BiggerPockets Real Estate Podcast - 14: Cash Flow, Creative Finance, and Life with Ben Leybovich

Episode Date: April 18, 2013

Creativity and real estate go together like peanut butter and jelly – but for many investors, learning how to get creative can be tough. So today, on the 14th episode of the BiggerPockets Podcast, we sit down with real estate investor Ben Leybovich to discuss buying property with 100% financing, the importance of cash flow (and how to get it,) overcoming obstacles that inevitable will rise, plus a whole lot more. Ben’s inspirational story, involving his battle with multiple sclerosis, will teach you the importance of creating passive income through real estate because you never know what the future will hold. Learn how Ben turned this tragic, life-changing news into motivation to create a successful real estate investing business. You’ll definitely want to take notes during this one! In This Show, We Cover: The shocking medical event that completely changed Ben’s life The three kinds of income … and which you need How Ben chose his real estate investing strategy The message about “flipping” that seems to escape most How to get started with no money at all Ben’s top tips for landlords A reasonable benchmark for cashflow… how much per unit per month. Why 100% of the purchase price isn’t 100% of the leverage/equity. Links from the Show Considering a House Flip With 15k Profit? Don’t Do It “It’s Not My Fault They Keep Trashing My Unit” – Actually It Is… The BiggerPockets Forums The National MS Society – Donate Multiple Sclerosis Association of America – Donate Books Mentioned in the Show: How I Turned $1,000 into Five Million in Real Estate in My Spare Time by William Nickerson ABC’s of Real Estate Investing by Ken McElroy’s Tweetable Topics Successful people march toward the blazing guns. (Tweet This!) Find fertile ground where the stampede hasn’t occurred yet. (Tweet This!) I’m in real estate for one reason and one reason only: stable passive income. (Tweet This!) Get good at solving people’s problems – you’ll do well in life.(Tweet This!) Successful people refuse to fail. (Tweet This!) To achieve extraordinary results we have to take extraordinary actions. (Tweet This!) Learn More about Ben Ben’s Blog – JustAskBenWhy.com Ben’s BiggerPockets Profile Ben’s LinkedIn Profile Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, everybody, you're listening to the Bigger Pockets podcast, show 14. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the height, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. Hey, everyone. Welcome to the show. This is Josh Dorkin, your host.

I'm here as always with that little gnat that won't leave me alone, Brandon Turner. I've never been called a gnat in my life. I'm six foot five. I thought you were like six foot 12. Otherwise known as gigantic. Not quite. Though I did play the mayor of the munchkins in my high school senior year musical. So at six foot five. I was six five in my senior year and I was the mayor of the munchkins. Let's hear that munchkin voice man. Come on. All right, you want to hear my line? This was my line. As mayor of the Munchkin City.

That was my line. In the county of the land of Oz. Give Brandon a round of applause. All right, enough of that. Well, it's good to have you, Brandon, today. Today we've got a pretty... Thank you. Keep it real, man.

Come on. This is a serious podcast. Very serious. Yes. Listen. Let's jump into our quick tip. Yeah, our quick tip. I'm losing it here.

Let's jump into our quick tip for the day. All right, guys, when you're on bigger pockets or any other social network, but really, bigger pockets, don't just read, you know, you've got to interact. When you read a forum thread, a discussion, a blog, an article, add your thoughts or add questions. You know, reading blog posts, let the blogger know that you agree, disagree, just share something. Bigger Pockets is all about having conversations, so jump in and be a part of it. And by doing that, people are going to get to know you. You're going to get to grow your network and you will grow your knowledge as well by getting into these conversations. So we

definitely recommend it. But that's just a quick tip. We've got a big all show today, full of amazing, amazing tips. And let's get into it. Let's get into. to that. Let's bring our guest out. Today, we're talking to a guy, Ben Leibovic. Ben is an investor in Ohio who's got a fascinating story that you guys are really, really going to want to listen to. He's an incredible guy. He's very active on Bigger Pockets, both on the forums and on the Bigger Pockets blog. He is also a writer on his own website, Just Ask Ben Why.com. So with that, please, please, you know, get ready, get your pens out and get ready to, you know, learn a couple things and also to be inspired because Ben's story is really an inspiring one.

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bonus. Base lane is a financial technology company and not a bank. Banking services provided by Threadbank, member FDIC. Here's the thing about traveling. If you buy food at the airport, a burrito, salad, bag of peanuts, you start wondering if you should have opened a savings account for snacks. So wouldn't it be great if you could actually earn money while you're traveling.

Well, you can. Airbnb has something called the co-host network. While you're away, you can hire a vetted local co-host with hosting experience to help take care of things, communicating with guests, preparing your space, managing reservations, everything runs smoothly while you're off making memories. Your home might be worth more than you think. Find out how much at Airbnb.com slash host. So, Ben, welcome to the show, man.

How's it going? I am well. Thank you for having me, guys. It's a pleasure to be with you. Thank you, Ben. I am really looking forward to today's show because I really like your writing style. I'm a big fan of yours on the blog. So this is going to be a good show. And he's a funny guy at that as well, isn't he? He is.

He is. All right, man. Well, let's get into Ben a little bit here. Ben, what's your story, man? You know, you're a real estate investor. You've got a background in teaching. You know, tell us how it all kind of came together. How did you get into real estate? Well, this might take a minute to interrupt me if you have to. I was born in Russia when it was still Soviet Union. Now, the two of you babies aren't old enough to remember those days, but some of the people listening will properly remember. Do we want a Soviet on the show? Do we really want this guy?

