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Every investor<\/strong> wants a rental property<\/strong><\/a> that brings in six figures<\/strong>, but not every investor is willing to scour old listings<\/strong>, bring in a partner<\/strong>, or exhaust all of their creative<\/strong> financing<\/strong><\/a> options. If you want the perfect <\/em>deal, don\u2019t let money get in the way!<\/p>\n Today, we\u2019re chatting with former Division II football coach Adam Howard<\/strong>. In just three years, Adam has bought several properties that provide enough cash flow<\/strong><\/a> to replace his W2 income<\/strong>. This includes the \u201ccrown jewel\u201d of his portfolio<\/strong> and first commercial property<\/strong>, a 13-unit hotel<\/strong> tucked away in a beautiful New York lake town. Adam found this rare deal by digging up an old Zillow listing that was incorrectly described as a single-family home<\/strong>. He was able to get seller financing<\/strong><\/a> for the deal, and today, it brings in $160,000 per year<\/strong>!<\/p>\n Of course, this success story had its fair share of hiccups. Adam shares how he had to bring in a partner to take down the deal and identify creative ways to add value to the property<\/strong> before charging his ideal nightly rate<\/strong>. He also talks about the challenges of out-of-state investing<\/strong><\/a> and why building a strong investing team<\/strong> has been the key to his success!<\/p>\n Ashley: Tony: Adam: Tony: Adam: Tony: Adam: Ashley: Adam: Ashley: Adam: Ashley: Adam: Ashley: Adam: Ashley: Tony: Adam: Tony: Adam: Tony: Ashley: Adam: Ashley: Adam: Ashley: Adam: Tony: Adam: Ashley: Adam: Ashley: Adam: Ashley: Adam: Ashley: Adam: Ashley: Adam: Ashley: Adam: Ashley: Adam: Tony: Adam: Tony: Adam: Ashley: Adam: Ashley: Adam: Ashley: Adam: Tony: Adam: Tony: Adam: Ashley: Adam: Tony: Adam: Tony: Adam: Ashley: Adam: Ashley: Adam: Tony: Ashley: Adam: Ashley: Tony: Adam: Tony: Ashley: Tony: Ashley: Adam: Ashley: Adam: Ashley: Adam: Ashley: Adam: Tony: Adam: Tony: Adam: Tony: Adam: Tony: Adam: Ashley: Adam: Ashley: Adam: Ashley: \u00a0<\/p>\n<\/div>\n https:\/\/www.youtube.com\/watch?v=yg6bVKdJQxo123<\/a>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span><\/iframe><\/p>\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 375. Today\u2019s guest is a former coach who started investing in his late 40s, and has been investing for just three years, but has already replaced his W2 income. He is a prime example of how you are one interaction away from changing your life. I\u2019m Ashley Kehr, and I\u2019m here with Tony J. Robinson.<\/p>\n
Welcome to the Real Estate Rookie Podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Today, we\u2019re here with Adam Howard, who is no stranger to doing the hard things. Like Ashley said, he\u2019s a former Division II coach, and athletic director turned sales rep who cashed in his 401k, and took a chance on himself. Now, he\u2019s also a follower of three with very, very active kids and super busy lifestyles there. He has a small portfolio in Ohio, and he just took down a value-add motel out of state. Now, he loves trying a mix of things in real estate, and recently started managing short-term rentals for others.
