Ep #127 – With 1,490 units to date, Andrew Cushman left his full time job in 2010 to focus on multifamily investing
- From flipping to multifamily
- How to get a broker to send you good deals
- 3rd party property management
- How to manage a property when you live across the country
- How to properly estimate renovation
- How to deal with vandalism on your property
- LOI (Letter of Intent)
- How to work with a spouse that is a business partner
- How to hire a VA (Virtual Assistant)
- Relationships you should build to maximize this business
- Why you should join a mastermind group.
- How to screen properties
- Reasons why you should go into the city hall of a property you are interested in
- Book recommendation: How To Win Friends and Influence People, by Dale Carnegie
- To learn more visit http://vpacq.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 #127 – With 1,490 units to date, Andrew Cushman left his full time job in 2010
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 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 Cash Flow Through Real Estate Investing. I’m Rod Khleif, and I am thrilled you’re here. We’re gonna really have a good time with the gentleman we’re interviewing today. His name is Andrew Cushman, and he has purchased over 1500 properties already. He likes the southeast of the United States; Georgia, Florida, the Carolinas, and he’s even have a property in Texas, and $45,000,000 portfolio, very impressive guy, very nice guy. Glad to have you on the show today, buddy.
Andrew Cushman: Oh, thanks, Rod. Good to be with you.
Rod Khleif: Absolutely. So tell us… The normal way that we could go on these things is to have our guests tell us how they get started why they got in a real estate why they love it. Just give us a little progression ‘cause most of the people listening haven’t got 1500 units. They may have a handful or they may not even have any yet but then you started the same place. So tell them where you started how you got going.
Andrew Cushman: Sure. I started as a little kid playing Monopoly a whole lot with my grandfather.
Rod Khleif: Awesome.
Andrew Cushman: That turned out to be more predictive than I realized.
Rod Khleif: That’s awesome.
Andrew Cushman: It teaches you good lessons, like turn the little green houses into big red hotels or apartments.
Rod Khleif: [chuckles] Right.
Andrew Cushman: Oh, yeah, my first business was actually with him also. When I was five years old, we’d go collect golf balls around the golf course and then clean them up. I’d sit there with my red wagon and sell them back to the guys who just lost them, at a premium, right.
Rod Khleif: Nice.
Andrew Cushman: So that kind of started the mentality, so through high school and college, I was mowing lawns and raking leaves, and painting fences, and doing all that. So in high school, I knew I wanted to be an entrepreneur, and have my own business but I candidly had no idea what that looks like. So I figured, well what can I do that’ll be a good job until I figure it out?
I went and got a chemical engineering degree. I graduated college, worked for a large food company as a chemical engineer. Your typical, well, 7:30 to 5:00 job…
Rod Khleif: Right.
Andrew Cushman: Did that for seven and a half years. Along the way, I met my wife, who has a similar mentality. So once we got married, for a couple of years, we tried all kinds of crazy stuff for businesses. We looked into vending. She sold stuff online. One weekend we just made a mess of our condo that we lived in, and made all these flavored popcorn; some of it were actually really good. But what we figured out is, all…
Rod Khleif: That’s awesome. [chuckles]
Andrew Cushman: Hey, we had fun.
Rod Khleif: That’s awesome, especially that you got to do it with your wife. You got excited and you’re planning, and you’re figuring out how to build a dream and you got your goals aligned. That’s awesome. Please continue.
Andrew Cushman: It was a huge factor, yeah.
Rod Khleif: Yeah.
Andrew Cushman: So what we figured out was all these businesses that we were attempting were kind of really job replacement type things. I mean, yeah, we’d work, we’d make some money but it wasn’t gonna be financial independence and it really wouldn’t be long lasting.
Rod Khleif: Right.
Andrew Cushman: A couple of years then. I guess it was 2006 we read an article about how to buy, and fix, and resell pre-foreclosures. So we started looking into that. Then it was early 2007, we actually got our first one.
Rod Khleif: Okay, right at the start of the crash, right? I mean that was the year. Wow.
Andrew Cushman: Oh yeah. Yeah, I’ll tell you. We really saw all… I’ll get to that just a second. So we bought it and we fixed it up and resold it. And made as much as I made all year at my job.
Rod Khleif: Nice.
Andrew Cushman: So we said, “Okay, this is it. There’s not better opportunity…”
Rod Khleif: One flip. One flip and you made…
Andrew Cushman: Yeah. One deal.
Rod Khleif: As much you made all year, okay. Well that’s a clue, okay.
Andrew Cushman: We in our 20s, we don’t have kids yet… If there’s no better time than now, right?
Rod Khleif: Right.
Andrew Cushman: So I quit my job and started flipping full-time. The next deal came in September of 2007 right as everything locked up.
Rod Khleif: Right.
Andrew Cushman: I’ve still flipped it for a profit, much smaller this time but what happened is when we started during the crash, everyone else was running away like crazy. We had no competition.
Rod Khleif: Yeah, like me. Like me.
[chuckles]
Andrew Cushman: What we did is, we were buying for 50 cents on the dollar, fixing them up and reselling for 80. So even in the worst of the crash we’d have our houses under contract within 10 days; every single time.
Rod Khleif: So you must have been in the lower price range. What price range were you selling in?
Andrew Cushman: No, we were in Southern California; average resale was probably 375 to 400.
Rod Khleif: Wow, okay. Wow. That’s really astounding. Well here in Florida it just seemed like nothing was selling, and maybe that’s all I remember because that’s what I was living, but very interesting. So you were still selling properties at a discount, and were able to sell them. I mean that’s awesome… And thank God, because a lot of people got caught when the music stopped and there weren’t any chairs left.
