Ep #252 John Casmon – From House Hacker to $18 Million Multifamily Portfolio
Here is some of what you will learn:
Discover ‘House Hacking’
Importance of Innovation and Marketing
The lessons of partnerships
Understanding theory vs practice
The importance of trusting your gut
The #1 rule of communication
What is your superpower
Understanding CAPX math
The proper ‘failure’ mindset
How to increase your personal value
How to mitigate the fear on your first deal
How to survive the ‘seasons’ of real estate
Book recommendation: The Slight Edge by Jeff Olson
To learn more about our guest, please visit:
Join us at a Multifamily Bootcamp, visit: MultifamilyBootcamp.com
Watch on YouTube!
Do you want to learn more about Multifamily Real Estate Investing? Work with Rod in the Lifetime CashFlow Academy’s Multifamily Course & Coaching Program
Full Transcript Below:
John Casmon – From House Hacker to $18 Million Multifamily Portfolio (Ep #252)
Rod: Welcome to another edition of how to build Lifetime Cash Flow through Real Estate Investing. I’m Rod Khleif and I am thrilled you’re here. And I know you’re gonna enjoy the guy we’re interviewing today. He’s got a ton of energy, has his own podcast called Target Market Insights. His name’s John Casman and John has an 18 million dollar portfolio, has a fantastic story for those of you young guys that haven’t done anything yet. So make sure you listen to this one because this is kind of a roadmap for “how do you do this yourself” with the setbacks. John, welcome to the show my friend.
John: Rod thanks for having me.
Rod: Absolutely, absolutely my pleasure. So let’s talk about how you got started because it’s gonna resonate with a lot of my young listeners that maybe haven’t bought a property yet or want to get into the multifamily space and to talk about how you got in.
John: Well like many of your listeners I started with the most simplest thing that I could think of which is house hacking. You got to live somewhere, you’re paying rent if you’re paying rent right now and one of the great ways to start is with the 2 to 4 unit. The financing is great, it’s easy, three and a half percent down or a five percent down alone. So we ended up starting with the house, I had two units in Chicago. We bought it for $362,000 put down I think less than 10,000 bucks with credits and we were able to move in and we had a lot of money saved because I didn’t know about FHA financing when we started. So we saved about you know fifty or sixty thousand dollars for a down payment, realized we didn’t need all of that. So we use that for renovations.
Rod: Okay and this is you and your partner?
John: Me and my wife.
Rod: Okay fantastic. So she agreed. Sometimes the spouses won’t go for that you know they’ve got that white picket fence ideal. So she’s on that, she’s on board, she’s on the team, that’s fantastic.
John: Yeah she’s on board. I mean it’s really you know she’s right there with me and sometimes I have to stop and ask myself am I leading this? or is this really what you want? See, like no, this is what I really want. I’ll give you one quick example. We were planning to do our event and she looked at the calendar and looked at me and said you know that’s Mother’s Day weekend right? That’s it I’m so sorry. Listen, I’ll make it up to you. She’s like, no, that’s not the issue. The issue is I was going on the cruise but I now gonna cancel my cruise to come help you with this event and I was like well no don’t worry I’ll have people help me, she’s like no I’m not here to help you I want to actually do the event. Sounds like oh okay great. So yes she’s right there.
Rod: See that’s a keeper brother. You know you want to, guys, those are you listening you want a partner that supports you and empowers you and encourage you, you want a cheerleader and you need to be that for them as well and you know not to digress too far down the relationship path but you know if you want a world class relationship, you live to serve them and empower them and push them and help them. That’s a relationship. So, fantastic, so you started with that duplex, by the way and let’s dig into that just a little bit more FHA financing, 3% down, 5% down, you know $10,000 down, on what was it?
Rod: Three hundred sixty two is fantastic and you had some credits, there were some local county tax credits of some sort?
John: No. So the actions with the seller. So we went you know, as we did our due diligence, we realized that the HVAC system was a little bit older and a couple other things. So we asked for some seller credits and they took care of that they did sell in closing, so when you start adding up all those credits, we actually save a significant amount.