He\u2019s doing all of this, guys, while working a full-time job, so no excuses. First, we\u2019ll hear how just one follow-up led to his life-changing purchase from an incorrect MLS listing, and we\u2019ll get into so much more. So, welcome, Adam. How are you doing today, brother?<\/p>\n
Oh, I\u2019m fantastic. Thank you so much for having me.<\/p>\n
Super excited to dive into your story. We were chatting a little bit before we hit record about how hopefully I\u2019ll get to learn something from you today about the out-of-state motel purchases. But I think based on what we already know, I\u2019m not sure how you have time to sleep, man. So, how did you get yourself into a place to find this motel deal?<\/p>\n
It\u2019s been the latest part of my investment journey. My wife and I were looking to expand our portfolio into a more drivable market from where we live in Cleveland. We were looking two hours away lake properties. We wanted something that was not necessarily on Lake Erie, which just tends to be a little rough for boating and things like that. So, we found Lake Chautauqua, and we ended up buying a small cottage there, so got that up and running. But while I was there, I had my eye on this other property that had set on the market for a while, and they listed it on Zillow, which is obviously a residential platform, and had a pretty high price. I was always curious what that property was. I had a friend while I was working on the cottage reach out to me, and say, \u201cHey man, can you FaceTime me and my realtor? He was also interested in the area. Can you attend showing with my realtor, and FaceTime me?\u201d
Just got to talking to the realtor. I asked him about that property, \u201cHey, what\u2019s up with this property?\u201d He told me that it\u2019s been sitting for a while. It\u2019s actually a commercial property, and the owner had owned three motels. He started liquidating his assets, and this was his last asset. So, it just piqued my interest. From that meeting, I drove straight over there, and introduced myself, and the rest is history.<\/p>\n
One question I want to get clarity on, Adam, because you said the listing had been around. It was an old listing. I think for a lot of rookies, they actually look at old listings as there\u2019s a stigma. They\u2019re like, \u201cMan, well, if it\u2019s been sitting for four months, it\u2019s because something must be wrong with that, so I\u2019m not even going to look at it.\u201d So, were you at all concerned about the fact that this was an old listing, and if so, I guess, what did you see that still made you confident to buy that deal?<\/p>\n
Well, it actually just piqued my interest, because through listening to podcasts and reading, there\u2019s opportunity in sometimes the ugly places, things sit for a little while or maybe not so attractive. That\u2019s where, I think, a lot of investors see opportunity. So, that\u2019s what piqued my interest, and basically spawned the question to the realtor, \u201cWhat\u2019s up with this property?\u201d<\/p>\n
Adam, what ended up being those opportunities that you saw in this property?<\/p>\n
So, actually just pulling up to the property, it was like a trip in the past for me. My family spent nine summers in a row at a fishing camp in Canada, and this had all the same feels. You pull up and very much a fishing camp run very seasonal, had a beautiful house on the lake lakefront, but then behind that property, 13 units in two separate buildings. So, just automatically, I was like, \u201cWow, this could be an amazing opportunity to add some value.\u201d I walked up to the office, and the owner happened to be sitting in there. He said, \u201cGive me a few minutes.\u201d He was dealing with a guest, and introduced myself. We talked for a couple hours actually. I just shared my stories about my childhood.
He walked me around the property, and I ended up just taking a risk, and I made him an offer. I wasn\u2019t that liquid at the time. I was just like, \u201cHey, I\u2019m interested in buying your property, and this is what I can do.\u201d So, I just made him an offer right off the bat, and that\u2019s what really got the conversations going.<\/p>\n
We\u2019re going to take a short break here, and then I want to get into the numbers as to what was it actually listed at, and what did you come in with the offer, and then any negotiation. I want to dig into that, but we\u2019re going to take a short break, and we\u2019ll be right back with Adam.
Okay, Adam and everyone else, welcome back to the show. Adam, you walked at this property with the seller, which I think is a huge value add in itself, building that personal connection with the seller. Instead of going through an agent and having them be the middleman, you could also find out some motivation, and you also get to know a lot of interesting things about the property that an agent isn\u2019t going to know. So, let\u2019s start off with what was the listing price? When you had originally seen it online, and it was listed for a while, what was that price listed for?<\/p>\n
So, it was listed on Zillow for 1.3 million. I walked the property, and just noticed right away there was a lot more opportunity there than just a house.<\/p>\n
So, that was all that listed on there was just a single family house, and it didn\u2019t even say the 13 units?<\/p>\n
Correct.<\/p>\n
Wow. Incredible.<\/p>\n
It was only listed on Zillow, which was amazing.<\/p>\n
Who was that agent?<\/p>\n
We got to pause on that for a second, because it just goes to show that everyone else that was looking at that listing, they only saw the single family home, and they saw this price point of 1.3 million, and they just ignored it. They didn\u2019t do the due diligence there, but as you become a seasoned investor, you start to recognize like, \u201cSomething\u2019s off here.\u201d Either the realtor\u2019s crazy, or there\u2019s something bigger to this story that we\u2019re just not seeing. So, kudos to you, Adam, for I think identifying that there was a little bit more there, and pulling that thread. So, how did you negotiate this deal? You said you gave an offer right there on the spot. Were you competent as you were going through there? What was that process like?<\/p>\n