Oh, my goodness. I was too young. Josh is old. A lot of American, please, people. With an accident. Okay. Accent. I share a birthday with the infamous Mihail Gorbachev, the guy responsible for Peerestroika,

the famous adversary to America back in those days. He was also the guy who helped destroy the Soviet Union, so we're a big fan of his. That was the hit, hint, kind of thing. I was actually trained violinist. I started playing when I was five. When I was three, my grandfather, who is no longer here, gave my parents a book about a famous Russian violinist named David Oistra. And he wrote inside the cover to my grandson, Ben, the future violinist. Nice.

So my fate was sealed. Then I had no other options, as far as I was concerned. everybody in the family knew I was going to be a violinist. I started studying at the age of five. We arrived to America in 1989. We watched the parliament being shelled from the tanks in the red square on TV the winter of when we came in 1989. It was a very surreal kind of experience. I was a 13-year-old, so I wasn't really able to put much of that together at that point. My parents certainly was very surreal to see that. I finished high school, and I attended the University of Cincinnati, College Conservatory of Music, on a full ride. And, you know, the undergrad wasn't, you know, anything out of ordinary. Everything went according to plan. In the first year of my master degree program, things happened, though, that caused me to re-evaluate everything and eventually led me to really.

estate. Okay. So what? Oh, apologies. Apologies. Well, I was just going to take you right into what happened. If it, again, if it gets dragged out, just interrupt me and fix me. But it's important, I think, for people to hear this because I think a lot of people will be able to relate to a certain extent. and it's got everything to do with why I do what I do and why I am who I am. I was sitting on the soulful one evening watching TV and I felt a funny sensation in my legs. I can describe it as something between like a tickle and a kind of a buzz feeling. Well, it came, it went. A couple of days later it came back and then it was accompanied with some vertigo and some kind of loss of coordination in my right arm.

By then I was obviously pretty freaked out. I knew something was wrong. I drove to the hospital as quick as I could. I got there. And I can tell you, I remember laying in the bed. They had done the MRIs a couple of days earlier. When this first happened, I saw a doctor. They did the MRIs.

And I was supposed to see him back in a few days. And of course, I didn't make it. I made it to the hospital instead. And he was approaching me and he had those MRI images that I hadn't had the chance to discuss with my doctor yet. He ordered those. And I'll never forget that look. He kind of looked up from looking at the MRIs. He looked up at me and he said, I don't want you to panic.

But the images here are consistent with multiple sclerosis. I didn't know what multiple sclerosis was. He explained it to me the way I'm going to explain it to you now. If you think of electrical wiring, there's a copper wire on the inside and then the plastic tubing on the outside. That's what protects the wire. If it gets damaged or cracked or whatever, then the electrical signal, you know, we have all kinds of problems. We have sparking and everything else. Well, in the human physiology, the nervous system is much the same way.

The nerves are covered with a protective sheet. It's kind of a fatty tissue called male eating. And if that gets damaged, then the signals coming from the brain through the nerves to your body get interrupted, basically. And so the sensations that I was feeling, which included things like by the time I got to the hospital, the right side of my face was numb. My arm, I lost considerable coordination in my right arm. my tongue, and this is a little graphic, but it was twisting and turning inside my mouth uncontrollably. I couldn't control it.

Wow. It was like having a snake in your mouth. You know, it's a weird feeling. You don't forget it. You don't forget any of it. This is why I don't drink because I hate to lose control of my body. It just takes me back to that time and those feelings, you know, not having coordination. This is why, you know, this is why.

But, you know, he explained to me, he said, we don't really understand MS all that much. It takes very quick path in some people and others are able to have productive lives for a long time. It's an autoimmune disease whereby your immune system attacks itself. So what happens is my immune system attacks that maelene, that protective sheathing, again, you know, on my nerves, and it damages it. And every time it's damaged, that's why I was feeling those sensations, the buzzing and the tickling and the numbing and all that stuff. That's exactly why that was going on.

Well, when the damage is extensive enough, you start losing control of your body. Yeah. And it's just a question of how long does it take? Does it take two years? Does it take 15? Does it take 30 years? you know, me being a violinist, I'm hyper sensitive to fine motor skill. A lot of people out there have a mess and they don't even know it.

If it's not a very exacerbated version of a mess, then there's a lot of people out there who don't even know it. You know, in my case, you know, some people are not so good with fine motor with their fingers, you know, holding little bitty things with their fingers and things like that. Arguably, a lot of them have a mess and they just don't know. know it. Okay? And it just kind of sleeps, dormant. But once, let's remember, I am a violinist. Yeah. I need my arms to work in order to make money, in order to make a living, in order to be who I was. I've been playing violin since the age of five. It's who I wasn't, what I was, I didn't know anything else, I didn't want to know anything else. So that was kind of a bombshell.

So I was scared for two reasons. One, obviously my health. And two, I didn't know what to do next because it eventually sunk in that I can't be a violinist, which is the only thing I've ever wanted out of life is to be a violinist. And, you know, it took me a couple of months, six months or something, to kind of put pieces together. and begin to think rationally. But eventually, I did start to think rationally. The problem I was trying to solve in my life, fundamentally, was income.

Because if I can't play music to make money, then I have to have another way of making money. So I started to do research. My research led me to realization of several very important things that I think everybody need to know. According to the IRS and for our practical purposes, there are three types of income, earned passive and portfolio. Earned income is where we trade time and skill for income. It's W2-1099 income. Well, that was a non-starter because that's the whole thing I was trying to avoid. I wasn't sure how long my body would work for.

I was hoping for the best. I was hoping it was going to be 20 years, 30 years, 40 years, but I didn't know how long. So I certainly didn't want to put my financial well-being on the bandwagon whereby I have to show up, punch the clock, and trade dollars for hours. I just didn't know how long I had. So being that I had an open slate in front of me and I could make any choice I wanted to, I certainly didn't want to make that choice. Well, that left passive in portfolio, which belonged to the world of investing. So I researched those. Portfolio income is basically a paper asset income.

