\n<\/p>\n
There are ebbs and flows in every real estate investing<\/strong><\/a>\u00a0journey, but not every home renovation project<\/strong><\/a>\u00a0results in a\u00a0six-figure loss<\/strong>! Fortunately, today\u2019s guests learned one very expensive lesson so that YOU (hopefully) don\u2019t have to!<\/p>\n Welcome back to the\u00a0Real Estate Rookie\u00a0<\/em>podcast<\/strong>!\u00a0Justin Noe<\/strong>\u00a0and\u00a0Nate Cherubini<\/strong>\u00a0are real estate investing partners<\/strong><\/a>\u00a0<\/strong>with top-notch\u00a0problem-solving skills<\/strong>. But not even that could stop them from making a MAJOR blunder on one of their\u00a0real estate deals<\/strong>\u2014a mistake that\u00a0cost them a whopping<\/strong>\u00a0$120,000<\/strong>. After dealing with termites,\u00a0zoning issues<\/strong>, and\u00a0bad contractors<\/strong>, this dynamic duo had every reason to give up on real estate\u2014but didn\u2019t!<\/p>\n In this episode, Justin and Nate stress the importance of keeping your contractors\u00a0<\/strong>in check and\u00a0fostering healthy relationships<\/strong>\u00a0in real estate. They also talk about why you should\u00a0build your buy box<\/strong>\u00a0early on in your investing journey<\/strong><\/a>\u00a0and how to\u00a0get your family on board<\/strong>\u00a0with your real estate investing goals<\/strong><\/a>!<\/p>\n Ashley: Tony: Ashley: Justin: Ashley: Justin: Ashley: Justin: Ashley: Nate: Tony: Nate: Justin: Ashley: Justin: Ashley: Nate: Tony: Ashley: Tony: Ashley: Tony: Justin: Nate: Justin: Nate: Justin: Ashley: Justin: Tony: Nate: Tony: Nate: Ashley: Justin: Nate: Ashley: Nate: Ashley: Nate: Ashley: Justin: Nate: Justin: Tony: Justin: Nate: Ashley: Justin: Ashley: Justin: Tony: Justin: Nate: Justin: Ashley: Justin: Ashley: Justin: Tony: Ashley: Nate: Ashley: Nate: Ashley: Justin: Nate: Tony: Nate: Tony: Nate: Tony: Nate: Justin: Ashley: Justin: Nate: Tony: Nate: Justin: Ashley: Justin: Nate: Ashley: Nate: Justin: Ashley: Justin: Ashley: Tony: Nate: Tony: Justin: Nate: Ashley: Justin: Nate: Ashley: Justin: Nate: Ashley: Nate: Ashley: Nate: Ashley: Speaker 5: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is Real Estate Rookie Episode 357. My name is Ashley Kehr and I am here with my co-host, Tony J. Robinson.<\/p>\n
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart in your investing journey. And today, do we have a story and a little bit of motivation for you. We\u2019ve got two amazing guests on the show, Justin Noe and Nate Cherubini, and they\u2019re business partners doing this real estate investing thing together. And obviously, Ash and I are big on partnerships, right? Head over to biggerpockets.com\/partnerships, learn more about that. But I think today, you\u2019re going to hear firsthand how partnerships help you as you\u2019re going on this journey, especially for those that are new in the business. So really excited to get into today\u2019s conversation.<\/p>\n
We have a story today that involves a property in distress, a hometown bar, longtime relationships that turned sour, termites, zoning issues, and a plane ride with a wholesaler. So stick around how this can all possibly tie together. We\u2019ll get into how to turn around a bad relationship with the city, taking extreme ownership, and the importance of problem solving today.
So Nate and Justin, welcome to the show. We want to hear about one of your first deals together and why you guys actually decided to do a deal together.<\/p>\n
Thank you, Tony and Ashley, for having us on here today. This is huge and a lot of fun to be here with you guys. But Nate and I, we started a journey together back in 2018 where we were at a marine requirements conference and he\u2019s in real estate and I was into real estate and we started out as a mastermind and spent about six months doing a mastermind. And then I had bought a deal in Florida, showed him the deal, he liked it so him and I bought a deal together. We thought we did so awesome on the first deal together that we would buy a second deal together, and then things unraveled pretty quickly from there.<\/p>\n
What were some of the reasons that you decided to partner with Nate? Did you have this checklist of, \u201cHere\u2019s the things that I want in a partner\u201d? Was it spur of the moment? Can you tell us a little bit more about taking that leap into partnership?<\/p>\n
Yeah. We knew each other in person. We both went through officer training together in 2013, and so we became really good friends there. And then kept up with each other through the community and we-<\/p>\n
Oh, I see.<\/p>\n
\u2026 came back together for an event that was put on, and we talked real estate at lunch one day. And so from there, he had actually introduced me to BiggerPockets and I never had heard of it. And so at the time I drove home, I spent about six hours just crushing BiggerPockets podcasts and learning so much about real estate. And I was like, \u201cI didn\u2019t even know that this was all this stuff is in real estate.\u201d So from there, him and I, this was in December of 2018, we decided in January that we would become accountability partners. And we spent five to six months working as accountability partners, giving calls every week, holding each other accountable to the goals that we set for that week and did a lot of that.