My thought process was I knew after talking with him that he was taking a lot of cash from the property. He actually has a lot of Amish fishermen come to the property, so they have a lot of cash on hand, so he was taking that cash. I knew the financials wouldn\u2019t be favorable for him in terms of bank financing. So, a normal investor goes in there, and tries to secure bank financing and disclosing the financials. I knew that he wouldn\u2019t come close to what the purchase price was, so I told him I would give him $50,000 down, and then we would negotiate from there the purchase price, and try to get it under contract.<\/p>\n
Adam, one thing I want to drill down on a little bit, you said that it would be hard to get traditional financing on this property, because so much cash was coming in and out. Can you elaborate on that, or why exactly is more cash and maybe not a lot of revenue on the books a bad thing for a seller potentially?<\/p>\n
Ashley probably knows this. I know New York state, the taxes are a little bit higher than the normal place. He had owned properties. He owned it outright, so taking cash was just easy for him, and then just reconciling all of that. He didn\u2019t really have a bookkeeper and all of those things, so they were very much a pencil-paper type operation. Knowing that the bank requires a lot more than that, I knew that there was going to be some problems going to the bank. Long story short, I did end up going to the bank. He disclosed his financials, and went to the bank just to show him, \u201cHey, this is what I can offer you on the property.\u201d He obviously came back and said, \u201cI really can\u2019t take that,\u201d and so we started really negotiating from there.<\/p>\n
So just one thing to call out for our rookies that are listening, banks want super clean books that support the purchase price of this commercial property that you\u2019re looking at. Especially as you get into the bigger commercial deals, it\u2019s like the bank\u2026 Say you want to buy a property that was maybe $10 million or $25 million. Banks usually aren\u2019t going to look at the person who\u2019s applying for that loan to cover a $25 million mortgage themselves. They\u2019ll want to make sure that the property itself can support that level of debt. So even on these smaller commercial deals, they\u2019re still looking at it the same way. It\u2019s like, \u201cHey, if we\u2019re going to loan you $1.3 million, we\u2019ll want to make sure that the property itself can support that. If it can\u2019t, then you can\u2019t get a loan.\u201d
I think that\u2019s one of the benefits of going after some of these smaller mom and pop run commercial properties is that many of them use the same cash approach, and their books aren\u2019t super clean. So, they almost have to offer seller financing because there\u2019s no other route for getting debt on that property.<\/p>\n
Okay. So, Adam, what was that number that you threw out at him, that first offer?<\/p>\n
Like I said, the first offer was, \u201cHey, let me secure this by giving you $50,000 earnest money, and we will talk about the purchase price.\u201d Because in our conversations, he agreed that he probably wasn\u2019t going to get full asking price, but wasn\u2019t willing to go much below that. So, I knew there was a range there. My main concern was just to try to get it under contract due diligence, and then secure the asset in the long run.<\/p>\n
Did you have a timeframe then where you could back out of it as to a due diligence period? I mean, that\u2019s scary, giving him $55,000 for earnest money, and not even agreeing on a purchase price yet, but what a unique strategy as to, you\u2019re right, let\u2019s just get the deal locked up and under contract, and you have your contingencies in place so that you can get it out. You can get your earnest money back. So, tell us a little bit more about that full process. He agrees to this, and what happens next?<\/p>\n
He didn\u2019t necessarily agree to that, but I wanted\u2026 I think the main purpose, Ashley, was just to let him know that I was serious and passionate about his property, and I think he appreciated that. His interest level, I think, increased once I did that. Then he started sharing more information, which was super valuable for me as the buyer. That\u2019s really what kicked the conversation to the next level.<\/p>\n
Then what was that next offer that came out? What did you guys end up negotiating?<\/p>\n
Took about two months of just going back and forth. I would visit the property, because I was working on the cottage across the lake. We were getting that up and running, so I would go and visit him. It turned into a relationship, honestly. My wife and I spent the 4th of July on their dock watching the fireworks, and developed a relationship where we enjoyed each other\u2019s company. I think he respected also the business side of it, where I would go at him with an offer, and he would come back at me, and two months later, so yeah, we settled on. He wanted a larger down payment. That\u2019s when I knew I had to bring in someone else, because I wasn\u2019t that liquid. So, my first option was to approach an investor that I\u2019m close with already that I knew he would bring some value to the table as a partner.
We went at it with a higher down payment. We ended up going at him with $50,000 earnest money, and then 250,000 down. So in all, we were in it for $300,000 down.<\/p>\n
What were the other terms of the seller financing? So, it was 300K down. What was the rate? What was the term? Was there any interest only? What were the other terms there?<\/p>\n
I wanted a period where I could show revenue. Like you were discussing early, Tony, I wanted a period where I could prove myself to the bank. So, I started talking to banks immediately, and talking to them, \u201cHow long would it take me to build confidence in this property that we could refinance the property?\u201d They said, \u201cClose to two years, showing you financials and clean books.\u201d So, I built the offer around that where I negotiated two years interest only at 6% interest, and it ended up being a balloon payment at the end. I ended up going with that bank just to build confidence, so all of our financials are run through that local bank, and developing a relationship, inviting them on the property to take a look at the property after we were able to get it up and running.
