Ep #125 – Brian Murray was not an investment pro when he bought his first commercial property. He was a teacher looking to build some side income. Today he has 300+ units and a commercial portfolio
  • Here’s some of what you will learn:
    • What is defeasance?
    • What is a retrade?
    • How to check rent rolls.
    • When to renegotiate a deal.
    • What is R.U.B.S.?
    • How to increase NOI.
    • How to estimate expenses on a property.
    • Some clues to know when a property is worth investing in.
    • Why you should renovate units as they become available.
    • When to hire full time employees.
    • Warning about auctions.
    • Book recommendation: “Crushing it in Apartments and Commercial Real Estate: How a Small Investor Can Make It Big” by Brian Murray.  http://www.washingtonstreetproperties.com/
    • Connect with me on Facebook at: Rod Khleif
    • Text Rod to 41411 or visit RodKhleif.com for a FREE copy of my book, “How to Create Lifetime Cash Flow Through Multifamily Properties.”


Ep #125 – Brian Murray was not an investment pro when he bought his first commercial property.

Welcome. This is the Lifetime CashFlow Through Real Estate Investing Podcast. This is where you’ll learn strategies to help you achieve lifetime financial freedom through real estate investment. Your host, Rod Khleif, has owned over 2,000 homes and apartments. And he brings experts in all aspects of real estate investment and management on to the show. Now, here’s your host, Rod Khleif.

Rod Khleif:   A couple of quick things, we’re now over 1.2 million downloads for this podcast, and I’m just blown away by that, every time I look at the numbers. Everyday I get a nice email or two, or a handwritten thank you card from one of you guys. I’ve got this board on my house where I put those cards. All I can say is, thank you, sincerely, thank you.

I’ve spoken with and or communicated with close to 1000 of you. Adding value to you has honestly made me reconsider my mission and purpose in life. Many of you asked me for coaching, or mentoring, or to create a course, or some training materials, and I never started this podcast with the intent to do that. But I’ve gotten so much pleasure out of those conversations, and the gratitude I’ve gotten from so many of you I finally decided to go ahead and do it.

So in a few weeks, I’m launching really an incredible course and coaching program. I wanna help you guys crush it in your lives, and your personal lives, and in your business, and help you build your own lifetime cash flow as fast as possible. So if you wanna get some more information on that course, the coaching, when it comes available just text the word Crush to 41411.

Don’t forget, my free book is still free. I’ve been so busy creating the course, I haven’t had time to finish getting it, and I’m real close to finally getting it on Amazon. Every review I’ve gotten on that book has been really, really good. So if you haven’t gotten your free copy make sure you do. You can go to rodkhleif.com or you can just text Rod to 41411. Again, that’s Rod to 41411. All right let’s get to it.

Rod Khleif:   Welcome to another edition of How to Build Lifetime CashFlow Through Real Estate Investing. I’m Rod Khleif, and I’m thrilled you’re here. I know you’re gonna get a ton of value with the gentleman we’re interviewing today.

His name is Brian Murray, and he’s the CEO of Washington Street Properties. They’re a commercial property investor. They’re apartment investor. They’re real estate owner-operator. He founded the company in 2007, and they’ve got a mixed portfolio of multi-family and other commercial properties, in the 30 to 40 million range. I know they have 300 plus apartments right now, and we are gonna dig in today. Brian, thanks for being on the show.

Brian Murray:        Hi, Rod. Thanks for having me. Excited to be here.

Rod Khleif:   Absolutely. Expand on my intro a little bit, and tell us how you got involved in real estate. What sort of a progression you made in your investing career?

Brian Murray:        Sure. Going back to 2004, 2005, I was making a transition. I had been working in the corporate sector, and had a change in career, and started teaching. While I was excited about the lifestyle change I noticed I was having a little trouble making ends meet. Always had an interest in real estate, and decided that, “Hey, this might be an opportunity to pick up some little more cash flow and help me out.”

Rod Khleif:   Yeah, teaching is probably the most noble profession and unfortunately, it’s not high on the pay scale which is just a travesty in my opinion. May I ask, what were you teaching by the way?

Brian Murray:        Yeah, I was teaching marketing and entrepreneurship.

Rod Khleif:   Oh, well those are very interesting topics. Those are two of my favorite, actually. So you got into real estate, what did you start with? Tell us about your first deal.

Brian Murray:        Sure. At the time I was looking at both residential and commercial properties. I started off looking kinda small. I hadn’t owned a rental before. One time, I had moved and temporarily rented my house out but I really, really hadn’t looked at it as investment, up until that point. While I was initially looking at the smaller properties, I wasn’t really happy with the kind of returns I was finding.

