Ep #267 – Steve Firestone – Blueprint for Low-Income Multifamily Real Estate

Here is some of what you will learn:

The difference between UK and US Multifamily Markets
How to find investors
The value of networking
Larger properties vs smaller – Which is easier
Strategy for market positioning
Effective management for low income properties
Low income property analysis
The workforce housing model
How to address security issues
The mindset difference between flipping and rentals
The value of an educated investor

To learn more about our guest, please click here

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Full Transcript Below:

Steve Firestone – Blueprint for Low-Income Multifamily Real Estate (Ep #267)

Rod: Welcome to another edition of “How to Build Lifetime Cash Flow through Real Estate Investing”. I’m Rod Khleif and I’m thrilled you’re here. I know you’re gonna get tremendous value from the gentleman we’re interviewing today. His name is Steve Firestone. He’s with the Crown Bay Group and Steve’s been in the business a long time. He’s owned as many as eighteen hundred and fifty doors at one time and he’s actively buying and selling right now and just glad to have you on the show my friend thank you for joining us!

Steve: Thank you for asking me I’m really happy to be here

Rod: Absolutely so please let’s start like I usually start an episode with having you describe how you got started in real estate and really how you got to the incredible success that you enjoy today

Steve: Well real estate wise just in general goes back quite a ways to probably 1998. So I have been in real estate a long time I didn’t just you know get into multifamily just you know out of nowhere admittedly but I sorted out just doing I guess at that time probably a little bit prior to fixing flip was a you know catchphrase and things like that doing just that you know I fell into real estate by accident I was buying houses and condos and whatever you wanted you know things like that fixing him up and then that grew from there and I actually I wanted to get into development so I was trying to figure out how to do that and to get into building and I as you do after a couple of years you run its course you need to get to the next step. I met someone who was a mentor who turned out to be a very large development company, a property development company and sort of taught me all about commercial property. We were buying large sites repurposing properties into you know apartments and or flats

Rod: Where was this? what city?

Steve: That was actually in the UK

Rod: Wow I was gonna ask you if you were a Brit I noticed the accent. I didn’t want to assume but

Steve: I t’s always big talking making people go really from and I always go New Jersey and they’re like no yeah I am actually born and bred in New Jersey and somehow I round up there in my early 20s in London as you do when you don’t have any responsibilities

Rod: Really? I actually thought you’re a Brit

Steve: No, no, I just, like I said three weeks turned into 20 years and I really got involved in property while I lived there like I said in real estate and you know eventually after a couple years met these guys who happen to be actually still a listed company in the UK although hence retired and you know my mentor was the man with the golden touch, sold off his shares before the market crashed in his own company. So but anyway he really taught me value it right from the very beginning and everything about you know all types of commercial property and at that time you know we were I was sort of thrown in the deep end and they already had own apartment complexes you know over there and we were right away you know project managing doing rehabs on those you know leasing those, doing what what we do here now, but also on top of that was you know building you know, literally building from new repurposing large buildings into you know like I said apartments, office buildings, retail properties. so I really had a real mixed background of everything

Rod: Those are great foundations

Steve: Yep and then I went off on my own after that and really was doing a lot of development just they actually backed me after they ran me ragged for three years it took me for granted. So it was a good fast learner and I started building small development so you know everything from town houses to you know some retail you know even some small commercial units things like that so you know whatever we could find of course the more markets a lot smaller in the UK as I as I like to remind people over there you know hope not offending any Brits there but I’m afraid it’s the facts that you guys are only the size of Florida

Rod: I’m gonna get hate mail for that

Steve: But the fact is it really is opportunities and it is limited compared to

Rod: Let me ask you a question if I may Steve. What is different because I do get you know I have I have a lot of listeners in the UK no question. What’s different over there you know we don’t have to go down that path too far but just at a high level what are the differences between investing and in multifamily there versus in the States

Steve: Well that’s the thing it’s such a big difference there because the multifamily market as we know it here at Gordon apartments all that in a way doesn’t really exist there. It’s really because the apartments as we know are really more government controlled and that is really what they call multifamily. Now a lot of the apartments that are privately owned are on the smaller scale because there are a lot of as we said repurposed buildings that’s a really big thing there because of course is a shortage of land. So a lot of repurposing buildings everything from large old Victorian houses that you would maybe have six or you know ten apartments into everything to an old you know disused pub that you would again build maybe 12 units in. So on the bigger scale it was really more new developments and then private people buying what we would call condos buying those units and then rented them out themselves.