Rod: Okay fantastic and in your qualifying, did they allow you to utilize the rent, the lease like 75% of the lease amount on the second unit?
John: They did not on the first one. I think they typically will, but on this one they did not.
Rod: Okay interesting. I wonder if I do you know why they didn’t?
I don’t. I don’t know. And actually I don’t think we went that deep into it because we have the money and you know
Rod: You didn’t need it?
Maybe we didn’t need it.
Rod: But you have the income to qualify but I’ll tell you guys, those are you listening, typically if there’s a good lease in place, you can’t do it on a month-to-month it has to be a lead but if there’s a lease in place typically they will allow you to do 75% of any of the other units. If you’re buying a four-plex, you can have 75% of the 3 other units help you qualify for much more than you’d ever qualify for on your own, so keep that in mind. So you started with the duplex, then tell us what happened after that and by the way, did you start out in real estate? or what was your core I mean what was your real job?
John: Yeah I’m a marketer. Marketing is my background, so I’ve done marketing for some major companies and did that pretty much for about a decade, 15 years or so, and realized real estate was a strong passion. Real estate was a passion well back to college. I was always interested in real estate. I just didn’t know how to get started. I didn’t have your podcast to educate me and get me going at that time. So I’d to figure it out a little bit later.
Rod: Well that’s all right, so marketing, well what a great framework though for frankly for any business. Guys, if you can get some marketing education, any business according to Peter Drucker, is two things, innovation and marketing. And so you know if you’ve got some marketing background and some marketing chops that’s just a framework for anything. I’ve got my daughter right now learning Facebook ads into marketing. Anyway digressed again. So back to your journey, so you started with the duplex, what was the next acquisition?
John: So we created a lot of value and we were starting to save our money, we were ready for the next one, we’re gonna buy a three unit building. So we went forward, we bought the three unit but in that process, our agent told us that with the equity we created, we could probably refinance, get out of that FHA loan, remove the PMI payment, and actually have some dollars available to…
Rod: Let me stop you just to explain what you just said. Okay guys with FHA loans because of the high loan-to-value, they have what’s called private mortgage insurance and it adds to your payment until the loan balance gets below a certain point on a loan to value basis. So with an FHA loan, that is the only real negative is that you are gonna have pay a little extra for that PMI. It’s worth it but you’re gonna pay it and so that’s what that is okay.
John: Yep and with that so we were refinanced out of that, we create a ton of equity, we actually had a hundred thousand dollar line of credit, so that really freed us up to do more investing. So from there we bought the three unit, we ended up buying an eight unit building the next year, and kind of started to really build from there.
Rod: Fantastic, so that duplex, kind of was a springboard for your investing career.
John: Absolutely absolutely.
Rod: Fantastic. So there’s another benefit guys, to house hacking. Please don’t go buy a house, buy a Plex for God’s sakes. If you’re thinking about this business. It’s a no-brainer. All right fantasticks. Now you talked about a mistake that you made after that eight-plex. Before we started recording, can you expand on that?
John: Absolutely. So I bought the 8 unit building and I’m sitting here thinking. Man this is easy. The only problem is I ran out of my own money. So I sat down with a friend and I said, “Hey listen, we’re having a lot of success. We’re you know I think still being pretty conservative but we’re creating a lot of success. How do I grow from here? how do I start to figure out my next steps? and my friend told me you have two options, from everyone I’ve talked to you have two options. One you can start flipping properties and use that income to invest in multifamily properties or you can start working with other investors and using other people’s money. I decided to do both but I started with the flipping the houses and unfortunately, I ended up finding a partner for that because I felt you know what I really don’t want to master flipping houses. I’d rather partner with somebody who knows and has spent a lot of time doing it. So I started betting people. I found a partner and that partnership just went very very sour.