I gradually expanded the types of properties I was looking at. Eventually, the one I settled on was a 50,000 square foot office building. Certainly not what I would have ever dreamed…

Rod Khleif:   Wow.

Brian Murray:        And frankly, I, really to this day, will fully admit that I didn’t know what I was doing, but I got excited about it and that ended up being my first one.

Rod Khleif:   Do you mind if we dissect that deal? Because you told me a little of your story, and I know that it’s got some interesting parallels that’ll add value to my listeners.

Brian Murray:        Yes.

Rod Khleif:   So if you don’t mind, let’s dissect it.

Brian Murray:        Yeah. Absolutely.

Rod Khleif:   How’d you find it, to start with? Then just walk your way through the transaction and I’ll interrupt and interject questions as you go.

Brian Murray:        Yeah, a broker brought it to me. Like I said, I was looking at larger and larger properties. I was also learning about different ways to be creative, and how I might be able to finance a larger property. I started to realize that even though I had a limited amount of money to invest at the time, that there were some sellers in the commercial space who would be creative and work with me.This particular property, I ended up working out a deal where the seller helped me to assume their mortgage. So I was able to get in to it with very little cash.

Rod Khleif:   Now, did you indicate this to your broker, that you were looking for a creative type purchases? Is that how that got sent to you? How did you get in front of the seller? Let me ask you, no , answer those two questions.

Brian Murray:        Sure. I think it started when I just started to look at a little bit larger, a little bit larger properties, and it was a different broker that came to me and said, “Hey, I’ve got a property for you. You might find this interesting. I know you weren’t looking for something this large but there’s a motivated seller here, and he’s got a way to get you in with very little money down.”

Rod Khleif:   Okay. Alright.

Brian Murray:        And that particular property wasn’t the one I ended up with but it really got me thinking and helped me to be creative, and dig into some of these alternative ways to finance a larger project. It sort of opened my eyes at what might be possible. So when this one came along, and they brought it to me, even the broker wasn’t particularly excited about it. But because it was losing a lot of money, it had a lot of problems.

Looking around, it was obvious it wasn’t being well cared for. It was half empty, the expenses were high, the labor was high, the utilities were high, the taxes were high. Not everything was high though, ‘cause the revenue was low. [chuckles]

Rod Khleif:   Were you able to speak directly to the seller as you got involved in the transaction? Is that how you were able to, had the broker was okay with that? Sometimes, the brokers will try to avoid having you speak directly to a seller but you were able to communicate directly?

Brian Murray:        Actually, everything went through the broker.

Rod Khleif:   It did. Okay.

Brian Murray:        All the way up until the point where kind of the rubber hit the road with the bank and the mortgage assumption. That’s where dealing with this larger seller who really just wanted to get rid of this property. It was the last property they had in the region. They wanted out. It had been for sale for a long time.

I was a small buyer. The bank was reluctant for me to refinance, and the seller actually stepped in. They had a lot of properties financed with this bank, and they actually worked with me to put some pressure on the bank. To encourage them to say, “Hey, let’s work with this guy and try to make something happen.”

Rod Khleif:   I wanna get back to the high expenses and all the things that you discovered but let’s talk about the how this deal came together financing-wise. So you assumed the existing debt, what else made it creative?

Brian Murray:        Well, the asking price at the time was 1.2 million. Way beyond what I thought I could have done. But what I found out was that that mortgage that the seller had a huge payoff penalty. It was north of $200,000, I believe it was around $250,000 early payoff penalty, and they were factoring in that penalty with their asking price.

Once I discovered that, that’s when I said, “Wow. What if I was to be able to work with you assume this mortgage would you pass that savings along to me?” And they were open to that.

Rod Khleif:   Fantastic. So you got a 200 off, just like that.

Brian Murray:        Exactly. Exactly.

Rod Khleif:   By the way guys, you’ll hear prepayment penalty is called defeasance sometimes. It’s very common; particularly in CMBS debt where it’s non-recourse debt they have very stiff prepayment penalties called defeasance. Yes, that’s a creative way to get around it.

So the purchase price was a million, how much was the debt?

Brian Murray:        Well the debt, I should say, that as I dug into this that’s what the initial contract price was. But as I did my due diligence, we uncovered a lot of surprises, things that I had been misled on. There were a lot of inaccuracies as that came forward, and we ended up renegotiating the price of the contract a couple of different times.

Now, that’s not something I would normally recommend. It’s not a practice I’ve actually employed on any of my other deals but in this particular one there were tenants listed on the rent roll that didn’t exist. There were expenses that I uncovered that weren’t prior disclosed. There were some major problems and my own broker counseled me. He said, “Hey, normally we wouldn’t recommend this but in this situation you have every right to go in there. Your valuation was based on the due diligence materials provided.” I ended up final contract price was $834,000.