Andrew Cushman: Well, in that… so 2008 was a good year, 2009 was fantastic, and into early 2010, my wife and I said, “Well geez, this has been a great run, but it’s not gonna last forever. It’s bottoming out, the competitions coming back in. What’s gonna be the next big thing?
And we said, “Well all these people are getting foreclosed on, they’re not gonna be buying houses anytime soon. We’re probably gonna start a growth cycle so it makes sense, probably apartments are gonna do well.”
We looked into that, went and found a mentor. Then in 2011, bought our first apartment complex, was 92 units in Georgia, on the other side of the country, 75% vacant.
Rod Khleif: So you’re still in Southern California?
Andrew Cushman: Yeah, exactly. Yep, still in Southern California.
Rod Khleif: Wait a minute. Wait a minute. Wait a minute. Wait a minute. You said it was 75% vacant?
Andrew Cushman: Yes it was. And I like…
Rod Khleif: We’re gonna dig into that deal. Okay, so 92 units for… Okay, let’s start from the beginning. How’d you find it?
Andrew Cushman: What we did is, I picked some markets, that long-term, we thought would be good markets to be in.
Rod Khleif: Okay.
Andrew Cushman: Just started looking, “So okay, what brokers have the most listings in those markets?”
Rod Khleif: Right.
Andrew Cushman: And we used LoopNet to do that.
Rod Khleif: Of course, yes.
Andrew Cushman: An then just start calling those. Start calling those brokers and talking to them. In the beginning, they’ll send you whatever’s hanging around but after you call them back say. “Hey, thanks for sending this but here’s why I don’t like it. What else do you have?” And eventually, you’ll start getting the better deals…
Rod Khleif: Exactly. Guys, guys I wanna flag that. I wanna flag what he just said. Yeah, in fact, I write about it in my book, I talk about it in my course. You’ve got to nurture those broker relationships. Most of the people that have brokers send them deals; they go into a black hole. They never hear from these people they’ve sent deals to. So if you’re the person that calls them back and says, “Hey this deal didn’t work because of X. Please keep sending me deals.” You’re gonna be the anomaly, and they’re gonna respect that, and you’re gonna build relationships that will make you a lot of money. So you got this deal for a broker?
Andrew Cushman: Yes. Yep.
Rod Khleif: Okay. Alright, so what I wanna hear is how the hell you financed the 75% vacant property? And how come you weren’t terrified with a property that was that vacant, being your first big purchase. So please explain all that.
Andrew Cushman: I never said I wasn’t terrified. [laughter]
Rod Khleif: Well, alright. Alright, how you got past being… How you got pushed through that adversity?
Andrew Cushman: Yeah, so I’ll start at the end, and say we bought that for 699,000 we actually just sold it about a year ago for 1.75 million.
Rod Khleif: Okay.
Andrew Cushman: So in the end, it did work out and it did turn out profitable, and us and our investors all did well but that was one of the biggest seminars of my entire life, while I was buying that property.
Rod Khleif: Thank you for using that term. I use that a lot on the podcast.
Andrew Cushman: Yeah. Without it, we wouldn’t be here but I definitely would not recommend to anyone to do that kind of property as your first deal.
Rod Khleif: Okay.
Andrew Cushman: So yeah. How we financed it is we… It was…
Rod Khleif: You paid 7500 a unit, so…
Andrew Cushman: Yeah.
Rod Khleif: I mean… [chuckles] That says a lot right there just… Obviously, that’s just such an incredible price for a 92 unit. Could probably pull investors together to pay cash. Is that what you did?
Andrew Cushman: That’s exactly what we did. A couple, yeah.
Rod Khleif: Yeah. Yeah, okay. That’s a down payment on it, in fact, not even on a 92 unit today; it’s not even probably quite enough.
Andrew Cushman: Yeah.
Rod Khleif: Well, that’s awesome. So you paid cash but obviously, you needed more than because I’m assuming it needed a lot of renovations. Is that an accurate statement?
Andrew Cushman: Oh, yeah, definitely.
Rod Khleif: Okay.
Andrew Cushman: There were doors just hanging wide open, and copper was gone in some of the units. So yeah, the renovation budget was probably close to the purchase price.
Rod Khleif: Wow. Okay, so how’d you tackle this thing? Did you… you’re in California. This property is in Georgia. It’s a big project. How did you structure the renovation? How did you facilitate it? How did you manage it? Did you use a property management company? Did you do it yourself? Talk about that little bit.
Andrew Cushman: All of our properties, we use third-party professional management.
Rod Khleif: Okay.
Andrew Cushman: Part of that is, third-party property management might not care as much as me but that doesn’t mean they’re not as effective as me.
Rod Khleif: Okay.
Andrew Cushman: They have existing relationships with vendors; they know who to talk to at the city… They just have economies of scale, so what I find is, I found it’s very effective to hire a really good property manager and then manage them very closely, and very tightly, and very well.
Rod Khleif: Okay.
Andrew Cushman: So we brought in third-party property management, and then for the renovation there was, number one, it was a big renovation, but number two, we had vandalism concerns so we had…
Rod Khleif: Concerns on on-going vandalism, obviously.
Andrew Cushman: Oh, yeah, yeah. On-going.
Rod Khleif: When you’re got empty property, the copper disappears. I’ve had it happen in Memphis numerous times, and you’d rather just tape $100 bill to the wall and let them take the $100 bill, and not take the copper ‘cause it’s so expensive to replace but…
Andrew Cushman: Oh, yeah.