And one of my goals was is to buy. I had rental properties already, but I wanted to buy a property that I\u2019d never lived in as a rental property. So as a marine, you travel around, buy houses, leave, and then turn them into rental-type situation. And so I was looking originally in Colorado for that. And I dropped my kids off with my grandparents in Florida in my hometown, spent the time in Denver, came back, and ended up finding a rental property in my hometown. And it met the 1% rule. It was a pretty good deal. And I showed Nate the numbers, it got him interested, and then that\u2019s where we decided that we would partner on something. And it took about three months for us looking together to find our first deal.<\/p>\n
Nate, I see you smirking. Is your story completely different as to why you decided to work with Justin?<\/p>\n
I didn\u2019t like the first deal. I thought he was biased towards his hometown, so I tried to disqualify it and use some intel analysts on the analysis on the market there. And I realized that the place just really worked. And getting into why did we partner, over the five months of holding each other accountable, I realized we had shared values and vision. We looked at money the same way. We looked at helping people the same way in our careers. So I feel like it was a good match. At first, I felt like we were too similar, and you\u2019re supposed to find a partner that\u2019s opposite to you. And over the last few years, I realized that we\u2019re very different. We have shared values, shared goals, and that\u2019s important. I think that\u2019s the underpinning important in a partnership. But we do have very different characteristics that complement each other, so I think it\u2019s a good fit.<\/p>\n
I just want to comment on that because that I think is the ideal partnership where you have the same values, you have the same vision, but you have complementary skillsets. If you can align all those pieces, that is a partnership that\u2019s going to take you guys to the moon, right? Because you guys are working towards the same goal, you guys value things in the same way, but yet you can be strong where one person\u2019s weak and the opposite is true as well. I think you get conflict in partnership where there is that lack of alignment, there is that lack of vision, or there\u2019s too much overlapping skill sets and now there\u2019s deficiencies in the partnership, so man. I guess how did you guys come to understand that the vision and the values were shared? Did you sit down and just have a discussion like, \u201cHey, tell me your vision,\u201d or was it just more of an organic thing that happened over a beer or whatever it was?<\/p>\n
We did a vision statement. We did lay out what our goals were with our careers and our families for the next five years, and we zoomed out to the 10-year and 20-year, which isn\u2019t as detailed obviously. But if you know the direction you\u2019re driving and you set that course, then we can fill in the details of where we\u2019re going to stop for gas. So we started with the big picture, what kind of life do we want? What kind of impact do we want? How do we want to feel like we\u2019re still serving after we retire from the military? And a lot of that set the roadmap for us on how we\u2019re going to operate. So unless Justin sees it differently.<\/p>\n
Yeah. No, I think that it did happen organically though. It was us talking on the phone, us being in in-person meeting, talking through these things and these strategies, and then that culminated into us actually writing a article in the future of 2026, which I got from Brandon Turner\u2019s, one of his methods.<\/p>\n
Yeah, the Vivid Vision, right?<\/p>\n
Yes, the Vivid Vision. Yes, correct.<\/p>\n
Yeah, that\u2019s a great book for anyone who wants to read that. We are going to hear more about mistakes that were avoided by Nate and Justin when we get back from this commercial break. Let\u2019s hear a word from our show sponsor.
Okay, we are back with Justin and Nate. So starting out in this partnership and on your real estate journey together, what are some of the mistakes that you both avoided during your journey that maybe you saw other investors make? And Nate, let\u2019s start with you.<\/p>\n
Shiny object syndrome. Everything looks good. Listened to the first 700 straight BiggerPockets podcasts and note investing sounds great, land flipping sounds great, everything sounds great. So we came up with more detailed plan of what we\u2019re going to go after, like our buy box, and tried to stay focused on what do we have to do this month, this week, this day to make progress and less about do we need to set up an LLC now or next month. Do we need liability insurance after we have 10 units or before? So instead of worrying about all the things that are distracting, we just broke it down. What do we have to do today? Who do we need to call today? And try to make it manageable.<\/p>\n
I just want to add to that because the shiny object syndrome is such a real thing, especially for people that are entrepreneurial. I feel like Ash and I are probably even more prone to shiny object because we talked to two to three different entrepreneurs, real estate investors every single week. And we just talked to someone before you guys, and I\u2019m Googling. What was she doing? She was doing group homes in Philadelphia for sale. It\u2019s like every week, I\u2019m searching for something different.<\/p>\n
Tony already found one by the end of the episode.<\/p>\n
I already found one. I already found one for sale during the episode. So it\u2019s really a common thing that happens. But I think your point of really getting clarity on, okay, what is it that we want to do and then what are the specific action items that we need to take this week today to make progress towards that is important. And the more successful that I become in my personal life and my business life, the more successful people that I know, a lot of times it\u2019s not about what they\u2019re saying yes to that makes them successful. It\u2019s about what they\u2019re saying no to and your ability to say no to more things so you can really focus in on those one or two that are going to drive the ball forward for you. That\u2019s what makes a big difference.
But there\u2019s this misconception with new investors where they hear, \u201cOh, real estate investors have eight different income streams and I got to go chase eight different things if I really want to be successful.\u201d But that\u2019s only after you\u2019ve achieved a certain level of success.<\/p>\n
You\u2019ve built that foundation.<\/p>\n
Right, you build that foundation first. Elon Musk can be Elon Musk, can be the CEO of eight different companies because he started with one that he sold to PayPal for a bunch of money, and then he went and did all these crazy things. So we\u2019ve got to really focus in on what are those one or two things that we really want to be great at. Justin, what about for you, man? What were some of those mistakes you felt that you guys were able to avoid by seeing what other folks have done wrong?<\/p>\n
One of the things I believed in, and this is my first deal I got into with no money down as a VA loan that I bought as an eventual rental property when we were PCS-ed, was gain knowledge, gain some knowledge about real estate. And then you can do some analysis, whatever you need to do. But the most important step in all of that, in my opinion, was action. And so that\u2019s where I\u2019ve always gone is hey, we can learn as much as we can and analyze a deal until you think everything\u2019s 100%, but you got to take action. And so I think that\u2019s where Nate and I are a little bit different. He likes to analyze things. I like to take action. And so we have a good balance there where I have to, whenever I\u2019m bringing something to the table, I have to know my numbers. I have to know some analysis. And then Nate will then murder board me and then I\u2019m pushing him to try to take some action on it, but he\u2019s always like, \u201cHey, let\u2019s make sure we\u2019re doing the right step here.\u201d<\/p>\n