Rod: Okay so there’s some lessons here okay and I want to flag the lessons. Okay something you just said, and I hope you guys caught it. He said I don’t want to master that okay and I’m not throwing you under the bus here John but there’s an incredibly valuable lesson in that guys. Dabblers get crushed okay and I’ve been, it’s funny this has come up more than once on a couple of my last interviews and I just did a Facebook live on this actually. And this applies also to passive investors. If you are going to invest in anything, any investment vehicle, you have got to learn that vehicle. I don’t care if it’s the stock market. I don’t care if it’s bonds. I don’t care if you invest in Internet start-ups or other businesses or you start a franchise. My god you better know, you better study that business. And the absolute same thing apply to getting involved in real estate syndications passively. You’ve got to learn the business and you know I’ve got live events of course there are other thought leaders that do live events and I don’t care if you come learn from me but learn the business. And John I know you’re gonna be at my Chicago event coming up right around the corner August 24th, 25th and 26th and to those of you listening, if you’re accredited or even not accredited and you want to invest in somebody else’s deal, get the education and I’m gonna tell you why, because there are a lot of mistakes being made right now by you know people that either haven’t been through the crash before because they’re caught up in irrational exuberance. They’re you know sometimes I’m just floored by what some of these people are paying right now. So again, not to completely derail our conversation but I just wanted to flag that. So you got into flipping but you let somebody else do it and the other lesson there, in my with my coaching students, I give them a document that’s got all the questions you should ask before you get into a partnership and the first question is, “do I really need this partnership?” but then it’s like I don’t know 20-30 pages of questions and partnerships can be fantastic and they can be a train wreck because they’re like a marriage and there’s so many questions that you have to ask up front of yourself and of them and you have to ask all the hard questions you know and make sure that you’re playing to each other’s strengths, ideally you match up with somebody that’s strong in what you’re weak but you’ve got to ask all the hard questions up front, what if it doesn’t work out? who’s gonna do this? versus who’s gonna do that? you know make sure you’re aligned from a work ethic perspective. So thank you. You’re adding a ton of value through your pain. I’ve been there many times, and what I can say about it is trust your gut okay. In fact I just had this conversation with my CFO Robert about someone we’re considering partnering with and I said listen everything looks good about him but my gut is a little queasy and so you know I really want to do our due diligence this time and so you know just so funny literally just within the hour I had this exact same conversation. So, but let me ask you this, what went wrong in that partnership if you can say?
John: Yes. So here’s the thing, you talked about you know we talked about mastering you’re learning right. So I had actually spent a lot of time learning how to flip houses but yeah there’s a big difference between theory and practice. So all of my knowledge was theory you know the 70% rule and everything there was theory right. So I caught up with the guy, he had been doing this for a while and I talked to some of his joint venture partners and I specifically asked him hey what was your experience? Did the rehab calls come in on budget? what was the timeline? did you make money? did you make the profits you were expecting to make? and I got great reviews from everybody I spoke to. So when we decided to move forward. The challenge that I faced was to deal all of my theory that I learned his actual practice didn’t match up. We were not getting the deals at 70 cents on the dollar we were you know the rehab costs were lower than what I anticipated they should be actually brought through a separate contractor to come take a look and his question to me was, “How in the world is this guy doing this for 140K?” So at that moment I was thinking, “Oh wow that’s amazing. My god, my partner is getting great random buyers right and it should have been a huge red flag to say well how is he right? and I asked a question I didn’t really get a direct answer and I love what you just started talking about Rod when you talk about those lists of questions and trust in your gut. My gut was telling me something was off and I think the big lesson that I will tell your listeners is if you even, if you get into a partnership, if you’ve gotten to that point and something’s wrong don’t hesitate to end the partnership or to stop and address the issue because we were going going to hope strategy at that point, we hoped he turned it around, we hoped he got better. And it didn’t. End up losing a lot of money because of that. So you specifically asked what went wrong? what went wrong was that those assumptions that I had or that he made were wrong and he was really building a house of cards where he was working on multiple projects. He really needed every project to go right because…
Rod: Let me flag something for you okay. Yeah because I will say what really went wrong respectfully, is the communication broke down. And that is very very common because you didn’t dig in and respectfully, and I will tell you that in every one of my meltdowns on a partnership level, if I dig deep and I look really dissected, it was always because of breakdown of communication so you know in your example, yes he did, he had built a house of cards and you know he didn’t know what he was doing and like you said had you addressed it right then when your gut said something was wrong? It might have been able to mitigate it. Get out of the deal, cut your losses, not lose what you lost. And that’s you know and again sometimes you know when you build a friendship with someone, you’re sometimes later on in the deal as that friendship develops. It’s hard to ask those hard questions and hold someone to task that’s why it all has to be done upfront. So anyway let’s move past the pain because you were you’re a huge success and I want to focus on that. So you had that seminar and you know what’s fascinating is something you know there are people that flip extremely successfully hundreds of houses a year and those initial impressions can sometimes you know impact, you know if somebody does a great job on a flip the first time, they become a flipper and you know and sometimes that first multifamily deal if it goes south it’s the only multifamily deal and so you know and it relates to you know how seriously a person takes it and their education and their involvement but let’s talk about the big deal, you did a big deal. Let’s talk about that dissect that one.