And the problem with it, I discovered two problems, really. One, there are very precious few opportunities to make income. Portfolio investing is basically equity investing, okay, unless you trade, which is a whole other conversation. But it's basically equity investing. I didn't need equity. I didn't care about equity. I still don't care very much about equity.

I cared about income. And so that was a problem. The other problem was is that leverage, there's no leverage in paper assets. In order to have $50,000 a year, at 5% dividend, you need a million dollar investment base, and you can't leverage it. You have to actually pay a million dollars for it. I didn't have it, obviously, you know, trying to graduate from college being a musician who can't play. Really, it's funny.

but it wasn't at the time. Sure. You know, I didn't have it. So what were my options then? My options were passive, passive cash flow, and that's business and investing. And, you know, I'm a smart guy, but, you know, most businesses fail in the first five years. And I just didn't want to take those chances while real estate has been making fortunes big and small for as long as there's been dirt.

So that's how I arrived at. real estate. That's when I understood the one way or the other, real estate was going to have to play a role in how my financial future was going to shape up. Wow.

Well, that's an incredible story, man, and I've got about a million questions to ask you. And if this were the Oprah Winfrey show, I think we'd go on and on. We'd cry together and And I'm sure people are fascinated and we'll reach out to you. But certainly we're here to talk about the real estate a little bit.

So I think we should just jump right into that. And anyone who thinks I'm being a jerk for jumping into real estate, it's Brandon's fault. But first off, I mean, we really are really glad to have you here. And I mean, the story is pretty amazing, man. And, you know, it's, you know, we all, we really do wish the best to you and your family. And we know how hard the journey probably is and will be. And, you know, just up front, I do want to say that. You know, we really, you know, we're here for you.

We're here for you. You know, the thing of it is, is successful people march toward the blazing guns. That's just a fact of what success is all about. And, you know, there are good days, and there are days where I have to play head games with myself. You know, you feel a tickle here or there and you ask yourself, what just happened. You know, is everything cool, you know? But everything is cool. You move on.

We're resilient human beings, you know. It's a fact of life. And I consider myself to be very lucky because it could have been a lot worse. And I'm able to be productive. I'm able to have a family, two kids. kid, beautiful wife, and it's wonderful. Yeah, for sure, for sure. All right, man, well, then how did you decide which strategies you were going to focus on with

your real estate investing? You know, you talk about income, so, you know, how did that decision come to be? Okay, well, I am a buy-at-hold guy. I have specific criteria for what I do and how I do it, but ultimately, I am a buy-and-hold guy and I prefer multifamily. I don't typically do flipping. I don't do wholesaling and all the rest of it. And only in some specific cases,

I'll tell you that if it makes sense with respect to if I have so many write-offs that I won't pay any income tax on a flip, then I might consider doing a flip or something like that in combination of strategies. But by and large, I'm not interested in doing those things. Here's why. Yeah, I was going to say, why don't you? Here's why.

Because the three reasons. both flipping and wholesaling is really hard work. I don't think people understand this. I've done enough of it to know it's really hard. Anybody can get lucky here and there, but to be consistent, it's really hard work. Anyone who tells you otherwise are just lying to you.

Come on, Ben. It's really easy, man. It's really hard work. But apparently this message has escaped most newbies because everybody and their mother, father and uncles seem to be doing flipping and wholesaling, which brings me to the second reason I don't do it. I believe that I can find fertile ground where Stampede hasn't been yet.

So while all these guys want to take each other's heads off over there trying to compete for the same REOs, I go in a different direction. I zag when they zig. Nice. I think it makes sense to me. But fundamentally, you mentioned income. I'm in real estate for one reason, one reason. only stable, passive cash flow. That's it. My medical condition demands that this is what I do.

I don't want to build a business around something that I'll have to be present each moment. You know, you cannot do flipping and not be there. You just can't, I've done it. You can't do it. I don't care who says what. If you're going to do it right, you're going to have, it's a job and I don't need a job. There you go. There you go. That's awesome. That's great. Definitely, definitely. All right, so you get started and you decide, hey, multifamily, was that your first deal? Or why don't you tell us kind of how you got started? That's funny. I'm laughing because my first deal was a flip. And I just said, I don't do flip.

No flipping. It was a simultaneous closing. Just like you discussed with Sharon a couple of weeks back. What happened was I got out a little house under contract. I think I got on the contract for 32 grand. I figured it was an $80,000 to $90,000 house. It was gutted pretty much, but had a lot of things in it. So it was a remodel.

Somebody started, ran out of money and wasn't able to complete. So like the kitchen cabinets were sitting right there in the kitchen. All I had to do was put them up. So was the kitchen countertop. Okay. So I kind of figured that's easy, a $30,000 flip, right? Well, I had a line of credit established. That's one of the first things I'd do.

did, I put a line of credit against my primary residence in order to get into real estate because I didn't have any cash. So I used all my cash as a down payment for my personal residence because I didn't know anything better back then, right? So it was enough to either buy a house or to rehab the house, but wasn't enough to do both. So what I did was I approached a friend of mine who was a highly paid professional. And I said, look, if you buy this house, I'll give you. your note and a mortgage for whatever, four months or six months, whatever we did, I'll give

you 15% when I flip this thing. And I'll remodel it and use my equity to do it. Well, imagine my surprise when he offered me some money that was 20 grand to just walk away. He said, I want a rental, I want another rental. This is perfect. I can remodel it. I'll hold it forever more as a rental. Well, you know, you don't say no to 20 grand in a space of two weeks. So I went ahead and did that, walked out of closing. I bought it in one room, sold it in the other room, did one of those simultaneous closings that you can only do with an investor because you can't do this with financing or anything like that. And that was the first deal. And it was the easiest deal I have ever done by far.