Justin is aggressive. He gets after it. He sees an opportunity and he\u2019s like a bull in a China shop. \u201cWe\u2019re going to make this happen.\u201d I am not nearly as aggressive. That is my downfall. So I\u2019m glad to be partnered with him. I would just be on the sidelines. So he brings something to me. And we\u2019re both marines. We\u2019re supposed to have a bias for action. It\u2019s one of the things that we\u2019re known for, and he gets after it. I can\u2019t justify trying to bring him down. So I get on board and I\u2019m like, \u201cAll right, let\u2019s think about how this can work. Let\u2019s solve this problem. Let\u2019s figure it out.\u201d And we get into it and we brainstorm. And sometimes we talk ourselves out of it and other times we solve the problem and figure out how to get in the deal. So I\u2019m grateful to have him because that action motivates me to put all my analytical brain that gets paralyzed with whatever doubt, fear, and indecision, and it gets me out of that.<\/p>\n
And on the flip side, because Nate is there to walk me through the steps, it has prevented us from getting into things that we shouldn\u2019t.<\/p>\n
Not to mention the SPOT project, but whatever.<\/p>\n
Yeah, that\u2019s it.<\/p>\n
Well, before we actually get into your deals, I do want to follow up with one more question about your partnership is just seeing you guys complement each other and talking about what each other\u2019s skillset is, how do you guys stay aligned? Are you having alignment meetings or what do you do to build your partnership and to keep it strong?<\/p>\n
We started out where we would take trips down here to Florida at the same time and spend time together doing a variety of things, not just real estate stuff. We\u2019d go out on a boat together. We\u2019d go fishing or go have a beer at a local establishment. But then we also do a lot of calls. So we were talking once, twice, three times a week if we needed to. Now, we\u2019ve got ourselves on a weekly call with our team and just making sure that things are staying updated, that we understand what our tasks are for the week and then executing towards those tasks. But we recently took a trip to the BiggerPockets convention over in Orlando where Nate came down and we both went to that together and got a lot of mind melting and a lot of bonding time, if you will.<\/p>\n
One thing I see when we talk about mistakes is that people get focused on step 10 when they haven\u2019t even completed step 1 yet. And you talked about that a little bit, right, where it\u2019s like, \u201cHey,\u201d you want to have this bias fraction and Justin\u2019s one that pulls you along. But what I see is a reason for that is people are so focused on step 10 like, \u201cMan,\u201d like you said, \u201cMan, I don\u2019t have my LLC set up,\u201d or, \u201cI don\u2019t have this,\u201d when really it\u2019s just get the first deal. So I guess how have you guys avoided that mistake? What\u2019s allowed you to really focus on just that next action?<\/p>\n
We look at what the problem is so we spend a lot of time talking about the problem, and Marine Corps calls it problem framing. We sit there and say, \u201cWhat are we trying to solve right now?\u201d And then when we fully understand what the problem is, we know what the action step is that we have to execute in order to solve the problem. Sometimes, it\u2019s a complex problem that\u2019s going to take multiple weeks and interactions and outreach to other team members to get done, but we always know when we pull the thread on this, what we have to do today. Is there a phone call I got to make? Is there an insurance agent I got to call? Is there a tenant we have to go serve a notice to? We just are, I think, pretty well aligned at identifying a problem and coming up with that next action step instead of getting bogged down with all of the steps. We\u2019re not going to try to eat the whole elephant. We\u2019re going to take a bite right now.<\/p>\n
I think you couldn\u2019t have said it better, right? It\u2019s like, \u201cWhat is the next action that I need to focus on today, right now?\u201d And as long as you focus on that one thing, you\u2019re going to make meaningful progress towards whatever goal you set for yourself. But something you said, Nate, that I want to circle back to because I feel like this is a really important thing for rookies to understand, is that oftentimes we jump into problem solving without problem clarification first. We don\u2019t even really know what the problem is. We\u2019re throwing all these things on the wall trying to see what sticks, when really if we just spent a little bit more time upfront getting extreme clarity on what the actual issue is, then it becomes easier for us to solve that problem.
So say that you\u2019re, I don\u2019t know, say that you haven\u2019t bought your first real estate investment deal yet because nothing fits your budget and you\u2019re doing all these crazy things to try and do creative financing and this, that, and the other one. Really, it\u2019s like, \u201cHey, if I just worked an extra shift every week for the next six months, I would have the money I need to buy my first deal.\u201d And now you can put all that energy towards that one goal and now you\u2019re in the right position. So I guess maybe not going too far off on a tangent here, but I think it\u2019s an important thing to understand. How do you guys go about getting extreme clarity on the actual problem? What is your, you called it a problem frame? I\u2019ve never heard that before, but what is the steps to actually do that?<\/p>\n
When you\u2019re problem framing, you\u2019re looking at what your current situation is, what your desired future situation is, possible things you can do to get from where you\u2019re at to where you\u2019re trying to go. You list out things that are facts, you list out things that are assumptions, and you try to make decisions based on clarifying assumptions and bringing those into a fact where you know better what\u2019s going on to eliminate uncertainty. So it is a process and there\u2019s videos on YouTube and all about problem framing and the steps involved, but a quick summary is you just walk through where you\u2019re at now, where you\u2019re trying to be, and how do we get there, essentially.<\/p>\n
Speaking along those lines, what is the long-term view? Where are you trying to get?<\/p>\n
The long-term view that we initially discussed was, \u201cHey, we want to build a portfolio of 100 units that are all cash flowing a minimum of $250 a door.\u201d Probably every newbie investor decides they want 100 doors or something, a variation of that, and it\u2019s producing enough cash flow so they can go and live the dream of flying around the world and playing golf every day. So then reality sets in and you look at everything. And we are now still on a path to continue collecting doors, but obviously the markets have changed a little bit. Things are a little bit tougher. Cash flow\u2019s getting reduced because of interest rates and stuff of that nature. And so we\u2019re pivoting.
And so we look at other opportunities to how do we raise capital inside the company so that way we can then go and park it into an asset. Now, instead of looking at real estate as a cash flow to set us up for the rest of our lives, we\u2019re like, \u201cWell, how can we find some active things inside of real estate to produce capital to go buy assets to then continue building that portfolio in these tougher times?\u201d<\/p>\n
Yeah. I don\u2019t know that we have a well-defined end state as far as metrics. I think it\u2019s more of the lifestyle. We\u2019re both going to be okay because of our military retirement and medical coverage and all that, that we\u2019ll make ends meet. That\u2019s not the problem. So cash flow is less important at this moment. It\u2019s more about building that sustainable foundation, parking, hedging against inflation, having something to teach our kids how business works, how working with people, how to manage things, how to manage projects. We both have four children. We want them involved as much as possible. We want to be able to give and show that we make this money so we can help others that are in need.