Rod Khleif: So how’d you mitigate all that?
Andrew Cushman: What we did is we hired a guy who previously had owned his own general contracting company…
Rod Khleif: Okay.
Andrew Cushman: And had kinda decided he want to get out of that. So we hired him as a W-2 employee to live on site, and run the renovations. So not only…
Rod Khleif: And run off the riffraff.
Andrew Cushman: Exactly.
Rod Khleif: [chuckles]
Andrew Cushman: So there’s a dual purpose.
Rod Khleif: Right.
Andrew Cushman: Our actual employee, not just a random GC was running the renovation.
Rod Khleif: Right.
Andrew Cushman: And helping to keep off the riffraff, and so that made it feasible to manage it from the other side of country.
Rod Khleif: Perfect. That’s a brilliant strategy and that’s a great way to handle it. I’ve heard where if you’ve got a problem like that with vandalism, or even worse, with crime in tougher, tougher markets or tougher areas… We’ve even had offered police officers to have a little substation in one of the units for a while…
Andrew Cushman: We did that too.
Rod Khleif: So the cop car is parked there all the time. You did that too? No kidding…
Andrew Cushman: Yup.
Rod Khleif: Yeah, see, that really makes a big difference…Well, good for you. So you sold it. You made a nice profit, or maybe you didn’t make quite a bit of profit if you had a 1.4 in it, you sold it for 1.7?
Andrew Cushman: Yeah, so that was one of our lowest profit deals.
Rod Khleif: Okay.
Andrew Cushman: Again, fortunately, it was profitable
Rod Khleif: Well, thank God. Yeah.
Andrew Cushman: But being the first one and there were a lot of seminars all involved in that one…
Rod Khleif: Talk about some of them so that we can flag some of these things for other people that may take on a renovation project. Maybe not as big as this one but what are some of the things that happened, some of the places you got your nose bloodied, and what were some of the takeaways that you might be able to add value?
Andrew Cushman: Definitely. One of them was, despite going into it, we still underestimated that renovation. If you got a property that was built 45 years ago, and has been neglected for 15 years, when you start peeling back the layers of the onion, you find stuff that you just never anticipated. We didn’t leave a big enough contingency fund in our renovation to cover all of it.
Rod Khleif: I see.
Andrew Cushman: In addition to that, despite the fact that we had a courtesy officer living there, despite the fact we had our own GC there, over the course of the first 18 months, I think we still suffered about $50,000 worth of vandalism.
Rod Khleif: Additional vandalism…
Andrew Cushman: Yeah. Additional vandalism. Those things were definitely educational.
Rod Khleif: Yeah, we’ve had to leave lights on, throw TVs in empty units. That’s what you have to do sometimes, when you’re really in a tough neighborhood like that. There’s an element that these people are starving, and they need to get money to live. So they’ll go in and tear stuff out. It’s a tough situation.
So you underestimated the renovations, guys those of you listening, this is not uncommon at all. Because what you see on the surface is not necessarily everything that’s gonna happen. That’s why I highly recommend, if you’re not really skilled at contracting, you bring somebody in that is; that peels away that onion, that takes in your due diligence. If you have to you take a wall out, you agree to put the wall back if you have to.
You do what you have to do to see what’s really there. Bringing plumbers and electricians to evaluate the systems, bringing a contractor to evaluate the HVAC because it’s so easy to really misinterpret what’s gonna happen once you start doing the renovation, so good lesson. Okay, anything else? Any other lessons on that seminars?
[00:15:00]
Andrew Cushman: Yeah, and actually this one’s not related to the property but I’ll say anybody that’s anyone that’s looking to raise money. We needed $1.2 million to take this thing down. Going into it we had two investors that both said, “Yeah, we’re good for 400 each.”
Rod Khleif: Okay.
Andrew Cushman: Going into this deal we’re like, “Wow, we’ve already got 800. We only need to raise 400. We can do that. That’s not a problem.” So we’re under contract, we’re about 30 days in, both of those guys backed out.
Rod Khleif: Wow.
Andrew Cushman: Yeah. It turns out one of them actually never even had the money, and the really sad thing is he’d been a friend for four or five years. He never even had the money and he actually, eventually declared bankruptcy.
Then the other guy, this kinda gets into vetting you partners. Turns out, he had very different ideas about what the structure was going to be and what his role is gonna be. He wanted to be like an even partner and running the thing, not an investor. That wasn’t gonna happen so he backed out.
All of a sudden, we went from thinking we had 1.2 million done down to we only got a couple hundred thousand, we need to close in about 45 days [chuckle].
Rod Khleif: Wow.
Andrew Cushman: That was an extremely stressful time. We just reached out to everybody we knew, with the deal. And then also went back to the seller and truthfully, “Hey, you know what? This thing’s in a little rougher shape than what you said after we did all the due diligence.”
Rod Khleif: Oh, sure. You’ve got a compelling reason to ask for an extension of time for sure, when you get a property that’s that vacant.
Andrew Cushman: Well, actually, part of out contract, and I do this in every contract, and it’s in my LOI because I want to do deals that stick. So I have in there that, “Hopefully, we won’t need this, but if an extension is needed we do an additional deposit $15,000 for15,000 days.
Rod Khleif: For 15 days.
Andrew Cushman: Yeah, 15 days.
Rod Khleif: 15 grand for 15 days, and that’s really smart. By the way, those of you who are listening, if you don’t know what an LOI is, in commercial real estate, and you’ll hear me say, “Never write your own contract if you’re buying commercial real estate, unless it’s a real small property. You always use an attorney. And because attorneys cost money, in the commercial real estate space be, it apartments, multi-family, office, retail, anything, you’re gonna use a letter of intent and that’s an LOI.