Rod Khleif:   Wow, that’s fantastic. Just to hammer home what Brian just said, you don’t wanna be known as the guy that re-trades every deal. Re-trade is renegotiate. You don’t wanna be that guy, unless you’ve been misled. Like in your situation there Brian. They left out expenses. If they’re significant, that’s a big deal. I mean, certainly, you’ll find expenses, sometimes small ones, and things of that nature but and tenants that we’re on the rent roll that didn’t exist, that’s a big one.

Now, we’ll add a caveat here. When you guys are dealing in multi-family, you will get rent rolls and it’s very common that tenants aren’t paying and so you have to check for economic occupancy, economic vacancy. That’s a little different conversation but if you’re totally misled like that you absolutely have a right to go in there and re-trade. Your broker was dead on, and you said this is the only one you’ve ever done that on so that that speaks to that mindset.

Brian Murray:        I go into every deal expecting to find things that are a little bit of a surprise.

Rod Khleif:   Right.

Brian Murray:        And I don’t re-trade. But there is a limit to that. Right?

Rod Khleif:   Right.

Brian Murray:        Where you gotta step back and say, “Hey, this is substantial.”

Rod Khleif:   Right.

Brian Murray:        That was the case here. I also negotiated a couple of credits in there. The mortgaged I assumed covered over 90% of the purchase price.

Rod Khleif:   Wow.

Brian Murray:        I ended up having to come up with less than $50,000 to make this acquisition, and I took all my savings at the time. I actually ended up draining my retirement account, not necessarily something I would recommend to everybody but I went all in. This was a big move for me…

Rod Khleif:   That sounds like a sweet deal, regardless. No issue there. So you’re analyzing this deal and you saw really high expenses can we drill in on that a little bit? Some of the things that you identified so my listeners can get an idea of things they should be looking for as potential opportunities. Because guys I will tell you, everybody says LoopNet is the place deals go to die. But if you drill in sometimes you can find fantastic deals that other people have overlooked because they haven’t dug into the expenses, so Brian take it away.

Brian Murray:        Yeah, and I think what really helped is that this was a local property, I was familiar with the community, and I had feet on the ground, and was able to spend a lot of time digging into this and talking to people. But frankly, as soon as you walked up to the property the property was very well located. Architecturally, it was beautiful but it clearly had not been taken care of. What I mean by that is, you can look around and see, “Hey the landscaping hadn’t been touched in years… “

Rod Khleif:   Let me interject one thing guys, I hope you realize that I’m going down this path even though it’s an office property because almost everything parallels to what you could experience in a multi-family. That’s why I’m going down this off the highway here a little bit. So please stick with me because there are lots of parallels and things that would really you can encounter on any sector of real estate including multi-family. So I just wanna throw that in. Brian, thanks.

Brian Murray:        Yeah, and absolutely. Just to reinforce that, it’s the lessons I learned on this deal that set the stage for my move into multi-family.

Rod Khleif:   Yeah. By the way guys, let me interject something. Brian just wrote a book, which I have not had the pleasure of reading yet but I am really looking forward to it. It’s called Crushing It In Apartments and Commercial Real Estate: How a Small Investor Can Make It Big. It’s on Amazon.

Based on what I know about Brian, I am sure it’s fantastic. Check it out, Crushing It In Apartments and Commercial Real Estate. We’ll have the link on the show notes… Anyway please continue. You drilled into the expenses…

Brian Murray:        Yeah, so some of the things were very obvious. I made a lot of trips to the property, observed a lot of things; because it was a mortgage assumption it was under contract for a very long time when we worked that out.

A couple of things beyond the neglect that I saw, on the warmest day, the windows would be wide open in the air conditioner would be cranking. The superintendent would turn it on high, and it would be too cold even though it was brutally hot outside and the tenants will control the temperature by opening their windows.

Rod Khleif:   Wow.

Brian Murray:        I noticed that in the fall, the air conditioner got turned off and the boiler immediately got turned on high. It was too hot even on the coldest days, and what happened, the windows got opened.

Rod Khleif:   Sure. You’re heating the entire city.

Brian Murray:        Exactly. Again, I didn’t know a lot, at the time. I didn’t have a lot of experience with real estate, I had no practical experience but I knew that shouldn’t be happening, and could be addressed. I was confident that I could address.

Rod Khleif:   So before we move on, how did you address those? That issue with tenants opening windows and the costs.

