I do, those are all done with me.

When you email me, when you have questions, that's me answering questions. So love to see some more people joining up. We have a lot of really great conference calls. We had a couple yesterday with a ton of people participating, it was a lot of fun. And yeah, that new intake form should be really fun to if you're looking to really get started right away and get started on the right path towards increasing or starting your real estate investments.

Alright, thanks a lot. Have a great week.

[END]

On this episode of the Invest Four More Real Estate Podcast I interview Jay Hinrichs. Jay has had a busy and exciting life and had a number of real estate businesses and adventures. Jay started out in the real estate world as a n agent when he was 18. He worked primarily on land deals, but then moved into the lending business and owned his own mortgage company. He has also developed subdivisions, bought and developed timber land, been a hard money lender, owned over 350 rental properties at one time and much more. Listen in to hear his amazing journey and some great advice he has for real estate agents and investors.

Jay grew up in an environment similar to mine with a father who was in real estate. Like me, Jay wanted nothing to do with real estate when he was growing up, but he ended working with his father as a real estate agent when he was just 18. After seeing a few commission checks after selling land deals, he knew he was in the right business and he would keep going with the real estate business. Jay was a successful real estate agent for years, but saw opportunity in lending as well.

Jay and his father had worked with a mortgage guy in California for many years. This lender was getting older and wanted out of the business, and was considering just letting it go. Jay stepped in and said he would take over the company and continue lending to investors. Jay eventually turned the company into a 50 million dollar business and was bought out by a much larger mortgage company. After Jay was bought out of the mortgage business he saw an opportunity in the timber business in Oregon thanks to the contacts he had made selling land earlier in his career. He and his partner specialized in buying plots of timber land, clearing the timber and then selling the lots for home sites. This was one of Jay's most fun and profitable business ventures!

After timber prices dropped Jay decided to part ways with his partner and try something new. He had experience developing small parcels of land in the forest, but he wanted to develop larger subdivisions. When he started to develop land he saw a need for buildable lots and few builders developed themselves. He ended up developing hundreds of lots in the North West and selling them to builders.

If Jay had not done enough already, after developing land for sometime he saw a glaring opportunity in the Midwest. Jay had grown up on the West Coast and was used to very high home prices with little cash flow for rental properties. Jay visited the Midwest and saw the huge opportunity for cash flowing rentals. Jay did not buy up every property he could, but he did help Californians buy Midwest homes as turn-key rentals. Turn-key rentals are all over the place now, but this was before the housing crisis. Jay was a hard money lender and would give short-term loans to investors, who would then refinance with long-term loans and pay off Jay.

Jay was very successful with hard money lending for many years, but the housing crisis hit in the mid 2000's, which did not destroy Jay's business itself. What hurt Jay, was the lending guidelines changed for investors and the Californian investors could no longer refinance the properties they were buying. That meant Jay had millions of dollars he had lent on short-term loans that investors could no longer pay off. Jay ended up taking a big hit on the money he could collect and ended up owning about half the houses he had lent on.

Jay managed to make it through that mess without owing anyone any money, declaring bankruptcy or having to negotiate his debt down. He did lose a chunk of his net worth in the process.

Jay still lends money to investors, but for fix and flips and he is very picky about who he works with. Jay also builds homes, since the new lending guidelines made it very tough for many builders to get financing. I think Jay is also enjoying life and his airplane, which he loves to fly. Be sure to listen to this episode as Jay has a great story and some really good advice for investors as well. You can find Jay on Bigger Pockets.

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[INTERVIEW]

[0:00:58] MF: Hi everyone, it’s Mark Ferguson with Invest Four More. Welcome to another episode of the Invest Four More real estate podcast. I’ve got a really exciting guest on for today’s show. He has been in the real estate industry since the 70’s, has done a number of different things, which is really impressive. Been in the mortgage industry, the timber industry, developments, foreclosures, buying properties, hard money lenders, just amazing how many things he’s accomplished.

Jay Hinrichs, thank you so much for being on the show, how are you doing?

[0:01:31.4] JH: Very good Mark, I’m glad to be here and look forward to a nice conversation this morning.

[0:01:38.0] MF: Yeah, no, thank you so much for being on, I really appreciate it. I love talking to people who have been involved in so many different aspects of real estate. I myself get involved in quite a few things but I think you’ve trump me by quite a bit with everything you’ve done. I’m curious, now your father was in real estate when you first began, is that right?

[0:01:58.4] JH: yeah, that’s correct. My dad cut his teeth in the land business, what would be called the recreational land business and then did very well at it as a sales man and then within a couple of years, had his own company and ran that up until his retirement.

[0:02:16.9] MF: Very cool. Now, my dad was an agent starting in ’78 so I grew up in real estate myself and the whole time I grew up I told myself I’d never get into real estate because I’ve been surrounded by it so much and then I graduate from college with the finance degree you couldn’t really find the perfect job, and I was like, “I’ll just do real estate part time.” That’s turned into something pretty awesome obviously but did you always want to be in real estate when you were growing up or was that something you kind of fell into?

[0:02:44.3] JH: No, I was the same way, you usually don’t want to do what your parents are doing or whatever and I tried a couple of different types of jobs and my dad had encouraged me that, “Get your real estate license and obviously if you don’t like it, you can go find another job.” And I got my license when I was 18 and I had gone to college for a little while and I just was burned out of school and felt I wasn’t really learning anything and I was wasting money and I told my dad I really just want to get to work and start earning money.

So it took about 90 days to make my first sale. But when I did, commission was $600 and that was in a $1.25 minimum wage market where friends of mine that were 18 that were pumping gas were making $60 a week and that transaction took me all of maybe three or four hours to do and I was thinking, “Hmm, this looks pretty good.” From then on I just, within six months I was bringing in three to $5,000 a month in commissions and probably spending that much but life was great at 18.

[0:04:08.7] MF: That’s awesome. Were you doing residential sales or what kind of sales…

[0:04:12.4] JH: I started in the land…

[0:04:12.9] MF: …were you doing?

[0:04:14.3] JH: My dad’s stuff. I was selling land which was a great incubator for our real estate salesman because my dad owned the land and he also financed it. We were able to just side step a lot of the traditional real estate. There was no lenders, no appraising, my dad has his own escrow apartment. Someone said they wanted to buy this piece of property on a Saturday and I was at their house on Tuesday with all the closing doc and it recorded that way until it was done and I was paid. It was a great business.

Anybody who read like hunting and fishing magazines over the years in the back of them, you see 40 acres in Colorado, which was probably in the high desert somewhere for $35,000, $5,000 down, $200 a month refinance, that’s what we did. And there’s land guys all over the west with that stuff.

[0:05:13.5] MF: Very cool. It’s always interesting to hear the different ways that people get into it. How long did you do that as a real estate agent?

[0:05:23.2] JH: I sold land for about 10 years until I was about 28 or so and then at that point and probably the last three or four years I moved into, actually worked for other people, taking listings and my skill and finding land was pretty good and I was very good with maps, this was pre-GPS obviously so I could read a topo, I could look at the topo, get back in the national forest, find that 360 acres, walked it with people and sell it. In those days we got 10 to 15% commissions on land sales, was customary.

And so you would take a listing and you would take it for one to two years because it took a long time but when I would sell something for let’s say a big ranch for 2$50,000, I’d have 20 or $30,000 commission. Again back when that was a quite a bit of money. The other reason I like that is because the folks that I worked for, there was no bank involved, this was all loaner financing. I just had to find that person that would buy and then I could have a pay day.

I sold a lot of ranches in northern California, some Vineyard land and some trophy ranches to very wealthy people that are still my friends today. Get to use their ranches occasionally to fish and whatnot.

[0:06:52.7] MF: Nice. There’s a few different perks to selling land.

[0:06:56.2] JH: Yeah. I’m more than certain you have land brokers out in your neck of the woods too that sell probably big trophy ranches and where there’s elk running and all sorts of game and what not. It’s a niche and it’s a fun one.

[0:07:12.2] MF: Yeah, for sure. And I have seen those advertisement for land up in the mountains in Colorado, 40 acres and whatever it is and they seem like, “Wow, this doesn’t seem like a bad deal.” Of course I don’t think they’re very close to anything but it’s what you use it for, that’s what it’s meant to be.

[0:07:30.0] JH: It’s for people who like to ride their ATV’s or shoot their guns or they’re off the gridders, the have a dream of living there when the whole world implodes.

[0:07:44.7] MF: Then, after doing the land sales, you guys have mortgage business, is that kind of how the timeframe went?

[0:07:51.8] JH: Actually I went from there to working with a big syndicator, what you would call guys that you see on bigger pockets that are putting apartment deals together that are syndicators. I went to work for one of those and I was there for about four, five years and they were doing a lot of apartment buildings in Northern California. They were over a billion dollar company and they wanted to branch into land and sub dividing and I had done a lot of that and I’d also help my dad with — in California you can finance subdivisions with bot, municipal bonds. And so I had a background with that as well.

That’s how I got hired on, there was a big project just outside of north of Sacramento that was 520 lots and they hired me to put the financing package together, the marketing and all of that and then that spawned a working on that deal and also buying them about 20 other projects in the gold country of California. As we went through that, I had a contact from my dad had used a local hard money lender in Oakland for 25 years to do this land deals.

He was retiring and he had no heirs and it was very tightly nailed, it was thin and my dad’s attorney, everybody knew each other and I just came in and said, “We’d like to — you’ve built us up for 35 years and it would be a shame just to let it go.” There was about 300 investors and buck a dozen a dozens for about 50 million and I went over there and mentored with him for about a year and a half and then he retired and I ended up buying the company from him.

Was basically given the company and just paid them out as we made income. I ran that for about three or four years as the owner of it and got a really good education and wanting money and this was all in the bay area and we did primarily seconds back then, this was going to be from ’87 to ’92 and to developers that would get a good deal on it first and then we would come in with like this seconds stack of a debt and short term stuff.

I wrote through my first traumatic down turn when I was there in ’89, the Bay Area had its own kind of melt down, there was the earthquake if you remember it during the world series and then the war started. The market, it crashed in the Bay Area, people had a lot of short memories but even in San Francisco and peninsula and everything, the hallowed ground of high priced real estate, some of that stuff fell 40 to 50%.

I had loans on quite a bit of it and I had to do a lot of workouts and took properties back, it was my first iteration of how to deal when things aren’t going well. We survived that and in ’92 I sold that to another mortgage company up in Sacramento and pivoted and that’s when I came to Oregon and of all things got into the timber business.

[0:11:09.3] MF: Yes, I think it’s amazing the different steps you’ve taken, how you’ve kind of gone from business to business but if you look at it as a whole, it kind of make sense when you hear a story about how you went form agent then kind of morphed into the syndication which had to do with the land then walked into the lending which I had to do with your father and I imagine the timber, you had some experience with because you’ve been selling land, it was forest country.

[0:11:34.4] JH: Yup, I had sold a lot of timber land over the days, I just never, I had always sold them to people like what I turned in to was a timberland buyer. I had always just brokered them and next thing I know within the year they’re logging them or thinning them. I’d never been on that side of the equation.

Remember, through this whole time I’ve kept my real estate broker’s license and always had some transactional real estate going along the whole time. I never — even when I was working with the other company and whatnot, I would still — if I got a land referral to list the ranch up in Sonoma or Napa wherever I would take that listing and worked it. Even when I had these other jobs going.

I was kind of double dipping there. Coming up to Oregon, I ran into a guy who my dad referred me to who it was a perfect marriage, knew nothing about real estate and I really didn’t know anything about timber specifically. I thought they were all pine trees, I didn’t know there was pine and fir and cedar and all sorts of different variety of trees and I had no clue as to how much money they were worth.

It was somewhat of a leap of faith, I was living in the Napa valley and I was commuting to Portland to do this work. He handled all the lumbering activities and I handled putting all the money together and the banking contacts and all the real estate aspect of it. So a lot of what we would buy, the scenario would go, we would find a 40 acre track that had timber on it.

It was owned, we could break it into four tens. Getting a harvest from it in Oregon, you can puncture your logging routes in with just a permit over the counter, it’s not like building a subdivision where you have to go through all the engineering of the roads and everything. It would just happen that our logging road would be right up the center and our landings which is where you bring all the logs to would be like a big home site.

Just happened to be right where we might have a future home. When we were done logging it, our road was already put in under logging standards and then when I came back in and did a four way split on it, it ended up with four home sites, my road was already in and all my home sites were already identified where we had cleared them out and flattened them using logging equipment which required no permits.

Once they’re existing it was quite simple. In the really good days, the timber would just about pay for the lands, sometimes we’d even have a profit on just on the timber and the land was free and/or we made cash out of it and then we sold the lots off to homeowners and that was how we derived our profit and it was the spectacular business for about eight or nine year run there through the 90’s.

That also led me into buying some subdivision ground in Portland and creating lots for home builders as well.

[0:14:39.0] MF: Wow. So how long would it take from the time you bought the land, harvested the timber, subdivided it and pulled it off, how long was that profit?