Rod: Individual units okay

Steve: And the sort of marketing in a way

Rod: Right what’s the financing like over there just that’ll be the last question I just used to ask

Steve: Well that’s the other thing that was really tough there because especially at the time when I started you know there is no Fannie and Freddie so you’re on your own. It’s banks or banks

Rod: Okay so and so banks then

Steve: Yeah banks and you know you gotta you know build a track record with them you know really or they’re not giving you a penny and luckily I had you know slowly builds up a little bit and was able to get some development funding and

Rod: That sounds like you did a lot, sounds like you did

Steve: Yeah

Rod: So you came here to the States when?

Steve: I moved back here in about 2010

Rod: Perfect

Steve: And we had the market crashed in 2008. It was no different over there it was like today after Lehman Brothers crashed it was you know like the next day I was on the phone to my bank who I had just built this big track record with going, it’s Steve, Steve who?

Rod: yeah right

Steve: No I don’t know you know kind of no one’s lending money career over

Rod: It’s like a faucet turned off. I mean it wasn’t like it went to a slower and then dripped no it was just on and then it was off like what it seemed like one day to the next it wasn’t

Steve: I really felt like you know my career which I love what I do was just like that over. But it was also a force break which I’m a workaholic and I kind of needed a break and I don’t say that I am happy about the crash but we didn’t get hurt too bad. We had a few things that we owned that we had to sell off but you know small losses but it also enabled me to have enough money to be able to live for a few years without having to work which was a great thing and that’s what I took the time to move over here. My wife is actually from Sweden. I met her in London and she was already living there for a long time worked in an investment bank and we decided okay let’s take this time it’s you know we you know it took a year to get her a green card. We decided you know we used to visit Florida was like my family lives there so we decided yeah we want to get a move back to the States which I had one is lived for a long time anyway and getting involved in real estate. So that was really our first you know story to think about it

Rod: So where in Florida did you move? and then what was your first deal here?

Steve: Oh well we moved to Boca Raton okay Fort Lauderdale, Miami and I didn’t really do anything for a couple of years because I wasn’t sure what exactly I wanted to do. So I started to look into what was available to me here. No I didn’t really have any contacts here for funding or anything like that yet so it really was pounding the pavement starting from scratch. So we had this idea for Crown Bay, we did flip a few houses and we tried all those kind of things which was okay. It was a starting point but it’ll mean you know meet more people I did go to some you know these different education classes to find out more about different asset classes and you know I already knew about multifamily and I had already been looking at apartments even when I visited my parents in Florida over the years. So its something I already knew about what came to it. So I really just you know sort of nose to the grindstone focused on you know multifamily I thought that’s the best asset class and I still think it is safest of the best and just found out everything I could about it here and how to do it properly here and you know investment wise, investors, just all the ins and outs of it, what locations I picked out about, did a lot of research on you know demographic research picked out about maybe four major markets that I wanted to try to be in. So I started calling up brokers as you do and of course you know they have they don’t know you you don’t have the track record difficult to deal with them it’s not easy as I’m sure some of your listeners know and you know will experience but you just got a person here right and I did. So what I did was I luckily had the time or where I could do this I traveled every few months I go to the same places over and over again, meet the same brokers in every town I want to see every property they had so I can listen to them tell me about the properties and you know I really learned that way and

Rod: Okay let me stop you for one second. Guys, that’s a clue. That’s what’s called a clue. Go you know go visit multiple times. Let them see you, develop those relationships. It’s critical especially when you’re brand new otherwise you know you haven’t got a shot. They’re not going to take you seriously they need to know that you’re really in this and to give you a shot especially in this hot market okay please

Steve: And even if this even if you’re going to do it everybody we all have to do a little bit of fake it till you make it kind of good but you know you’re still going to have something to back it up and I think that you know shit again showing your face and that you mean business you flew out there you know you’re meeting with all these people you know especially once you do it more than once you know to calling the phone and expect to get a deal you know not gonna happen

Rod: No it’s not gonna happen. You develop those relationships over the phone first. Then you go visit, you break bread with them, you let them see you and get to know you okay.