John: Before we jump in that, I just want to close the loop on that one right. I think the big thing is always to learn from those mistakes and you start to hit it right. I mean for me, you can walk around blaming other folks or mistakes that they’ve made at the end of the day, it’s your money, it’s your time, it’s your energy. So for me I couldn’t walk around blaming this guy right. I had to take a look at into your point I had to say what did I mess up? where did I go wrong? And that’s why I say to your point, you have to start to identify what do you need in this partnership? How does it gonna lay out? and what do you do going forward? And I say that to say when we talk about big deals, if you’re gonna invest in apartment buildings and going by large number of units, you’re not gonna do that by yourself. You can but it’s a very very difficult journey.
Rod: No. no. You’d be an idiot to do it by yourself and respectfully to everybody listening that’s done it by themselves, I’m gonna tell you it’s a mistake. This is a team sport and there’s strength in numbers in this team and you know you’re gonna make a mistake if you try to do it by yourself more often than not because there are a lot of moving parts and
John: So many
Rod: Yeah so tell us about this, the big deal that you took down. Where is it, how did you find it, and how’d you put it together.
John: Yeah so I have a partnership with some guys who I’ve known for a little bit and we were just kind of talking about deals and talking about partnering together. It’s something kind of materialized and it was you know casual conversations at first and as I started talking to one of one of the partners he mentioned that, “Hey we found this deal. It’s 192 units. It’s in San Antonio. It’s looking pretty good. So I said, “We’ll listen, if you need help, I’d love to help. I can bring the marketing to the table. I can help you do some analysis. I can help you with you know the overall marketing plan for the property and as well as you know ask some investors who I think would have some interest in investing.
Rod: Hey I want to stop you for one second, I apologize because I want to flag insightful things that you say. What you did was you talked about how you could add value and guys those of you listening. Everybody has a superpower. Look to see how you can add value to a situation. I don’t care if it’s sweat equity, if the fact that you’re gonna do the heavy lifting on the deal you’re gonna you know figure out how you can add value to the deal because there’s always something there and when I have my people network at my live events, I say go meet four people you don’t know tell them who you are, where you’re from, and what your superpower is okay cuz everybody’s got one. So I just wanted to flag that buddy because I admired how you approached that relationship okay.
John: Yeah absolutely. So and that conversation just led to you know if follow-up conversation. I said, “Listen, the deal, let’s talk about it more and we decided to move forward you know for us and I talked to my wife about it and said hey do you think this is something you want to get involved with? She loved the deal, we loved the market and we decided to partner with those guys as far as how we would work as general partners to take this deal down. So we started reaching out to our network, talking to investors, working with the guys on some of the materials and we ended up raising about six million dollars for that deal. It’s 192 units 16 million dollar acquisitions.
Rod: That’s a big race, good for you. Congratulations!
John: Thank you.
Rod: Did you already have your podcast going and that network going so you had some resources to rely on?
John: So that helped. It’s funny because the podcast is actually where I ended up starting to talk to these guys about it. So I had both of them on the podcast and similar to this right we’re talking about you know the interview and shortly after we’re just, hey what’s going on with you right now and that’s where the conversation is started about this deal and you know we just talked about working together or something came up down the road.