But my whole goal and my strategy behind this is just to build some confidence with this bank, knowing that I want a really strong option when it comes time to refinance. So, I was trying to mitigate my risk there a little bit.<\/p>\n
How far are you into the project now until that refinance period?<\/p>\n
We are scheduled to refinance in October of this year.<\/p>\n
How has the project been going since then? What are some of the things you\u2019ve encountered, maybe lessons learned, and where has some of the opportunity been?<\/p>\n
I could write a book about it. So many things. Once we closed on the property in October of \u201922, just finding a contractor alone was the first step of just\u2026 I was already looking for a contractor before we closed. As you know, closing a property in New York, Ashley, is not easy.<\/p>\n
It takes forever.<\/p>\n
Didn\u2019t happen as fast as I wanted it to. In the state of New York, you have to have an attorney that represents the buyer, the seller. There\u2019s a lot of people involved, an agent.<\/p>\n
So, you\u2019ve got the two agents, the two supplier, seller, attorney.<\/p>\n
Yeah, so it required a little patience on my end, but we were able to get through that, get it closed. In that process, looking for a contractor, interviewed probably 20 people, and it fell in the range of this property was not big enough for some of the big guys that have just larger projects, and then a little bit daunting for the mom and pop type operation contractor. So, I was just really struggling to find someone that wanted to work, and really lucked out just through the relationship with the owner. He had a local guy that lived nearby that worked in Buffalo all week for an investor, was a handyman for him for 15 years. This particular investor just started to liquidate some of his assets, so he was running out of work.
He had apartment buildings and single family homes in Buffalo, and he would travel up to Buffalo. It\u2019s about, I don\u2019t know, an hour and 15 minute drive to Buffalo. He would leave on Monday morning, and come back on Friday night. He would stay in one of the investor\u2019s units, super knowledgeable, but he also did some work for the owner of the motel. So, interviewed him, and he was like, \u201cYeah, I think this could be a good fit. I\u2019m running out of work here.\u201d It was just a godsend, honestly. The guy was fantastic. He agreed to let me work alongside him, and it was really eight months, about six months of just really hustling every weekend, traveling there on the weekends. He would work all weekend. The guy was phenomenal, didn\u2019t take a day off. So, very, very thankful to have found him.<\/p>\n
Adam, there\u2019s definitely different value add when it comes to commercial property compared to residential property. So, knowing you have this refinance coming up, you want your appraisal to be through the roof, what are some of the things you\u2019re doing that may be different, because it\u2019s a commercial property to really add value?<\/p>\n
Looking at the customer base, a couple of things I wanted to do. The previous owner stayed open just during the peak season, so he would close during the winter season. In this particular area, there\u2019s still attractions through the winter. There\u2019s ice fishing. There\u2019s snowmobiling. It\u2019s close to two ski resorts. So, I thought that\u2019s going to be one way that I know is going to add a ton of value to the property. The other way that\u2019s going to add value, it was owner operated, so he lived in the house. So, renting the house is going to be a huge value add, because the house itself sits on lakefront. The other thing that I looked at was there\u2019s 30 boat slips on the property, and he\u2019s actually a licensed MARINA.
In the state of New York, in order for you to do boat rental, you have to be a licensed MARINA. We\u2019re not a full functioning MARINA, but we do have our license. So<\/p>\n
Was that even on the listing, either that there was 30 boat slips? I mean, that is a huge value add right there.<\/p>\n
Absolutely. No, it wasn\u2019t.<\/p>\n
Wow.<\/p>\n
I mean, I think there was a picture of the\u2026 The pictures weren\u2019t great, and it didn\u2019t fully display the value of the property on the listing. So, those are some of the things that I was just thinking of how I can add value to this. Then also looking at who would visit the property, and a lot of conversations with the previous owner, mostly fishermen. Bimus Point, New York is a hotspot. There\u2019s other things to do. There\u2019s a golf course right across the street. There\u2019s bars and restaurants that are on the lake. There\u2019s a wine bar down the street. It\u2019s like the quintessential lake town. So, I knew that there was opportunity to attract a different guest to the property. That there laid out my thoughts around design.