Steve: I did with investors as well I started from you know everybody I never really did necessarily you know family and friends but sort of and I guess the next step from that and just started to again the same year spend building that up

Rod: So talk about how you did that. How did you find investors? Where did you go to look for them and how did you develop those relationships?

Steve: Yeah it was really difficult. I did talk to some friends and family but I didn’t feel comfortable actually doing it you know maybe like the next sort of one look you know step away you know like a friend of a friend but you know and I do have some friends now that are in my ideals but at the time I you know they didn’t feel comfortable and I didn’t want to push it. So I really just did a lot of networking at any every event I could go to that was multifamily or real estate base would go you know the usual joined local Greer’s just kept talking talking telling people what I was doing then they would introduce you to other people and it just grew from there and I then I had my first deal and I had some of some commitments from people and unfortunately my very first deal which was that multi-family it wasn’t coming

Rod: How big?

Steve: That was the first one was 137 units

Rod: Wow that’s a big first deal here but of course it wasn’t your real first deal but your first domestic deal and so where was that located?

Steve: That was in Atlanta

Rod: Atlanta okay

Steve: Like real multifamily acquisition of Crown Bank Group

Rod: Okay I got you okay so wasn’t your first, it was the first okay got it

Steve: I you know that’s life on flipping houses things right this was the first official people of us you do what we do and I thought about it a long time and I actually looked you know especially being in South Florida there’s a lot of smaller properties on the market that are seem very appealing you know from 20 units and 30 and 40, 50, whatever and so I started out in during that year when I was going to other markets looking at bigger properties so I really knew I wanted to do 100 units plus and I think that’s really critical to a lot of people tend to gravitate towards doing smaller properties because they think it’s really just down to you know financials they just think well it’s easier to borrow less money but that’s not really and what I try to tell people when they ask me is not the best reason. It’s better sometimes to really wait longer and you know start if you really want to do this as a bigger business you’re not just buying a couple of properties for yourself to start with you know as close to 100 units as you can get. And the real reason is, really is it’s having staff on-site is a whole different thing having you know even just one you know a hundred units or even you know 80, 90, 100, you can have one manager one maintenance guy but they’re there every day but keeping an eye on your property, you know what’s going on you have eyes there. When you have less that and you have to rely on you know your first of all you’re paying more in management fees you know like you would be more residential where you’re paying anywhere from you know I don’t know six to ten percent because they’re only managing 20 units for you in 30 units there isn’t going on-site there’s no one be the leasing office there for them to go to they’re calling up phone numbers someone has to meet them there you usually have every time there’s call outs which you know if you’re I’m sure your viewers know what that is on the properties we have hundreds of call ads about you know of tenants that need things fixed and we have our own on-site staff most of our properties we have three people on staff from in the office and three on-site better 200 units plus but when you’ve got a twenty to thirty unit property, you’re paying for every time the management company calls out someone to go fix the toilet or whatever by the hour and you’re

Rod: Sure and then maintenance can be a real profit Center for a management company you know they’ll hire some kid 20 bucks an hour and bill them out at 75.

Steve: It’s awaiting a bottom line yeah so that was really the you know the main thing and just wanted to grow fast as well economics of scaling things like that you know

Rod: You are unique and in the fact that you do low income property and I’d like to dig into that a little bit because I don’t think I’ve ever had anyone on the show actually that that’s their focus. So for example that hundred and thirty some unit, what was the per door cost on that?

Steve: Yeah I think at that time they’re paying about 30 a door for that one.