Rod: Well that’s fantastic and guys you know the power of social media and podcasting and all of these platforms to make connections and raise money and find deals is just, it’s staggering. None of this stuff existed when I started in the business and it’s just incredible. I’ve got a Facebook group that has almost 18,000 people in it and you know it’s an incredible environment and you know that’s after six months it’s got 18. It’s just incredible and then of course the podcast three and a half million downloads you know I’m in a lot of ears and it’s just such a gift, its such an opportunity you know to create relationships and win wins and make things happen so good for you. So you took down that 192 unit. Did they the ones that brought it to the table? how was it found?
John: Yes they brought it. One guy he’s basically the lead working with the brokers, the other guys primarily underwriting an analysis and then I kind of helped them. We did a couple other people who kind of helped us bring some money to the table as well.
Rod: Was it a value-add play? Did you raise cutbacks as well?
John: Absolutely. I did raise cutbacks, all the renovation calls.
Rod: Can we drill down on a little bit? How much capex did you raise and what was the renovation? what sorts of improvements did you make and how did that impact the rent? That was a lot of questions but
John: Yeah 1.2 million.
Rod: 1.2 million capex?
John: Yeah 1.2 million, a lot of interior renovations, upgrading the flooring to kind of the vinyl plank flooring, updating the kitchens making them a little bit brighter open.
Rod: How did you do that? Did open some walls?
John: There’s one small wall that kind of separates the dining room from the kitchen there’s like little half wall we just opened up that wall.
Rod: That’s a common improvement that really adds value because that’s, you know open floor plans or where it’s at. Did you put in new countertops, new cabinets, with all of that?
John: Cabinets, we just resurfaced. We actually painted the cabinets that existed if they were really bad obviously we replaced them but we tried to just paint the cabinets. We did put in, there’s like a new materials like you can put it over the countertops. So we put that in the countertops wherein they were in working condition but…
Rod: So you did that, it’s like where they end up looking like quarry on after?
John: Exactly exactly.
Rod: I’ve done that as well and that’s a great product and they look fantastic. You can do it in the bath on the bathroom counters as well. Okay so about how much per unit was that? I didn’t do the math.
John: To my spout I think was about 5K per unit or so.
Rod: Okay and you were able to increase the rents you know I’m sure you guys evaluated the payback on that five grand and yeah and then the rent increases substantiated that new investment.
Rod: Okay so, normally I would say I would ask you the question do you have a favorite failure that sets you up for success but we already talked about and I’ve got plenty of them myself. So let me ask you this question, you know I know you enjoy talking about mindset and of course you know it’s one of my favorite topics you know let’s expand on that. You know how do you feel about the impact of mindset on a person’s success?
John: It’s critical. I mean think about them and we just talked about that failure and it would have been very easy to say you know what real estate investing doesn’t work or to ladder this up to some where you seen people who have had success but if it didn’t work for you, you walk away. And I think it’s important to say you know what, how do I step back and learn from this, get better from this, and move forward? It’s funny I was talking to my mother recently and I was reminiscing about my days and high school where I wrestled and I actually lost every single match to my freshman year and I don’t know very many people who were that terrible right. But I finished I was a four-year letterman right and I finished and I came back and I got better and people would ask me why, why would you do this? like you’re not that good like you’re losing this way you’re already skinny and small and you’re sitting you’re sacrificing this crazy amount and I just couldn’t accept failure. I mean I just couldn’t accept a colossal failure.
Rod: I want to dig deeper on that. Can you could you know why where that drive came from? Have you ever dug deep to figure that out? I’m just curious.