[0:14:49.6] JH: The logging went very quickly, this was the great part of the business and then on top of that, I pre-sold the logs. So I had two things, I had a bank line of credit to pay for the logs, pay for the land, and/or I could get a advance from the mill on the timber deed that would pay for the whole thing, zero interest, no points, no cash out of pocket. That’s how good it was in certain deals.

So I was either tagging my lines to credit with the bank or that would cost me money because I’d have to pay interest or I would get a mill that would come in and they would scale up all the timber and they would cut a check for it and take a deep at the timber deed which was good for a year and then you had to deliver the logs and as you delivered the logs, they’d tick off with them and at the end of the day, you usually made a profit plus you ended up with the plant, free and clear. This was how the timber industry has gone for 150 years.

[0:15:54.4] MF: I had no idea. Always learn something new.

[0:16:00.1] JH: Most people don’t. I don’t want to just say this deals are like just sitting out there to be plucked. When I got into the business, I analyzed it old school it was the old mills and they would just have an ad in the paper with a log buyer, right? No one was going after these people. I used my training I learned as a real estate broker to go after the people and solicit them.

What I did and again this is all pre Internet basically and pre Google and all that stuff. I had a guy — laptops had come out. I didn’t know how to run one but I hired a kid that did and in Oregon you have very good aerial photographs right up the counter of the planning departments. I had him going in to the counties that I worked, identifying, going through the plot maps one at a time, looking at an aerial. If it had 10 acres or more of harvestable timber that you could see on the aerial, and it wasn’t owned by a timber company or some corporation, that became a lead and then we would just go in to the records, figure out who it is. And then we were able to do the reverse directory to get the phone numbers.

So I put that database together, I had about 10,000 properties between Oregon border and just south of Seattle, that was our target and I had telemarketers come in twice a week just like top agents have people calling on listings for listing appointments. We would just call for an appointment to give them a free evaluation of their timber. That’s how we created the leads. And believe me, no one had ever called these people, they had never been tele-marketed.

[0:17:50.9] MF: Kind of like the modern day driving for dollars when you're driving around looking for vacant houses.

[0:17:56.6] JH: That’s how long it used to buy timber. My partner when I met him, that’s what he was doing, he said, how did you get these deals? “Oh well I just drive up the driveways and knock on the doors.” Well that is totally inefficient. Why don’t we do this and it was great, we were, we did quite well.

[0:18:16.3] MF: You said that helped you move in to subdivisions and housing developments, how did that happen?

[0:18:23.0] JH: Because of my background with my dad, I had done a lot of the stuff that the land that he had done was also on a residential lot, smaller lots and for houses, and I had put those deals together and I had put the financing, the bond issues together in the early 80’s. So up here in Oregon you can’t do that, you can’t use public bonds to build private infrastructure.

So in the Portland market, in those days, the builders were not vertically integrated. You had two distinct developers, you had the group of guys that bought land and created lots and then sold them the builders and then you had builders who just bought lots from land developers.

There was again a niche in time where I was able to be a land developer because at that time I was a home builder and it was just a natural progression of what we did out in the forest to come into the city and buy a five acre track and whack it into 15 lots. Right? And I did that, I did about seven or eight sub divisions, probably totalling maybe 300 lots or so.

Then what happened was, and we had the first real big run up towards the end of the 90’s, the builders, because land was getting so scarce, they just stepped right in and they started buying the lots that the land themselves and developing themselves. So the lot developer, pretty much went away at about 2000 in Portland. Very rare to find somebody who only does lots now.

I don’t’ know anybody that does that. Everybody in the business now is, land is so hard to get and so scarce because of our urban growth boundary that the builders have to have their own development team in house, and buy their own land, put the streets and roads in and then build; vertically integrated.

[0:20:21.2] MF: I see a lot of that here too where there’s not lots for sale, it’s almost all builders who come in by the way and do development themselves and then one primary builder will build most of the lots, maybe he’ll sell some lots to a few other builders but yeah, it seems like the builder is doing more development than anyone else.

[0:20:42.4] JH: Right. So as I rolled out of that, and as partnerships go, I had a great partnership with my guy in the timber business, we’re still great friends but it was time to move on, I was ready to — and the log market had died. Part of what made the log market so good when I did it was the Japanese log. When the Japanese economy hit the skids, our $1,200 log went down to $600 or $700 bucks.

So the profit margins weren’t in it like they used to be. So there really wasn’t room for two executive salaries in that little company and since this was his ground and he knew all the logging, I wasn’t going to be a logger. It was best for me to leave him his, and it was his company that he invited me in to. It wouldn’t have been right for me to take it. I stepped out and I got back in the kind of my real estate roots in California and I started chasing court house step foreclosures.

I did that exclusively for a couple of years, extremely competitive in our market, sat down with my accountant one day and he said, “You know? You really should be lending the money.” And I said, “Well,” “Instead of doing all this work and chasing all these bills.” I said, “Well I have experience doing that, I ran a $50 million dollar business there for five years.”

I really don’t want to go back in to corralling 300 different investors though. In California, to make a loan, you can fractionalize a deed of trust and that means you can basically do it kind of in common on the deed of trust. So it was always if I had a $200,000 loan, Mark put in $20 grand, Jay put in $50. So there’s a lot of back end accounting that had to be done to run it that way.

I told my accountant, “If I can go to my bank that I now have a 12 year track record with and if I can talk them into giving the facility for a hard money loan, I would do that. That way I don’t have to deal with investors.” We were blessed, we had some capital and in the day, figuring circa 2002, I could leverage that four to one. So with a million dollars of capital, I could get a four million dollar line of credit, which is what I did. From 2002 to 2006, I ran that right back up to about $35 million.

I also got introduced to turnkey investing at that time. It was — I was specializing in loans to California folks that were buying turnkey investments in the Midwest starting in Detroit ending in Jackson, Mississippi and every city in between that. So I had an extensive book of business. I began because of my real estate background and my marketing background, I loved the way these guys were setup. They had marketing companies in LA, they had radio shows, they had all the high credit borrowers out of the west coast who were priced out.

You see this going on online now and on bigger pockets, “I’m priced out of the west coast so I’m going to go out to the mid-west and buy a rental property because they’re cheap. So what we did is we did the original bur they call and buy, fix it up, re-fi it and repeat. Instead of people paying cash for it, I was a hard money lender putting the retail client in the title and then the turnkey operator would do all the rehab put the tenant in and once they got a 442, our loan was already set up.

The lender was in LA, was doing all this loans through country wide or Wells Fargo or whoever. We rolled out of these in an average of 91 days was our average. So someone would go in to, they would pick a property in Indianapolis or Memphis or Detroit or wherever. I’d put them in the title and 90 days their Re-fi would come through. I‘d be paid off and we would just do it again.

Between 2002 and 2008, the last few years I was in it, I had warmed that up pretty aggressively and I was doing anywhere from 40 to 60 loans a month and I was in 12 markets and life was good. Well, we all know what happened in October of the late, investor mortgages stopped happening and I was stuck with about 450 California folks with hard money loans with me and they had no way to exit.

I had to work through all those, I work through about half of them, I got paid off in some manner. The other half I ended up owning and I had to work through those REO’s and I actually moved out to the mid-west and spend a year corralling all that stuff and have since sold it off.

I actually, in about 10 days now I’m going to pay off my last line of credit, gets paid to all that stuff off. I got through that time with personally losing a lot of equity because you just can’t — we were making loans, I look at this one property in Atlanta in particular. It was worth $150.

It was a nice 2,000 square foot, six year old home, running for a $1,000 a month and the price for 150 all day long we put a loan on it for 90, they couldn’t get a refinance. By the time 2009 came around and I ended up owning it, the LA people went dark on me. I ended up selling that house for $35,000 just to get out of it. Lost $55,000 on it.

The problem I had is I had pressure from my lenders and I had two partners that were up in age and they were like, “We just want to exit.” I’m like, “We need to keep this stuff and rent it out. No, we need to balance the portfolio.” It was a conscious decision to, part of it was we didn’t have a decision but things were calling our lines of credit because they were all one year revolvers.

Anyway, I triage that and lost of substantial amount of my own personal net worth but I got through it with credit intact, every lender got paid off, nobody took us short, everybody got all their interest and we lived to fight another day. As I saw that happening though, I saw the value proposition in these homes out there and 2011 I started buying them and I ran that up about 350 of them. I sold out of that in 2013, I bought a bunch in Atlanta with different partners, I bought a bunch in Atlanta and ended up flipping those to a hedge fund, we did very well.

I was not going to get caught like I got caught the last time. If I got a deal that came in and I was going to double my money, I’m not going to hold them, I going to just going to take the money of the table and get cash up again. That’s how that all played out and then in the last three and a half, four years, I’ve just been basically doing joint venture funding for folks here in Portland and a few markets around the country and then I did my own building now instead of selling the lots off, I started about three and a half years ago.

I figured well, if I’m going to take the lending money to builders, I might as well build them myself and get all the money instead of just the lending fee. Because at the end of the day if the builder goes bust, I end up owning it anyway. I might as well take that. I’m taking the risk anyway, we had a very unique situation happening in the United States where a lot of the builders that had all this experience went bust from 2008 to 2011 and these guys were having a hell of a time trying to get restarted again.

They had no credit, they couldn’t get loans, they failed chapter seven, they didn’t have the capital. It allowed me especially in the Portland market here. I’ve got two builders now build as a fee for me that I would have never gotten. These are the guys that have built 500 homes and we’re quite wealthy at one time.

They need to restart, I saved my credit and my core bank here in Portland I still have substantialized credit with. I’m able to go out and actually go toe to toe with DR Horton or R&R, something like that. Then I stumbled on Charleston, South Carolina and I’ve done about 20 homes there in the last 18 months and that’s also a very vigorous market and then I have all my other just fix and flip stuff in certain markets. That’s what I’m doing currently and loving life so far.

[0:30:13.3] MF: That’s incredible, all those different avenues you’ve taken and things you’ve done. I’m curious on the building because I’m in Colorado and we have an incredibly hot market right now. One of the highest appreciating in the country and what I saw was for almost 10 years, there was no building here because ourr market was down, the supply foreclosures and people didn’t have to do it, they couldn’t make any money building because prices were so low. I think that created a huge shortage of houses because people kept moving here but there’s nothing being built.

Have you seen that in other markets as well? Where there’s just a shortage of homes?

[0:30:50.9] JH: Absolutely. I just actually posted on BP, there is a thread going about our way in another bubble again and a lot of people were talking about macroeconomics and all this other stuff and my post was really as simple as the new home construction stopped in ’08, and then a lot of markets, it still hasn’t started or it just started back up in the last year or two. You still have in migration of people moving in that need homes and many of this markets, Portland, Denver, Charleston, probably Austin, there’s just an acute shortage of construction and the banks just like with my bank here, they let me go but I can only have

12 spec homes at any one time and I got to thinking, in the old days I could do this with zero cash out of pocket. Now, when I look at my deals, I might have $225,000 loan on a $375 house. Even if you had a retreat in values, the bank is safe. They’re requiring me to bring in a lot of equity compared to what they used to. This is also between equity requirements and the banks only loaning to people they really know and trust, they’ve constricted the supply and if you have to go hard money, you know how expensive that is.

It can take the profit out of the deal pretty quickly. I agree with you. The building’s coming back but it’s not at the pace to keep up with demand. It has gotten hot.

[0:32:36.9] MF: Yup. I’ve seen that here. I’m still… I talked about this before. I’m thinking about selling some of my rentals because our market is so hot but I don’t see a huge… another housing crisis come in, I don’t see that happening. I might see it levelling up but it just seems like a completely different environment than where we were at five to 10 years ago with the crazy lending going on.

[0:33:01.9] JH: Yeah, you have a lot of things going on there. I looked at prior to late, I was a pretty heavy duty foreclosure buyer as I was running up my hard money company and I saw a lot of HUD’s. So many of the deals were no money down, 80/20’s. I look at the stuff we’re selling now, depending on the subdivision but we’ll get an FHA loan and then we’ll get two conventional.

We’ll actually have a cash sell, you never had that 10 years ago, never because people were taught, don’t pay cash for that house, leverage it to the hilt you know? In my mind, this new run up going here, your borrowers are 10 times stronger, especially out in the “Cash flow rental markets.” Tremendous amount of those houses have been bought with cash, a lot of foreigners paying cash for them.

You may have values stop rising in some markets and maybe retreat a little but you’re not going to have the strategic default and, “Hey, I’m giving up on this,” I have no equity to get back to the bank you know? That’s my personal opinion. Not that you can’t have regionalized issues with values and banking and whatnot. I don’t’ see, I’m like you, I don’t see the same scenarios that led to the ’08 debacle.

[0:34:34.9] MF: I’m curious, you having been in California so long and prices in the Bay Area it’s crazy right now. What’s your opinion? Do you think the bay area can support those kind of prices or do you see a fallback in that area coming any time soon?

[0:34:51.5] JH: Well, if history repeats itself, it can definitely fall back. By 1989, houses in San Francisco primed, I had a loan on that and think about house on Green street, I had a loan on, I had an MAI appraisal at two million, the guy had a $900,000 view first and I made a$ 200 second. With my investors that’s when I was… That thing went to foreclosure and the first wiped us was out.