Rod: Yeah see okay as a number you don’t even hear today but deadlines. So would you call it a C-minus area, D area what was actually

Steve: I just actually came from there right before I just came on with you and could we have another property there actually we just sold a property there last year another one that we had on we bought later on and we just bought another one there literally within a couple of blocks of each other. It’s I guess you’d say it just a C properties, it’s a C-minus I think is pushing it I don’t really like to you know there is a limit I think we’ve either within the C Class properties you know what I call workforce housing very there are different levels and you know we try to stay towards the upper part of that or make them that way taking a C property making it into a B property things like that that people always talk about I think those are real exceptions they’re not really the norm you can’t just change a whole area you know. You can make your property well we always try to do is we try to be the best property in our market

Rod: Yeah and that’s the sound strategy I hear regularly is to be the best you know be the best of what you’re competing with. Now let me ask you a question. Obviously do you self-managed or do use management company? third-party?

Steve: We did starting from when I just told you was that first one of course right from the beginning you had third-party management. I had again same at the same time during that first year of networking. Interviewed different various property owner – company in different states and I had met this one in in Atlanta who I really liked the guy. He was very helpful over that first year you know looking at properties with me telling me what he thought before boredom and we went with them and we worked with him for quite a while and then about a year, about a year ago we decided to open up our own management company

Rod: Bring it in-house yeah that’s a very common transition okay. So let me ask you this, what is different if you can help my listeners about managing a low income property? Obviously it’s much more management intensive and so what sorts of things are you’re gonna have more late fee income, you’re gonna have more turnover, you’re gonna have more damage when a unit turns over, but what are the sorts of things what do you do to mitigate all of that? what are some of the things you do?

Steve: Well first of all a lot of people as you’re saying you know you haven’t had a lot of people on with what again what I would call you know work force housing and the first thing I want to say is just that you know to stick up for it, for them is that a lot of people and investors also you know. Now it’s different you get even the equity groups buying C-properties which wasn’t even the case even two years you know it was just starting but now they realize there’s a lot of money in there. That is the demographic that is not going to go away. These people are necessary to our economy they’ve run the country you know we have the busiest airport in the world in Atlanta. A lot of our properties are within five miles there a lot of the people work there and they work in you know everywhere from fast food, shopping malls, industrial sectors, manufacturing, those people aren’t going anywhere. I don’t care what happens to the economy. These people run our country and just because they happen you know rents happen to be expensive or you know even in a low cost area but you’re in a city it’s expensive. They don’t get paid as much as is necessary to live properly well you know that that’s low income housing. So to me, these are hardworking people yeah as some of you know we have problems but the majority of them which is good hard-working people

Rod: They just, they’re hard workers yeah and I don’t disagree with you and it obviously you know you’re gonna have more crime you’re gonna have these other things that I mentioned. So back to my question, how do you mitigate all that? how do you mitigate and manage effectively so that you minimize as much of that as you can?

Steve: Well the first thing is that we you know when we’re doing your underwriting it might be a little bit different

Rod: Sureness because of the maintenance

Steve: Well maintenance and we are also counting and in our underwriting the projections for a higher turnover you know four or more you know as you say repair and maintenance after the

Rod: vacancy

Steve: Vacancy things like that a lot of skips skips and evictions. So that’s all fact it affected in to our underwriting so you know if it doesn’t work with all that in there then of course it’s not a good deal. And then the other thing really as I said a lot of people really actually don’t even the big management companies we’ve found over the this time from taking over properties from a lot of people even the big companies they do not know how to effectively map

Rod: No I agree completely that’s why I’m surprised that you hung with the third party as long as you did but let me drill down. Do you mind drilling down a little bit deeper on what you just said? So let’s talk about vacancy, let’s talk about repairs and maintenance per unit, and obviously flips and skips talk about I mean in on a real granular level like let’s say you’re analyzing a property what’s sort of a vacancy factor would you put in in your analysis

Steve: Well it depends on the property but I really just usually type the sentence

Rod: Okay sounds good and then on repairs and maintenance per unit all things being equal I don’t know do you buy, what age properties do you typically find? is there is there a

Steve: Most seventies

Rod: 70s okay so what’s in a 70s property what do you factor per unit per year for repair and maintenance

Steve: Well and that also depends really on the property what’s already been done to it you know we have to take into account what they spent on it, what heavy lifting items have already been done whether it’s roof whatever you know

Rod: I’m not talking about CapEx I’m just talking about repairs and maintenance yeah

Steve: Yeah of course there’s someone’s renovated units it’s like

Rod: Right it’s gonna be less sure

Steve: I usually put about 600

Rod: 600 that’s all? Wow okay that surprises me.