Brian Murray:        Well it came hand-in-hand with a third issue…


Brian Murray:        Which was the superintendent. One of the largest expenses was labor. I still remember that the day I closed on the property, I walked from where the closing was over to this property and I met with the superintendent. I said, “First thing I wanna see, is show me where the thermostat is. Howe are you controlling the temperature here?” He walk me to location showed me the thermostat, and it was locked. I asked him how to unlock it and he told me he had no idea.

Rod Khleif:   Wow.

Brian Murray:        I asked how he was controlling the temperature in the building and he said he’s not. I ended up firing him. [chuckles]

Rod Khleif:   Yeah… duh? [laughter]

Brian Murray:        Frankly, he wasn’t doing much. Another side story, but I found a woodshop on the site, that he was refinishing furniture and that’s how he spent his days, as opposed to tending to the property.

Rod Khleif:   Yeah.

Brian Murray:        But the way I solved it, was that I got online I looked up the 1-800 customer service number from the thermostat manufacturer I called them they walk me through how to unlock it. I got a manual on how to program it. I made sure that it was adjusting according to the temperature, the way it should have been. And I set it to turn down nights, weekends when there wasn’t anybody there. That simple stepped cut the utility bills in half in the first year.

Rod Khleif:   Wow. Now, as it relates to multi-family guys, you’re gonna find property sometimes that have very high utility expenses. There are options there. One of the common ones is instituting what’s called RUBS, ration utility billing systems. There are companies that will do that for you, where they’ll bill back the utilities.

The only caveat with that is you need to make sure that you’re not pricing yourself out of the market with competition, if the competition’s not doing that. But if you’ve got a real utility issue that is an option even if you’re not sub-metered for utilities, they ratio the bill back. If you’re sub-metered, then you can do it a little differently… Anyway…

That’s why when you’re looking at a property’s financials; you really wanna drill into the expenses. So this property had a superintendent, was this guy full time?

Brian Murray:        He was.

Rod Khleif:   Ah, see. Then that’s, frankly, unnecessary in my opinion unless you have you can have a leasing person on site but to have a full-time superintendent doesn’t even make sense. So it’s very common that you’ll find a property where the owner has allowed somebody that’s been with them for a long time to manage the property, grossly over paying them, and regularly they’re not doing a great job. They’re opportunities to when you’re drilling into the expenses to find ways to immediately improve your NOI.

As you guys know, the NOI directly correlates to the value, so anything you can do to increase the rent, or decrease the expenses improves the net operating income. Then depending on what the cap rate is immediately impacts the value. You wanna be looking for those anomalies when you’re going through the expenses. What was that you said, high labor and high utility expenses, anything else substantial?

Brian Murray:        Yeah, the taxes were high the assessment, when I put it under contract was three times my purchase price. So I went in and met with the assessor, and talked about it, provided him with copies of the financials, and he told me that the assessment had already been challenged, and he planned to reduce it. That cut the taxes substantially as well.

Rod Khleif:   Yeah. See, that’s another big one. You’ll find that sometimes, guys. Where you’ll find a property that has been over assessed especially depending on when you buy. Sometimes, a lot of them have come back down after the crash here but when did you buy that property?

Brian Murray:        2007.

Rod Khleif:   Yeah, so it was right in the midst of the crash.

Brian Murray:        Yeah.

Rod Khleif:   That was an opportunity there, but on the flip side of that the thing you always wanna be careful of when you’re buying a property guys, is you wanna be sure that you check with the assessor to see what’s gonna happen to the taxes based on the new purchase price, if it’s higher than existing. So the flip side is also very, very important so you don’t underestimate your expenses on a property because you didn’t take into account the fact that the taxes are going to go up. Okay, so what else about that deal?

Brian Murray:        So yeah… All of these improvements and expenses were addressed. The fact that there were so much vacancy there I found out that the prior owners had failed to pay commissions in the past, and none of the local brokers would show space at that property. I had to re-establish relationships with those brokers and say, “Hey, listen it’s under new ownership. I’m local. I’m gonna take care of you, and I demonstrated that, built those relationships, and immediately they started bringing me tenants.

I took care of them and that building filled up within the first two years. All the while I replaced that superintendent with myself. I made the decision. I couldn’t afford to quit my job, but what I did is I got up before dawn every morning. I went in, walked the property, unlocked to turn all the lights on, checked everything out, cleaned up outside, go back during my lunch hour if I could, and I go back at the end of the day.

I did that for 2 years until things got turned around and all those changes took a property that was losing money like crazy, and made it profitable from the very first day I walked in. So I was able to create an enormous amount of equity there, I couldn’t get a bank to lend to me even after I turned it around. It was a very challenging time.

Rod Khleif:   Oh, sure. Sure, you were in the middle of the crush there, so yeah.