It had dropped 50% in value and after the earthquake and stuff. It can happen. Whether il or not, I don’t know. The area is that much more stronger than it was in 89 to 92. Apple, Google, all those people were the huge home run, you even have all those companies were kind of in their infancy and now they’ve matured. You have that much more purchasing power there. You have the whole bunch of Asian money coming into that area and I mean a lot of those people pay cash for stuff so they can ride it out.

Even in the LA thing like I grew up in Cupertino and lived also. Prices. The Cupertino house, got to a million too in the down and ’09 maybe it got down to maybe a million or you had a little bit of retrenching but it came right back up. I suspect if you had a massive earthquake again, kind of like what we had in ’87 or you had disruption in the services and all that that can cause them to shoot stuff.

If you look at it globally and you look at some of the very expensive markets in other parts of the world, they’re on par. You can’t go in to the prime areas of London and buy anything under two to five million dollars.

[0:36:51] MF: Right. Australia’s the same way, especially Sydney.

[0:36:55] JH: Yup, Sydney, Brisbane. I was just over in Singapore and although a lot of that is government owned over there but the privately owned real estate there is a private home over there is five to $20 million.

[0:37:09.6] MF: That’s crazy. Well, good thing you have a shortage of land and a lot of people, that’s what’s going to happen.

[0:37:16.2] JH: So you have that right now. In the Bay Area you have it because you have the bay in the middle and then not allowing you to fill it anymore like they used to like foster cities all built in the fill. Then you go out there the hills and you can’t put them so they’re in the mountains. So there’s just a shortage of land. In Oregon we have what’s called an urban growth boundary, which ties up lands for anywhere from 25 to 50 years.

We just have a governmental shortage of land. In our area here if you wanted to, you could bring in 20 million people because you got flat land from Portland all the way to Eugene but you’ll never touch it, it’s all ag land, it’s never going to change. Ergo we have a huge shortage of build-able land that’s been created by government.

The reason — and then Charleston, we’re in that right now is the same thing. That city’s on a peninsula, it’s surrounded by water, there just isn’t any land and it’s a very popular place to be and it’s got a lot going on for itself. Like Denver, I mean the Denver area is a quality of life. You’ve got the ski areas in the mountains and major airport to get places and people look at those things

[0:38:37.7] MF: Yup, for sure. That’s a lot of great information. I’m curious, changing course here a little bit. Looking back at all the things you’ve done and all the businesses you’ve been in. I mean I know it’s probably a hard question to ask, but what do you think you had the most fun doing or what was the most exciting for you out of everything?

[0:38:55.8] JH: Well, I will say the timber business was the most fun, hands down. It was really cool to walk out on a property and be able to convert one asset to cash so quickly and so easily. On a business aspect, that was great and you didn’t deal with — in Oregon because it is a timber based economy or had been all its life. You just don’t have the red tape to be in the timber business like California where it’s next to impossible to log or Washington that’s even that much harder.

Oregon is over the counter and you get a cutting permit in three days. It’s quite easy. I had as much fun doing that as probably anything that I’d ever done. I’m having a lot of fun now with my guys across the country that I’m helping supply capital for to do their fix and flips. A lot of them I’ve helped quit their day jobs or get to the next level so that that’s also fun. We’ll just keep doing that as long as the markets hold out and give us the opportunities to do that.

[0:40:10.0] MF: Right. And I think we, I do fix and flips with my father since 2001. We went through. The whole housing crisis, I don’t think Colorado got hit as bad as some other areas, we definitely had a down turn but it wasn’t immediate, it took a few years for prices to go down and I think investing in flips the right way with the current market in mind and not hoping that prices will increase. I think you can keep flipping through most any market but I think people get in trouble when they start thinking, “You know, I’ve got to pay more money to this house, it should be worth more in six months because our market keeps going up,” I think that’s where people get in trouble.

[0:40:48.0] JH: That is totally, I agree with that 100%. The big syndicator I worked with in the mid-80’s, as smart as they were and as big a company as they had, they started to have that mindset. “Oh we can buy that land in Sacramento because in two years we’re going to develop this lots and even though we’re going to be on them 80 in two years in two years it will be worth $110.

Go ahead and buy them. Well, that didn’t happen because in the late 80’s we had the recession in California and went the other way, they found themselves in some trouble.

[0:41:23.0] MF: Yup. All right, well great interview so far. I have one more question, I think we’ve covered a ton of stuff. We talked a little bit about this before we started recording but there’s a lot of people out there who want to get started investing in real estate. They see how awesome it can be for some of us who have been doing it for a while but they don’t have any money, they don’t have credit, they just want to somehow jump into the game and start making money. What’s your advice? Is investing is the right route to go into or should they be doing something else first?

[0:41:53.1] JH: Well that’s a great question and I’m going to start that off with one, it’s regionalized and in certain areas it’s absolutely in non-starter and that would be obviously the better markets we’re talking about, you're totally wasting your time. You can go in to other markets where you see houses like Michigan or Ohio or some of the rest stop areas where houses are trading in five and $10,000.

Somebody with no money could probably wiggle their way in and get something in contract and flip it and make a couple of thousand dollars but even at that, you have to have the money to be able to market to them and then be able to somehow have enough experience about how transactions work to actually make the deal go.

I mean I get approached by a ton of wholesalers because I’m buying for cash, all this property all over the country and boy, a lot of these people that I either talked to or write to me are just, they don’t have the experience really to put one off and you can tell talking to them. I only really know one way to do it and that’s the way I did it. I started as a real estate agent so that I learn the vocabulary. I learned how transactions worked.

I was around other real estate agents that were successful, that were making money and actually in my line, the land business, I was around some guys that were professional sales people. You know in your real estate business that not everybody is successful at real estate. Some people don’t have the sales skills to close on a deal, you still have to answer in your order, you got to know how to do it. That would be two things. One is kind of get in the game where you can get in with a real estate company or get on a big team and have half the people teach you how to do it.

Then take some sales training classes so that once you do get a lead, you know how to handle it and you don’t just fumble through it. That would be my advice to and/or you need to — most of the  people that I see that are successful investors and of course I’ve dealt with them my whole career, they’ve usually made money in their day job and they’ve saved it and now they have some money to invest in real estate. That’s what I call an investor.

Someone with no money and no credit is not really an investor. They’re trying to act basically as a transactional agent making money by doing a transaction. So I see that as two completely different things.

[0:44:28.1] MF: I would agree with you, it’s more of a job. It’s not investing.

[0:44:29.0] JH:  Even how are you going to buy a rental house? Yeah, you can talk some people in really low value areas where they just want to dump the property, you can talk to those people and giving you seller care backs and stuff like that but even at that, you’re making the delta between rent and have all your payments are still a hundred or $200 a month. You need to have scale, you need to have a way to get to 50 or hundred homes if you’re going to be dealing in that asset class.

Otherwise it’s just, you’re never going to get anything that’s more than a job and not that well-paying of a job at that. That’s my opinion on it.

[0:45:18.1] MF: That’s great and people email me and ask me questions and say, “How do I get started with no money? I have bad credit/ What do I do, how do I buy houses and my first question is, why don’t you have any money?” I’m honestly asking them. Try and fix something else before you jump into something new that you have no idea about and the more money you can save, the better off you’re going to be no matter what you do in life. Yeah, I think sometimes priorities get mixed up about what’s going to help you in the long run.

[0:45:44.9] JH: Well, a lot of this is promo gated through late night TV there are out there. Frankly, I know most of those guys personally because I’ve funded a lot of their back end deals and then, I’m new to Bigger Pockets but that is very much moved forward on Bigger Pockets with, “You can do it, yeah, go ahead, you can do it. I did it.” People get the peanut gallery telling them that yeah, no problem, keep adding, keep your chin up, do all this but it’s nice to say that and nice to be positive but it’s not actually reality in most instances. Especially if you live in a market where the real estate is medium prices, $280,000 and you’re competing against professional buyers and buyers that have cash and whatnot.

[0:46:45.0] MF: I totally agree with you. Jay, been awesome having you on this show, you did an awesome great job. I learned a ton myself. If people want to get a hold of you, is Bigger Pockets the best place to find you?

[0:46:56.5] JH: Yeah, they can just find me on Bigger Pockets and I have my email at the bottom of I think my bio or whatever page you can go on there and I’m happy to answer short questions. I do get a lot of people that are very nice that ask, you know, they’re looking for a mentor. I’m not a mentor, I don’t have the time to sit down with folks and help them through their life struggles and trying to get in to real estate. My way of giving back is doing this podcasts and just talking about what I would do on Bigger Pockets and my opinion on things. Which again, with a grain of salt, it is just my opinion.

[0:47:37.5] MF: Right.

[0:47:38.3] JH: Not necessarily the right way to do it, it’s just what I’ve done.

[0:47:42.0] MF: You are, you're very active on there, I know you’ve always chimed in when I had questions or talked about different subjects. So I’ve always appreciated that and I do think you give solid advice, it’s not always kind of telling people what they want to hear. Which a lot of people too. I always appreciated that.

[0:47:59.6] JH: It’s my pleasure and one thing I learned in high school to do is to type. For me, I’m not a hunting pack, I’m a 40 to 50 word a minute typer so I can get on there and type a couple of paragraphs and it doesn’t take me very long to do it and I’m happy to do it.

[0:48:19.0] MF: Great. All right, well Jay, thank you so much for being on, anything else you want to add?

[0:48:24.6] JH: No, that’s it. Next time I’m out in Denver I’ll give you a call, maybe we can meet up in person and you can take me for a ride in your Lamborghini.

[0:48:35.1] MF: Hey, that’s a deal. I’d love to, as long as there’s no snow.

[0:48:39.2] JH: If you get out to Portland I’ll pick you up with my plane and give you the royal treatment and the fly around the north west which is quite pretty as well.

[0:48:48.4] MF: Awesome, I would take you up on that.

[0:48:50.5] JH: All right.

[0:48:53.3] MF: Thank you so much, I really appreciate it, have a great rest of the week.

[0:48:56.5] JH: Okay, you do the same. Bye.

[END]

I have been rethinking my rental property strategy due to the increasing property values in Colorado. I have been talking to many investors and it constantly surprises me how many people sacrifice cash flow for possible future appreciation. In this episode of the Invest Four More Real Estate Podcast I discuss why cash flow is so important. Why appreciation is nice, but you cannot rely on just appreciation and I talk about my rentals and possible new strategies.

Investing for cash flow is not easy. There are many markets where it is very tough or impossible to find cash flowing rentals when using financing. Many of the most popular places to live in the United States have the highest prices. When housing prices are high, it is usually tough to cash flow on rentals. Because prices have increased so much in Colorado, I am thinking of investing in other areas with more cash flow.

I could sit tight where I am at and hope prices keep going up, but there is no guarantee housing prices will always rise. Even when housing prices rise, you do not realize any actual gains with appreciation unless you sell your property or refinance it. Selling costs and refinance costs can add up very quickly if you want to take advantage of appreciation. With cash flow you have money coming in every month as long as you own the property. While appreciation looks great on paper, cash flow is much more usable.

Here is a great article on how cash flow will help you retire early.

After giving some advice to a couple of my coaching students about selling their rentals, because they have so much equity tied up in their rentals. They aren't making a lot of money with cash flow, but they have a lot of cash tied up in the properties. I realized I should look at my own properties to see what my current situation looks like. I discovered that I have about 1.3 million dollars of equity in my rentals after selling costs. I am making about $7,500 on my rentals in cash flow (excluding my turn key rental), which is about a 7 percent return on my money.

I am thinking about selling some of my properties here, because prices are so high and reinvesting in another area that has more opportunity for cash flow. In the past I was able to buy homes from $80,000 to $120,000 that needed $10,000 to $15,000 in work and rent those from $1,100 to $1,400. Today, I can buy those same houses for$155,000 to $185,000, put $10,000 in work into them and rent them for $1,400 to $1,600. Those are not great numbers, especially compared to what I used to be able get. I may be investing in new markets with lower prices and better cash flow.

How to invest in out-of-state rentals.

LEAVE A RATING AND REVIEW FOR US OVER ON ITUNES

I am holding a live webinar next week on rental properties. Be sure to join here and if you can't make the time you can watch the replay.

[00:00:58] MF: Hey everyone, Mark Ferguson with Invest Four More. Welcome to another real estate investing podcast. Today it's gonna be just me. I've got a pretty interesting topic I wanna talk about, investing in cashflow versus appreciation. So this has come up for me recently for a number of different reasons. I'm really gonna get into why I love cashflow so much. I also love appreciation, but I really invest for cashflow, not appreciation.

I wanna talk about why cashflow is so much more useable; it can help you retire earlier, and why appreciation might not be as great as you think it is. Even though it does wonders for your net worth, it makes you feel good, but is it really as valuable as it may seem to be under the surface? So I wanna go over that. I also wanna talk about some different ideas that I've been thinking about as far as my rentals in Colorado, and possibly investing in another state because our prices have just gone crazy where we're at right now.