That letter of intent spells out all the major deal points on a deal. The price, when you’re gonna close, the due diligence period, if you’re gonna finance it, who’s gonna pay what, what stays with the property, what doesn’t, all the major deal points you agree to in this letter of intent. It’s non-binding but this commercial space is a small world you don’t wanna be known as the person that BSes and just wastes other people’s time.
You do this to typically, it’s one to two to three page LOI, letter of intent. That way you agree, you negotiate off the LOI, and you agree on the major terms then you can spend the money to go write a contract. I just want to explain that if there’s a few real new people that don’t know what that means.
So you got your extension, I love that extra clause, 15 grand for 15 days because, guys remember, that money isn’t that risk until you exceed your due diligence period. So it’s no skin off Andrew’s nose to throw another 15,000 in Escrow because he knows if he backs out, he’s gonna get that back. It’s just basically giving yourself an extra 15 days which is really smart.
Anyway, sorry, I wanted to explain that…
Andrew Cushman: Oh, yeah, no worries.
Rod Khleif: I wanted to make sure they got that.
Andrew Cushman: And then also, we said, “Look, we’re gonna have to, due to the condition of it, round to raise a little more capital than we thought.” So we got him to carry a note for a couple hundred thousand.
Rod Khleif: Beautiful.
Andrew Cushman: That bridged the gap; we were able to get it closed. We continue to raise money. I think it took six months post-closing to finish it off. But we eventually did.
Rod Khleif: Right.
Andrew Cushman: When we bought it, it was collecting $8,000 a month. When we sold it was collecting $42,000 a month.
Rod Khleif: Look at that.
Andrew Cushman: So yes, it made us…
Rod Khleif: How long did it take you to lease it up? Tell me how, if you did anything ‘cause that’s a big vacancy number. You know you’ve got to pull out all the stops. Now, maybe you totally relied on your property management company, I don’t know. Did you aid them at all? Was there any guerilla marketing going on. Just talk about that for a minute.
Andrew Cushman: Oh, yeah. Yeah, we did all of that. We were on the usual rent.com…
Rod Khleif: Sure.
Andrew Cushman: Apartment Guide, tons of bandit signs all around town. Our property manager, I think every Thursday; she’d spend the day going and talking to businesses. We try to arrange deals with Pizza Hut, “Hey, let us advertise and then you can have exclusive delivery to our apartment complex.”
Rod Khleif: Nice.
Andrew Cushman: Stuff like that. In the beginning, we definitely welcome Section 8 and some of those types of things, just to get…
Rod Khleif: No kidding. Wow, okay.
Andrew Cushman: Yeah, to get the cash flowing, up and off the ground. Yeah.
Rod Khleif: Okay.
Andrew Cushman: I think it probably took about 18 months to get it fully…
Rod Khleif: To get it full. To get it full.
Andrew Cushman: Yeah, to get it up and running.
Rod Khleif: Okay. Did you set up a website, both floor plans and videos of the units, or any of that? I mean, did you do an online presence at all?
Andrew Cushman: We weren’t that sophisticated back then, frankly.
Rod Khleif: Okay.
Andrew Cushman: We did have a website.
Rod Khleif: Right.
Andrew Cushman: It had pictures and all that, but it wasn’t to a level on where it is now. Like yeah, we got floor plans and videos, and all that kind of stuff.
Rod Khleif: Right. Okay. Okay, okay. Awesome. Awesome. So, wow, that was quite an amazing first deal. What’s happened since then?
Andrew Cushman: Well since then, we’ve done 12 or 13 total, on average about a hundred and something units, so that’s 1566 units so far.
Rod Khleif: Okay.
Andrew Cushman: My wife and I have been doing an apartment complex, just full-time for I guess, about the last six years now.
Rod Khleif: Let’s talk about your team. Let’s talk about the different roles in your team. Your wife’s actually working alongside you, very cool and sometimes very risky…
Andrew Cushman: [chuckles]
Rod Khleif: But obviously, it’s working in your situation. If my wife and I worked together… I adore my wife. I worship my wife, and she would probably cut me. So anyway…
[chuckles]
Andrew Cushman: You know what’s funny? Whenever I tell people that, a lot of times, I get that kind of funny look that goes, “So… How’s that working for you?”
Rod Khleif: Yeah, right. [chuckles]
Andrew Cushman: Actually, really well. [chuckles]
Rod Khleif: No kidding. Well, that’s awesome. That truly is awesome… But yeah, no, my wife would kill me… Anyway, so tell me what you do and what she does, then what other people you have on your team? You’ve got a hell of a portfolio going, so talk about that.
Andrew Cushman: So yeah, my wife is mostly the… I’m the forward facing person. Most people would never interact with her, she’s making sure all the insurance policies are in line…
Rod Khleif: Okay.
Andrew Cushman: Certain bills are paid. Kinda a lot of the really important backend stuff that, hopefully, if it’s done right, no one ever sees or hears about.
Rod Khleif: Okay.
Andrew Cushman: My main role is really is acquisitions, dispositions, and asset management.
Rod Khleif: Okay.
Andrew Cushman: For our team, each property has… And this is one of the reasons…
Rod Khleif: Okay. So because you’re using third-party property management, you don’t need to have as much of a team, correct?
Andrew Cushman: Well, as far as the team on our payroll, correct. So I do have an office manager.
Rod Khleif: Okay.