Brian Murray:        When I eventually found my second property, this time I was fortunate enough to find a similarly neglected property.

Rod Khleif:   Office again?

Brian Murray:        This was retail.

Rod Khleif:   Retail, okay. Let me let me stop for one second. I wanna interject something ‘cause you were talking about how you couldn’t get brokers to come show the property. Of course that doesn’t relate to multi-family but the parallel to multi-family that I would say is it’s very common to find a property that’s being poorly managed. Be on the lookout for that because that was obviously the case with this property as well.

Sometimes, you wanna mystery shop because you’ll find that maybe the person that’s in charge of leasing just really doesn’t care. He’s not showing the properties, or doesn’t return phone calls, or doesn’t answer the phone that’s not uncommon at all. There are opportunities when that happens as well, so that’s the parallel I wanted to interject.

So the next one was retail. Let’s chat about that for a moment, see if there’s some parallels.

Brian Murray:        Yeah, next one was retail, a lot of parallels in terms of owned by somebody who just wasn’t paying attention to it. It wasn’t their primary line of business. They were willing to extend me owner financing so I was able to get my second property; still hadn’t used a bank. Applied the same type of turnaround, took really good care of it, build relationships, leased it up, and when I had both of those two properties turned around, I finally got a bank to say yes. I refinance them, pulled the equity out. I bought 3 more properties including my first multi-family, and from that point forward it was off to the races.

Rod Khleif:   Smooth sailing, yeah. See, you had the, I’m gonna call it the gift, of working in a tough market because I will tell you that most people or companies that start in a depression like you started in are usually very successful. Because they can make it in those tough times… Like you couldn’t get financing, I know, I went through it. It was hell.

That you were actually able to acquire properties during that time without bank financing, without being able to refinance and utilize equity that you’d created to buy more properties speaks to how hard you went after it. So my hat’s off to you on that. That’s awesome.

You brought something up on that retail property, where you found a seller, this property become a stepchild. If you get a seller at the right time, you will find deals even in this crazy market we’re in right now. That’s hot. You find an off-market deal and you get a seller right when they’re motivated.

That’s why I tell people, start a mailing campaign, and if you’re the person that’s in front of them when they’re ready to sell, you’ll get phone calls from sellers, and obviously the name of the game is motivated sellers. You got somebody that was motivated, they gave you owner financing which is as good as it gets as far as financing in my opinion, and you’re only gonna find those with off-market deals.

Talk about your first multi-family. What was that?

Brian Murray:        Sure. First multi-family was a 30 unit, and from the experience that I’ve had with office, and the retail, I was looking for the same thing, and I found it. I was looking for that property that had been neglected, had untapped potential, had that opportunity and that would lend itself to me going in, rolling up my sleeves, and getting to work on it.

Rod Khleif:   Yeah. I forgot to ask, tell my listeners, where you’re based and these properties are all in your general area, correct?

Brian Murray:       Yes. We’re in upstate New York, Northern New York.

Rod Khleif:   Okay. Alright, continue.

Brian Murray:        Yep.

Rod Khleif:   So 30 unit, you saw it was run down.

Brian Murray:        30 units, it had… clearly neglected. It was interesting because first time we went to see it, we ran into a prospective tenant who had sought the property out on their own, called the owner, and they didn’t send anyone to do showings. They just left the door unlocked for the prospective tenant to walk in and poke around.

Rod Khleif:   That’s called a clue, guys.

Brian Murray:        Yeah. [chuckles]

Rod Khleif:   That’s a clue. Right, awesome.

Brian Murray:        There was one unit, that at some point had had some water damage, and mold outgrew, and it was to the point that it was like walking into a cave. Not leasable. There was much higher vacancy on the property than there was in the market overall, and we…

Rod Khleif:   That’s another clue, guys. Okay.

Brian Murray:        I knew that if we stepped in, and took care of this property, and treated it right, and managed it well, that we could fill it up, we could charge higher rents, and that we could create some good equity there.

Rod Khleif:   Give us some numbers, what end up getting it for? Did you get bank financing on it?

Brian Murray:        We did.

Rod Khleif:   Okay.

Brian Murray:        Financed this from some of the property, from some of the equity I was able to pull out in refinancing the other properties. The purchase price was 1.3 million; I believe was the purchase price. We’ve since refinance it, and it’s appraised substantially higher than that. But we’ve gone through and did exactly what…

That unit that had mold, that one, we ended up entirely gutting. But most of the rest of them, it was just dated finishes. You go in change out, had the shaggy old carpet and the dated fixtures, for a modest investment on a per-unit basis.

Of course we started with the vacant units.

Rod Khleif:   Sure.