I had to both appease the fishermen, because I didn\u2019t want to lose my client base. I also had to figure it out from a perspective that, \u201cHey, this might be a place where the fishermen would bring their wives too, and maybe some people that just wanted to enjoy the area.\u201d That\u2019s where we came up with our design ideas.<\/p>\n
Adam, I want to touch a little bit more on the design and how you manage this renovation, but first, if you can, maybe put a bow in this for us. What kind of revenue increases have you been able to see since you actually launched this property?<\/p>\n
After we were able to renovate the units, adding AC was a big value add to the units. Revenue increases were\u2026 The average daily rate, I think, was around 70, 80 bucks a night, what he was getting before. There\u2019s eight kitchenettes on the property, so those units right now rent for $189 a night, and the ones without the kitchenettes rent for 149 a night.<\/p>\n
Wow.<\/p>\n
So, we were able to raise the ADR quite a bit there, and we were also able to keep most of our previous customers. We were able to send out a letter, and just\u2026 I think once they were on the property, they were blown away by some of the things and were a little more acceptant of the raise and the price.<\/p>\n
Are you doing this full year then? You\u2019re not just doing seasonal. So, what are some of the winter attractions that you\u2019re hitting to?<\/p>\n
So yeah, unfortunately it hasn\u2019t snowed that much in that area in the last couple of years, but we\u2019ve had people that are interested in skiing in the area. Holiday Valley ski resort\u2019s close by. Peak and Peak is close by. When the lake freezes over, we have ice fishermen and just people that just want to stay in the area. We were fortunate that a main attraction hotel in Bemus Point, an older hotel, closed down. So, that was one of the main spots that for people looking to come to Bemus Point to stay now, so that definitely helped too.<\/p>\n
Is that that yellow one?<\/p>\n
Yeah.<\/p>\n
The big yellow one. I know what you\u2019re talking about.<\/p>\n
The Lenhart has been closed for a couple years, and I think a buyer backed out last year. It\u2019s a big project. It\u2019s a beautiful historic hotel right on the water, and a lot of people, they have a lot of memories around that hotel, coming there for 30 years. I was able to attract some of those guests over to my place, so it definitely helped out. Tony, would you like to see the bigger picture in terms of revenue too?<\/p>\n
Yeah, I think overall revenue would be great to see as well. I mean, a 2 to 2.5X increase in ADR is phenomenal by itself. But I guess on a year, what is revenue looking like now, and in a [inaudible 00:19:04], if you know that number?<\/p>\n
We had a stretch goal for our gross income was like 200K. I think it was 225 actually. My partner and I came up with goals, and our stretch goal year one, it was around 225. We ended up doing 310 gross.<\/p>\n
Congratulations, man.<\/p>\n
Thank you. Thank you. It was a grind. My wife and I managed the property too, so that helps keep the expenses down, but it was all about just trying to really take a look at the expenses. My partner\u2019s great at looking at the books and helping with that part of it, and then just adding some amenities to the property, but our NOI without the management fee was 110. But if you consider that we operate, the property is 160.<\/p>\n
Adam, we\u2019re going to take a short break here. This is incredible. I\u2019m super intrigued about this investment, and honestly upset that I did not get to steal myself, because I do love Chautauqua Lake. I want to talk about\u2026 You mentioned your partner does the bookkeeping, and you\u2019re doing the management. When we come back from the break, I want to talk about what that structure is, and how it\u2019s set up for your partnership.
Okay, we are back with Adam, who has been telling us about this gem that he found that was wrongly listed on the MLS, and actually had a surprise 30 boat slips, and surprise 30 units on the property and not just a single family home that was also lakefront. So, Adam, what are some of the reasons that you decided to take on a partner for this deal? Tell us how you negotiated that structure.<\/p>\n
The main reason, as I explained earlier, was that I needed a little more help based on what the seller\u2019s demand was. So, I couldn\u2019t go in with that large of a down payment. I probably could have liquidated some of my other properties, probably could have done it that way. I would\u2019ve taken probably too much time, and I was afraid I would lose the deal. So, I decided to partner up. It\u2019s been a really great partnership. I think our strengths offset one another. He\u2019s a CFO. He\u2019s great with numbers. I grew up in construction. My dad was a carpenter, so I had that knowledge. then the management piece was really good, because he didn\u2019t have interest in the management part. He said, \u201cHey, you go at it with your expertise.\u201d He trusts me to make daily decisions about the property. He reconciles the books, so we have a good thing going in terms of the partnership.<\/p>\n
Adam, you mentioned so many good things about partnership. Obviously for those that are listening, if you haven\u2019t heard yet, Ashley Kehr and I co-authored a book called Real Estate Partnerships. You can pick that up at biggerpockets.com\/partnerships. But Adam, one of the things you said, or a couple of things you said, you used the word trust. You used the word balance. You used the word compliment. Those are the things you want to look for when you\u2019re talking about finding a potential partner. Just because you and someone like to go to the bar and have a drink together or watch the game, whatever it may be, doesn\u2019t necessarily mean the two of you would be good business partners. So, you really want to look for the person that\u2019s going to compliment your skillset, that\u2019s going to compliment your resource, that\u2019s going to compliment you as an investor to make sure that the partnership itself comes to be whole, I guess.