John: Yeah I think I was always scared. I was always scared of being a failure. I was always scared of not achieving my goals and achieving my dreams and disappointing people and I distinctly remember the wrestling thing because there was somebody who told me I couldn’t do it. And it was a random guy in the stands and I just remember that being the motivator say I will never let this person have the right you know. I just won’t let that happen and I think that’s the mindset is you know it’s okay to fail, it’s okay to make mistakes, but you’ve got to learn from it and you got to keep going and surround yourself with smart people. I think that was the biggest thing for me was you know hang with people who are very successful even if it’s listening to podcasts like this. When they’re listening to you talk Rod, they’re hanging with you. You know they may not have met you in person but they’re spending time with someone who has a lot of success, who’s sharing a lot of knowledge, who is also bringing on other guests, who can do the same. So if you surround yourself with that kind of mindset and those people who are focused on having success and focused on learning not just you know pretending to be successful but actually learning and taking those steps every day that’s where you really get to see the growth.
Rod: Yeah I want to flag something you just said you know I remember my son when I had I’d already owned 2,000 houses and you know lots of apartment complexes and you know living in this mansion on the beach and I was heading out of town to go to a real estate seminar and my son, he’s I eight or nine years old, he goes said “why are you going to a real estate seminar? you could teach it” And it’s what you just said, you’re always learning. Learning is earning. I always pick up nuances. I’m going to a Tony Robbins event in December that I’ve been to forty times. Four – zero right because you’re always working on yourself. It’s a continual improvement process. If you’re not growing you’re dying. And you know and I could teach that event but the bottom line is I get so much pleasure number one but I’m always working on something new and you should. All you listeners should be, everybody listening to this should always be working on making improvements. There’s a book called “The Slight Edge” that I gift to my coaching students about making little improvements every day, in those little decisions that when they you take them out over time their massive shifts in your life. So let me ask you this, I know that you also do a conference called the Midwest Real Estate Networking Summit. Awesome name and in no pitch, it’s just connecting people and networking and I forced networking at my events as well because honestly I think that’s as important as the as the training relationships because it is a team sport. So what an awesome thing you’re doing there and so you’re living by what you just said and that is surrounding yourself with like-minded people. You know guys those are you listening you can create a meet-up and just sit down with four or five people that are interested in what you’re interested in because you know you’ve heard it dozens of times, you are the five people you hang with on every level, your happiness, your relationships, your health, and definitely in your finances. So you know let me ask you this, do you think there’s a type of person that’s best suited for this career?
John: Good question. I think you have to have perseverance. You have to be able to learn and be humble as well you know humility is very important especially if you’re starting out to be able to learn taking information I think it helps to be likable right. You just talked about as being a people business and you got a network if you’re trying to get deals you’re talking to brokers and brokers you know. This is how they make their living so they have to look at you and say do I want to spend my time and energy talking to this guy who maybe is bugging me all the time and doesn’t seem to be a serious buyer or do I take this deal to someone who’s gonna help me feed my family. So I think you have to build credibility and you have to surround yourself with folks and whether you need to start out with a mentor or coach which you know I actually surrounded myself with a mentor to help me do that as well. I think it’s very important to understand how do you take the necessary steps. But I don’t think that it’s an exclusive club where you won’t you have to have a marketing background or a sales background. I don’t think it’s anything like that. I just think it’s a mindset. If you have the mindset of you know I’m gonna come out and I’m gonna learn I’m gonna make myself surrounded by folks who are intelligent who have the experience and we’re willing to teach me and if you’re willing to be a sponge and take that up and take action on a daily basis then I think you’ll be successful.
Rod: Yeah and I would add a couple of two things one I would say look for how you can add value to those people that are helping you know particularly if it’s just in a you know in a casual mentor-mentee relationship and what was the second thing, darn it was. Give me a second it’s never pretty when you lose your mind yeah it’ll come back to me. So what do you think is the most challenging part of this business?
John: I think overcoming fear. Overcoming fear is the hardest part especially if you’re new and you’re starting out. I mean the fear of losing your money that you’ve worked hard for I get it, but you have to that’s why you do the research, that’s why you’re surrounded, you don’t dabble right I think that’s it right, we focus solely on multifamily investing you know. When I started to go left and turn, that’s where we started to run a problem. So we don’t do that. We focus on one thing and one thing only. So I think that’s the important piece and surround yourself with the right folks and if you do that you can overcome the fear but you have to take action you know. And if you’re scared, take a small action. Do a deal where you’re not gonna lose everything, do a deal with someone who’s experienced, who knows what they’re doing, who’s as approved track record, and make a small investment and they use as another opportunity to continue learning you know you syndicate deals that’s a great way for somebody to learn if you want to learn you know get in on someone who’s more successful on their deal. Even on a limited partner side and that’s a great way to start getting some experience, understanding how the deals work asking more questions. So I think just overcoming that fear is the biggest thing that holds people back.