Steve: Yes because we don’t really buy anything that’s that bad. We don’t buy projects necessarily what I try to we actually we do have some that are bigger renovation projects but the majority what I try to do is there’s a sort of a fine line of what you can buy that is already cash flowing but it’s just not being managed great, does have deferred maintenance, but you can still get away with just about passing it through on a institutional loan

Rod: Right right right you know the reason I’m surprised by that number is you’re gonna have more turnover which is going to increase that repair maintenance number is that a different line item?

Steve: Well no because we’ve repaired. Repair maintenance and turn cost you know it can be two separate line items but again they if you’re doing a quickie underwriting, it really just as the one line item

Rod: All right all right fair enough fair enough

Steve: A little bit depending on the property but well because of what we do we take them over we do all the deferred maintenance and we know you know what our plan is you know having a plan is the biggest thing. When you do your you know anybody who’s good and obviously my property’s gonna do their due diligence but we do our lease or it and our 100% unit walk during our due diligence period. That is our roadmap to you know figuring out what we’re gonna really spend there because we know right away what their turnover is existing you know already so we can factor that in. We know when every unit looks like we make a spreadsheet from a lease on it from the unit walk we know every unit on our spreadsheet that’s our road map this one has you know it only takes a few minutes for each unit to go into, very many people that know what they’re doing and you know right away you know if the appliances are you know

Rod: They did the hot water heater and all these things there yeah

Steve: It’s all like sort of its replaced, it’s over ten years old it’s this it’s that flooring or whatever. So we take that away and during our while we’re still on our due diligence, Barry can work out really what’s the real cost of what we’re going to spend on you know per unit on turns and all that and then the next thing is of course you know we always expect to on every property when you take over the first two quarters for the first six months is always the highest turnover and the highest turn cost because you know they’re existing people that you know you want to purge the property of

Rod: Right you get rid of the bad eggs right

Steve: Yeah and there’s and this is usually a lot of them because the management once people getting away with things with management it carries on. So people weren’t paying they just think it’s their right not to pay anyway. So until there’s a new sheriff in town. We did that in six months, to get rid of the first few waves of people and to set the new rules in motion and then what we find because of what we do in our model and from our experience, it starts to slow down after that and that’s when it starts you know we stabilize now and then we start to come back up a bit by the end of the first year so that second half of the year is the building back up and we start to have less turnover. We’re doing the vetting the way we want so we have a lot less turnover

Rod: Speak to that for a second, speak to the vetting speak to it what do you do differently there that you might not do on an A or B property?

Steve: I’m not sure what other people do but I mean we do you know it is a full credit check it’s through our property management software it goes through a credit agency we do our

Rod: criminal?

Steve: Criminal check as always we don’t we don’t do any no no criminal background we check for evictions and if you have evictions you know you know we don’t need to do that even in low income properties and bankruptcies

Rod: Do you take previous bankruptcies?

Steve: We’ll take it into consideration. There’s always that pile that we have on the side that come through better

Rod: Objective

Steve: Yeah and then those are the ones that are regional manager. Our manager on site will then speak the regional for those ones and she’ll judge whether you know we should give them a chance or not and what they call second chance and then we will adjust our deposit based

Rod: Right adjust the deposit

Steve: Only a couple of hundred dollars if you’re totally clean to a full month’s rent if you were have had issues or your credit score’s not quite there you know so we are we are flexible a little bit but not to not on criminal

Rod: So what’s your favorite tenants story? I’ve got I’ve got some doozies because by the way my background is this same demographic, I’ve had you know 2,000 houses that I’ve managed long term you know multiple apartments as well but it was all the class that you’re in right now and so I mean I could have answered every one of my own questions but I wanted to hear your perspective. So what’s your favorite tenant story? what’s the craziest one?