So to start off with, I know many of you may have seen I am raising my price of my Complete Blueprint. That happened on February 1st, so hopefully you guys got in there if you're interested in it. If not, I will occasionally be running sales throughout the year, but that price is not gonna be the same or as low as it was before. It just takes a lot of time for me to help people with the email coaching, doing the conference calls, and I still need time to invest.

But moving on! All right, why is cashflow so great to me and why I think most investors should invest for cashflow? The number one thing about cashflow is it comes in every month. So if you buy a property, rent for $1,400 a month, maybe your payment's $500 a month, you've got some other expenses like vacancies, maintenance, taxes, insurance. Maybe you're cashflowing 4 or $500, that's usually about how it works out, depending on what your taxes are where you're located.

That $500 a month will come in as long as you own that property. Now it might be more some months, less some months, depending on if you have some vacancies, if you have some repairs to do. But the averages say that money will keep coming in as long as you own that house, every single month, every single year. And the really cool thing about rental properties is it will go up over time even.

So with inflation, rent will usually increase. If you're in a market that's popular, that has an increasing population, maybe rents will increase besides inflation, will increase even higher like we've seen here. And that whole time you are paying off your mortgage by making payments on the house. So it's not just the cashflow, but you're slowly paying down your loan.

So if you have a 30 year loan, which I prefer, I much prefer 30 over 15 year loans, which is another topic. But then after 30 years if you hold the property, your loan's totally paid off, assuming you pay nothing extra into the loan. And now your cashflow has just gone up $500 more a month from what it was before. So over time, rental properties are just a great investment because the mortgage gets paid down, your cashflow slowly increases, and that money just keeps coming in month, after month, after month.

Now I would love it if they appreciate as well, but I don't think appreciation is quite as great as the cashflow, which I'll talk about here soon. Another thing I wanna get to before I get the appreciation is retirement. So many people are taught to save your money, "Save, save, save. Invest it in the stock market." Watch this nest egg build up. And once you get to a certain age you can start eating into it, you can start taking that money out, living off it. Hopefully you calculated how long you will live correctly, you don't run out of money.

But when you're buying for appreciation, you're kind of doing the same thing with rental properties. You're building up this huge nest egg, you know, bigger, and bigger, and bigger. And then once you get to a certain point, maybe you start selling off your properties and taking money out to live on. And that works, it's not a horrible strategy. But the great thing about cashflow is, if those properties are making you cashflow every month, so one property making you $500 a month isn't gonna let you retire.

But you know, I have 16 rental properties right now, around $8,000 a month in cashflow every month, depending on your lifestyle how much you spend, many people would love to retire on $8,000 a month. Now for me I want much more. I have many more, a different idea of life and everything. But $8,000 a month is pretty cool having coming in without doing any work. I mean my properties are managed by someone else, sure I have to keep track of them a little bit, but it's pretty awesome.

And that will keep coming in as long as I own them and increase over time as my loans get paid off, as rents slowly go up. A number of different factors will make that figure go up, especially if I keep buying properties, which I plan to. And that's why I love cashflow, it just keeps coming, and coming, and coming. So the appreciation factor is great because your net worth increases and you have this big, you know, amount. Because you say, "Oh hey, look how much my properties went up in value. I've got this net worth of $2 million now."

But if you don't have any cashflow with that appreciation, what good does that appreciation do you? It's great to have, it's better than not having any appreciation. But the only way to access that appreciation is to either sell the properties or refinance them. Now if you don't have any cashflow — which is possible in certain markets — and you refinance a property to take money out of it, you have even less cashflow. You're gonna be losing money every month and putting money back into the property.

If you sell the house then you're most likely going to have to pay a capital gains taxes and repay any depreciation you captured while you owned those properties. It can be a pretty hefty tax bill. And once you sell the property, you're done with it. It's not gonna make you any more money, you've got a lump sum that you made off the appreciation. But I mean was it really that great of an investment after you consider the taxes you pay, you have to pay a real estate agent to sell it for you, you're gonna have to pay closing costs, closing fees.

Usually if you're not an agent you're going to be paying up to 10% of the selling price of the house in cost to sell the house. Capital gains will be 15 or 20%, who knows what it will be in the future? It's constantly changing. And then your depreciation that you wrote off over the years, you'll have to pay that back as well. So the advantages of appreciation really aren't that great to me once you look at the long term, "How do you get that money out? How do you cash in with that appreciation?"

And if you're in an area that doubles in price every five years, awesome. You'll probably be in great shape. But I don't think you can count on that over the years. Who knows what prices will do, how fast they'll go up, if they'll go down? There's just no guarantees, just like the stock market. So I'm gonna tell you a little bit about my situation now, where I'm at with my rental properties and why this had become kind of a big question for me right now on "what do I do next in my rental property investing career?”

Like I said, I have 16 rental properties, one of them is a turnkey rental property in Cleveland that I bought with my IRA. So I'm not really considering that property in this decision cause I've got that there, it's in my IRA, I'm not planning to sell it. But the other 15 rentals are in Colorado. I bought my first rental property in December of 2010. I bought one that year, bought a couple the next year, kept upping the amount I bought. I bought five last year in 2015.

So all my rental properties are Northern Colorado within about 10 miles of me, except for the Cleveland one. And our market in Colorado had gone bonkers. I mean it is crazy! The median price in Greeley where I'm at is now over $240,000. When I started buying my properties in 2010, the very end of 2010, the median price was around $120,000. So our prices have doubled in five years or so. It's crazy and it makes my net worth look awesome! It makes me look like a genius for buying all these properties.

But at the same time, my cashflow has not increased as much as the appreciation's increased. My rents have gone up, I am making more money on my rents compared to when I first bought most of the properties, but they have not doubled. There's no way they've doubled, they've maybe gone up 20% I would say, in those five years. Maybe 30% on some houses? But not nearly as much as the prices have gone up.

So while it's really nice to look at my equity in my houses, how much money I've got in them, I'm thinking to myself, "Am I making the best use of that money? Or could I be doing something better with it to create more cashflow?" So I'll go through the number here. I have about $8,000 a month in cashflow coming in, somewhere around there. If you take out the Cleveland turnkey it's probably around $7,500 or so.

I have about $1.4 million in equity in my houses, excluding Cleveland. So that means after I take what my houses are worth, minus the loans on them, I've got about $1.47 million in equity, which is really cool. I think if I look back I spent about $350,000 in cash buying those properties, now I actually spent more than that total, but I've refinanced four properties over the years, so I've gotten a lot of that cash back. So total I've spent about $350,000 and that ended up creating $1.47 million in equity, which is awesome, I love it!

I figure conservatively, if I wanted to sell my properties, I could take out about $1.3 million after selling costs after making a few repairs here and there to sell my properties if they aren't perfect when the tenants come out. So I have basically $1.3 million in these properties, if I wanted to cash out, to use for something else. And people, I've been talking to a lot of different investors, a lot of people across my site, the Internet.

And people were like, "You're crazy for even thinking about taking that money out. Look how awesome your investments have done. Look how much money you've created. You're in Colorado with a great market, things are just gonna keep going up and up and up. Hold onto these properties, don't do anything with them. You're gonna kill the golden goose," as one person said.

But here is what bothers me the most is I have the $1.3 million, but if I look at $7,500 in cashflow coming in, that's about a 7% return on my money. And I'm used to getting 15% percent or more on cash on cash return when I invest in these properties. And that's just the cashflow coming in. So 7% return when I look at how much equity I have into it, I'm like, "Wait a second, that's not quite as good a return as I'm used to getting. Am I missing an opportunity here?"

So it's kind of a question that popped up, "Should I sell some of these properties, maybe reinvest the money into other properties and build up my portfolio even faster, get even more cashflow, and get closer to my goal to buy 100 properties faster?" And so more people are telling me, "You're crazy for thinking that, just hold onto them. If you wanna buy more properties, use the income you have, money you've saved," which I will do as well.

But here's my reasoning: one reason I've been able to turn that $350,000 into $1.3 million or whatever it is, is because of the way I buy properties. So I talk a lot about this on my blog, I talk a lot about it on my podcast, my YouTube videos. When I buy properties, I buy them below market value. So that means I want a really, really good deal. If I see a house that's gonna be worth $150,000 after it's fixed up, I don't wanna pay $140,000 and put $10,000 of work into it. That's a waste of my time, it's not worth it.

I wanna buy a the house for $100,000 and put $10,000 of work into it and then have it worth $150,000. Cause when I do that, I walk into $30,000 of instant equity, and that's how I've been able to build up my net worth so high and these properties are worth so much, because I started out with such a huge advantage and then of course the appreciation helped as well. But it wasn't just appreciation that got me these big gains.

Now buying below market value is not easy, it's not something you can just hop on the MLS one day and pick up six properties like that. It takes patience, it takes hard work, and I talked a lot about that in the blog and in my articles as well. But it's the key to my investing, and when I have these 15 properties, they're sitting here bringing in money every month, which is great. I love it.

But I look at all this equity and I'm thinking, "I could be using that money to buy more properties below market value and just kind of supercharge my entire investing strategy and get to where I wanna be a lot faster." So here's an example of what it might look like if I were to sell one of my properties and reinvest it somewhere else. I'm gonna talk about where I would invest it here in a second too because that's another very tough question for me to answer.

So I have one property that I've owned since 2012, that was rental property number five I believe. Or was it? Yep, number five. I bought it for $88,000, put about $15,000 of work into it. I figured it was worth $140,000, maybe $130,000 at the time I bought it. Now it's probably worth $190,000. So I have about $108,000 of equity in that house, after selling costs.

And I also have a tenant in there who just drives me crazy, he's always behind on his rent. He catches up and pays all his late fees, but he's always behind and yeah. And I know other people manage my properties but they still tell me about this tenant who I had a deal with when I was managing him too, and he's still being, you know, very trying. So I've got $108,000 in this property, so how could I use that money to build up my portfolio faster, bigger, stronger?

The strategy would be, get the tenant out, fix up the home, make it super nice. I don't think it needs too much work, we fixed it up before we rented it. Put it on the market, and use a 1031 exchange to buy another property with it. So a 1031 exchange is, IRS tax code says you can sell an investment like rental properties for a like investment, like rentals properties. Or there's many other things you can sell or buy with a 1031 exchange.

And if you do it according to their rules there's many timelines/guidelines you have to adhere by, but you sell the one property, you identify a new property within, I think, 25 days, buy that property. If you take all the cash you have when the property sold, reinvest it into the new property and abide by all the rules for the 1031 exchange, you don't pay any capital gains tax, you don't pay any recapture with the depreciation when you do the exchange.

So basically you can take one property and switch it out for a new property and not pay any taxes on the profit you made on the old property. It's a really cool technique to use if you can pull it off. So what I would do, take that $108,000, buy another property with that $108,000 cash. Maybe put 5 of $10,000 or my own cash into it so that I'm pay like $115,000 for the house. Do the same thing, put 10, $15,000 of work into it. Hopefully the property's worth at least $150,000, maybe more.

So I've got this house in cash that I've bought using the old rental property I sold, probably makes 4, $500 cashflow, which my old one did too. So it's like, look at it on the surface it's not big of an improvement, except I have bought the property in cash. I don't have a loan against it. And what I could then do is refinance the property.

So I can refinance the property, take out probably 75% of the value or purchase price, depending on what kind of bank I can find, what kind of deal I can find. Then all of a sudden, if I could find a bank who won't have a seasoning period, I could take out like 100, $110,000 from that property with the refinance. All of a sudden I've got this cash flowing property, and actually take a step back here.

I forgot to mention, I said the same cash flow with the new property as the old property. But that would be with the loan in place. So when I had bought it for cash, it would have much more cashflow because I wouldn't have a loan in place. So the cashflow would probably be like $900 maybe $1,000 without the loan. So it would have more cashflow than the original property.

But once I refinanced it, I could use that $100,000/$110,000, whatever it is to buy three more properties doing a 20% downpayment, making repairs like I have in the past. All of them bought below market value, all of them cashflow 4-$500 a month. Now what I've essentially done is taken one property that has $108,000 in equity in it now, exchanged that for another like property, refinanced that property and be able to buy three more properties.

So I have exchanged one property for four properties. The first property I sold was cash flowing about $500, we'll say. The four new properties I'm buying would cashflow from $1,500 to $2,000 a month. So I've increased my cashflow $1,500 month, I've bought all four properties below market value. So to make numbers easy, I bought them for $20,000 less after repairs and purchase price than they're worth. That's conservative, I've usually got a little bigger chunk of money when I buy my properties.

So I've gained $80,000 in equity, and I've gained $1,500 in cashflow or so, plus I have four new properties that an all be depreciated off a much higher cost basis than my original one property. So I've essentially traded one property for four properties, put maybe I dunno? 10 to 15, maybe $20,000 of my own cash into this deal and gained a ton of cashflow, gained a ton of equity. And instead of having one rental, I have four rental properties.

So when I think about it that way, when I explain that to people, maybe they don't think I'm quite so crazy for thinking about selling my properties. Now I'm not saying I'm gonna sell them all at once, it takes, you know there's a lot that goes into a 1031 exchange, there's a lot that goes into selling a property, and there's also a lot that goes into buying new properties below market value. You can't just walk out into the street and pick them up one after another.