And I tell you, the money was gone because there were student loans involved and all the rest of it. So as soon as the money came in, it was gone. The cars would paid off, the student loans were paid off, and then I started from scratch again. Nice. Wow. Yeah, so that definitely leads us into something that I want to talk more about is creative finance, because anybody who reads your stuff on the blog knows that you

are the creative finance guy. You're always talking about no money down or trying to buy something with nothing. Definitely that first deal you got a little bit creative with, and you were already kind of hinting at that. So why don't you tell us a little bit more about creative financing? Like, what is, let's go basic, what is creative finance? Okay, if Josh Dorkin was going to post a bulletin on the homepage of BiggerPockets.com, asking people to vote, what is the biggest problem in real estate investing for real estate investors?

I think he would find a consensus that access to capital is by far the biggest problem, whether it's purchase capital, down payment capital, rehab capital, whatever. Of course. Access to capital. If we had more money, we could always do more, go faster, bigger, all of that stuff. Okay. So with this in mind, I define creative finance as a combination of tools, techniques, terms, and approaches which allow us to gain ownership of assets without needing cash.

Simple. I mean, you can add credit to that because to some extent credit is a problem. so if you can bypass having to rely on your credit. But that's not the biggest problem. That's a problem you can fix a lot easier than access to capital. Okay. So a combination of tools, techniques, terms, and approaches, which allow us to gain access, ownership to property without access to cash.

Now, I have to point something out. I need you to notice that I said ownership of asset. I am fully aware, just as you are, that there are a ton of techniques out there to gain control. control contractually of property without gaining the ownership. What are some of those? What do you mean? Lease options.

Okay. You know, all of that stuff. Options. Just, you know, you can wrap things. You can do a lot of things. Here's what my perspective on all of that is. I am in this for stable cash flow. Yes, I could lease option and then rent it out.

I could work on the spreads. However, I would be hard pressed to call that stable. Because a lot of things can go wrong, and your response capacity and time is limited when you don't have the ownership of the asset. If you go and put in $20,000 into a lease option, you could lose it. You could lose all of it because basically you don't own the place.

You have an option on it. You have some interest in it, but you don't own it. So as far as I'm concerned, I want the fee simple absolute title to the property. I want the deed. So whenever I talk about zero money down or I talk about 100% financing, I'm talking about really buying, owning. I'm the owner of record on record of this property. So what is creative finance? Well, you know, coming up with money and ways to buy property.

It's basically being creative with finance. That's the name creative finance. Okay. So what, you know, of creating financing, you know, there's various ways to go. You know, do you have a preferred technique of choice? Is there, is there one, you know, one path that you utilize most? Or, you know, do you kind of, does it just depend on the deal? That's a good question.

My perspective on real estate is that our success is a function of our capacity to do certain things. One is to recognize the problem that we can solve. And two is having enough tools in our tool bag to cater a solution. What I don't like is the approach of here's a lease option. Here's the paperwork. Go and do 10 million of them. Well, you know, for one person, that would work. But for another person, that wouldn't work.

So this whole same size fits all kind of mentality. I don't buy into it. It doesn't interest me. It bores me. I look at real estate as solving problems. There's problems everywhere. People need to sell. People need to buy it.

People need to put money to work. That's a big point with creative financing. People don't understand oftentimes that there is money out there. There's a lot of money out there. It needs to be put to work. Whatever that problem is, you have to have the tool as an entrepreneur to cater transactions so that everybody's happy. So do I have my preferred methods?

Yeah, sure, I do. I'll use cash with a private money to buy something. I'll refinance it and get the private money. money out or else I'll move the collateral on the private money or a portion of it or whatever. It gets quite interesting and complicated as you dig deeper in that. But let me give you, I'll just give you a transaction. I just bought a 10-flex two months ago. Let's just talk about this one because it just makes sense.

It's going on right now. I bought a 10-plex. It's actually two units, two five-flexes are sitting next to each other. Same deal, so I call it 10-plex. Sure. purchase price was $373,500. Only in Ohio, man. That's true.

There are better areas to invest for cash flow and they're not so good areas to invest. Absolutely. Absolutely. And, you know, when I spoke earlier about flipping, if I could get $100,000 spread in Lima, Ohio, perhaps my approach would be different, but my spread is, you know, 10 or 15 grand pre-tax, and to take on all the risks and all the work that's involved with flipping, that's why I don't do it. It's just not enough to interest me.

I'm the exact same way in my area. Our spreads 10 or 15,000. And over on the blog, Danny Johnson wrote a post the other day that was about, you know, Are you thinking about doing a flip with $15,000 profit? Think again. And we'll point to that in the show notes, but it's the same idea. When you have that small of a spread, it's just not always feasible to do a flip like that. Yeah, you got to work that hard. You got to find it right.

You got to pay the right amount. You got to make sure you estimate your repairs right. You got to not overspend on contractors. You got to qualify your buyer. You got to sell it right. Then you got to pay tax on it. And then you got to redo the whole thing over and over and over. Yeah, you know, it's just not, it doesn't float my boat.

For $100,000, I probably do it. For $15, maybe not so much. But coming back to this deal, the financing package on this deal was a 70% commercial note, a 25% private note. And I needed to bring 5% down to closing, which after the proration of rents and assignment of security department, I ended up bringing $5,300 to closing, which is 1.5%. That's creative finance, my friends. That's $5,300. bought me a $373,000 purchase price asset, but let's go on from there because that's not all of it.

The NOI at closing on this building was $3,400 a month. You know, I looked at the rents. The scheduled NOI was $3,400 a month. Okay. Now, I go into this with one. wide open eyes. I know the building is mismanaged. I'm writing a couple of articles for a BP blog where I'm going to be walking through this transaction. We don't obviously have enough time to do all that. I knew I would be evicting people. I knew that the building was mismanaged.