And I think that it\u2019s more of the lifestyle of that vision of comfort, reduced stress, or we\u2019re going to stress but it\u2019s going to be about the things we want to be stressed about, not about feeding our family or anything like that. So we\u2019re picking our problems. There\u2019re going to be big problems and sometimes pretty hairy problems to deal with, but we\u2019re looking to have a certain lifestyle that affords us flexibility, spend time with family and friends and stuff like that, while also continuing to push ourselves outside of our comfort zone and growing the business.<\/p>\n
I think that a lot of people, especially rookies, even myself included at one point, get caught up in that financial independence of like, \u201cI just want to get on my W2.\u201d And then sometimes that translate, \u201cWell, you know what? Now that I\u2019m doing it, this is like managing rental properties. I don\u2019t like this. I don\u2019t like this part of it. I don\u2019t want to manage contractors, all these things.\u201d And that\u2019s where the mindset shifts. Instead of focusing on how many units and cash that you need to have that financial freedom, it becomes, \u201cOkay, how do I now build my business around my lifestyle?\u201d Like you said, Nate, and that\u2019s where it becomes transformational is building these systems and processes to get to that point and building your business around what you want to do and how you want your lifestyle.<\/p>\n
Absolutely.<\/p>\n
So let\u2019s jump into one of your deals. In the beginning, we had mentioned termites and a bar story. Do we want to start there?<\/p>\n
I would like to just say that I listened to the first 700 straight BiggerPockets episodes. I introduced Justin and countless others to BiggerPockets podcasts. It\u2019s been a game changer for me. This was 2020 that this happened, and there\u2019s a pandemic and murder hornets and the Tiger King. Stuff was weird. And when the dust started to settle, I looked at Justin and said, \u201cIf we ever go on BiggerPockets, not that we ever would, but if we ever did, we\u2019re going to have to talk about the anatomy of a disaster and just say how we lost 100 grand.\u201d And at BiggerPockets Conference 2023, Mindy approached us and out of the blue asked if we had any stories where we lost money that we\u2019d like to share. And me and Justin just looked at each other over our beers and said, \u201cOh, we\u2019ve got a story. We lost a lot of money.\u201d So yeah, I\u2019ll let Justin unpack where it started, but it\u2019s a pretty crazy adventure of how we turn this into a financial education or a master\u2019s degree.<\/p>\n
It seems like it costs that much.<\/p>\n
Yes, definitely.<\/p>\n
Oh, yeah.<\/p>\n
We were on our first company trip down here to Florida to look at the asset that we were getting ready to purchase. We were going to be closing on it and everything else. It was a two single-family homes on the same piece of land in our downtown that I grew up in called Brooksville, Florida. And so we were down here hanging out. We ended up doing some boating with my brother at the time, really building our relationship and showing Nate the town because he had never been here and he was getting ready to invest down here.
And so after some events that day, we ended up seeing this house and a \u201cFor Sale\u201d sign in it, and we were like, \u201cAh, okay. Maybe we\u2019ll call on it. Maybe we won\u2019t.\u201d We go down to the local watering hole called Florida Cracker, which is a Floridian, old Florida style tap room and bar and all that. And we go there, we have a beer or two, and then we\u2019re like, \u201cMan, we should really call that guy on that number.\u201d And so we decided we were going to call this guy and got a little information. He showed us the house and we came back with an offer to him for $60,000. He laughs at us, literally laughs out loud and says, \u201cThat\u2019s what we bought it for.\u201d And I said, \u201cOh, okay. Well, I guess our number sounds right.\u201d
And we had our contractor that was in there working on that deal that we were purchasing a couple of weeks later, and we had told her about that and her and her husband, and they were friends of mine from growing up and all. And they said, \u201cWell, hey, let us go take a look at it for you. Since we\u2019re already working on this duplex, we can go and check that out for you.\u201d And we said, \u201cOkay.\u201d
So they went and looked at it and they walked it and they were like, \u201cOh, this wouldn\u2019t be too hard to just turn into a triplex and it\u2019d probably cost you 20, 30,000 a unit,\u201d and boom. So we were looking at it. We\u2019re like, \u201cOkay, 20, 30,000 unit, needs a new roof.\u201d And then so we were like, \u201cOkay, we\u2019re in the 80, $90,000 range.\u201d And we said, \u201cWell,\u201d she was a licensed realtor as well and we asked, \u201cWell, what do you think? We offered 60.\u201d And he laughed at us and she goes, \u201cWell, I actually think the price is pretty good and I think they had it listed at 1 5 or something like that.\u201d So we ended up offering, \u201cWell, let\u2019s put an offer in at 115 and go from there.\u201d So we did that and we ended up buying this property.<\/p>\n
Let me ask something just really quickly, Justin. So you initially offered 60. You went almost double to 115. What was the thought process in between those? Because that\u2019s wildly different. What was the thought process there?<\/p>\n
Yes. Yeah, great question. So based off of what the general contractor and the realtor had told us right after they walked the property and gave us some numbers, we were like, \u201cOh, well, this isn\u2019t too bad.\u201d We were thinking that it needed a $200,000 rehab just based off of some knowledge that we had. And so we were looking at it like, \u201cWell then,\u201d if it was a triplex, which we didn\u2019t account for that, we were just thinking a duplex, we\u2019re like, \u201cOkay, now it cash flows even better.\u201d So we were just running the numbers based off that. So we were like, \u201cOkay.\u201d At 115 plus a $100,000 dollar rehab, you\u2019re in it for 215. It produces gross rents of around 2,800 to $3,000 on a conservative estimate at the time. And so we were like, \u201cWow, this would be a great deal.\u201d<\/p>\n
We didn\u2019t get any second opinions or statement of work or anything. So we had a lot of faith, a lot of trust and confidence in this couple as a contractor and an agent. So they really did talk us into that price. They actually said to offer full price. They said, \u201cSomeone\u2019s going to snatch it up.\u201d And we offered 115 and we got a deal. In our mind like, \u201cOh, we had a great deal.\u201d So we\u2019re off to the races.<\/p>\n
By the tones of your voice is it was not a great deal.<\/p>\n
Definitely not.<\/p>\n
So what happens next?<\/p>\n
They start work on the project. I think we closed on it in October of 2019. They started doing some demolition, getting all the old stuff out, found out it has termites. We have to tint the property. They painted the outside for some reason before. That\u2019s usually the last thing that you do. But they painted the outside and we got a new roof put on there, and that was all done before the New Year while they were waiting on permits from the city. I follow up with them on a weekly basis and then start biweekly and they\u2019re like, \u201cWe\u2019re still waiting on the city. We\u2019re waiting on the city.\u201d Then it\u2019s the holidays, you know how all that goes.