So the other big question I've been thinking about and considering is with prices so high here in Colorado, I can't get the kind of deals I could get before. I mean if I look at my market, I'm lucky to find any decent house under $200,000. Even houses that need work, I mean the best deal I have seen in the last four months was probably a house that was for sale for $155,000, needed 10 or $15,000 in work. And once I was done with it, maybe it would rent for $1,500, maybe. I mean that's pushing it.

So I am way below the 1% rule. Maybe the house is worth $200,000 when it's fixed up? So there's definitely equity there. But at the same time, what good does that equity do me if I'm not making any money on the cashflow? I don't think it does me that good unless I eventually sell the property, refinance in the future. Which again, is not that big of an advantage as it may seem to be on the surface.

So if I were to use this strategy here, selling some of my properties and reinvesting the money to new properties, it probably wouldn't make sense to do it. There would not be that big of an advantage because the new properties I would be buying don't have the cashflow, they would be much more expensive as far as initial purchase price goes, plus you're adding in repairs.

So I'd have to bring much more cash to the table of my own cash to complete the deal. Or get financing as well as using the proceeds from 1031 exchange. Or I would have to sell two of my properties at once and use all of those proceeds to go into one property. It would just get very tricky. It's much easier to kind of sell the properties I have now and use the proceeds that I have to buy a similar priced house as the proceeds coming out of it. If that makes sense?

I know there's a lot of members in this episode but I like numbers so hopefully you're sticking with me. So my strategy, which I've been talking about on Facebook, on some of the forums, on the blog a little bit, would be to possibly invest in a new market. Colorado appreciation is crazy, rents are not keeping up with the appreciation, it's really hard to cashflow well.

So the solution I've been thinking about is to invest in another market. Florida's caught my eye, there's a number of other markets across the country that have great cashflow, still plenty of properties that I can buy below market value and they have upside as well. I don't think they're just gonna be stagnant with no appreciation, no upside over the next few years.

Now originally I was thinking, "Hey, any new properties I'll buy in Florida or wherever it is, using the money I've saved, money from my flips, money from my real estate team. And I just stick to my portfolio here, leave it sitting here without changing." But then after looking at the numbers, thinking how much money I had in these houses here, that's when I thought, "Hey, what if I sell some of these, reinvest them into other areas of the country, and really increase my portfolio, my cashflow."

I mean it would change my whole business structure and probably get me to my goal to buy 100 properties much, much quicker. So there are properties in the areas that I've looked at that need that purchase for $100,000, purchase for $80,000. And then be rented for $1,200, $1,400 month. Make repairs to them, your equity is there. You've got that build in $20,000/$30,000 of equity as soon as you purchase the house.

So I think I am definitely going to pursue this new strategy in 2016. I'm not sure exactly how it's gonna play out. I don't know where I'm going to invest. I would love to be in markets that have increasing population, increasing job growth, great economies, but at the same time their prices haven't gone as crazy as Colorado's, as crazy as California's, as crazy as some of these other areas across the country that are seeing these big appreciation numbers.

So my plan for right now, I've been reaching out to a lot of people across the country, asking people on the blog, asking people all over where they're investing, what kind of numbers they have, what they're looking at? So hey, if anybody out there has suggestions for me, wants to shoot me some numbers, some ideas of where they're investing, I'd love to hear it. You can always email me, [email protected]. Love to hear from you guys.

And then also, I'm doing a lot of research myself, talking to agents, so I talk a lot in my coaching programs, a lot in my blog about how to learn markets, about how to buy below market value, about how to find lenders, about how to find contractors, how to find agents. And I have done all that myself in my own market for many years.

And if I do this, if I got out on this new venture investing in different markets, investing in different properties, I'm gonna have to do all that myself too. So I will definitely be putting all my strategies to work that I teach other people. I'll have to go out, I'll have to find great agents, I'll have to find great property managers, I'll have to find great contractors, I'll have to be able to find great deals in other markets, and I will be doing it from out of state.

So I'm not gonna be moving to a new market, I'm staying in Colorado. But I'll definitely be visiting a few areas and then I'll be getting my team set up as well as I can when I visit there. And then once I get my team set up, come back to Colorado, do as best as I can buying below market value from here using agents, using people on the ground where I'm investing. And trying to find lender of course because my portfolio lender does not lend in any other state. I would have to find a new lender or possibly use one of the national lenders who I've talked about, interviewed on my podcast.

So we'll see. We'll see how it works. I know it's possible. I know there's a lot of people doing it who are very successful like Anil Walia who was on — I forget which podcast it was, but a few podcasts ago. He's investing from Canada as a foreigner buying in Florida, doing it all from abroad. He's not spending a ton of time there, he lives in Canada, he's buying properties from Canada, financing with a local lender in Florida.

So I know it can be done. It's just a matter of getting started, researching as much as I can, meeting people, talking to people, deciding on a location, visiting that location, checking out properties, checking out neighborhoods, making sure I'm comfortable, really you have to have some people you trust when you're investing out of state because from what I've heard there's many different intricacies investing in Florida and some other areas where it's not just one town that's gonna have a better rental location than another town.

It's one street, it's houses across the street from each other will be completely different. So there's a lot of different things to consider, there's flood insurance, there's hurricane insurance, economies, there's a lot that goes into it. But at the same time I'm excited, it's something different and fun, and going to visit Florida or other parts of the country where maybe I've never been before will be exciting and fun.

Meeting people's always fun, so I'm excited. I think I'm definitely going to pursue buying in other markets, definitely going to try to narrow down some locations here pretty quickly. And then the question of whether I sell my properties in order to really boost my investing by more and more properties is something I really need to consider here in the next month or so, maybe even less than that.

Because I think there's definitely opportunity there to really boost my portfolio, increase my cashflow, and just jumpstart things like crazy. You know I talked about one house going from $500 in cashflow to $1,500-$2,000 in cashflow, and that's just one house. So if I were to take, I kind of identified seven properties in my portfolio that either are a little weird in their floor plan or something, or maybe the location's not perfect. They're ones that I'm not super attached to.

If I sold those seven properties, I mean I could probably match the cashflow I have now in my portfolio with just those seven properties. And that's pretty exciting cause it took me four or five years to get there, I could probably double my cashflow in one year using this strategy. It might be tough to do it in one year, but I bet I could do it. And not to mention, turning those seven properties into 20 or 25 new properties, all of them bought with say $20,000 in equity.

I mean that's almost half a million dollars in gain right there that I would not have if I just kept my properties sitting the same where they are. So obviously it's an aggressive strategy, it could come back to bite me, who knows? Or it could pay off awesome, who knows? I think if you stick with your strategy of buying below market value, if I'm able to 1031 exchange them and avoid paying taxes, it would be pretty hard to lose money by doing this.

I mean even if markets go down and decrease over time, I think it would be hard to lose money. I mean worst case scenario I figure I would break even. But I mean I think it would be really, really have to be a bad situation for that to happen to. So we'll see where it goes. We'll see what happens. Pretty exciting. It's always fun to go out in new ventures, try new things, come up with new strategies. And yeah, we'll see what happens.

That's all I've got for this episode, thank you guys so much for listening. Appreciate it. As always, please leave me feedback, either comment on the blog, send me an email. Always appreciate you guys leaving reviews on iTunes, I love seeing those.

Alright, everybody have a great week and that's all I've got from snowy Colorado.

On this episode of the Invest Four More podcast I interview an awesome guest! Mark Filler is the CEO of Jordan Capital Finance and he was the founder of Prospect Mortgage, which is one of the five largest mortgage lenders in the nation. Mark started Hilco Real Estate Finance, which later became Jordan Capital Finance, because he saw a huge opportunity for lending to real estate investors. As many of you know, it is tough for investors to get loans on many rental properties and hard money loans can have outrageous rates. Mark created a company to allow rental property owners to finance many properties, not just four or ten. He also created a company that would give consistent short-term loans to investors at reasonable rates.

Mark graduated from Harvard law school and became an attorney after school. However, he had an opportunity to get into the mortgage banking business and although he no experience with banking he jumped in. He helped found Prism Financial, which grew from $1 million in revenues to over $275 million in revenues (15 billion in annual mortgage volume). He helped the company complete an IPO and was president when the bank was sold to Royal Bank of Canada.

Mark joined American Home Mortgage and then created Prospect Mortgage. Prospect now has a servicing portfolio over 15 billion. Mark started Prospect to focus on renovation loans and even though he created the company in the midst of a housing and lending crisis it was a huge success. Prospect was the number two bank in the country for renovation loans, but most of those loans were for owner occupied buyers. Mark started Hilco in order to provide renovation loans to investors in 2012. In 2014 the company was bought buy the Garrison Investment Group, which is now a five billion dollar hedge fund. Hilco was turned into Jordan Capital Finance and that is where we find Mark today.

Mark saw a huge gap in lending a few years ago. Most loans were marketed to owner occupants and real estate investors had very little options except for small local lenders. He knew there were many real estate investors who had solid financials, good business plans, but could not get loans because they owned too many properties or lenders did not like to offer short-term loans.

I have used a local portfolio lender for many of my loans on flips and rentals. However, my lender has some limitations as far as type loans and how much they will lend me. Jordan Capital's philosophy was to offer real estate investors great short and long-term financing and even the option to use the two together.

I am in the process of refinancing some of my rentals with Jordan Financial right now. I have 16 rentals and 14 mortgages, which are all ARMs. My portfolio lender has become a little tougher to work with since I hit 2.5 million dollars in loan with them (that includes fix and flip loans). Since it is tougher for me to get loans on new rentals, I am considering refinancing 8 of my rentals into 30 year fixed rate mortgages. My rates would be higher, but I would also be able to cash out about $300,000. I could then get more loans on new properties with my portfolio lender and have more cash to buy more properties. I would still cash flow on those 8 properties after refinancing them, but obviously not as much as I do now.

Even though the rates on a 30 year fixed loan may be higher than a conventional loan. Most investors have a hard time getting loans on more than four properties and an even harder time getting loans on more than ten properties. Hard money loans are not always easy to get either and many lenders charge more than 12 percent interest rates on them. Jordan has no limitations on the number of loans investors can have and they have plenty of money to loan.

Mark Filler is the CEO and not the person you want to talk to if you are looking for a loan. Jeff who works with Jordan is who I have been in contact with and has been great to me. You can contact him here.

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Quick reminder: the price for the Complete Blueprint for Successful Real Estate Investing is going up Feb 1st.

Gino Barbaro is from New York City, which is not an easy place to invest in real estate in. Gino has bought properties in New York and bought properties in other states as well. In fact, with his partners Gino has over 50 rental property units! On this episode of the Invest Four More Podcast I talk to Gino about how he has bought so many units while living in New York City.

Gino has always been am entrepreneur, but not with real estate. He has been a restaurant owner in New York for many years. Gino knew that owning a restaurant would not provide the lifestyle or passive income he desired. There was too much active management and many ups and downs. Gino discovered real estate and knew that was path he wanted to take in order to provide passive income. He started buying properties in New York, but quickly realized it was very tough to cash flow anywhere in the city or outlying areas, because real estate prices were and are so high.

Gino's first adventure outside the city was buying a duplex in Rochester, New York. He loved the cash flow the property provided, but did not love how far away the property was or the high taxes and low appreciation potential.

Over the years Gino met Jake Stenziano, and they hit it off immediately. Gino and Jake started to invest together in long-distance properties. They knew they did not want to start small, but big. So they looked at multifamily apartment complexes. Jake was able to move to the Southern part of the country to be the hands on investor and Gino stayed in New York. Gino and Jake were able to buy a 25 unit property and they were just getting started.

Gino and Jake were attracted to Multifamily properties because of the economies of scale with a big property. They could buy large complexes in one transaction, instead of purchasing multiple single family or smaller properties with many different transactions. In the areas that Jake and Gino were investing in, the multifamily buildings also had better returns than single family properties.

After buying the 25 unit complex, Jake and Gino bought a 136 unit complex and now own over 500 units. From the beginning they have been very careful about their partnership. They have always had everything in writing, they have always paid each other for jobs they have always been clear on what each partners responsibility is. Jake has been more hands on with management and finding properties. So he has been paid for managing the properties and finding them. It is very important that each partner knows what their role and compensation is.

Here is a great article on partnerships.

Jake and Gino have their own podcast and website where they talk about their journey with real estate. JakeandGino.com is the best place to reach them and I was recently on their podcast, so make sure you listen to that show!

Many of you have expressed interest in purchasing this coaching course at some point. Prices will be going up February 1st. If you want to get in now before they go up, here is the link to the program.

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[0:00:14] MF: Welcome to the Invest Four More Real Estate Podcast. My name is Mark Ferguson and I am your host. I am a house flipper. I flip 10 to 15 houses a year, I own 13 rental properties with a goal to buy 100 by 2023. I’m also a real estate agent. I’ve been licensed since ’01, I run a team of nine and we sell close to 200 houses a year.