Steve: Gosh you put this spot now because unfortunately a lot of them are criminal and you know we do have yeah you know shootings

Rod: By the way do you put lots? do you camera the whole property? do you have cameras everywhere?

Steve: I mean the main thing that our model is we’re doing workforce housing for our whole model is based on it’s clean, it’s safe, and it’s a good condition I’m gonna good service that’s a call out service is most important and then crime is a big one. So we take over properties

Rod: And by the way guys I’m sorry call out  is maintenance request so you know if they’ve got something you want fixed that’s the Brits way of calling it

Steve: If you keep people happy with fixing this stuff very okay but crime is a big one and I learned that really early on what’s do and we don’t get fazed by that at all and we’ve got we’ve got better deals because we bought, we just bought one in Jonesboro, South Atlanta that has actually under contract now we’re selling it already in less than two years and it was the Wild West and we knew that but it had great bones, it was a good property, deferred maintenance but it really was gangs down there and all of that and we do the same thing that I learned to do we do it on every property, right away we find out you know we find out what’s going on where are the people coming from we fix obviously the boundary fences

Rod: Perimeter fence is critical right. By the way do you know Maureen Miles?

Steve: I know Maureen very well

Rod: Yes she’s a very good friend. She’s come and visited me here many times and she’s giving me some funny stories too but I got that perimeter fence thing is what she told me is that the minute whenever they have problems on a property, there’s always holes in the perimeter fence she told me.

Steve: They always come back somewhere else you know but they get tired after a while sometimes sometimes but the thing with the cameras is most important. And a lot of landlords even the big ones that have the money they always spend their money in the wrong things I find. This is even like institutional camera system it’s like ten grand I mean it’s nothing but better than the cameras themselves it allows you to put signs all over the property. So you know we

Rod: Smile you’re on camera right

Steve: You drive into our property, we got your license plate and that’s you know signed at the entrance that’s it

Rod: I gotta share a story just cuz it’s so funny Maureen told me a story that she was having trouble getting it wasn’t the tenants, it was the boyfriends of the tenants and they knew they were dealing drugs and so she put fliers on everybody’s door that said they were gonna volunteer, you probably heard this story too I’m sure but that they were gonna volunteer these units to test the dogs for drug sniffing and it was like cockroaches may have boom they are gone! Yeah that’s awesome and you develop a good relationship with the police as well right

Steve: Yeah that’s I was just gonna say the other thing we do this second we take over a property we go to the local police introduce those were a proactive landlord because although you think that they could just come on there to arrest people. The next felony is private property so we’re actually almost giving them a license to come and arrest people. So this one in Jonesboro that we bought we met with them we right away we sat down a drug you know Department and we made a plan, they said they were really happy that we were one of them on a property and we did actually pay them. The police actually do work four hours and they’re utterly allowed to do that and we made a plan with them for their off-duty officers instead of having a private security which I think is worthless. We had them in for two months and they already identified all the known drug dealers and you know people who had warrants they went in a first wave in our first sort of six weeks they arrested all those people by then of course once you start the ball rolling, you get all the good tenants starting to tell tattletale and tell who’s who and it’s just a big rolling effect and then everybody starts scattering and as I say that that you know once they know we mean business, there’s police, there’s cameras, there’s evictions, and then you know it takes about up to six months yeah and they go find another property.