It's not a function of the building itself, where it sits and what it is, a 1980 structure. It's the fact of how it was being managed or lack thereof. So I knew I would have work to do. But $3,400 a month was the NOI. My cash flow on this building after purchase with my financing attached to it was $1,000. Okay, $100 a door. There are a few things that I knew. One, rents are too low. Two, the water service, which is separately metered, the previous landlord paid for it out of the rents.

He included in the rents. that's about $150 a month that needs to be passed along to the tenants. You better believe that when the leases are restructured, it will be passed along to the tenants. Three, property taxes on this building are entirely too high. I've applied to have those lowered, and I believe I have a very good chance at having those lowered. So all in all, I bought a building for $373.3 with N-O-Y of $3,400 a month, and I believe I I can create additional NOI of approximately $5 to $700 a month. Because there's no additional expenses associated with creating that NOI,

first of all, it flows directly to my cash flow. So I've just increased my cash flow by 50 to 70%. But let's also talk about something else. I think I've already said today that I don't care much about equity. It's true and it's not true because I leverage equity. So I want to grow equity so I can leverage it so I can buy more, use the money to make down payments to buy extra buildings. So what's the deal with this? You have to know that a building like this of this character in this location commands a 10 cap,

which means that most investors will deploy capital based on a 10% capitalization rate. The N-O-Y, such as it was a closing of $3,400, which is a little less than $41,000 a year, should justify a value of $410,000 on that building. I paid $373.3.5. There's a reason. I got a little bit of a discount. Nothing much to write home about a little bit. And there's a reason why, which we can come back to later if you want to.

But the point is, I got a little discount. Okay. Now, if I'm able to achieve, I should say when I'm able to. to achieve and this may take two or three years because I have to cycle out leases I have to obviously spice up the apartment I have to put new countertops on put a little money in right okay obviously we have to manage these things right you either have money or you have to manage so I manage so the extra hundred dollars of NOI 8400 of NOI if I am correct that capitalizes a 10% to 84,000 dollars of value

because the next guy coming along is going to look at the NOI of the building and base his offer on that NOI. Well, if most people are willing to deploy capital at 10% relative to cap rate, then I've just created $84,000 of value in this building. So I bought it for $373.5 and the building is worth $100,000 more in a couple of years. Yep. That's awesome. So while I'm financing 100% of the purchase price, I'm not even close to touching 100% of the value that is going to be there when I'm done doing what I got to do. This is definitely one of my favorite things about real estate investing is that exact strategy of finding multifamily properties, adding value, making it worth more money because the value of a property, like you were saying, is based off the income. Yeah, if you can add some income or if you can take away expenses, you can add value. Right.

That is on commercial, of course, not, you know, on a house. Exactly. This is why, this is the main reason why I stay away from singles. Because you can't increase value of a single. All you can do is bring it back to the value that the market establishes for it. Because, of course, the value-setting mechanism in the single-level. family market is a comparable market analysis. So if you have a three-bedroom two-bath house, it could be Taj Mahal. You could put gold toilets in there. But it's a three-bedroom, two-bath house, and the market has spoken, it's decided that in this

location, a three-bedroom house with two baths and this set of amenities is worth in the range of between 150 and 160. You are not going to jump over that meter mark, you know, no matter what you do. In multifamily and in commercial, though, because value is a function of income, more specifically NOI, like Brandon said, by increasing income and by decreasing expenses, we can increase the NOI, which then backs into the value, which gives us a lot more options. So tell us about this deal. How did you actually, how did you find it?

And then you talked about financing it with the five down and the commercial loan and then the second loan. How did you actually come about getting that loan? Was that just through your network of folks? Sure. How did I find it? Well, that goes back to why I was able to buy it for a little discount. I had first found out about this deal about nine months prior to being able to actually consummate the deal. The purchase price back then was $4.75.

That's what the seller wanted at that time. I worked with him. We worked on some creative options. We worked that we thought about wrapping it. I knew the bank that he was dealing with. I explored a couple of different scenarios. It didn't work out. But in the process, we established a good, solid rapport.

You know, we mutual respect and certainly no dislike or anything else. It didn't work out. But nine months later, when he was truly ready to sell, I was the first to know. And so before anybody else knew, I had the thing wrapped up under contract. So that's how I do most things that I do, word of mouth. I'm sure one of the questions you're going to ask me is how I come up with deals and market and all that stuff later on because it would make sense

to ask that question. Well, I'll just answer it right now. Inbound marketing. I used to send out letters, direct marketing. I used to send out put flyers. And you know, I've had success with all those things. The beautiful thing about being in a place where I am now is that people bring deals to me

because they know that if I say something can be done, it's going to get done 99% of the time and so they bring me deals and I kind of sift through them and pick out the ones I want and by the way I only do about one deal a year

because my criteria for pulling the trigger is so specific on everything I do so that's you know I just let me can I jump in really quickly on that

and I think it's so important you said that and And that's something that Brandon and I talk about a lot. And, you know, we talked about it in our ultimate beginners guide and everything, you know, setting your buying criteria and sticking to it and making sure that you don't flex because, you know, you get excited or worried that, hey, I haven't done a deal in a year or in six months. You know, you got to stick to those standards that you set because otherwise you can get yourself into some really bad deals. Yes, you can. And having said that, you have to be aware of off-ramps because there are always off-rams. And it's silly, you know, I commented last night on one of the threads where a gentleman wrote like, you know, three and a half pages, wrote out his whole entire plan.