So on this show, we’d like to interview house flippers, landlords and the best real estate agents in the business. So stay tuned for some great shows, if you want more information on my rentals, on the numbers, on how I buy properties, check out investfourmore.com.

[INTERVIEW]

[0:00:57] MF: Hey everyone, it’s Mark Ferguson with Invest Four More. Welcome to another episode of the Invest Four More Real Estate Podcast. I am super excited. I have a really great guest on for the show, Gino Barbaro, who has over 500 units of rental properties right now. Super successful investor. He also has a website, jakeandgino.com. Unfortunately, Jake can’t be here today but Gino can fill his shoes. Gino, thank you so much for being on the show. How are you doing?

[0:01:25] GB: I’m doing great Mark, how are you?

[0:01:27] MF: I’m doing really good, I’m always excited to talk to investors and especially investors who have seen as much success as you and finding out how you got there, what you learned along the way and any advice you have for the listeners so thank you for being on the show.

[0:01:41] GB: My pleasure.

[0:01:42] MF: So, you’ve been investing in real estate for about 15 years, what first drew you to real estate and what were you doing at that time?

[0:01:52] GB: Well, I was fortunate. I had two parents that were entrepreneurs. My dad owned a restaurant, got into the restaurant business with him and they always had real estate as a side gig but they never thought big, big. They thought, “You know, let me own the building that I have the restaurant in. Let me own maybe one or two properties.”

You know the economy 20, 30 years ago was a little bit different where you didn’t need that kind of passive income. If you had a great business, small business, you could do really well. So that was my introduction so I loved it. In the restaurant business as you know, when it snows you’re not getting paid but in rental business, you’re getting paid every day of the month. So that was my paradigm shift into how I got into real estate.

[0:02:28] MF: Okay, very cool. It’s funny, I had another guest who was in the restaurant business as well and he said, “Yeah, a completely different businesses,” but they both use real estate but besides that, that’s about the only similarity between the two.

[0:02:43] GB: You know Mark, there is one similarity. It’s with every other kind of business. It’s really tenant or customer driven. You really have to take care of your tenants or your customer coming into the place of business. So when you have that mindset as a business owner and you look at the income and the expense of your business that’s what really helps out if you’re a business owner getting into real estate. I found that to be really helpful for me.

[0:03:03] MF: Yeah, I know. That makes sense and I think, like you said, just about any business if you take care of your customers or your clients, you can build on it, be successful, build for the long term so that’s great advice. So when you first got interested in real estate, what were you doing? We’re you doing another job, did you have your own business, what were you up to?

[0:03:23] GB: Well, what happened was I started my restaurant business about 20 years ago. I got out of college back in ’92 which everyone knows real estate was a down turn. You’ve kind of be stunk, I couldn’t find a job, so I went to work for AIG as re-insurance accounting and as I like to say, that’s about as much fun as watching paint drying on a wall. That’s how boring that job was.

So I was stuck going Manhattan commuting for about a year. I was just stuck in the ride and I said, “I’ve got to get out of this.” I ended up going into the restaurant business. I loved it. It was great but it was that real estate thing that just kept holding me and pulling me. So I decided back about 15 years ago, I bought my first rental property with my brother and I was hooked.

I just loved it. I love the fact that you go collect rents, just advertise the property, you get that capital appreciation that holds. I saw the big picture but I was still in the restaurant so it was very difficult to juggle two things. Fast forward about five years ago, I met Jake at the restaurant. He was doing a lot of catering with my brother and myself.

I said, “Jake, what are your plans for the future?” He says, “I’m going down to Knoxville, Tennessee. I’m going to explore Glasgow Smith clients but I want to do real estate”. I said, “You know, let’s just keep in touch because the New York market is difficult up here to cash flow.” It’s hard to make money in this market.

So when Jake started about five years ago down there, got in touch and like Jake likes to say, the first two years we’re doing it, we got rejection after rejection. We had no portfolio, we had no credibility. Three years ago in February, we bought our first property, a 26 unit property which Jake likes to call a “crack den”. It was a distress property but we saw.

When you are a newbie, you just don’t see the impossibilities. You see the possibilities. That’s what’s great about being something new to something. You just see the possibilities and that property was our launch into the business. 25 little units there, little cottages and everything, we bought it for $600,000, 10% owner financing, 10% bank financing.

We had a great real estate agent who guided us along the way and the rest is history. Three years later, we’re just cranking out. Jake quit his job doing real estate full time and me, in two months, I’ll be moving down to Jacksonville, Florida in two months and I’ll be doing real estate full time myself.

[0:05:25] MF: Wow, congratulations.

[0:05:27] GB: Thank you.

[0:05:27] MF: That’s quite a whirlwind.

[0:05:29] GB: It really is. It really is a whirlwind and you just have to seize the moment and it’s scary. I’m not going to lie to you. You go around but if you have that drive or if you have that emotion and you want to do it, I think anybody can do it if they really put their mind to it.

[0:05:42] MF: Right, that’s great stuff. I’m curious, you said you started investing in New York quite a while or you said you bought your first rental property, was that in New York your first one?

[0:05:51] GB: Yes, it was. It was 2002. I remember the dates because I bought that first property. It was a three family property and the little story behind that, I have spoken to you about how we make mistakes in a previous podcast. I made a mistake in that property. I bought it and it was a three family. Now, I’m going through the town now to get the fourth apartment legalized.

It was a three family but we had bought it as a four and back in the day, no one did any CO’s. No one did any kind of searches, so no one said anything. Now, I’m paying the price. I am trying to refi the property. I am trying to get the four unit legalized so that was the first property that I bought with my brother. It was great. It was a nice little three unit property.

[0:06:27] MF: Now, I have a lot of people from New York, they run into the same problem. You just can’t cash flow in New York because prices are so high. Was the market different back then? Have you seen the market progress or it has been difficult?

[0:06:39] GB: Yes. No, I think back then 50 years ago I think the big problem of New York is the insurance and the taxes. The taxes are very high. Property taxes and the property and the per unit cost if you’re going to spend a $100,000 per unit in New York, you might get a $1,000 a month for rental income in that unit.

Down in Knoxville, what I see down there is we can spend 40,000 a door or per unit and we can get $600 to 650 per month. So you can see the leaving balance there. You’re getting more income and you’re paying less per door. The other thing is that property taxes are so much cheaper down in Knoxville. The insurance is so much cheaper down in Knoxville.

The labor cost is so much cheaper in the south whereas oppose to where we are, it makes a huge difference and the other problem is now that I’m going through all these hoops to get the property up to speck or make it legalized, it’s a big expense. You have to take out building permits, it cost $3,000 to do. Any kind of job, it costs prohibitory expensive up here to do business.

[0:07:38] MF: Right, not hat makes sense and I know New York, New Jersey, Illinois, all those places have super high taxes. So give me for the same $100,000 property in New York versus Knoxville, what do you think the tax difference is?

[0:07:53] GB: We bought our property, a 136 units two years ago, the tax base on that property was around $40,000. I’ve got a property in New York which is worth a $1.2 million and the tax base on that is about $30,000. So you could see that it’s just so out of whack here, it’s crazy and part of the problem is, a lot of these states that you mentioned, they tend to be a little more liberal. They tend to be less business friendly.

New York you mentioned, New Jersey you mentioned, Illinois you mentioned, a lot of these states tend to have liberal policies against businesses and a lot of investors have to be weary of that and where they’re going to market. They have to look for job broke which is extremely important. They have to look for tax bases and tax rates, that’s extremely important.

Go look at your Chamber of Commerce and see what they’re trying to do. See how they’re trying to get businesses there. I’m moving to Florida because it’s such a business friendly state. There’s no state income tax there. They want businesses and people to move down there. That’s what you have to look for when you’re investing in real estate.

[0:08:53] MF: That’s great advice and one thing that obviously is not a very liberal state but Texas has high taxes too but then, they have no income tax. They make up certain areas so it’s great if you live there but if you’re investing there and you don’t live there, it’s not so great. So yeah, there are many things you have to consider.

[0:09:11] GB: Well Mark, how is Texas as far as job growth? In a lot of their markets they do have that really good job growth. So when you take those things in consideration, I always look at the rental rates, how are rental rates rising so if you have big growth, 2% year over year for at least two years, we’ve got people coming into the market. Your rental rates will be rising. So that’s one thing to take into consideration when looking into a market also.

[0:09:33] MF: Yeah, for sure. There are so many different things. Yeah, I would avoid any place that is losing population, losing job growth.

[0:09:41] GB: Yes, definitely like New York.

[0:09:43] MF: Yeah, so how many properties do you have in New York right now? How many units?

[0:09:48] GB: Right now, I’ve got a three family. We own a restaurant business here that has also three units above it which is great. It just carries the mortgage and basically the restaurant is there functioning as a business of itself which is awesome. The restaurant business downstairs, paying rent to my mom who owns the building and she’s got three units upstairs.

Then I have a commercial building in New York that I am actually trying to sell because I am moving down south. That’s about 18,000 square feet. It’s got retail component, industrial component and it’s got offices upstairs.

[0:10:19] MF: Okay, wow. So before we get too far into some other topics, what were the biggest differences you saw between the commercial and the residential investments?

[0:10:30] GB: Right now, I just don’t like commercial. I think commercials can be very difficult going forward only because of the Internet. I mean it’s 15% that I think of internet sales, 15% of what’s being sold in retail right now and it’s growing tremendously every year. I think a lot of the big box stores although they’ll still be there, I think what’s going to happen is they’re going to be taking less and less space.

The Home Depots in the world, the Best Buys, they’re going to be shrinking down and consolidating. So there’s going to be less demand out there. There’s going to be more supply out there. I’m a little worried about commercial. Jake likes to say that you can’t live in the Internet that’s why I love the apartments. You have to rent an apartment.

You have to be able to live somewhere so if you can pick a great market, I think there’s less risk. You always try to avoid your down side risk so I think that’s why we like apartments. Industrials is funny because industrial is the whim of the market. I had a lot of contractors when the economy is good, these guys are looking for rent but when your timing is bad, they’re out of there so you’re going to have some vacancy.

[0:11:25] MF: Right, no that makes sense and that’s always been my biggest hang up with doing any commercial myself. You can have those long even five year, 10 year leases but then if someone breaks the lease there, if they’re gone, they can take you a year or two to find a new tenant when you’re just sitting there.

[0:11:41] GB: That’s right and what happens, there are so many examples, Circuit City. You have a lot of these companies that they’re never even got a business and let me tell you, when they got out  business of they go real quick. It doesn’t take forever. Look at companies like Sears. They used to be anchor stores.

Now, you have a Sears in the mall, they’re basically dead and you’ve got to have a lot of capital behind you to do commercial. You really want to be in a location with eight anchor tenants that will work. Anything else, I think it’s a little bit more risky.

[0:12:06] MF: Right and you’re probably paying for those eight locations and those eight tenants.

[0:12:10] GB: That’s right.

[0:12:11] MF: You’re not getting nearly as high as the cap rate because of the secure investment as well.

[0:12:16] GB: That’s right and that’s one of the other things. I think you and me are on the same page. We want to create wealth, we want to generate passive income. Those investments are more a bit like real estate investment trust where their cap rates are two and three. They already have the wealth. They are trying to preserve the wealth.

They are trying to give a simple rate of return. A small rate like you said, two three cap rate, the guys are happy, those assets are going to go up in capital appreciation. They are not going to catch with that well so I try to stay away from those types of properties. I want both. I want that cap appreciation and I want to generate that passive income and that’s why we invest in the VMC properties.

Those properties or the A properties, I tend to stay away from them. Hopefully, the next time we talk to you Mark in the next few months, I’ll have that money where I don’t have to create the wealth. I can just sit on it but right now, we’re trying to create it right now.

[0:13:02] MF: Yeah, I know that makes perfect sense and here in Colorado, we’ve had the highest appreciating market in the country the last year and we’ve also seen a ton of those institutional investors move in buying those big residential and commercial properties and like you said, they don’t care about cash flow. They’re just parking cash trying to keep the status quo and it really makes it hard for the smaller investors to get a good deal. That’s one reason why I do the single family myself.

[0:13:29] GB: And that’s one of the important things that I think all listeners should really focus in on. When you get into the business, pick a niche. Just become strong in something like you do the single families, you’re really strong at that. We do apartments, we do something called mama and papa corns where they’re just basically defer maintenance.

A lot of issues in the properties, that’s where we really focus on. I think those guys, their reeds and that’s where they focus on. They do really well. Once you really nail your niche, move onto another niche and as far as you’re saying with these institutional guys, they know where the money is flowing, they know where the jobs are flowing. If you follow them, they know markets are hot, you can really make a lot of money by following where these institutional money is going.

[0:14:07] MF: Right but you’re going to pay a lot.

[0:14:09] GB: You are, yes.

[0:14:11] MF: There you go. So when you are in New York, you saw it’s obviously difficult to cash flow in the area, how did you start investing in different areas of the country? What were your first steps?

[0:14:20] GB: Well my first step, believe it or not, I went to do a coaching program. I wanted to start coaching with Rich Dad, Poor Dad. Did it for six months, I ended up in Rochester, New York which is the cash flow capital of the world. It does not appreciate at all but let me give you some quick numbers. I bought a duplex for $34,000. Each unit was giving me $600 a month in rent.