And so January comes. I\u2019m like, \u201cOkay, we\u2019re through the holidays. Everybody\u2019s back to work. We\u2019re ready to get after it. Let\u2019s go.\u201d So this is January 2020, mind you. We\u2019re still having problems with the city at the time. The city planner and all this other kind of things were happening with them and they were holding up our permit and they kept asking for more and more information, that they want us to have architectural plans. So we pay for our architectural plans, for everything that we\u2019re trying to do. And we\u2019re still going through that, following up every week. Nate and I had our scheduled six-month trip come up February 2020, at the end of February of 2020. Just think about what\u2019s going on at that time in the world. Nobody knows what\u2019s lying under the surface at the time.
And so we have our trip. We have a great time. We meet with the contractors. They show us the plans. They say, \u201cHey, we\u2019re almost there. We\u2019re getting ready to get the approval from the city for this.\u201d COVID happens. The city\u2019s like, \u201cYeah, we\u2019re not allowing you to approve this plan because it\u2019s not zoned as multifamily.\u201d But we are like, \u201cWell, it was a duplex.\u201d They\u2019re like, \u201cYes, but now it has no longer been used as a duplex for six months so now it goes back to its original zoning, which is office space or single-family residence.\u201d So we\u2019re like, \u201cOh, man. Well, what do we have to do to make this multifamily?\u201d Like, \u201cWell, there is a process to do it.\u201d So we were trying to go through this process. The contractor that we were working with was trying to help but wasn\u2019t being a big help. And-<\/p>\n
If I can just get some clarity before we jump over Nick, because I just want to make sure I understand what you\u2019re saying here, Justin. So the home was a duplex, but because it had been vacant for more than six months, the zoning pretty much expired and your only option was to use it as a single-family home or as an office space?<\/p>\n
Correct. So it was single-family, office space was the original zoning. The previous owners before the guy that we bought it from, I guess, it had sat vacant for a long time. They had it set up with a duplex upstairs and then a single-family home downstairs, and then there was a garage space where we were going to make the third unit.<\/p>\n
A dental office.<\/p>\n
So it was non-conforming duplex, and that was the issue.<\/p>\n
So they had never gone and gotten the zoning changed to duplex then?<\/p>\n
Correct. They just, back in the, I guess \u201980s or whatever, they probably\u2026 Small town.<\/p>\n
They just went and did it, yeah.<\/p>\n
Nobody was checking that kind of stuff.<\/p>\n
Wow.<\/p>\n
Yeah. I bought a property recently that is a single-family but it\u2019s actually zoned as a duplex but they converted it to a single-family but it\u2019s still zoned as a duplex. It was never changed at all.<\/p>\n
Throughout this process, Justin has a ravenous appetite for information, thank God, because I assume good intent. So I\u2019m like, \u201cContractors, they\u2019ll get to us when they get to us.\u201d And he\u2019s like, \u201cNo, we need an update now.\u201d So we would get updates and then me and him would jump on a call on Sundays and go over everything and like, \u201cAll right, here\u2019s a problem this week. What are our options?\u201d We\u2019d come up with some stuff. And then the relationship started to deteriorate between Justin and the one contractor, so I started just dealing with the contractor.
And Justin and I would war game our solutions, call them up, and sometimes they would work with us and other times they\u2019re just like, \u201cTell us what to do.\u201d They were not really trying to help solve our problems. At one point they said, \u201cOh, we can still make it a triplex, but we have to put in firewalls that are up the code and it\u2019s going to be about $40,000 per unit extra.\u201d And it\u2019s like, \u201cWell, that\u2019s more than double that you\u2019re quoting per unit to do the job in the first place. We don\u2019t have the budget for that.\u201d
So we constantly looked to them to help solve problems and they just weren\u2019t on board. They did hire someone to work with the county, the city, and we found out later from the city that the relationship had soured. They didn\u2019t trust them. They found them doing unpermitted work. We got fines for it, which our contractor talked us into paying, saying we are getting ahead of the work schedule and it\u2019s worth the $280 fine. And so we just assumed good intent. They were in over their head and we\u2019re going to get through this. We did get to a point where we said, \u201cLook, let\u2019s just do this like a high-end flip. We\u2019re just going to make it a single-family home and we\u2019ll try to break even on it.\u201d
This is the middle of 2020. This is before things are getting crazy in the buying market. There\u2019s a lot of fear sitting out to see what was going to happen. Everything was closed down. So there\u2019s a lot of uncertainty in the air. And right around when we said, \u201cLet\u2019s just make it a single-family home,\u201d our contractor\u2019s husband hurt his knee and said that they could no longer do any work essentially, and their team quit because they made more money from not working by COVID relief than from working.<\/p>\n
Wow.<\/p>\n
So now, Justin and I are stuck with this. It\u2019s a house set we brought our handyman into because we were talking about coming down there with our handyman and just working under their license and trying to get it done. He\u2019s like, \u201cThis is not safe.\u201d We had the place tented and termite damage was repaired, but they did demo and they took everything out to the studs and then started some foundation work but didn\u2019t finish. They started a lot of work and didn\u2019t finish, and so it was like it\u2019s just a shell of a house at this point. We literally spent roughly $110,000 on demolition and supplies that we end up not seeing any work, any value for that money that we spent. And that\u2019s when we decided we\u2019re just going to cut our losses. We\u2019re going to sell this thing.<\/p>\n
You just sold it, gutted as is?<\/p>\n
Yes.<\/p>\n
I was flying home from one of the trips and I had met a guy sitting next to me who he\u2019s in real estate, and I was like, \u201cI\u2019m in real estate,\u201d a property in a disaster, but I didn\u2019t say that. He\u2019s a wholesaler. So I got his contact information, and later on when all this went down, I said, \u201cHey, I have a number to a kid that\u2019s a wholesaler. He is an army kid out of Texas but he works with this team down in Florida.\u201d So we got linked up with a team in Florida and they made us an offer of $105,000. Mind you, we bought it for 115 and sunk 110 into it.<\/p>\n