Brian Murray:        Didn’t have to make a large investment up front. We would upgrade the units one at a time as the returns, starting with the vacant ones and going from there. The way we go about it, it does take some time, but it eliminates you having to take on that extra debt right up front.

Rod Khleif:   Right. Big CapEx expense right out of the gate, you just renovate units as they become available. That’s a great way to go. That minimizes your upfront expenses and you can let the property pay for your on-going renovations. That’s a great way to do it.

Brian Murray:        Yep.

Rod Khleif:   You said we, tell me about your team. I know you’ve got 300 plus units and a bunch of other commercial property. What are the members of your team? What were they back then? I’m guessing it was just you, okay.

Brian Murray:        The first two years, it was just me. At that point, I had enough properties that I first brought on a full-time superintendent to be on call and take care of much of the maintenance as we could do ourselves in-house.

Rod Khleif:   So your superintendent was also a maintenance person.

Brian Murray:        That’s right. That’s right.

Rod Khleif:   Okay. Good. That’s perfect.

Brian Murray:        When I reach a point that I feel like there could be a consistent enough workload… The challenge especially when you take on value-add properties, you can have surges in workload. I don’t wanna over staff but when you’re using all contractors if you reach that point where you can consistently utilize somebody full time that’s when I’ll pull the trigger.

Rod Khleif:   Yep, same here, good. Good call.

Brian Murray:        So I started with him, shortly after that I took on a part-time property management person who would do showings handle the bills things like that.

Rod Khleif:   Let me ask you another question. At what point did you quit your job? How many years in?

Brian Murray:        I didn’t quit my job until my revenues hit 2,000,000 which was seven years in.

Rod Khleif:   Wow, so full-time job, you got to $7,000,000 in gross annual revenue.

Brian Murray:        Two, sorry I didn’t quit till I got 2,000,000.

Rod Khleif:   Oh, 2,000,000 in seven years.

Brian Murray:        2,000,000 in seven years.

Rod Khleif:   That’s right.

Brian Murray:        Now, we’re between five and six. We might hit to 6,000,000 in revenue this year.

Rod Khleif:   Fantastic.

Brian Murray:        We’re up to staff of 17, at this point, but now we’ve more than 30 properties we’re taking care of.

Rod Khleif:   Wow. And the 17 includes some on-site people, I take it, as well. Correct?

Brian Murray:        Yes, it does.

Rod Khleif:   Okay.

Brian Murray:        We carefully, we utilize a lot of contractors but we also take some things in-house. So we will, for instance, we do some of our own cleaning. We’ve got guys on staff who can take of the flooring, painting, things that a lot of other… If you don’t have a larger portfolio and you get those surges on workload, a lot of times, it makes a lot more sense to use contractors. But if you reach a certain critical mass that you can keep people busy, it’s more economical for us.

Now the other thing I should mention is that all of our properties are within a 30-minute drive of our main office. So a lot…

Rod Khleif:   That’s fantastic. That’s fantastic. I didn’t get that memo, by the way.

Brian Murray:        [chuckles]

Rod Khleif:   I had 800 houses, apartments, apartment buildings, two hours in each direction which is part of the reason I imploded… But no, everything you just said really resonated with me. I had a full time cleaning person as well. You find the skills that you need regularly. Painting for sure, you’re always painting something, you’re always cleaning something, when you some scale.


Rod Khleif:   Flooring can be such a huge expense, if you can bring somebody in house that can do that for you that can really cut down your expenses as well. I assume you thought of that when you brought that person in.

Brian Murray:        Yep.

Rod Khleif:   Yeah, and of course, maintenance. Just general maintenance that’s kind of a no-brainer, you need a full-time person when you get to a certain point.

Brian Murray:        When we continue to grow, the market got a little stronger, as it did across the country. We got a little more creative. We tackled some larger value-add projects. We bought a distressed hotel, and converted that into an apartment building.

Rod Khleif:   Wow. Wow. I didn’t know that. Tell me about that deal. How many door hotel was it?

Brian Murray:        It was 50.

Rod Khleif:   50 doors.

Brian Murray:        Yup.

Rod Khleif:   What did you do combine units into apartments?

Brian Murray:        We combined some of them but in looking at the market we felt there was a need for studios. There had been a lot of one-bedroom, two-bedroom, three-bedrooms built over the years but there weren’t a lot of studio options. We felt like we could maximize the rent per square foot by keeping as many of them studios, as possible.

We ended up with 48 units, but we utilized… We also turned an office, we turned some other open space into…

Rod Khleif:   Units.

Brian Murray:        Living space.

Rod Khleif:   Oh, living, like… into units or into common areas?

Brian Murray:        Yeah.