And Brandon, you commented on that thread as well. And I think it's wonderful. And my comment to him was that he will succeed because he's a thinker. I can tell he's a thinker in the way that he wrote out that plan. It's very important to have a plan. It's even more important to understand that plans are made to change. You have to have, you get on a train or a bus or a plane. It doesn't matter how you travel to it and it doesn't matter how many stops you make

as long as it's the same destination. You have to know where you're going. That's the whole purpose of a plan is to define the endpoint. and to define the starting point. The middle will change many, many times before you get there. It just has to. But it's very important to know,

I started with single family houses. I have four of them. Three of them I bought before I say before I knew anything. You know, I studied for seven years before I did my first deal, that flip that I described in the beginning. I studied for a long time, but studying only by you so much, you have to get out there and do it at some point. And so, you know, I got in just thinking, you know, it's what I could handle.

I have this line of credit with 30 grand on it. What kind of deals can I do, you know? It wasn't until much later that my mind was opened up. It doesn't take any more time to put a deal together on a half a million than it does on 50,000, period. it takes the same amount of effort, the same amount of knowledge. The numbers are bigger, is all it is. So I prefer to buy a 10plex for 375 than to buy a duplex.

I just would. Yeah, on the same way. It's scale. Makes sense. Makes sense. Really quick, this is Show 14 of the Bigger Pockets podcast. And for those of you who are interested, you can find the show notes at biggerpockets.com slash show 14.

Hey, Ben, we skipped over something really quick and, you know, you talked about the deal. Let's really quickly get into the financing and then let's move on to some other stuff. We've got a ton of questions we want to ask you. And I have a feeling that this show could be a four-hour show if we let it. Sure. So you want to know the private money, the 25% private money where that came from. Yeah. How did it come about?

Yeah. Relationships. Yep. That was a great answer. Cool. Moving on to the next question. No, I'm just kidding. But, you know, it's as short as that.

Yeah, for sure. I mean, where do you think money comes from? Yeah. I mean, you know, if you don't have it, somebody else does, you got to ask. Yep. And if you know what you're doing and you can present yourself appropriately, and people know you as knowledgeable, responsible, trustworthy. You know, somebody who lives a righteous life, somebody who doesn't lie, somebody who says what he does and does what he says.

Eventually, if you can find deals that are good enough, money will come. It takes time. It takes time to develop relationships. That's why when people get in and say, you know, here's my plan, two years. I just laugh because the plan is great and the numbers are great, but real estate isn't about numbers. it's about people. Yeah. Fundamentally, that's what it's about.

And the further I go, the more I understand this reality, real estate is about people. You get good at solving people's problems, you do well. And if you can't solve problems, then you're out there chasing REOs, because that's the only option you have available for you. What hits the ML? You know, I haven't bought a thing off the MLS in the past five years. Wow. You know, everybody looks in the MLS. It's that zigzag idea again.

Yeah. If everybody's going to look on the MLS, then I better know how to look someplace else. Makes sense. You know, to be effective, to be truly effective. Money is the same way. Yeah. Here's the truth about passive investing. If the strategy isn't right on day one, the returns won't save it.

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I have no illusions about what it means to be a hands-on real estate investor. Now, in saying that, you're never going to find me on an end of a lawnmower. You're never going to find me with a hammer or anything like that. I hire everything out that has to do with maintenance of my units. However, I do do the management myself. That may be something that I will change my opinion on as time goes, but my idea about this. And remember, I have kids. So when we have kids, we start thinking a little different because we have kids.

So our perspective changes. but I am trying to be out there to build systems. And it's difficult right now because, you know, I have 28 units. It's not really large enough to really be able to hire full-time people and, you know, build systems that way. But ultimately, because of a mess and because I know I have kids and eventually, you know, If I can't move, then I'll want to be doing it with my kids. If they're going to college here and there and everywhere, I want to be there. I don't want to be here.

That requires me hiring, training, and managing managers. I'm not suggesting that I'm planning to be there myself all the time. However, I do have to take now time to work very hard to establish systems, whereby later on I could train and plug people into those systems to run the portfolio for me. You know, it's interesting because, frankly, I don't think I've ever spoken to somebody on the topic who's in your situation. And, you know, obviously the path that you face is a scary one and a horrific one. and you have to plan ahead because, you know, there is a kind of a given path. Right.

At least I have to make the assumption of the given path because, you know, that's what the doctors are saying. Right. It's a matter of time. I can't function with that in mind, Josh. You need to understand that. I have to look past that. Right.

Well, that's not my point. My point is, you know, there's so much value in that, I think, for other investors who may not be in your situation, you know, who, you know, I think people need to look ahead. And I think that's one of the things that I see the most with especially the newer investors, but even folks have been doing it for a little while, you know, they don't look five years ahead. They don't look 10 years ahead. And, you know, by you creating those systems and by you saying, hey, you know, in the next X amount of time, I'm going to need to transition this from me to somebody else. So I've got to, you know, establish procedures and processes to make that happen.

You know, you're setting yourself up for success. And so I just, you know, I just want to make that point where I think it's just really important that people do that and get that plan together because, you know, not only the written plan that, you know, as you said, might change, but being able to systematize your business to the point where you can, you can aim it towards the future. And, you know, you should always for the stars because even if you miss but you get somewhere close you're going to be a whole lot better off than otherwise you would have been so you know i think my portfolio needs to be 120 units in order for my life to do what my life needs to do you know if i don't get past 70 you think

i'm going to cry too much about it no that's going to be enough money for my wife and i and my kids and everything else but we set goals so that we have a point a measuring stick it's a game it's all a game for sure I always say the same thing yep yeah I have a manager that I hired

not a property manager but just I have a maintenance guy that lives at one of my properties for free in exchange for taking care of the unit and that that change like fundamentally changed in my entire like investing business I mean it was like the best thing I've ever done

because all of a sudden it freed me up because I was doing I was doing the hammering and the screwing in the light bulbs. I was doing everything before. And a couple years ago, yeah, I hired this guy. And I mean, yeah, my role shifted. Now I'm managing the manager, like you said. But it frees up my time.