Andrew Cushman: She works full-time for us, and then a virtual assistant…
Rod Khleif: Okay.
Andrew Cushman: But they are the only direct employees, everyone else is effectively independent, or through the third-party management.
Rod Khleif: Paid via the property. Okay.
Andrew Cushman: Exactly. Yep.
Rod Khleif: Alright, and so what is your office manager, what’s her role? What would you need one for?
Andrew Cushman: She does a lot of things; we have a large pool of investors and though…
Rod Khleif: Okay, so investor relation stuff. Okay.
Andrew Cushman: Yeah, like, “Oh, hey, I lost my K-1, could you send another copy.”
Rod Khleif: Got it.
Andrew Cushman: Stuff like that.
Rod Khleif: Got it. Got it, and you use a VA which… I had love VA’s. I’ve got right now, we have five in the Philippines…
Andrew Cushman: Oh, wow.
Rod Khleif: That are $1.93 an hour each, 10 bucks an hour I’ve got five people working full-time so guys…
Andrew Cushman: That’s low.
Rod Khleif: That’s an awesome way to maximize what you’re doing. Is your VA local, or are they offshore as well?
Andrew Cushman: No, no, probably a neighbor to one of yours.
Rod Khleif: No kidding.
Andrew Cushman: They are in the Philippines.
Rod Khleif: In the Philippines. Awesome. Awesome. Yeah. So what do you use your VA for?
Andrew Cushman: A lot of the repetitive stuff that’s easy to make… What we do is once we’ve identified a task as something that’s easily repeatable; we basically record ourselves doing it on…
Rod Khleif: Yep.
Andrew Cushman: On the computer, shoot a video, hand it off to the VA and then say, “Okay, this is something that you can do.” As long as it’s something that it’s not high level, or we need right away that seems to work well.
Rod Khleif: No, they’re fantastic for that. There’s a little bit of an art to hiring them. Let me spend two minutes talking about it. We go into it in depth in my course as well but I… Basically, you have to test them. The resumes are irrelevant but you can go to the Philippine Craigslist. Believe it or not, there’s a Craigslist there. You can run an ad, you have
People respond, and then you put them through a series of tests.
Usually an easy test, which will filter out some of them, and then a tougher test, and then I’d like you said Andrew, you have to train them very, very well. Then of course, you’re gonna talk to them early in the morning or late at night because they’re almost exactly opposite our time.
If you screen share what you want them to do and you take the time to train them, they can take so much load off you. But you have to manage them. I wouldn’t say and I’m not trying to be derogatory but as it relates to that particular segment of virtual assistants, you want to direct them. Don’t give them a lot of autonomy. But they work very, very well. They say, I mean, they’re honing our mailing list, and improving our mailing list so we can find off-market deals, and they’ve been a godsend. So I highly recommend them.
So that’s your team what about team members that you rely on for counsel. Attorneys, obviously, you probably got a great Völker broker network what other components do you have on your team that people should… Relationships that people should build to maximize this business.
Andrew Cushman: You mentioned a couple of them.
Rod Khleif: Okay.
Andrew Cushman: There’s a shortlist of obvious ones for good property managers, good attorneys, good brokers, good contractors and all of those. I would say one that maybe isn’t quite as obvious that is just as crucial is a good peer group, and a mastermind. I’m in a mastermind called GoBundance which is…
Rod Khleif: Ah, love that group. That’s a great group, in fact, to two very, very good friends are in it. Do you know Rock Thomas? Or Pat Hyman?
Andrew Cushman: Oh, yeah, yeah. Pat Hyman, we’ve been investing together for like seven or eight years now.
Rod Khleif: There you go, it’s a small world. Guys, this world truly is small. There is like one degree of separation. I know… We’re you on the Vietnam trip?
Andrew Cushman: I wasn’t on that trip but I was in Norway…
Rod Khleif: Okay.
Andrew Cushman: And in the Austria trip.
Rod Khleif: Alright, alright. They’ve been trying to get me in that. I really, if I didn’t have… If I had enough bandwidth, I would definitely join that group. So let’s shout out to GoBundance. It is a great group.
And shout out, in general, to masterminding.
Andrew Cushman: Yeah.
Rod Khleif: If you read Think and Grow Rich, by god, it’s right there in that book Think and Grow Rich talks about the power of mastermind. I’m in… Oh, gosh, one, two three… I’m in three masterminds. They’re each $25,000 so that’s how much I value masterminds.
They’re very, very powerful. You’ve heard me talk about, if you listen to my driving for success tips, you know you are the five people you hang around. So round up. You truly are who you hang out with. You make the money at the level of your peer group. You grow to the level of your peer group. You contribute to the level of your peer group, which is one of the things I know GoBundance does. They have a contribution component, correct?
Andrew Cushman: Mm-hmm. Definitely.
Rod Khleif: Yeah, yeah. That’s just huge. I was in Tony Robbins mastermind, hell that was like a hundred some thousand when you factor… I think it was about 120 grand when you factor in the travel costs and everything in it’s platinum group. They give a bunch to charity, and they build schools and everything. It’s a great way to level up. Agreed?
Andrew Cushman: Oh, absolutely. Wouldn’t be here without it.
Rod Khleif: Yeah, yeah. I’m really glad you brought that up.
Andrew Cushman: Yeah, so I’ve got the mastermind groups and it’s kinda almost like having your own little Board of Directors.
Rod Khleif: Yeah.