So I paid and I put another $4,000 into the property, so I’m into this property for about $40,000 and its cash flowing and its grossing $1,200 a month. The taxes were high up there and for a $40,000 home, the taxes were about $2,500 but that’s New York for you. It’s difficult that’s why people up there can’t buy property, they can buy homes.

So you started accumulating these homes, they’re almost tradable. So if $40,000 was making $1,200 a month, which comes out to about $14,000 a year. So you can see after three years, that house is basically paid off but that property 10 years later is still worth $40,000. That’s the only issue with Rochester so I love the model of cash flowing and I got into the whole property management thing with hiring a property manager, I like that model.

They’re a little expensive, they’re 12% of the gross rents but there’s a lot of work involved when it comes to dealing with these duplexes because the tenants management intensive. You really have to stay on top of them. There is a lot of work involved so that was my first foray into out of my market. I said the only fun place where I can really cash flow and really make some money and hold those on for a few years.

Then like I said, I met Jake and Jake went down south and everything was just very easy for me to go down south and invest with him. We bought properties together. We formal all seasons and he manages the properties.

[0:15:55] MF: Very cool. When you decided to invest in Rochester, did you do much research or was that where the coaching program was telling you to invest? How did you pick that area?

[0:16:05] GB: I did actually and the coaching program really helped out. I just advise everyone who is going to do a life altering, life changing extent of their life, they really should get into coaching. They really should find a mentor, find a coach just to learn about the whole process and it might take you six months before you buy a property or a year.

That’s okay because you’re going to be committing a big chunk of your money into doing something. It’s like buying a car. People do more research buying a car than they do getting into a job or something. You really have to research and make sure it’s for you. Start small. I started small, I started one small investment of $40,000.

If I didn’t like it, I could have sold it. I would have lost a few thousand dollars but I liked it. So from then, I started coaching with Dave Lindorff, did his coaching program and his coaching program is they teach you how to search for markets. They teach you about all the parameters you’re supposed to look for in the market and that was really, really helpful for me.

[0:16:54] MF: Very cool. So what was the first step that you and Jake took to investing in the southern part of the country?

[0:17:01] GB: We just went onto LoopNet, believe it or not and started looking at properties. You know that Loop Net is a little difficult sometimes, they don’t have a lot of deals but every now and then, you will find a deal on that but more importantly, you will find brokers on there. So we found brokers on there and we started calling brokers.

We started pitching in their ideas. Some of them said, “You guys are nuts. You’re never going to do it”. Some of them said, “You know what? Let’s see”. So one of the brokers brought us this 25 unit deal. It had been on the market for a few years and it had something that you need to make a deal in real estate. It was a motivated seller.

The sellers were older and they were just motivated to sell and they had the price and property listed at $750,000 and our broker said, “They will come down,” so they did come down to $600 and looking back at it now, we could have probably gone here for less but at least we got our feet wet and that’s how we started. We started on Loop Net and started calling brokers. We used the broker’s script, telling them exactly what we’re looking for and that’s how we started.

[0:17:58] MF: Very nice. Now, how are you financing these properties at the time?

[0:18:01] GB: Like I said, we had gotten and 80% bank loan. The sellers were willing to hold 10% as the down payment and we came up with 10% as the down payment. So I will never forget it. It was $27,000 for Jake, my brother and myself and we were thrilled. It was awesome. We had a $600,000 property and you have $90,000 for closing cost. You are controlling the $600,000 asset with $90,000. It was great. It was just a lot of fun.

[0:18:29] MF: Yeah. That’s awesome and you said some of these properties were just stressed that you buy and it needs some work, was that one of those? Did you have to go through and renovate with friends?

[0:18:36] GB: Yes. It was really funny. I will tell you the story. They had such bad bookkeeping. It was a weekly rental, believe it or not. We actually ended up changing it into a monthly rental. So weekly rentals are great. You get more money but you also get bed bugs, tough tenants, they weren’t doing any kind of screenings so they had no systems in place.

You don’t know who lives in what apartments. So Jake, when we did the closing, knocked on doors, asking people how much they’re paying in rent and what are the straight deposits are and three years ago, we’re just finishing up to deferred maintenance. Now, we just refinanced the property about two months ago. The property came out and the property was appraised at $800,000.

[0:19:15] MF: Oh nice.

[0:19:16] GB: Yeah, we were able to pull out all of our money and then some, put some of it’s net into CapEx and just got off the phone with Jake this morning, we are finishing up a couple of rooms out there and finishing up the painting in our six-plex. So it looks really pristine, it looks really great. It took a couple of years. A room wasn’t built in a day and a lot of us forget about that.

It took three years but you could see the payoff of one little tiny property. It’s the momentum that gets you going. Once you get that first property, if you’re hooked, you’re hooked. You will find a way to get the next property. I trust you will.

[0:19:46] MF: Right, that’s great. So how did that progress from buying that first one to obviously, you’ve been very successful in the last couple of years, was it buying bigger properties or more properties? How has that worked out?

[0:19:57] GB: Well, what happened was that Jake got hooked more than I did because he started collecting rents and he said, “Wow, these people are paying me money. I can’t believe it.” So he saw the big picture. He’s like, “This is awesome.” When you’re a W2 employee, you’re used to getting a paycheck but when you’re actually going and collecting money from people, it’s a different feeling.

So Jake said, “We’ve got to continue with this,” so I said, “Okay but you know what? I don’t know where to get the money.” I had a friend up in the restaurant business who wanted to become a partner. He is a money guy and he said, “You know what? I am looking to do other investments,” so we’re looking and looking and we found another deal in Loop Net about six months later.

It was a 36 unit property. All one bedrooms, all brick, great. Same kind of deal though a little bit distressed. A little bit for maintenance outside. This was an out of state seller. We got the property, we bought the 36 unit with all four of us and we put 20% down. Dealing with the community bank. The property was priced at $850,000 so it was reasonable.

We could afford it but our money was starting to run out but we got this deal. So now, we have two properties under our belt and I said, “This is awesome.” Both properties have cash flow nicely, fast forward six months from that so it’s a year from the first acquisition, we find this 136 unit property and we didn’t decide if we want to go big or smaller.

We just saw an opportunity that showed up and this thing was on Loop Net for $6.7 million. I will never forget it and we’re like, “This is way out of our league.” And it had gone for years and years and years. It was owned by a doctor and his wife and their brother. The same kind of thing, motivated seller want to sell and Mark, I just went for the chance.

I said, “Jake, this thing isn’t really worth that kind of money. It’s worth in the low fours.” I offered $3.7 million and I thought the doctor was going to laugh at me and this is one lesson for your whole crew that’s listening out there, just ask. You’ll never know until you ask somebody. You’ll never know what someone else’s motivation is.

I thought the guy was going to laugh. I thought they were going to laugh the offer. He actually came down to $4.4 million from his offer price in one shot. So I was like, “Jake, we’re in business. This is awesome.” We ended up settling at $4.075 million dollars. A little haggling back and forth. We had a real estate broker taking note for part of his commission.

We did everything we could to get this deal. I mean I beg, borrowed and stole money to get into this deal and that’s what happened. It was great.

[0:22:15] MF: Wow, that’s a great story and I think there’s a really good lesson there too. It’s weird. I don’t understand it but some sellers will put a price on a property and they won’t lower it. They’ll just leave it there even though they will take less and you saw that house had been on the market for years. You can’t just go to every seller and offer them 50% of what it’s worth.

That doesn’t work but if you see signs, if you see certain properties that, “Hey, why is this for sale for two years?” Or, “What’s going on here?” there are definitely opportunities out there where you can make those low offers and make things work.

[0:22:47] GB: That’s right and Mark, part of the problem is that a lot of people when they negotiate, they don’t listen. They talk. Negotiation is 80% listening and 20% talking. So I knew the motivation of the seller. I knew he wanted to get out. I knew it was a family situation, they don’t want to be there. I knew he didn’t really need the money.

It was becoming a nuisance to him so the motivation for this guy to get out, it was why this deal worked. I’m not telling everyone out there that you’re going to get a big property by just throwing number out. You have to be smart about it because you don’t want to get the reputation of just putting in offers and just saying — low balling on people but you really want to know why this guy is selling.

So the motivation was there so that’s why this deal worked and that’s what you have to look for. You can’t go to realty or retail property that’s in an A market and start throwing low ball offers. That’s not going to work but when you negotiate, you listen to what’s going on and that’s why a broker is crucial to have on your team because he should know a lot of this information.

Our broker knew the dynamics of what was going on and he said, “You know what? That’s not a crazy offer in this type of environment. Let’s try it.”

[0:23:42] MF: That’s great. Great advice. What challenges did you find going from 30 unit properties to 136 unit property? Was it similar or were there some definite changes in it?

[0:23:54] GB: Well, you’ve got to scale up the business and part of the thing is simple things like collecting checks. You are collecting 136 checks now and you’ve got to get a full time managers on board. We’ve got a full time manager. The first year and a half, Jake was doing the running around, doing a lot of the work himself.

To scale up the business, we had to hire and the fabulous thing about these big properties is believe it or not, it might be a little scary, it’s a whole paradigm shift, everyone out there is saying, “I can’t do that. I can’t do that. I’ve got to stay small,” believe it or not, if you go big, sometimes it’s a little bit easier because you can hire full time maintenance crew.

You can start building systems, you can start saying, “Okay, I’ve got this full time maintenance guy, he can do the work.. I’ve got a full time manager, the staff, the office,” so that was part of our problem. It was just the whole shift of can we go bigger? Can we hire enough people? Can we do the bookkeeping? Can we take care of all these maintenance calls? And you know what? We struggled for a few months but you’ll figure it out.

[0:24:44] MF: That’s great and I hear that all the time. I have a team of 10 that helped me with my flips, my rentals, my real estate sales and people say, “Well, I don’t want to get that big. I don’t want all those hassles. I just want to stay small,” but I can tell you, I am so much happier with the team. They can help me and do this stuff I don’t like doing than I was doing it all myself. It is so much less stressful and I love it.

[0:25:07] GB: Yeah, well Mark what you’re doing is you’re working on your business. You are not working in the business and it’s tough for me because when I had the restaurant. I had that one store, I am working every day, I’m working in the business. I am doing all the ordering, I am doing everything, I am doing the cooking but you can’t grow at that point. You’re just basically collecting the paycheck.

What you’re doing right now is you’re actually building a business. You are putting systems in there. You are able to grow and it’s the same thing with real estate. You are able to grow bigger so for that 136 units, about a year later, this past July or August, we closed on 281 units so you can see the progression.

We went from 25 to 36 to 136 then we bought a little 20 unit property between and then we bought 281 so the progression is there. I’m not saying you start with a huge property but don’t be averse with the idea that you go big because anybody can do it and if you don’t know how to do it, get out there and get coached and just listen to people who are doing it because it’s a big, big wakeup call.

We’ll start cash flowing with this numbers, you can get into cost segregation of what you can do with your taxes, there is so many advantages to getting big, believe it or not.

[0:26:14] MF: Yeah, I know. That’s great and I’m curious too with one aspect of your business and how you set things up, it’s you, Jake and then your brother too who’s investing. How has it worked working together with two other people? How did you set that up? Have you had any problems with it? Are there tips you have for people who might want to invest with partners?

[0:26:34] GB: Well definitely. Partners, I think partners are fantastic in a couple of aspects. The first thing is you have to get somebody who has similar and yet dissimilar skill sets. Me and Jake are pretty similar. We’re really motivated. We get on calls, we do what we have to do. What’s great about it is, if he has a problem he calls me and bounces an idea off.

Ideas are money so you have more people in the mix. You have a bigger team, those ideas create money. When we started each entity we have is in its own LLC and we’re in the process of creating a series of LLC that encapsulates all of these properties. One bank statement, one whole idea but it takes time to get to that stage but each individual property that we had was its own LLC.

It has its own operating agreement, it has its own rules and its own laws. That’s just for our own protection and for each of the partner’s protection. You have to be on the same page. Me and you, I don’t think we’d be good partners because you like to fix and flip and I like to buy and hold so I don’t think our partnership will work in that aspect so you have to be in the same page as your partner.

If your partner likes to go out there fixing and flipping and you’re like, “Wait, I want to keep this properties,” that partnership is not going to work. It’s going to be a lot of stress so be in the same page. Me and Jake wanted to get out of corporate America and I wanted to get into real estate full time. So we had the same vision, same goal set. We just wanted to generate that passive income and that’s why this partnership clicked.

[0:27:52] MF: Very cool, yeah and I do hold too but I don’t know if we’d be good partners.

[0:27:57] GB: Yeah, I just made that as example because a lot of guys get into business with other guys and they’re like, “What are you doing?” You really have to, we have a credibility book. We put something together. Before we started, we created our own mission statement. Every business should have their own mission statement.  “What do you want to do and our two things was generate passive income and create wealth and that’s our mantra and that’s where we stood by.