Wow.<\/p>\n
So we\u2019re like, at this point we have private money that\u2019s coming due and we just want to get them whole. So if we sell it for 105, we can make them whole and Justin and I just eat the $120,000 left that somebody had to cover, so\u2026<\/p>\n
Wow.<\/p>\n
That\u2019s what we ended up doing. We unloaded it to a wholesaler. And then we also didn\u2019t get stated in the terms. We wanted the cabinets and some paint and flooring that were all in there that we paid for, but the contract that the wholesaler signed, he didn\u2019t list that. Those items didn\u2019t convey, and so they had sold the house with all our stuff in it. And so we contacted the new purchaser and said, \u201cHey, there\u2019s a mistake that was made,\u201d explained this, the case, and said, \u201cCan we just come get our stuff back? \u201cAnd the guy responded with, \u201cI\u2019ll take legal action to the fullest extent of the law and this is my stuff and this is how I bought it, and essentially was not willing to play ball.\u201d
So I was like, \u201cOkay. Well, you have a good day and rest of your life. Hope I bid you well.\u201d And we moved on and there was so much to chew on when this went down. Justin actually flew out to California so we could do, we call it a hot wash where you sit down and just go through what was good, what was bad, and what was awful, and try to come up with a plan to how not to do this again. But we needed a month to not talk real estate before we could even do this. It\u2019s still raw. It still hurts.<\/p>\n
But kudos to you guys for going through that and not saying like, \u201cMan, this real estate stuff is a scam. Hey guys, real estate is a lie.\u201d You guys said, \u201cHey, what do we need to learn from this so we can do it better next time?\u201d What were some of those lessons that you guys were able to clearly see coming through the other side of this thing?<\/p>\n
I\u2019ll push that to Justin, but first, I\u2019d just like to say this project ends most people\u2019s real estate investing careers. If it wasn\u2019t for BiggerPockets, we wouldn\u2019t have known all the success stories out there. We wouldn\u2019t have known that it is possible to take your lumps. People have taken much bigger losses in this, and they\u2019ve gone on to build real estate empires. So having that perspective and clarity of what\u2019s possible helped us stay focused that this is just a step in the road. It\u2019s just a lump that we took and we have to keep going, or it is a failure and we\u2019re not going to accept failure. We\u2019re going to keep going. We\u2019re going to learn from it and we\u2019re going to be better. But yeah, Justin, what did we learn?<\/p>\n
Oh, we learned a lot. Yeah, we learned a lot. So biggest thing is needed a better ground game, somebody there that we could absolutely trust with everything. We literally thought we had that in the contractor and realtor because of past relationships with them that we had built personally for me, and that wasn\u2019t enough. So we ended up bringing both of our brothers onto our team. Nate\u2019s brother basically handled all resident relations because we had a few tenants at the time when we were going through all of this through COVID and everything. And then my brother as our ground game because at the time I was in Colorado, Nate was in California, and so we were running a business in Florida. And so we brought him onto the team or both of them onto our team. And that right there alleviated something where we had somebody that we completely had 100% confidence in, so my brother Seth. And we brought them on the team in 2021. We then were able to scale quite a bit more deals just in that year alone.
And the other thing that we learned was all of the stuff that happens with the city and how to navigate that effectively and how not to get on their bad side, I guess, if you will, which they\u2019re the government so they shouldn\u2019t be giving bad treatment to you. But we now navigate things differently. Let\u2019s make sure our permits are in. Let\u2019s make sure that we need a permit. What\u2019s the schedule of work going to be? We get multiple quotes on certain jobs. If it\u2019s a bigger job, we\u2019re going to get multiple quotes on there or we\u2019re going to use a guy that we know for a fact 100% is going to do us right because he\u2019s done us right on past deals.
And so we really look at those types of things as big lessons learned, having a strong ground game, doing things within the law the right way, building good relationships with people, and then having people that you trust to do the work and then do it in a timely manner.<\/p>\n
One of the first things you said there was really building your team. So you took on these two team members. How did you structure that? Or did they become equity partners? Are you paying them a salary? How did that work that you were able to bring on two people and it worked out for you financially, I guess?<\/p>\n
Yeah, absolutely. That\u2019s a great question. So we did bring them in as equity partners. We took the lump, Nate and I did, on the big loss that we had in 2020, and we basically started with what we had which was just a couple units at the time. And we said, \u201cHey, we\u2019re going to give you guys each 10%,\u201d 10 from mine and 10 from Nate\u2019s. So each of our brothers got 10%, and we brought them in that way.
And then as we started growing and getting more properties under our belt, then we started to provide Nate\u2019s brother, Jeff, who was doing our resident management, he was getting paid a certain standard fee for each property that he was managing. And then my brother, Seth, he already had a lawn business or landscaping business that he had so we were paying him to do all the lawn care. There was two things. We made sure that the lawn was getting done every month or every couple of weeks, and we had somebody having eyes on the property on a routine basis to inform us if there was some kind of issue that was going on on site.<\/p>\n
We learned that we had to manage our relationships better. The city planner was the first thing we had to make amends to and take ownership and say, \u201cHey, we trusted our contractor. They did work that wasn\u2019t permitted. That was never our intention. We did not approve it. We want to do things above board and by the book, and so we\u2019re going to come to you and look for guidance and help so that we can do this the right way.\u201d We made amends. We had to throw our contractor a little under the bus, but we took ownership. We hired them. We didn\u2019t watch them close enough. And by doing that, that disarmed, the city planner and the folks that worked up in Brooksville and they were way more willing to work with us and give us information when we asked for it.