Andrew Cushman: So I have access to those guys who… They may not be necessarily be multi-family guys but they’re still experienced seasoned entrepreneurs. Then getting very specific to the multi-family, over the years I’ve made a point to go to industry events, and just to network with other owners, and so that if I’ve got a problem or something unexpected, or I just want an opinion on something I’ve got a long list of people that I can call and say, “Hey, have you run into this before? If you did, how did you solve it?”
Rod Khleif: Brilliant.
Andrew Cushman: That’s one of the beauties of real estate is you don’t have to be that creative. You can practice, R&D, rip-off and duplicate.
Rod Khleif: [chuckles]
Andrew Cushman: So there’s nothing really new, right?
Rod Khleif: I like the word emulation. Okay?
[laughter]
Rod Khleif: Yeah, there’s nothing new in this world. It’s all been said before, done before, thought about before. It’s just a new spin on the same stuff and… No, I totally, totally agree.
I wanna go back to something you just said. You were talking about your mastermind, how it doesn’t matter what a person’s business actually is. He’s gonna be able to add value to someone in a different business entirely. In fact, one of the greatest marketers in the world, a guy named Jay Abraham, I was lucky enough to get a picture with him and mastermind.
He was in one of the masterminds I was in, just recently. This is a guy that has that… The reason he’s a brilliant marketer is because he has been, he’s worked in so many different businesses that he cross-pollinates different strategies from just different vertical markets and business. The incredible dynamic of having, say, a group of 10 people that are from different businesses giving you feedback on your business you think of, you come up with ideas that you would have never thought about because in your business it’s just not done.
You get feedback that can really maximize what you’re doing that other people in your industry haven’t done. Particularly in marketing sales, even operations. So anyway, I just wanted to hammer that point home. The value, if you guys have an opportunity to join a mastermind, highly recommended. It really is life changing in most circumstances.
What’s next for you? You said you had an 80 unit under contract before we started recording. Where’s that located?
Andrew Cushman: That’s also out in Georgia.
Rod Khleif: Okay.
Andrew Cushman: In a town where we’re concentrated, actually, it was in this spot that we don’t even really looked that hard, but it was an off-market property that a broker brought to us. It just so happens it’s a couple of miles down the road from an existing property that we have.
Rod Khleif: Oh, perfect.
Andrew Cushman: We got a great price on it and we’re gonna be able to wrap the management of the new property in with the one that we currently have. That’s just kicking butt right there. And so we can run, it’s probably far more efficiently than most other people can, partly because of that, and we’ve been in that market for six years.
Rod Khleif: Right.
Andrew Cushman: It’s just gonna be a… It’s only 80 units. It’s on the smaller side for us but it’s a system where you really get a good little cash flow deal.
Rod Khleif: Okay. What class of property do you target?
[00:30:00}
Rod Khleif: What type of areas do you prefer?
Andrew Cushman: We generally target B minus properties that we can bring up to B level.
Rod Khleif: Okay.
Andrew Cushman: Or even a C plus that we can bring to B minus or a B. We actually have a very… In fact, this is one of the things the VA does now, is we have a very specific procedure for screening the area and the demographics that we want.
Rod Khleif: Well, let’s talk about that if you don’t mind. I’d love to hear what it is. We always look at income, population, employment, diversity of employment, job growth, income growth, population growth, all those things that you look for. But I’d love to hear your take on it, if you’ve got a formula.
Andrew Cushman: We do, and to the listeners, I’m gonna give… I’ll tell you where our actual numbers are but they will vary depending on what markets you’re in and what your goals are. This is just what works well for us.
Rod Khleif: Sure.
Andrew Cushman: We’re looking for a C plus to B minus property in an area where the median income is at least $35,000 we found that once you start dropping into the 20s, or lower you’re gonna be dealing with extra headaches.
Rod Khleif: Right, yeah.
Andrew Cushman: It’s how it goes. We’re looking for 35 and up. We want to see the poverty level to be below 15%, ideally single-digits but definitely below 15%.
Rod Khleif: Okay.
Andrew Cushman: We do not wanna be in a flood zone, we’ve just [_____] it’s not worth the headache and the expense.
Rod Khleif: Extra expense. Right.
Andrew Cushman: Yeah.
Rod Khleif: Yeah. You have to pay, by the way… Guys, those of you listening, if you’re in a flood zone the insurance can be astronomical. You don’t want that. That is obviously an element of risk, although some of the flood zones are a little exaggerated. But I avoid them as well please continue.
Andrew Cushman: Then we check crime. On the very surface-level, it’s easy. We just go to Trulia, and they have these great crime maps. They are all color code, and all that. If it’s green we’re good. If it’s not green we’re probably out.
Then during due diligence, we’ll actually contact the police department and dig really deep. But this is our…
Rod Khleif: Right.
Andrew Cushman: Early screening, and then in addition to that…
Rod Khleif: We use Spotcrime but Trulia is awesome. That’s a great tip for the group. Awesome.
Andrew Cushman: Yeah, there’s CrimeMapper.com, crime… there’s a bunch of them out there that really work well.
Rod Khleif: Right. Super. What he just said, I wanna hammer home as well. If you’re in final due diligence on a property you better have talked to the police department to find out what’s happened historically, if there’s problem units. You better have talked to the assessor’s office to find out if there’ve been… What the taxes are gonna go up to? You better have talked to the zoning to find out if there’d been a lot of violations on the property. These are all things that you’re gonna do when you’re in your final due diligence. You’re out there talking to people about this property. You’re talking to tenants. Anyway, please continue, sorry. [chuckles]
Andrew Cushman: No. We also look at population growth, job growth. You can actually are kinda… You just mention something really important when you’re talking just a second ago, of the diversity of the job base. This, I’ve seen some great properties in great little towns, and everything seems great but you know what, 50% of the population works for one company.