Like 90% of my time is freed up now to do other things and to find new properties and new adventures. So, yeah, definitely that was a really, really good point. And while we're on that, I would love to get, since you do manage your own properties, do you have any tips out there for land? landlords. I, you know, here I am in the car. I'm going to look at a property. As I pull up, I open the door,

I ask myself, what I want to be here, what I want to live here. As I walk into the building, the front door, I ask myself, what I want to live here? As I walk into the apartment, I ask myself, what I want to live here? Because for me, if I don't want to live here, then I'm to have the hardest sales job ever, and I don't want bad job. I want my units to attract people. I want the units to sell themselves. I don't want to be out there trying to sell my units. You know, I haven't placed an ad in the paper in the past six years. I have one unit that's an efficiency unit attached to one of my buildings that's in the back. Nobody knows about. That's the only unit I ever market. I stick a sign in the front of the building. Maybe I put an ad on

Craigslist. That's it. Just because people want to be there. It's a much easier job to landlord if people want to be there. You don't have to convince people that's good for them to be there. They already know they want to be there. That's why they call you. So the biggest tip I can give is exactly that. I don't, you know, I don't buy anything that I wouldn't want to live in myself. The second tip is know your market. Before I bought this tentplex, I knew what the rent should be. I knew what the expenses should be. I knew what's acceptable in my market. I knew the cap rate. I knew all of that stuff. Yes, I had to study this building in order to place it within the fabric of what the market is. but I already knew the market.

So it wasn't a new thing to me. So I think a lot of people make that mistake. They look at a building and they don't look at it from a prism of the market at large. You have to know what your market is to be able to recognize opportunities quickly. And that's the key. And the third thing is, I think you have to treat people with respect, whether it's your sellers, your buyers, your tenants. you have to treat people the way you would want to be treated. I wouldn't expect anybody to live in a unit that I wouldn't live in myself.

That's just one way of me saying, I'm trying to do for you what I would want to have done for myself. I pride myself on fixing things very quickly if they break. I don't procrastinate on those things. I pride myself on being respectful. Now, I do manage very, you know, iron butterfly kind of thing, you know, gentle and yet I know exactly what I need this building to do. And I know exactly how I need people to behave around this building. And so, and I make sure that it's known that people know that.

but just the function of what the building is is going to go 90% of the way to establishing this in the first place. I think I wrote a couple of articles it's not my fault that keep trashing my unit or something like that for a BP blog a while back. Sure. You know, and that's the concept.

Know your market. It's not to say that you can't be a putt's, but it catches up to you. You can do it for a while and you can screw some people and maybe, you know, but eventually this business is about reputation. And eventually it catches up to you and you'll find it difficult to stay on top and to consistently do good business. That's great. That's great. Well, so we're starting to come to the close here really quickly on cash flow.

that's that's kind of the the core of your of your path beyond the importance we we all kind of figure why cash flow is important how do you go about determining if something is going to cash flow you know what what's your you know what what's the most I'd say you know the obvious are rents and things like that but you know what are the things that sometimes slip by people that that you think yeah but in particular newer investors should look out for Well, I only buy a few things because I'm very aggressive as far as cash flow. And I have to tell you, I've overpaid for property before. There are times when the purchase price is only one of the negotiable terms

that establishes value in a real estate transaction. It's only one. There are many. There's a ton of them. Sometimes it's advantageous enough to pay more in terms of purchase price if something else is working right for it. But in terms of cash flow, you know, if you get on to BP, most people probably would agree that in a multifamily situation, $100 a door is kind of a reasonable benchmark to take action on. $100 a door. Of course, that presumes 25% down. In my world, under 100% financing, $100 a door, minimum. Yeah, I'm the same way. Exactly.

If I can do that, now, you know, people say, well, you know, aren't you concerned about 100% finance? Well, we talked about that, you know, 100% of the purchase price is not the same thing as 100% of leverage. Yep. 100% of the, you know, the equity in the building, especially if you have expandability options to build that equity quickly

within two or three years. So my benchmark is $100 a dollar, under 100% financing. Yeah. And I think there's, you know, some of the big guys on BP from back in the day like Mike Ohio and stuff. You know, and the whole 50% rule thing, you know, a lot of that does actually presume 100% financing and $100 a door, which is really hard to find in a lot of markets.

But, you're right. But, you know, if you can stick to that, you're almost guaranteed to have great cash flow. opportunity. Well, that's exactly it. Look, here's the thing. I mean, the 70% commercial note, that's a note that the bank is going to hold in their books. That's not a saleable Bannie Freddie type thing. Would they do that knowing that the thing is fully financed if they didn't think the cash flow was there to substantiate the debt service? No, they wouldn't. Yeah. And speaking of that, obviously, it comes back to relationships. relationships, you're not just going to walk in off the street, ask a banker for 70% financing,

telling them somebody else is bringing 25 and expect them to do it. That's just not how it works. It takes time to develop those relationships with people that are going to do this kind of a deal for you. Yeah. That's great advice. That's awesome. All right. All right, man. Well, I hate to do it. I hate to cut it off. Seriously, I think we could go on and on. This is definitely fascinating. but as we come to the close here, let's talk about your favorite real estate book that is not your own. How I Turned $1,000 into $5 million by William Nickerson.

Good book. An oldie but goody. There you go. How about your favorite non-real estate business book? I don't have one. All right. Sorry. I read so much.