When we branched that mindset of explaining our intention through all of our relationships, whether it\u2019s a roofer or painter or tenants. All of our insurance rates had gone up substantially after one of the hurricanes. And so we had to make $100 a month raise in some of the rents and we explained it in a letter to our tenants. \u201cWe\u2019re not sitting on money bags like Scrooge McDuck here. We\u2019re trying to provide you with safe, affordable entry-level housing. We\u2019re trying to give you a good product. But to do that, we need to raise the rents because our costs have gone up substantially.\u201d
And so we found we got a lot less pushback and all of our relationships when we explained why we can\u2019t pay as much as a painter wanted, like, \u201cHey, I really believe that your work is worth every bit of that $4,000, but our budget\u2019s 3,500. Can you meet us at that?\u201d Instead of just scoffing at them and making an adversary relationship, Justin and I are much more about being open and honest with our intentions and fostering relationships because oftentimes, it comes back and pays dividends where people feel like it was a good interaction and then they bring a deal to you later like, \u201cHey, my stepmom\u2019s selling a house. Are you interested?\u201d So I think you put that good energy out in the universe and it comes back tenfold.<\/p>\n
So Nate, Justin, what would you say is one missing component that you think a lot of rookie real estate investors might be missing?<\/p>\n
A big part of what\u2019s helped me get to where I\u2019m at is working on mindset, and the foundation of mindset is physical fitness. I feel like any endeavor, success in any endeavor, begins with physical fitness because that leads to confidence and self-esteem and the mental fitness that gives you that positive mental, that frame that leads to the execution because you\u2019re confident in yourself now that you\u2019re going to take action. And whatever happens, you\u2019re going to get through it. So those consistent daily tasks, consistently getting uncomfortable, consistently putting in workouts when you don\u2019t want to, that all leads to the right mindset, the right frame and self-esteem that make you accountable to yourself. So I believe you have to work on your mindset, and the key to that is through fitness.<\/p>\n
Yeah. And I just have to pound onto that. Being Marines, we grew up being physically fit and having that in our daily battle rhythm. But I tell you this, that big long ordeal that we had, it was a year long, stressful for 12 months basically of stress. That was huge. And had we not had physical fitness in my daily routine at the time, and I\u2019ve even taken that even further now, I know Nate has as well, and I focus on mental toughness type things every day, getting uncomfortable every single day in something, whether it\u2019s a cold shower, whether it\u2019s going out in a snowstorm to run or a rain, a thunderstorm, whatever the case may be. Because then when a real tough situation comes into play, whether it\u2019s in business, in your family, in life, whatever, we\u2019re going to be able to, like Nate said, handle that.<\/p>\n
So those are some great takeaways that you have explained. There\u2019s one thing though that I am very curious about as to you\u2019ve paid for these master degrees with this property. What did your wives think when you came to them and said, \u201cWe have each lost $55,000\u201d?<\/p>\n
I\u2019ll start with that, just because we had to sell two of our other rental properties, not just to cover that but we were already going to be offloading them. But we had plans, other plans for that money, if you will. And so it was tough, but my wife definitely trusted me and understood she could see the stress that it was causing me on a daily basis. And she did trust me to figure it out and learn from it. And now, she\u2019s partnered with me and on a few other deals. So it has worked out in the long run. We\u2019ve learned a ton from it, and I know she\u2019s learned a ton just by watching how that all transfolded or transpired, excuse me.<\/p>\n
Yeah. It was just open communication. I didn\u2019t hide anything. And when things were going sour, I think she was looking the same way we were, just to minimize the bleeding at this point. And so when we got out of it, it was just a sigh of relief like, \u201cOkay, that\u2019s done.\u201d It really sucked. We had to take out a loan to cover some of the things that we had purchased, and it\u2019s like, \u201cOkay, I\u2019m just going to have to grind this out.\u201d There\u2019s a light at the end of the tunnel. Kids are fed. We\u2019re comfortable. I guess because we didn\u2019t have to really be put in a bad situation financially, we were able to weather the storm. It sucked but I think that they kept faith in us to get through this.<\/p>\n
Yeah. I asked that question just because I think it\u2019s so important to have your family involved in what your vision is, that you\u2019re in alignment with not only your business partner but your family too as to, \u201cThis is what I\u2019m working for and this is what I\u2019m trying to do.\u201d Even if they\u2019re not part of the day-to-day operations or anything like that, having a supportive significant other can make such a huge impact. And when you do have these ups and downs, having somebody that\u2019s going to motivate you and stick with you, especially when there are those downs, and that\u2019s just one of the really big questions we get from listeners is to how do I get my spouse on board? And I think there\u2019s that big difference of being that support, being there with you through the ups and downs. And that doesn\u2019t mean they have to be your leasing agent or be your bookkeeper. They don\u2019t have to be involved in the day-to-day. So that\u2019s great that you both have supportive spouses.<\/p>\n
The biggest thing is you have to ask them what their concerns are, what their fear are, and acknowledge it, even if it\u2019s irrational like, \u201cOh, you\u2019re going to have to be fixing toilets at 2:00 AM.\u201d \u201cI understand that\u2019s a concern, and we can have a plan so that when there\u2019s a call at 2:00 AM to fix something, there\u2019s stuff that happens before we get a phone call so we\u2019re not going to be disturbed.\u201d But to get the spouse on board, you just have to be clear about your intentions and listen to them and their concerns and not to make it an argument, but just to hear them because that\u2019s the whole point of communication, is so that we understand each other. So I think going into it without an agenda, just to be open about where you\u2019re trying to go and try to put their fears at rest with action, that helps.<\/p>\n
And one thing that I just happened to be lucky doing at the time was going through a public speaking class for a college course I was going through, and one of the things that I was learning at the time was BRRRR strategy, and so I had to give a speech on something. And so I just chose the BRRRR strategy because I had been reading the book, listening to podcasts and everything else. And I used my family, my wife, my daughters, and some friends that were over to give them the class prior to me going in and actually giving the instruction, period of instruction and everything. And so that was an opportunity for me to actually explain the process and how I viewed it, and it actually got her on board with the process once I understood it so well that I could actually explain it in a way, even though I hadn\u2019t had a successful one yet at the time.<\/p>\n
Everyone listening is creating a PowerPoint slideshow right now to present.<\/p>\n
I\u2019ll send it to them. I\u2019ll send them an example I used.<\/p>\n
Yeah.<\/p>\n
We\u2019ll put in the show notes for today\u2019s episode.<\/p>\n
Yeah,.<\/p>\n
Nate, Justin, so, so many good nuggets throughout this entire conversation, and we appreciate you guys being transparent about not just the successes of being a real estate investor, but the downsides as well. Ash and I have done episodes on our failures. I just had a six-figure flip that failed last year so I know how that feels. When you think something\u2019s going to turn out one way and for one reason or another, it turns out the complete opposite, but it\u2019s the courage to move forward after those failures that really, really makes you successful in the long run.