Rod Khleif: Yeah, works for one employer. Yep, I’ve seen it.
Andrew Cushman: I remember a broker one time was like, “Oh yeah, the plant is right next door and 65% of the tenants work for the plant.” I’m like, “I’m done. I’m out.” [cross talk]
Rod Khleif: ‘Cause if that place shuts down you’re screwed, you’re done, you’re decimated… In fact, I talked about Belleville, Illinois, there were some great deals up there. It’s my wife’s hometown. We got all excited about these deals and then there’s a huge base there. Now chances are that base isn’t going away, from what I’ve heard since I’ve been up there. But Trump’s probably not going to let any of them go and we’re not going to go down that rabbit hole
Andrew Cushman: [chuckles]
Rod Khleif: But at some point, they’re likely to shut some of these bases and when that happens I mean that economy goes in a tailspin. Yeah, it could ultimately recover. Probably will but you don’t wanna be on the tail end of that.
Andrew Cushman: Nah, we avoid military as well.
Rod Khleif: Yeah, okay. So there you go. What else? Anything else on that?
Andrew Cushman: That’s our pre-screening.
Rod Khleif: Okay.
Andrew Cushman: Once we’re under contract, we dig much, much deeper on all of those.
Rod Khleif: Well you heard me talk about some of the offices that we visited. What did I miss? Anything else you can add to that. Once you’ve got a property under contract, obviously, you’re gonna inspect it. You’re gonna go through every unit, you’re gonna video, you’re gonna take pictures, you’re gonna bring contractors. If there’s any question about any of the mechanical you’re gonna bring an HVAC person. If there’s any chance that there could be concrete foundational issues you’re gonna bring… Bring the right inspectors for anything you encounter.
What else do you do when you’re in your heavy due diligence that you might add?
Andrew Cushman: Yeah. The physical part is only half of it.
Rod Khleif: Right.
Andrew Cushman: The other piece is all the financial and the legal.
Rod Khleif: The financial. Right. Yeah.
Andrew Cushman: We do a full lease audit, which means we bring in a team, they sit down and they literally read through every single lease.
Rod Khleif: Every single lease, yeah. Does your property management company help with that? ‘Cause usually they…
Andrew Cushman: Yes they do. Yeah.
Rod Okay, yeah. Typically, that’s one of the things they’ll do. They’ll help you with all that piece. Go through all the leases, that’s great.
Andrew Cushman: What they’ll do is they’ll compare, and they’ll build the spreadsheet and everything. We’ll compare the actual leases versus what’s been reported on the rent roll.
Rod Khleif: Right.
Andrew Cushman: And see what… I mean there’s always gonna be some little mistakes and differences, and they’ll be able to report, and we’ll be able to look and say, “Are there other material differences between the rent roll and what’s actually in the leases? If there is, why?
Rod Khleif: Right.
Andrew Cushman: Is it intentional? Is it just poor management from my mom and pop end. Depending on what the answer is, depends on whether or not it’s a problem.
Rod Khleif: Right, or you’re gonna re-trade.
Andrew Cushman: Yeah.
Rod Khleif: Have you had to re-trade deals?
Andrew Cushman: Fortunately, with the exception of that first one, there’s only one other one that we had to re-trade.
Rod Khleif: Right.
Andrew Cushman: What happened is, it turns out that we found out that they had two sets of books.
Rod Khleif: Wow.
Andrew Cushman: How we found that out is they were reporting a certain amount of utility billing on their trailing 12 so their monthly finance.
Rod Khleif: Right.
Andrew Cushman: And what we did is we went to the utilities and requested a year’s worth of actual bills. The sellers were reporting to us a $50,000 less in annual utilities than what the actual billing was.
Rod Khleif: Wow, so guys that’s a clue, get copies of the utility bills for the last year.
Andrew Cushman: Oh, absolutely.
Rod Khleif: That’s one of the things you should do every time. Wow. And of course, for those of you who don’t know, re-trade means renegotiate. Typically, you’ve done enough of your homework up front so you don’t have to do that, and you don’t wanna be known as the person that always does that when you go in and buy a property. That’s why I asked the question.
But if you find a material misrepresentation, something that wasn’t disclosure, or your due diligence find something, that maybe even the seller didn’t know about, by all means you go in and re-trade, renegotiate it. Okay. Awesome… What else do I wanna asked you? What haven’t I asked you? What else? What other value can you add? This has been a really great episode.
Andrew Cushman: Let’s see. We talked about the utility bills, we talked about…
Rod Khleif: That’s right, in the due diligence, what else in the due diligence?
Andrew Cushman: We also make sure we get the actual tax assessments. We will go down to the City Hall and Chamber of Commerce, and this one has just been the gold mine in some cases. In fact, particularly a deal we closed last fall, I don’t know if the seller realize just how much good stuff was going on. I went down, and literally just walked into City Hall, and said, “Can I meet with the city planner.” They kind of looked at me funny like, “What you talking about?”
Rod Khleif: Right.
Andrew Cushman: So I walk into his office and on the wall he’s got this 6 foot beautiful color map of the town, and all these parcels, color-coded, all these pins and things. I’m like, “So what is all these?” He, for 45 minutes, he went through, he said, “Oh, we’re building… This is going in here, and this is going in here, and there’s like 750… $300,000 single-family homes going in here, and here’s the new Walmart, here’s the new hospital, here’s the new Kroger. I’m like, “Oh, wow. This is… It doesn’t get any better than this.” He gave me a copy of all the stuff, and I mean it was just great.