Rod Khleif:   Okay.

Brian Murray:        Into units, so there was a lot of common area, little bit excess common area.

Rod Khleif:   Was this hotel all exterior doors or was it interior doors?

Brian Murray:        Interior doors, one main entrance.

Rod Khleif:   Interior doors. No kidding, wow.

Brian Murray:        Yeah.

Rod Khleif:   Good for you.

Brian Murray:        We combined some but most of them remained studios. We have kind of micro studios and then larger studios. The vast majority price, 75% of the units in that property are studios.

Rod Khleif:   Guys, those of you who are listening, that’s an opportunity and I know there’s a local guy here in Sarasota that’s doing it, and very, very successfully; converting hotels to apartments. You see these rundown hotels on the side, it’s even motels on the side of the road sometimes. There can be an opportunity there.

Brian Murray:        Yeah.

Rod Khleif:   Just to dig into that just to hear more, you didn’t have to get new zoning on that, I take it, because the hotel’s pretty dense, or did you?

Brian Murray:        We had… It’s considered a change in use.

Rod Khleif:   Okay.

Brian Murray:        So that triggered some code requirements. The property was zoned correctly…

Rod Khleif:   Okay.

Brian Murray:        However, the change in use required a new Certificate of Occupancy. So it did trigger, basically, we had to meet the same standards as if you’re building new.

Rod Khleif:   Oh, wow. That’s a big deal.

Brian Murray:        Yeah, it was. I was.

Rod Khleif:   Okay.

Brian Murray:        That’s something that any of your listeners who want to approach something like that, yeah, they’re fantastic opportunities but for example about 50% of the property was sprinklered when I bought it. We had to sprinkler the rest.

Rod Khleif:   Oh, you did. Okay, okay. Wow. Did you have to add a lot of electrical? A lot of hotels don’t have the typical electrical outlets that you need in a residential solution. Did you have to do a lot of things of that nature?

Brian Murray:        Well, we had to have… We put in kitchenettes.

Rod Khleif:   Okay.

Brian Murray:        So we had to have like GFI for that, putting kitchenettes. I think the other issue that came up is we had to convert a number of the units to be handicap accessible, or what they call handicap adaptable which frankly was somewhat frustrating. We had to tear out some perfectly good bathrooms and…

Rod Khleif:   Yeah, yeah.

Brian Murray:        And put it back together, and in some cases just to install blocking inside the walls and have the requirements just in case at some future point they needed to be converted to handicap accessible. But that’s what we needed…

Rod Khleif:   What was your CapEx expense on that deal?

Brian Murray:        We put about 300,000 in to that.

Rod Khleif:   That’s not bad.

Brian Murray:        Yeah.

Rod Khleif:   That’s not bad. Wow. Okay, fantastic.

Brian Murray:        So we purchased it at 1.2 million, we negotiated a $100,000 credit with the seller that would go toward the renovation. Then we took out a construction loan to get through the conversion. So all in we were about, between 1.4 and 1.5, and it appraised at two when we were done.

Rod Khleif:   Fantastic. Fantastic.

Brian Murray:        That’s the kind of thing, when prices are high…

Rod Khleif:   Well that’s a creative deal again, guys. See there, that’s another creative deal, get the seller to participate, and if they’re motivated, they’ve got a property that’s not moving, you’d be shocked… If you don’t ask, you’re never gonna get. And this is a great example of using creativity. Yeah.

So let’s back off now. A lot of my listeners have not pulled the trigger yet. They listen to podcast. They maybe have read my book. I encourage them to go out and read your book. And they just, but they haven’t taken action yet. What would you tell them? On how to get started and what to do?

Brian Murray:        Well I think the biggest thing is the having the proper mindset. I could talk all day about all the little things you need to do to get ready but I do encourage them to read your book, to read my book, read the other people’s books, and get that knowledge. But you know what, think big. I would have never thought I could go out and buy a 50,000 square foot office building. Not in my wildest dreams.

But the more I dug into it, the more I realized things I didn’t know, I could figure them out along the way. And you don’t have to do it alone there’s people you can consult with. When I walked into the boiler room of that property, that first property, I might as well have been in a spaceship. I had no idea what I was looking at, but guess what? I can pick up a phone, and I can call somebody to come in and walk me through things, and help me out.

You don’t need to be intimidated there’s people out there to help you. The biggest thing is just do it. Just get out there and do it. You can figure it out as you go, but if you don’t ever get started, you’re not gonna go very far.