So I want to take us to our Rookie Reply, and for all of our rookies that are listening, if you want to get your question featured on the show, head over to biggerpockets.com\/reply and we just might use your question for the episode. Today\u2019s question comes from Jonathan E. and Jonathan\u2019s question is, \u201cWould a hard money\/private money loan be advised against as a first-time flipper? I\u2019m not too keen on how rates and financing work. Do I need bids beforehand or will a hard money or private moneylender help me work with the GC they have a history with?\u201d<\/p>\n
Man, that\u2019s a great question. The first deal that we did, we did not use private money. We went and got a traditional loan. But the second one, we did use private money and Nate went and pitched this deal. That was a disaster to them in the end, and they had no clue where Brooksville, Florida was. In subsequent deals that we used, we used private money for the same thing where people didn\u2019t know where the area was. And they were buying in on us, and the fact that they trusted us with their 100,000, 200,000, 60,000, 15,000, however much that we had to do to raise the money, they trusted us and that we could get it done and that we would make them whole no matter what.
And that was actually a big plus I didn\u2019t think about from the failure is we actually are open about it to people. We\u2019re like, \u201cHey, look. We failed here. We could have lost these investors\u2019 money, but we made every way possible. We sold stuff to make them whole again and give them exactly what we said we would give them.\u201d And so if you are a trustworthy person and you can prove that to someone else, I think you\u2019ll have plenty of opportunities to find money to get a deal done.<\/p>\n
I think hard money and private money are great tools. As far as using it on your first flip, that comes down to your risk tolerance, your comfort to take a chance like that. We always come with a prepared investor\u2019s packet like, \u201cHere\u2019s the numbers.\u201d But like Justin said, they don\u2019t really care about that. They\u2019re investing in us and they really just want to know what\u2019s the interest and how long. Is it six months or a year? So we\u2019ve done private. We\u2019ve done hard money. Right now, I\u2019m a lender on the side as well. Private money hasn\u2019t gone up as high as regular mortgage interest rates. So I remember we\u2019re getting private money at 8% when mortgages are 3 1\/2 and private money is still around 8 to 10%. Hard money is 10 to 12% plus points.
So it\u2019s not far off from a regular mortgage right now if you can get in and get out, and it\u2019s not a heavy lift. I don\u2019t advise, if the rookie\u2019s looking to use hard money on their first deal, I don\u2019t advise something that\u2019s like, \u201cWe\u2019re going to make this into a triplex. We\u2019re going to make this into a quadplex,\u201d or something crazy, rezoning and all that, because you\u2019re at the whims of the zoning and all these other factors. Do something where it\u2019s a little more cookie cutter, a roof, HVAC, prime valve, plank floors, granite, stainless, get it done, and a three-month timeline or two-month timeline. I think if you have a more cookie cutter approach to it, then private money and hard money is a great option. If you\u2019re going to something that\u2019s, say, a full gut rehab down to the studs and changing walls and all that, you\u2019re taking on a lot more risks. So I would just caution that.<\/p>\n
One thing from Jonathan\u2019s question that I realized is the last part of his question was, \u201cDo I need bids beforehand or will a hard moneylender help me work with a GC they have history with?\u201d That might actually be a great way to find a general contractor is ask a hard moneylender as to what contractors have been on the deals that they\u2019ve done, because most likely a hard moneylender is sending out an inspector. They have record of who the contractor was, and maybe they can actually give you a recommendation as to, \u201cYes, in this market, this contractor has done a bunch of the deals that we have financed. Everything\u2019s always been great, every inspection. Payment was always on time because they\u2019ve got the work done,\u201d things like that too. So could be a way to find a contractor.<\/p>\n
Yeah, that\u2019s a really good point.<\/p>\n
Yeah, that\u2019s a good point.<\/p>\n
Maybe I\u2019ll have to do that today. So Justin and Nate, thank you so much for joining us on this week\u2019s episode. We appreciate you both taking the time to provide lots of value and also thank you so much for your service too.<\/p>\n
Thank you, Ashley and Tony. We appreciated every minute of it. This was a great opportunity and a lot of fun, and you guys do a fantastic job. So thank you.<\/p>\n
Yeah. Ashley, Tony, this was great. I\u2019m looking forward to our buddy Tom Mors listens to this because he listens to the Rookie podcast religiously. This coming to fruition after I said in 2020 when we\u2019re still sweating from the loss of money, that one day we\u2019re going to do the anatomy of a disaster on be it BiggerPockets. Thank you. Thank you for making that real.<\/p>\n
You just have to think you paid $100,000 to come on the shelf.<\/p>\n
That\u2019s right. That\u2019s right. It\u2019s all cost, guys.<\/p>\n
Great investment.<\/p>\n
Thanks for having us. It\u2019s great.<\/p>\n
Well, if you want to find out more about Justin and Nate, you can go down into the show notes below the episode in the description and reach out to them and find out more information. You can also find the social media handles for Tony and I. Thank you so much for listening to this week\u2019s episode, and we\u2019ll see you guys next time.<\/p>\n
(singing)<\/p>\n