So, I guess maybe looking back, Adam, now that you guys have had this project for a little while, is there anything you would\u2019ve done differently from a partnership structure perspective or maybe expectations upfront, but maybe just advice to someone who\u2019s trying to get into a partnership for the first time?<\/p>\n
We actually amended the agreement. When we first agreed upon what the structure would look like, we didn\u2019t know what a management fee for the size of a property would look like. So, after doing some research, and just the way we structured it just didn\u2019t work. The agreement originally was for me to take a certain amount of money per month from the management fee perspective instead of a percentage. That wasn\u2019t really working out, because it was just so inconsistent at the beginning, and getting the property up and running. So, we looked at it and said, \u201cThis isn\u2019t going to work for the future, so let\u2019s amend this and say, \u201cHey, the management fee is going to be 18%.\u201d So from an equity standpoint, we\u2019re 50-50 partners.
The other parts of the agreement, everything else worked out from a tax perspective, is a great value for him, because he\u2019s a high income earner, and it helped him with his taxes, also helped me quite a bit. So, there\u2019s a huge value there for him. Like I said, I think just the biggest value is that we recognize one another\u2019s strengths that he could\u2026 30 minutes probably a month, it takes him to reconcile things, and then we would share ideas financially, because he has a really sound mind financially. Then I would just be in the day-to-day operations.<\/p>\n
I want to understand, Adam, how you\u2019re balancing this big of a project with your day job and your busy family life. But before we do, just one comment on the structure piece. It\u2019s taken us a while to really identify the right structures for different type of property types as well. How we structured our first commercial deal is slightly different than how we\u2019ve done the majority of our single family homes as well. So, we have one entity that owns the actual real estate itself, so whatever, 123 Main Street motel, and then I own a percentage of that. My partners own a percentage of that. Then we have a separate entity, which I just own, which does the actual management or will do the management for the property. So, very similar.
I have an equity piece, but then I also get a management fee for doing the day-to-day management of the property as well. So, for our rookies that are listening, don\u2019t be afraid to separate those two things if the project is big enough. Adam, a million-dollar question here, right, because I know we get a lot of rookies who are listening that say, \u201cI\u2019ve got a spouse. I\u2019ve got kids. I\u2019ve got this. I got that. I don\u2019t have time to be a real estate investor.\u201d How the heck are you doing it?<\/p>\n
Honestly, I think I\u2019ve been leveraging it from my previous life as a football coach, being an athletic director. Those are really, really time intense professions. When you\u2019re young, and you\u2019re thinking about what you\u2019re going to do, you don\u2019t think about having a family. How does that fit in when you don\u2019t have a family? So, things change as you get older, but I think that built up my capacity to handle more down the road. So all in all, what I\u2019m doing now still doesn\u2019t compare to the amount of time that I spent as a college football coach. I\u2019m almost ashamed to say that, because it grind me up a little bit. Very passionate about it, but, like I said, I think it built up my capacity to handle a little bit more, stay organized. I\u2019m not going to lie, it\u2019s hard at times.
It\u2019s not easy, but I think that my ability to manage it, that\u2019s one of the advantages I have. Being 49 years old over time, I was able to build up some skills and some techniques to be able to handle my time, and be more efficient with my time. I think a couple more things to add to this would be there\u2019s probably a lot of listeners out there that can share a similar scenario, three kids, busy lifestyle, both parents working, trying to launch a real estate business, and all the chaos that ensues. I think it\u2019s super important, and I think we talk about this as a family a lot, to have your priorities in line, just have a true north. We do try to keep God at the center of our lives, and everything else flows from there, but it\u2019s also equally important to say no to the things that misaligned with what your priorities are.
That\u2019s sometimes harder than just saying yes to the things that align with your priorities. So, I think that\u2019s important, just keeping things simple, and then also just can\u2019t do it alone. Being in sports for a long time make you realize that a lot of great things can be accomplished through employing a team, involving people around you. So if you\u2019re listening, and you probably can do a lot. You\u2019re on this podcast. You\u2019re learning and you\u2019re growing, but man, you\u2019re only as good as the team around you. My wife is amazing. She has a great eye for design. She has a heart for hospitality, so she\u2019s an amazing team member.
Obviously, I wouldn\u2019t be able to pull it off this latest acquisition without my business partner, Brian, and his financial expertise, super important there. Then just lastly, I just don\u2019t want to be one of those people that gets stuck in seeking comfort all the time, and then at the end of my life saying, \u201cI wish I would\u2019ve done more.\u201d So, I think with the world changing around us all the time, the market\u2019s changing. Interest rates change. Things change as an investor all the time. I think you have to be willing to adapt and grow, and have a growth mindset all the time. Don\u2019t be afraid to ask that seller for seller financing, or getting told no from time to time, and maybe seek a little bit of discomfort, because on the other side of that, there\u2019s going to be a lot of growth.