Rod Khleif: Wow.
Andrew Cushman: Stuff, just stuff like that. Actually, in most cases, we will try to meet with the …
Rod Khleif: Chamber? Chamber of Commerce, right?
Andrew Cushman: The Chamber, and also the…
Rod Khleif: Do you have an Economic Development Office, maybe if they have one of those. You should probably meet with them.
Andrew Cushman: Yeah. Sometimes they don’t all… sometimes, it depends on the town. Sometimes they’re not…
Rod Khleif: Right.
Andrew Cushman: They’re not all that coordinated. [chuckles]
Rod Khleif: Right. But definitely, City Planning, find out what’s going on maybe there’s a highway that’s gonna go right next to your property which could be a good thing or a bad thing. But sometimes, they don’t… They throw raw meat in and they don’t get out much and they love it when people come talk to them.
In fact, I was just talking about this on my coaching call yesterday where you’ve got to call the Chamber and find out what’s going on, and go in to City Hall and find out what’s happening because it could be bad too. You never know. There could be some negative stuff going on. A big employer’s leaving, or problems, but sometimes a wealth of good knowledge that you got on that deal… Last fall you said. Awesome. Awesome. I’m really glad you brought that up.
Andrew Cushman: Another one too is during due diligence, we go to the local police station.
Rod Khleif: Right.
Andrew Cushman: And try to meet with the Captain and say, “Hey, look, here’s what we’re doing. We like to run clean properties, keep everybody above the law… or not, that’s not the right term but keep it clean…
Rod Khleif: Yeah.
Andrew Cushman: We actually will, uphold the rules, we don’t tolerate drug dealing, none of that stuff. Make it very clear to the police that we are here to partner with them.
Rod Khleif: Right.
Andrew Cushman: And we will do anything we can to make their lives easier as far as cleaning up our property. So we say, “Look, we’ll install video, we’ll create a substation where your guys can come have snacks and do paperwork on our property, and we will enforce the rules. Just get off on the right foot with the Police Department at beginning, and that seems to go a long ways too.
Rod Khleif: I totally agree, and I’ll add, and that’s fantastic. Thank you, and I’ll add something else. I recommend you go to the department that handles zoning violations, and health complaints, and things of that nature. Go meet those people as well and say the same thing. Okay, because they can make your life hell.
Andrew Cushman: Oh, yeah.
Rod Khleif: You go make nice with them and say, “Listen, we wanna run a clean property if you have a complaint about something please call me directly. We will get on it immediately.” Because, again, that’s just preventive maintenance, that’s pre-framing because they truly can make your life hell if they if they get you with a violation and you have to bring things to code that you wouldn’t have to do normally. That’s another highly recommended thing you do.
Well listen, Andrew, it has been awesome, my friend. You’ve added a ton of value and I’ve really enjoyed this episode. Is there anything I haven’t asked you that you wish I had?
Andrew Cushman: Yeah, I’ve heard you ask a question before. If you could go back to the beginning…
Rod Khleif: And tell your previous self what you would do differently, what would you tell? What would you tell your younger self?
Andrew Cushman: Yeah. Well so my first thought was I’d say, “Hey, forget this whole real estate thing ‘cause in nine years you’re going to invent time travel and make way more money off of that.
Rod Khleif: [laughter]
Andrew Cushman: No, I would say, “Get into real estate right away.
Rod Khleif: Right.
Andrew Cushman: It took how many years for us to figure out that real estate was it. It’s definitely not a regret but we’d probably be even further along if we have figured out the power of … for both just for passive income and for wealth building of real estate. I’ve talked to people, “I can’t believe you started in the crash”, or this market. There’s almost never a bad market, there’s just a bad strategy.
Rod Khleif: Right. Oh, no, you’re right. We’re heading into a contraction and there are strategies to make a ton of money right now. But you have to go in with both eyes wide open, and be paying attention to the right things. Not value, value is irrelevant right now. It’s totally based on cash flow and ability to cover the debt. Debt service coverage ratio, that’s really what you need to be buying on right now.
Andrew Cushman: Yeah, most of our…
Rod Khleif: Yeah.
Andrew Cushman: Oh, I’m sorry, Rod.
Rod Khleif: No, no, please continue.
Andrew Cushman: I wanna say, most of our debt service ratios at this point are like two and a half to three.
Rod Khleif: Yeah. See, that’s fantastic. Right now, I won’t buy anything unless it’s a 1.6 with the ability to get there quickly. But yours are, those are fantastic. Now that’s great. Let me ask you one last question, what books do you gift the most to people?
Andrew Cushman: Everyone’s read Rich Dad, Poor Dad, and that was just a ground-breaking book for so many people. One of my favorite, that I probably reread more than any others is this, the old How to Win Friends and Influence People.
Rod Khleif: Fantastic book.
Andrew Cushman: ‘Cause as much as real estate is about numbers, when it really comes down to it, it’s people.
Rod Khleif: It’s the people.
Andrew Cushman: Your relationship with the seller, with the broker, with your contractor, with the…
Rod Khleif: The banker.
Andrew Cushman: With the County Inspector like you were talking about.
Rod Khleif: Yep. Yep. Yep, County Inspector, yeah. Now, that’s awesome. Well thanks so much, Andrew. I will have his contact information in the show notes. His the website is vpacq.com. Andrew, thanks for being on the show, buddy.
Andrew Cushman: You’re welcome. I really enjoyed it, Rod. Take care.
Rod Khleif: Likewise.
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