Rod: Great answer and that’s something I spend a ton of time on in my live events because that’s the whole thing once you do that first deal, it’s like the law of the first deal after that they fall like dominoes it’s that first deal and I did remember what I wanted to mention and you said you know you have to be likable and you have to go make relationships and now there’s people listening to this podcast that are introverted, that don’t enjoy that and I will tell you that that you have two choices if that’s you, you have two choices, one you get uncomfortable because the life you want on the other side of comfort, that magnificent life you deserve and what’s on the other side of comfort, period. I mean that’s gonna apply regardless but that’s one option the second option is you need to align or partner with somebody that fills that role that does that and those are great partnerships at the analytical person with the extrovert. So but it’s one of those two things to do this business and don’t think you’re gonna be able to otherwise this is not a go at alone. I don’t care if you’ve got them a pretty deep pocket you don’t want to do this business alone. So that was great insights and fear is the number one thing and it’s really like I say something I spend a ton of time on. So what words of wisdom would you share with my young listeners that know they want to do this, haven’t done it yet, what would you say to them?
John: Just take action. I think the biggest thing is again find a deal whether that’s the house hack whether that is partnering with a few other people being a limited partner on a deal but find that first deal, take action on it. And if that’s what you feel comfortable losing you know because if you do that then you’re not staying up every night wondering what’s going on oh my goodness will happen 20,000 dollars. I mean just invest in something where you feel comfortable and get started. And don’t worry about losing, the biggest mistake I think I ever made was I made a decision based on fear going back to the flipping. I absolutely could have done it by myself I probably shouldn’t even have started in first place but I partnered with somebody because I was scared that I would make a mistake and I actually made a mistake out of the fear that I was going to make a mistake. So it kind of was a self-fulfilling prophecy in the way it worked out whereas if I would have taken the time to do my proper due diligence and approach in the way I proposed my deals now, or even up to that point because that first deal I research the hell out of everything. I researched a neighborhood it was the only neighborhood that didn’t lose value when the economy turned. I mean I knew everything about all of my investments and when I gave that power to someone else and trusted them, that’s really where I started making mistakes. So now even when I invest as a limited partner on a deal or as a partnership on a larger deal, I still do all of my own homework and I love that tip that you gave for those passive investors. You still have to do your own homework you know understand what’s happening, verify the information that you’re receiving from a syndicate, make sure that area is seeing population growth, make sure that all the major employers in that area are still going to be there, or that there are no major plans for you know a shutdown of a plan or things like that. So just making sure you understand what’s really happening is a very important part. If you’ve done that research, you gotta trust it.
Rod: And you’ve got to know how to read the numbers because a syndicator can make a pro forma look great and if you don’t understand you know what an expense ratio should look like, what certain expenses should tie in at, and you know haven’t done some homework you know like I tell you that like I said there’s syndicators that are making big mistakes today and when there’s a hiccup, it’s their investors that are gonna suffer and so you know one of the things that we’re doing in this recent syndication we just did is I’m actually training the investors in that and we’re doing regular webinars and we’re coaching them and adding a you know I feel like a tremendous value to them and I think I’m gonna continue to do that on our deals. And guys, if you guys are listening, if you’re accredited and you’re interested in getting involved just text the word “partner” to 41411 and we’ll chat with you about it. But let me ask you this John, what are one or two of your favorite quotes because you’re obviously a very driven guy, you’re a motivated guy, what are some quotes that you enjoy?
John: So there was one in the West Gym, the West Gym is where we wrestled and it was on the wall and it said, “Tough times don’t last. Tough people do.” So that’s one that I always try to focus on no matter what you’re going through in life. If you got a deal that’s going sour, just you remain tough and you’ll overcome all those things. So that’s one that I really love and live by.