I think that\u2019s in a nutshell how we manage all the chaos around us right now. I think one tip, Tony, that we do as a family, every Tuesday night, we get together. Some people might call it cheesy or whatever, but we literally\u2026 We sit down, no distractions. We have a cadence to our meeting with all the kids. We discuss things like what our priorities are. We discuss our calendar for the week, so we know where everyone is going so that\u2026 We have a very busy family, but we just carve out 30 minutes. It\u2019s at 8:15 every Tuesday night. Every kid has to have their room cleaned before the meeting. Then we have a cadence to that meeting just discussing what our priorities are. It gives the kids a chance to have a voice too, so everybody in the family feels like, \u201cHey, they\u2019re a part of this whole thing.\u201d
So, we really haven\u2019t strayed from that in the last couple of years, and stayed consistent, and that\u2019s helped as well.<\/p>\n
Adam, to wrap this up, what are some of the lessons that you have learned through the course of doing this commercial deal?<\/p>\n
I\u2019ve learned a lot. I mean, I\u2019ve made some mistakes, some little mistakes that turned into big things. Like for example, we ended up getting the wrong door lock that didn\u2019t integrate with our software. We put all these door locks on, and then all summer long, we\u2019re sending an email manually to all of our guests with their door code. So, it\u2019s like, \u201cOh man, we\u2019ve got to figure that out.\u201d It\u2019s part of my job getting more efficient this year. We had some unforeseen things happen, and you\u2019re always going to have that. It was jumping through the hoops with the health department, things like that. We had to put a new water system in. Everything on the property is on a well, so we had to put a chlorinator in, and test the water every day, so just figuring all that out.<\/p>\n
Adam, did you get a water certified, or do you have someone on site to get water certified?<\/p>\n
Yeah, so they came on the property, taught us how to do that. My cleaner and my maintenance person helps out with that, and keep record of that.<\/p>\n
For us, non-New Yorkers, what is water certified?<\/p>\n
I think this is common with most commercial properties across the U.S. that have a well, where you have to do daily testing of the water, and you have to treat the water for the well. You have a pump house, a well house, and you can actually go and get certified. Daryl has gone to get his certification so that if we got a campground or a mobile home park, then it was on the well. If it has so many units on it, then you have to go and have somebody have the certification, and then they\u2019ll keep your logs. Then the inspectors will come in from\u2026 Is it the health department, right, that sends the inspectors?<\/p>\n
Health Department.<\/p>\n
Come in and just inspect every once in a while.<\/p>\n
That\u2019s why I try and stay on CityWater. We have one property that\u2019s on well, one of our cabins in the mountains in Tennessee, every year, it gives us trouble. Every single year, it gives us troubles. It\u2019s a shared well, which is even worse. The house, it used to be on one parcel. There were three properties on one parcel, so there was only one well, for all three properties. The owner subdivided the land, still only kept one well. So, we have to coordinate with our neighbors. It\u2019s a mess. Anyway, I can rant forever, but not the purpose of this podcast.<\/p>\n
You got to get water certified, Tony.<\/p>\n
I got to get water certified.<\/p>\n
No, I\u2019ll find Daryl\u2019s textbook. He probably still has it. I\u2019ll gift it to you for your birthday, Tony.<\/p>\n
[inaudible 00:30:46]. Please. Please.<\/p>\n
Adam, you mentioned you have a cleaner and your maintenance person. What other staff do you have on this property to maintain it since you do live out of state?<\/p>\n
Really, that\u2019s it. Well, I mean, I do have two, a main contractor that would do some of the bigger lift projects, and then I inherited the maintenance man that was there before. We have several cleaners. We actually\u2026 Just yesterday, we had one of our cleaners dropped off, so we\u2019re in the process of interviewing new cleaners for the property. But year two, going into year two is just building out your standard operating procedures and expectations, and communicating to them. That\u2019s been a big lift, and a stress just running the property from two hours away, but it is possible. This year, our goal is to be more efficient with our systems, so I don\u2019t have to be so much in the business and as active as I was last year, but there\u2019s value to that. I learned a ton. So, it was good.<\/p>\n
There\u2019s one last question I want to ask you. You had mentioned beforehand that you used money from your 401K. Can you talk about that process, and how somebody else getting started in real estate could take advantage of their 401k too?<\/p>\n