Rod: Sure they find when that’s not as diligent and they move

Steve: Exactly

Rod: I’ve actually see actually I was just gonna say I’ve actually seen that happen in an area I saw that that the police was so diligent on a few block area that I had. They blocked off the street, the cops stayed there and one thing that I did once was actually allowed the police to have a desk in one of my units that they could come and sit and drink their coffee and whatever and there was always a cop car parked there in front of that unit which was a very visible unit for the complex

Steve: That’s a great, always a great help and that’s another thing just to mention them as a side note for people listening. What we try to do in all our properties is I know people for Darius the term courtesy officer but they’re also courtesy office can be actual real police and we really go out of our way to try to get police to live on the property. So we’re always offering a which I’m sure a lot of people do groups do to the local police department a discount on rents for anyone who wants to live on the property and usually we do get at least one if not two people there

Rod: And they drag their patrol car home you know and they park it out

Steve: That’s the thing they have to bring their patrol cars home so people know they’re there and you know it depends on the person how much they want to get involved or not but they did take it serious because if you get a police officer with their family, they live in your property they don’t want any trouble their family lives there. So they make it very clear that they’re not going to stand for anything. So they are sort of on call if you like without being on call

Rod: Yeah great idea yeah great idea. Let me ask you this do you have a favorite failure that happened to you? I call them seminars. I’ve had massive seminars. 2008 was a huge seminar for me but do you have a favorite failure that set you up for future success? or just a time that you really got your nose bloody you now really get your blood kick

Steve: Not since I started in this guy’s as you know multi credibly specific company but I think really the main the big thing was the crash in 2008 I was literally in shock because I had never been through a real estate downturn I thought it was invincible. Even though I was I wasn’t landlord I was directing some apartments and houses but I was also buying and selling and you know photos wheeler-dealer buy you know build on spec sell and that really hurt I mean I really thought my career was over

Rod: Can we talk man I was under a rock hiding

Steve: I was literally I mean I was in shock for months

Rod: Yeah me too

Steve: What am I gonna do now? and my real lesson was really was no more spec building I really like this business of multifamily especially here and especially work force housing and giving people just what they need good, clean, safe accommodation. You can’t go wrong. You cannot beat it these people

Rod: You can’t it’s just like mobile home parks it’s another great asset class that will survive any downturn as well your properties because

Steve: And that’s not to say it’s easy it’s not an easy way out it’s just that it’s safe and I always say you know even bankers that I talk to that they don’t understand you go to corporate bank you know for banking purpose is not necessarily lending on properties that is supposed to be pro-business even they don’t really understand what you do. So when you try to tell them and you need help they’re supposed to be business friendly but not in our business because they see it as very risky. So all they think is you make this much money and you telling me there’s no risk you know like yes.

Rod: Hey listen the thing that people, they don’t realize is that you’ve got great cash flow and pretty much a cheque will solve anything okay really and that’s the thing and that’s what I used to tell my ex-wife you know when things would happen the great thing about real estate is that a cheque will fix just about any problem. So you don’t have to you know it’s not business threatening you know you’ve got insurance for the real catastrophic stuff but let me shift gears for a minute because I want to ask you a couple of questions you know I have listeners that haven’t done a multi-family deal yet. They’ve done some houses like you started like I started. What advice would you give them about this business?

Steve: Well what are the main things that I have told people before, that want to get into it from you know flipping houses and that sort of mentality is that you really have to change your mentality a lot. We’re not trying to although we do upgrade units and there is some of that to it or you know making it look nice and decorating or whatever you want to call it but it really is a different mindset. You’re not trying to make a house look great to sell it to a person a family who’s going to live there and own it. So in this business especially on this scale every penny counts you know when you’re just doing one at a time, first of all you’re gonna always find the next house that’s the next thing that’s one thing and also you’re trying to make that on your budget as good as looked as beautiful as you can. Well you know and you can do that because you have a budget for that one unit but for our properties, you’ve got 200 units of you know whenever you’re going to do to the property every single penny counts you know on the bottom line it makes a huge difference. So we don’t look at it you know we try to do the things that are the best for banks but obviously repairs and maintenance is necessary and preservation but you know if we’re gonna add things to property I’ve had I’ve seen guys go broke from like buying a property that they thought they will

Rod: They overimprove.

Steve: 50units in they’re done.