Just like one of my passions is reading. I read so much. I don't have one. Okay. Fair enough. If I could just jump in there real quick, since you didn't have one, I'm going to tell people,

this is a real estate book, but if people are interested in what you have to say, what's it called? Ken McElroy is the ABCs of real estate investing. Yeah, it's exactly like the thing that you and I love. I mean, you and I get along well because we have the same strategy. We have the same mind on this. And I think that,

The ad book was published as part of the Rich Dad Poor Dad series. Correct, yeah. So I'm going to plug that one because it's so good. It was, yeah, it's amazing. Brandon, you're not a guest, man. Come on. How about hobbies? Obviously, your kids, I would presume, would be one of your hobbies spending time with

them, anything else? My wife and I enjoy ballroom dancing. Oh, okay. Specifically Latin dancing. we like that a lot. That's something we do for ourselves. I enjoy reading a lot. I enjoy guns, target shooting and things like that.

And I enjoy motorcycles. In fact, I had a big, burly black VTX, 1,300 Cs, Honda motorcycle. My wife sat me down when the kids were born and said, I worry about a lot of things. I'd appreciate not having to worry about you killing yourself. and so the thing was sold very quickly but I hope there'll come a time when the kids are older and I've taught them what I need to teach them that there'll be a time for me to enjoy that one more time nice nice I had a picture in my head of you ballroom dancing with your wife

with a shotgun in your hands on top of a motorcycle on top of a motorcycle exactly exactly All right, Brandon, I know you've got your famous question here. All right, last one. So in this business, there are a lot of people who come and go. I mean, you see them every damn bigger pockets. So what sets apart the successful creative investors from those who I just come and go and disappear? Successful people refuse to fail. Now, I have the easy route to that because my medical condition ensures that that.

I have to succeed. That's a choice that life is made for me. A lot of other people have a much tougher path in that they have to make that choice for themselves. But that choice is what keeps us in the game because real estate is really hard and you want to give up many, many, many times before you succeed and you have good days and you have really bad days. And what is it that's going to help you hang on that's going to keep you in the game? So staying in the game is the main part. So successful people refuse to fail, not just in real estate, every place else. They just refuse to fail.

Successful people are more willing to live outside of their comfort zone. To achieve extraordinary results, we have to take extraordinary actions. If we keep doing the same things that we're used to doing, which is what's comfortable, we'll achieve the same comfortable results. But if we want more out of life, then we have to step outside the comfort zone. And successful people will tell you that the norm is outside the comfort zone. Comfort zone just doesn't even happen for successful people. That's awesome.

Preach it, Ben. Preach it Ben. I mean, more sound bites out of this one than I think I can remember. Listen, a little bit about Ben here. Ben's written four e-books and recorded 20. 20 audio. Let's try that again. Ben's recorded four e-books and recorded 20 audio training seminars in which he covers topics ranging from creative finance and acquisition techniques to property rehab management and negotiation. You can get them along with Ben's cash flow analysis software on his website.

Just Ask Beny.com. And I do have to say, again, I mean, Ben, it's is really, really, really an inspiring story and and you know I do want um I do want you to know that that our community is here for you we've we've got your back we've got your support and and I do you know I I don't really do this often but I I would say if you're considering you know learning about any of the stuff that Ben you know Ben's educating teaching people on you know I want to support you man I want to support you want to support your family and and I would tell people you know definitely let's let's see what we can do to support Ben here otherwise really quick is there anywhere else that people can

connect with you obviously on bigger pockets are you on Facebook Twitter LinkedIn can they reach out I am I am on Facebook Twitter at forward slash just ask Ben and I am on LinkedIn as well Ben Leibovich I'm but but I'm on bigger pockets more more than more often than not. Nice. I just, you know, I have to tell you, I think I was searching for property management. I was looking just doing a Google search, maybe about six months ago on property management. And just for kicks, you know, I just wanted to see who's out there, what they're offering and all that,

qualifying tenants and all that kind of stuff, credit checks. And I came across BP because, of course, you have this function on your website as one of the tools available. And, you know, I took a look. It was nice. I forgot about it for about four months. But I signed up. I gave you my email. And so I kept getting these things in my email, these articles.

And I can't remember now which article it was that beat my interest. But about four months later, I came back. And I really looked at the forums and at the content, the quality of the conversation that takes place. the fact that real players are willing to take their time to answer questions in the way that they do, that's very inspiring to me because being around people who know more can do more, half the guys on there have forgotten more about real estate than I will ever know. And I appreciate that. It's just inspirational.

It's a great platform. and so I end up spending more time on BP nowadays than any of the other social networks. That's awesome. Me too. Well, I'm certainly glad to hear that. It's like a big old black hole that sucks people in. It's a beautiful thing. That's right. Beautiful thing.

Yeah, for sure. All right, Ben. Well, listen, man, it's been a pleasure and really enjoyed having you on the show today. Thank you. It's been a pleasure to be with you. Yeah, thank you, Ben. All right, everyone. That was our show today with creative real estate investor, Ben Labovich.

As always, we really encourage you guys to head over to our show notes page at biggerpockets.com slash show 14. Check out all the links from the show. And also, as we mentioned in today's quick tip, leave a comment on that page and let us know if you have any questions for Ben or just want to say hello. For today's show, we actually also put some important links for you guys to. check out regarding Ben, Ben's story and MS, where you can learn a little bit more information. So definitely do go there and check that out. Also, if you want to leave us an iTunes rating, we absolutely would love that.

We're now up to 182 five-star reviews in iTunes, and we certainly appreciate all your support. So please leave us a rating, leave us a review. And, of course, if you're not doing so already, please do subscribe to the show. over there on iTunes. Finally, be sure to connect with us on Facebook at facebook.com slash biggerpockets. And be sure to sign up for a free BiggerPockets account at biggerpockets.com. Again, thank you so much for being a part of the show, for listening.

And until next time, this is Joshua Dorkin, signing off. You're listening to Bigger Pockets Radio. Simplify Real Estate for Investors, large, and social. small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday.

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