Rod Khleif:   Now, great advice. Great advice. Anybody that listens to the podcast knows I’m all about mindset. That’s the number one thing. It’s 80% of it. You guys have heard me say it, ad nauseam, ‘cause that’s the truth. It really is. That’s great advice. Let me ask you one last thing, you’ve told us about some victory stories, but sometimes I like to ask, what is some victory stories but when have you gotten your nose bloodied? Tell me a time you got your butt kicked and made a mistake, and the take away.

Brian Murray:        Yeah, I can give you some and I will give you a specific example. But before I do that, I should say, I make mistakes everyday. I have setbacks every single day. And if anybody tells you they don’t, and they’re not doing enough.

Rod Khleif:   Right.

Brian Murray:        So the key is to just accept upfront that you’re gonna make those mistakes, and you’re gonna have that setbacks, and that’s all part of the deal. You gotta be prepared to work through that. And that’s part I go through a whole bunch of mistakes in my book, ‘cause I want people to understand, “Hey, you can get out there and you can do it anyway. You can learn from these mistakes, and you can move on.”

After I did that hotel, prices were pretty high in my market. It since cooled off but at that time, I was trying to be resourceful and I bought two different apartment buildings at foreclosure auctions. One of them went pretty well. Then when I went to the next one, I got a little too confident. I didn’t plan enough for all the things that could go wrong. Turned into one of the worst nightmares.

Everybody that was working for me at the time, we all called it The Money Pit. Every time we tried to fix one problem, there was another that we found. Environmental issues that needed to be addressed; so we had remediation costs. We ended up, for something that we expected to only have to do the finishes, we ended up entirely gutting; all new mechanical systems, everything from the ground up.

In fact, it had two buildings, the main building was a converted Victorian that had 20 units, and it had a converted carriage house that had eight. By the time we finished…

Rod Khleif:   So very old property…

Brian Murray:        Very old.

Rod Khleif:   Hundred-year-old properties, okay.

Brian Murray:        That’s right.

Rod Khleif:   Okay.

Brian Murray:        So by the time we finished the main building, we decided, bite the bullet and just tear down the other one…

Rod Khleif:   No kidding.

Brian Murray:        ‘Cause we didn’t want to go through it again. And we lost a lot of money.

Rod Khleif:   Wow.

Brian Murray:        That’s not the only time. So yeah, great question. Right? Because you gotta be prepared…

Rod Khleif:   Now, let me ask you this, I have to twist the knife but do you think, had you done a little more comprehensive due diligence you might have passed on that deal?

Brian Murray:        What I think is that, when you buy a property at foreclosure auction it depends on the circumstances but a lot of times you have very limited access to that…

Rod Khleif:   Right.

Brian Murray:        And you have to make assumptions…

Rod Khleif:   Allowances.

Brian Murray:        That’s right. You gotta leave a lot of slack in there because you will find things you don’t expect.

Rod Khleif:   Right.

Brian Murray:        So the biggest takeaway from that is don’t be overly optimistic and assume that things are gonna be well. And as you pointed out, particularly with the really old property, I had a chance to go through there quickly, and do a cursory review but I didn’t get a chance to do a proper inspection. Under that circumstance, you’ve got to accept that a lot of things could go wrong.

Rod Khleif:   Yeah, and guys, that goes for any auction, for that matter. There’s a reason that people auction properties. Don’t get caught up in the fervor. They’re priced very, very low to get your attention and get you excited. Not just foreclosure auctions, regular auctions as well. So just be careful. I’m not saying there aren’t… you can get fantastic deals at auctions but go in with both eyes wide open. And have big allowances ready in case you need them.

Well listen, Brian, thank you so much. You’ve added a ton of value today. I hope you guys realize the parallels between some of these different types of real estate that Brian has done very successfully in multi-family. You may wanna look at some of these other sectors because there’s money to be made in every sector in real estate.

Brian, thank you so much for your time. Check out his book guys. And Brian, let’s stay in touch, my friend.

Brian Murray:        Thank you, Rod. Appreciate it and best of luck to you and all your listeners.

Rod Khleif:   By the way, before you go, what are all those medals on the wall behind you? To those of you who are listening, we’re actually on a video right here.

Brian Murray:        [chuckles]

Rod Khleif:   What are those?

Brian Murray:        Uh, that… My wife and I are big runners.

Rod Khleif:   Wow.

Brian Murray:        We do one or two marathons every year, and it…

Rod Khleif:   Yeah. There must be there must be 30 to 40 medals behind you. Holy cow!

Brian Murray:        [chuckles]

Rod Khleif:   You do a lot of running. Well, good for you.

Brian Murray:        Yeah.

Rod Khleif:   Alright, well thanks again, buddy. I appreciate your time, your valuable time.

Brian Murray:        Thanks, Rod. Take care.

Rod Khleif:   Alright. Take care. Bye now.


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