Rod: Right because they over improved they do things that aren’t necessary

Steve: That aren’t going to change the rent

Rod: Right there’s got to be a repayment on whatever they put in you’ve got to calculate that. Now let me ask you this. Do you do any things to kind of stiffen up your properties to make them a little more battle proof so that your turnovers don’t cost as much? Do you do the solid flooring you know do you do things like that any unique things to this particular asset class?

Steve: Yeah we do obviously think about that improvements or partly what we think is going to look good and make the properties get the most rent and partly what’s going to be the most sustainable as far as damage lasting and things like that

Rod: Even if you pay a little more sometimes because

Steve: Absolutely that’s right that’s where you start getting into those calculations of like you know how long a life against how much you’re paying and you can’t get quite granular and as you know all these things but within reason once you find out what does work this is a very rinse and repeat business. So we have you know and we’ve got it down to where we know if we’re going to say buy a property and upgrade half the units it’s basically an upgrade in a box except for the aside from the painter and the flooring company we know what flooring we’re going to have the rest of it is just we already have our you know skewed numbers of our items from everything from faucets, to lighting package whatever and it literally we say comes in a box for that property

Rod: From that unit yeah that’s right that’s how you’re really

Steve: Yeah you know we try to get the best quality we can for the budget yeah what’s appropriate for the property

Rod: Sure sure sure awesome. So let me ask you one last question if knowing what you know now what would you tell your 20 year old self to do differently about this business?

Steve: That’s a tough one I mean it’s I think it’s just a learning curve no matter what a you know no matter where you are but I really can’t stumped

Rod: Okay the most common answer I will tell you is that as people say I would have started earlier and God later

Steve: I was going to say that but I purposely didn’t say that because I thought that was caught bad.

Rod: It’s just I want my people to hear that you know okay same answer every single time. It’s like start earlier and go bigger and

Steve: Exactly I mean I love what I do is like absolutely we started earlier

Rod: There you go there you go guys there you heard it again it’s the same theme every time

Steve: but I do want to say one thing if you don’t mind

Rod: No ofcourse not.

Steve: You know when we were talking about you know saying that you don’t want anybody gets wrong impression that you know oh it’s just you just buy a property and it’s totally risk-free because that’s not necessarily true. But that what there is a difference is what I think people need to strive to be good at what they do is anybody can buy a multi-family property and not necessarily lose money and this is where we talk about cash flow and of course the back end profits are adding value. When you’re offering you know seven or eight percent returns to an investor from cash flow plus obviously potentially profits on the back end and all that that’s great if you can do it but the thing is there’s such a big even eight percent is a lot if you if you go down to zero and make no profit it would be very hard to lose money. So that’s what’s my point about being safe to lose money on a property is difficult

Rod: Right. That’s what’s so great about multifamily because there is that that’s spread

Steve: You can just make profits and make no distributions

Rod: Right right

Steve: They’re not going to necessarily

Rod: But the principle may not go away but you know on that on that note and I’ve talked about this recently you know there are passive investors that are investing in deals with people that are too aggressive right now frankly. I mean they’re doing deals they shouldn’t be doing they’re overpaying and if there’s a hiccup there could be a problem for these people and so you know and I tell my listeners get educated I don’t care what your investment vehicle is get educated

Steve: Even if you’re a passive investor you need to have education

Rod: That’s right that’s right that’s the point

Steve: The track record of the sponsor

Rod: That’s the point that’s exactly that’s exactly right. Well thanks brother you added a ton of value today. It was a real treat to have you on the show and this is some stuff we haven’t talked about so I’m really I’m really glad that we dug in to the workforce housing component because you know that’s definitely a profitable niche for the right mindset and the right personality and I think you have to have a level of experience to go after that asset class as well because it is a little more labor intensive and more management intensive but definitely you know profitable and all else butts thanks for being on the show my friend really appreciate you taking your valuable time to be here

Steve: I’m really pleased to be here I really thankful you were asking me and I love sharing information with people and knowledge is power. So anything I can do to help anybody that’s you know good karma

Rod: That’s right.

Steve: Thank you very much

Rod: Thanks buddy take care

Steve: Thanks

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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.

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