[0:28:21] MF: That’s great and I don’t have partners right now mostly because maybe I am a control freak and I like to make my own decisions but when you guys did you partnership, did you put everything in writing from the beginning? Did it evolved? Did you have contingency set up if one of you wants to get out of the business? How did you handle that side of it?

[0:28:40] GB: We do. We start from the very beginning. We have to have an operating agreement from the very beginning because you want to make sure that everyone has their own specific jobs. Jake is basically managing so he gets the percentage of the revenue to manage. That’s part of his job. He gets an acquisition fee when he’s finding properties.

Sometimes, he will get an acquisition fee for putting the deal together because you know these deals take a lot of work, a lot of energy. He is actually closing on a 156 units. We just got the deals signed. He is actually there today. We are having problems that were difficult. He has to go to a lawyer today, at 2 o’clock and do a signing.

We’ve been working on this deal since August so all the time and effort that goes into a deal, he’s meeting the title agent, talking to the broker, the inspector is getting lined up, there is a lot of stuff going on so you have to spell that all out from the very beginning. Handshakes are great and my work with family but I would never do something like that.

I’ve made that mistake before, been there done that, get everything in writing. Make sure everyone knows what they’re supposed to do. Make sure you know the percentages, how much everyone has to put into the deal and you will save yourself a lot of headache in the long run.

[0:29:44] MF: Yeah. That’s great advice and I would advise even with family, always get in writing not just because of people being shady or changing the deal but sometimes you forget. If you work for somebody for three years and then you decide to sell it’s like, “Wait, did we agree on 30 or was it 35?”

[0:29:59] GB: That’s right.

[0:30:00] MF: It’s easy to forget those things even though you think there is no way you ever would in the beginning. It can happen. That’s great and I love the idea of paying Jake or whoever is doing a job for that job, not just saying, “Oh we’re 50/50 partners” because then it gets confusing. People say, “Well, I’m doing more work than you, why am I getting paid the same amount?”

I love that, for example, you have a real estate agent on your team, pay them a commission when they get a deal. Don’t just say it’s all split even and you don’t get paid, I like that.

[0:30:30] GB: That’s right. Well, you know because you’re managing a property. It’s a really hard business and if you’re not out there managing your own properties, you’re managing the manager. So that’s a lot of headaches, that’s a lot of work. If Jake’s not doing it, we’ve got to pay a manager company to do it. So I would rather have Jake making the money. Your hands aren’t there. You’re doing the job, so you can’t really control it. So he’s worth every penny to pay him.

[0:30:53] MF: That’s really great. What do you think has been your biggest challenge in building this business and growing into what you have right now?

[0:31:04] GB: Well, a couple of challenges. First thing is you have to find the time when you’re working full time. I am working, the restaurant is about 50 hours a week for me. So coming home and educating myself, have any confidence to get into these deals to say, “Am I making the right decision, am I doing something wrong? I just can’t see it.”

When you see a deal that’s been on the market for four years and you’re like, what’s going on here, why aren’t they buying? To have that confidence to say yeah, I can get bigger and I should get bigger, that’s what we’re here for, we’re here to create and to do great things in this life and sometimes you get hung up on that.

The other thing is fear, everyone’s got fear, everyone’s fear of the unknown. Have you ever done this before? I never put on 136 unit property but you know what? You have to take that leap of faith and what’s the worst thing that could have happened? I bought it and I end up selling it a year later, I lose money, it’s only money, you just can make money but when the opportunities are there, you got to take a hold of them.

[0:31:57.8] MF: That’s great advice. From building these huge portfolio, billions partnership, you and Jake started a website as well. Jakeandgino.com, how did that evolve?

[0:32:10.1] GB: You know what? I go by the mantra, “Learn, do and yeah.” You’re learning all the stuff, one to acquire these properties, they start doing it and all of a sudden, it’s great, you start doing it, you get out there, you never thought you could do it and all of a sudden from that doing part, you said to yourself, I want to get back and best way to get back is to teach, talk about it and by you teaching about it, believe it or not, you’ll learn so much more.

I mean, we wrote a book called Wheelbarrow Profits about three months ago, we self-publish it. It took us about a year to write that book but what happened was, he came up with this framework and it really helps us with the investing aspect of it, our framework is buy right, manage right and finance right. It’s great. When we go to a bank, we give them our book, we give them our credibility book, we give them our book.

That’s our business model, that’s our business plan. It gives me a lot of credibility to say, hey listen, “This is what we’re doing, this is what we’re buying this property.” That’s how we got into Jake and Gino, I just started hashing out what our plan was and just start writing one page a day and all of a sudden, six months later you got a book.

[0:33:09.4] MF: That’s great and I would attest to the exact same thing happened with me when I started my blog. I thought I knew pretty much everything about real estate, being an agent for so long, my father was an agent and then I started my blog to try and teach other people and I realized how much I didn’t know when I started researching and writing.

Wow, there’s a lot out there that I had no idea about. Yeah, it did, it was a huge self-teaching tool for myself, not just teaching others but learning so many different strategies and different ways to do things.

[0:33:37.5] GB: You know? The other cool thing is? The other cool thing is maybe on this call right now, you get to meet so many awesome people, you get to talk to so many different people, you get so many different ideas throwing your way, you think you have all these units, 1,700 units. We haven’t done that many deals, I’m sure you do more deals in a year than what we’ve done in the last three or four. You see so many different strategies and you learn so many different things by teaching and talking to other people It makes it all worth, it really does.

[0:34:02.6] MF: Yeah, you’re right, that’s a huge benefit as well, I’ve talked to a lot of great people, interviewed a lot of great people and there’s many people behind the scenes I’ve talked to as well that people don’t realize. And just speaking of that, looking for places to invest across the country, it’s always interesting hearing what you guys are buying what you guys are doing and speaking of that, you said, Florida is where you want to go. What’s drawing you to Florida right now?

[0:34:26.4] GB: A, the weather. Because I know you’re from Colorado so you get a lot of snow and I’m from New York and the weather last year is just brutal. B, I just want to get off out of the restaurant industry, I just want to have a clean break. C, I think the market down in Florida in Jacksonville specifically, it’s still emerging. A lot of the southern Florida markets have already emerged, Orlando, a lot of institutions there.

Jacksonville is the biggest city in Florida, land wise and population wise but these institutions really aren’t there hardcore. And I mean lot of people say the low hanging fruit is gone and the real estate, low hanging fruit is usually gone unless you’re talking 09, 2010. Low hanging fruit has been gone for so many — for the last three or four years but you just have to know how to identify what the low hanging fruit to you is.

I love the market there, the job growth is great, I just love the way that it’s family friendly, the state — I’ve already met a bunch of people down there, I just love the whole area.

[0:35:20.4] MF: Cool, are you looking to buy the same thing, large multi-unit complexes down there?

[0:35:25.3] GB: That’s what we’re looking to do, we’re looking to replicate the whole process and I’ve been telling Jake I’m investing his chops. I say Jake, “You got the management aspect of it yet, I don’t have that management aspect, we’ve got to build a franchisable model for me to have all these systems in place from how does a leasing agent answer the call to how do you rent a unit, how you show unit, how you move the tenant in, that’s one of my fears.

Me going down because I haven’t done it yet but we would like to replicate the same exact model, where we’re trying to B and C assets under market, rents on the market, there’s no ratio, there’s no rubs installed, a lot of these value place, we want to replicate the same thing in the Florida Market.

[0:36:02.8] MF: That’s great, I’ve had my eye on the Florida market too but I keep…

[0:36:07.0] GB: Specifically where?

[0:36:08.2] MF: I haven’t decided yet, there’s different. I mean, Orlando, I’ve heard Pensacola is interesting but I’m looking more than single family play not the apartment play. Florida reminds me a lot of Colorado three or four years ago before we went crazy with our boom. I don’t know, I’m not saying Florida will Boom like we have but just the prices, to rent ratios are just so much better than they are here right now.

[0:36:28.6] GB: They’re awesome, the recreation are awesome, you get a 40, $50,000 apartment and rent it for $1,700 bucks a month. To me, you’ll never do that in New York, that’s just awesome down in Florida.

[0:36:39.3] MF: Right, then in Florida, there’s many places in the Midwest where you can get those numbers too but like you said, Florida is growing, Florida’s got awesome weather, the taxes are good, there’s some other things going for it as well besides just the rent ratios. Very cool.

All right, so I think those were all the questions I had for you, do you have any parting advice for someone who is looking to invest kind of like how you have if they’re in New York, if they’re in San Francisco and just cannot cash flow in an area where they are at? What do you think their first step should be if they’re looking to invest in a different area?

[0:37:12.0] GB: Well, the first step I think is make sure you want to be in real estate. It’s not easy, it’s not hard, it is what you make it I think. Just make sure you want to devote the time, the energy and the money to doing it. Once you jump that hurdle which most of you on this call probably already did? The second thing is to really pick a niche, pick what you want to do.

I don’t think there’s any right or wrong answer, you want to wholesale properties, that’s fine, you want to buy and hold, that’s fine, you want to fix and flip, that’s fine, you want to master lease, I think that’s great. Whatever your strategy is, really learn your strategy from the inside and out. Go on Bigger Pockets, go on my site, go on Mark’s site, there’s so many guys out there that are teaching this stuff. Learn your niche.

After you learn your niche, it’s time to jump in the pool, don’t put your little pinkie in the pool. Jump in the pool, whether the pool is big or the pool is small, just jump in and try it and then once you try it, you’ve got your education, you try it, you learn. How do you take — I always give this example, how long does it take a baby to learn how to walk? You’re going to have to tell a baby, I’m only going to give you eight months to learn how to walk.

That baby’s going to take forever to learn how to walk and that’s why babies end up walking because we let them try and fail and try and fail. What happens is, people might try and then after the first failure, “Okay listen, I can’t do this thing.” You’re not going to get it on the first or second or third try. I didn’t, you just have to be persistent and just learn from your mistakes. If something’s not working, just change a course, learn to do it long and just continue.

[0:38:37.2] MF: That’s great advice and many of the very successful investors I’ve interviewed and talked to, they did not just jump out of the gate, killing it, making a ton of money, they fail, they had to rethink their strategies but they learned while they’re doing that, they learned how to do it the right way, they just kept pushing forward.

[0:38:54.6] GB: Well Mark, I like what you did. You’re a real estate agent, I think if people want to get in to the real estate business I think they should become agents, I’m an agent in New York. I wanted to become an agent just because — not because the license, I’ve given up commissions, I don’t really strive for the commissions but it’s more for the education, more for the relationship between buyer and seller.

I want to learn all of that stuff and you’re immersing yourself in the culture, you’re going to a job, a place of business where this stuff is all going on, you’re surrounding yourself in that environment and from that environment you’ll be able to go out.

[0:39:24.0] MF: Yeah, that’s great advice. I get a lot of questions about, should I get my license if I just want to invest in rental properties or fix and flips and people have never bought a house before, never done anything. I always tell them, like you said before. First, you want to make sure if you actually like this investing things.

At least buy a property or get involved in real estate somehow before you go off and get your license and jump in to it but then if you do like it then yeah, for sure, getting your license is a huge advantage for — saving commissions is great but then being able to find deals as well is really big advantage for having your license.

[0:40:00.4] GB: Mark, what do you think about the credibility aspect too? Mark Ferguson Licensed agent or Mark Ferguson investor or investor agent? I think that having that agent behind your name gives you a little bit of credibility, it gives you the end, when you go to real estate investment club, and you’re an agent also. I think it’s just another feather on your cap, not that you need it per se but I think the education from it studying for the exam and being in that environment really helps.

[0:40:24.0] MF: Yes, I think that does add credibility as well and many investors are worried, if they’re buying off market properties or doing direct mail that they have to disclose that they’re an agent but I think it’s an advantage that you can say you’re an agent like you said because people have a higher trust factor, they can look you up online, see your license, see your website, see that you’re not just some guy off the street, trying to buy their house for a penny. I think it helps your credibility and if you’re worried about being ethical then you’re in the wrong business.

[0:40:56.2] GB: We can go there, that’s another whole show right Mark?

[0:40:58.1] MF: Right. Very cool, well, great job. You know, I really appreciate you being on, I think that’s all I had, what is the best way to reach you or Jake if someone wants to learn more about what you’re doing, getting involved with you guys and possibly do coaching?

[0:41:13.6] GB: Guys, quickest way and easiest way is to just go on to our websites, it’s Jakeandgino.com. Visit us, we’ve got a lot of products out there, we’ve got products on Newdanny.com. We can go on, we’ve created a couple of video courses on there also. Just go out there and just crush it.

[0:41:31.0] MF: Very cool. Well I appreciate it, great job, lots of good information on it. The show, I learned a lot myself so I’m glad that your other people are looking at Florida too. Of course there’s a big difference between looking at a place and actually making the jump to investing there. There’s a lot of work to be done still.

[0:41:48.7] GB: That’s right.

[0:41:50.8] MF: Great, well thank you for being on the show, I’m sure we’ll talk soon and yeah, have a great rest of the week.

[0:41:55.7] GB: Thanks Mark.

[0:41:57.7] MF: All right, take care.

[END]