Rod: Love it. Love it, I’ve got a sign on my desk that says never never never never give up as Winston Churchill in World War II you know it’s like in everything there are seasons and if you’re listening and you’re in winter right now and things aren’t fabulous, what comes after winter it always comes my friends and you know when you’re in you know like when the real estate goes through cycles when you know we’re gonna have a winter again, it’s coming and that’s why I say you know if you’re if you invest with somebody that’s not stress testing the deal you know, to see what’s going to happen if there’s a pullback, big mistake. And so you know but spring always comes after winter and then summer and you know everything goes through seasons. Real estate included and so let me ask you this, if you were gonna go back and tell your younger self, I mean you’re not terribly old but I mean if you were gonna go back and do when you were 21 or started that house hack, what is there anything you’d do differently?
John: I think it would just stay on multifamily if I was younger, I would probably take advantage of that house hacking formula and do that three or four times in a row before I even started doing just pure investment property because you only have to stay in a property 366 days. So you can do that live in a property a little more than a year, identify the next one, get FHA financing on that. Now the one downside if you use FHA is you can only have one FHA loan at a time which means you would have had to create enough equity to refinance out of that first one so that’s the only drawback but if but if you’re doing the value at play on house hacking. I mean that would be the strategy I would run that until essentially my significant other told me I couldn’t.
Rod: Yeah they’re the boss. No question. I mean I’ve interviewed guys on my show that have you know 10 plus million dollar portfolios 1 duplex at a time you know it took longer, it took longer but so what? If that’s your you know everybody has a courage muscle and if that’s the depth of your courage muscle, then go for it you know. But do more than once because again the first deal is the hardest deal. All right what books do you gift the most?
John: Oh great one I mean you know I’m sure this is probably not the most original answer but Rich Dad Poor Dad it’s a great one to start with for anyone who’s uh before you into the real estate side. I think it was just more of a mindset and understand the way finances really work and the economy works as far as you know earned income as you know whether you are a business or an investor or an employee. So I think that’s one of the first things that we like to give away and then there are a couple multifamily books. So there’s a few books, my guys name
Rod: oh that Rod Khleif guy. He’s got a great book.
John: Yeah Rod’s got a great book.
Rod: There are a few different books I’ll show you here its buying and selling apartment buildings and he was raving about this so I you know anytime somebody recommends a book I buy it. It’s kind of a no-brainer haven’t ready yet so we’ll see if it’s any good.
John: Yeah I have that book, it’s a good book. The ABCs the Real Estate Investing by Ken McElroy
Rod: He’s on the show. He’s awesome yeah he’s a rock star.
John: Yeah they’re a lot, I think anything multifamily is a great book until you can really fully understand those concepts and then mindset you know I think once you kind of understand the real estate stuff and then you have to get into it right. I mean those are great theoretical books but then you have to know the difference between a six cap and a 5.2 cap because those are gonna be huge variances and not the way you want to underwrite deals. So there there’s still the application elements of it and then mindset you know books that can help you stay on top of it. I’m reading that I’m reading the never what’s the book it’s the negotiation book.
Rod: Oh oh “Never Split the Difference”
John: “Never Split the Difference” yeah so I’m in the middle of that book right now.
Rod: I just bought just about 30 copy that from my mastermind. I’ve got my mastermind in August in fact in two weeks in Vegas and gonna be about three billion dollars in assets. There’s gonna be epic.
Rod: But that’s one of the gifts I’m given the participants, but well listen my friend it’s been a real treat and really enjoyed having you on the show, love your energy. I’m sure your podcast is awesome and I really appreciate you taking the time to be on my show.
John: Right thanks having y’all man.
Thank you for listening to the Lifetime Cash Flow Through Real Estate Investing Podcast.
If you’ve enjoyed the show, please take a minute to visit iTunes and leave your comments. For more resources or to connect with us further, please visit our website at rodkhleif.com. Tune in next week for our next show.
Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure and subscription documentation, and subject to all applicable laws.