Sure. 18 years in college football working at small private colleges didn\u2019t offer much in the way of retirement. So, it was one of those things where I was looking at that over COVID when I had all this time, right? I\u2019m like, \u201cMan, I\u2019m never going to be able to retire, I guess.\u201d So, learning about real estate, I was looking at that little bit of money I had in retirement. I said, \u201cYou know what? I\u2019m just going to take a risk, and I\u2019m going to pay the penalty, pay the taxes, and put this money to work.\u201d It wasn\u2019t really earning that much year to year for me. It wasn\u2019t working for me the way I needed it to.<\/p>\n
What\u2019s the penalty, 10%, correct, to pull it out?<\/p>\n
Yeah. I believe it was 10%. I forget the exact number, but I think it was. It might\u2019ve been 15.<\/p>\n
Okay.<\/p>\n
But all in all, it allowed me to buy my first long-term rental about a duplex with it, had buyer\u2019s remorse right away, called the realtor and said, \u201cMan, I don\u2019t want to do this,\u201d but he assured me like, \u201cChill out. You did fine.\u201d<\/p>\n
You\u2019re making the right move, right?<\/p>\n
Yeah.<\/p>\n
It takes courage to do that, right, to be able to not reject, but to deviate from that normal path of wealth building, which is the 401k for the majority of Americans. Kudos to you for having that courage, Adam. Last question for me, and this is again me asking selfishly as we start to wrap up the rehab on our first motel project, you said that your goal was to do keyless, self check-in.<\/p>\n
Sure.<\/p>\n
That\u2019s our goal as well. Have you been able to successfully do that, or do you find the need that there are a lot of guests who still want that kind of person to person touch?<\/p>\n
No, we have. We ran the property, last year, all keyless check-in. We did have some problems with the locks, so we get some phone calls, and we figured out solutions for the problem. I wish I would\u2019ve thought of some of these problems before. But with the keyless check-in, this year, we\u2019re going to just for a backup, put the actual key in a lockbox outside each door so that running the property from two hours away, I can always pivot and say, \u201cHey, here\u2019s the code to the actual key so that you can get in.\u201d Instead of having my cleaners come on site, go to the service garage, get the key, unlock it. Sometimes that just took too long, but we were able to do it. It worked out great. We had some issues along the way with some of the door locks when they get cold. So, you got to do your research about what type of lock you buy and things like that, and the climate you\u2019re in.<\/p>\n
But overall, it seems like a successful test to say like, \u201cHey, this is a commercial property, but we\u2019re not going to have anyone checking people in.\u201d That\u2019s what I needed to hear, just to give me some reassurance that I\u2019m not crazy for thinking it\u2019s possible. So, thank you for leading the way there, Adam.<\/p>\n
Of course.<\/p>\n
Adam, could you leave us with some inspirational tips and benefits as to why someone listening should get started in real estate today? What are the benefits that you have seen personally from real estate investing?<\/p>\n
The benefits, honestly, is just having a peace of mind now. I love my W2 job right now, so there\u2019s no reason for me to leave my W2, but having the peace of mind knowing that I could is a nice thing to have. I would just tell any of your listeners that it\u2019s never really too late. It\u2019s one of those things, where your career, if you\u2019re sitting in a career that\u2026 I was in athletics for 25 years, and decided to pivot from that. Don\u2019t be afraid of that change, and don\u2019t believe the lies that you tell yourself that create all that fear and all that hesitation. Build a team around yourself, and dive in and learn, and don\u2019t be afraid to take a chance on it.
One of the huge benefits, I think, was it\u2019s a lifestyle asset for my family. It took us eight months to get there, nine months to get there where we actually were able to go and enjoy the property, but my kids just have an absolute blast there. My son, well, really, all three of our kids took up fishing, and just love to go out there, and fish. My two boys haven\u2019t expressed a high interest in learning about real estate. My 14-year old\u2019s talking about, \u201cHey, I can get a house, and have my friends pay for it.\u201d I\u2019m like, \u201cYeah, you can.\u201d So, sometimes I think kids learn more by watching you, so hopefully they\u2019re picking up some tips along the way. That\u2019s been a huge thing, and that\u2019s really something that my wife and I really value, that they\u2019re getting a lot more out of this than just the financial part of it.<\/p>\n
Well, Adam, thank you so much for coming on and sharing your journey and your story, and congratulations on this amazing commercial deal. I actually can\u2019t wait to get the contact info, so I can book a reservation there, and bring the boat, and come hang out.<\/p>\n
Absolutely.<\/p>\n
I\u2019m Ashley, and he\u2019s Tony. Thank you so much for joining us this week. If you want to learn more about Adam, we will link his information in the show notes. You can also find out where you can find Tony and I on social media. We\u2019ll see you guys next time.
(Singing)<\/p>\n