BiggerPockets Real Estate Podcast - 215: Condo Conversions, Student Rentals, and Profiting in a Hot Market with Ricky Beliveau

Episode Date: February 23, 2017

Boston is a tough market. Prices are high, but even high rents aren’t enough to make it profitable to invest. Ricky Beliveau makes money by renting to students, converting small multifamily buildings into condos (it’s easier than you think!), and transitioning unused space into more bedrooms to add massive value. In This Episode We Cover: How Ricky started by borrowing money from his mom Thoughts on buying an expensive property in an expensive market How he got 4 signers and co-signers per unit Tips for finding a property manager The upsides to having a college rental How he achieves next to zero vacancies How he tenant-proofs his rentals The value of his property today The details of his next deals How to find these gems of properties What a condo conversion is The average cost for condo conversion with an attorney How he sets the HOA up How to tell if a property is good for conversion Thoughts on keeping a day job while investing How to find reliable contractors What’s next for Ricky And SO much more! Links from the Show BiggerPockets Marketplace BiggerPockets Forums BiggerPockets Pro BP Podcast 048: Duplex Investing, Finding Great Properties, and Tips for Managing Tenants with Darren Sager East Boston Project (Forum Post by Ricky) BiggerPockets Analysis How I Built This Podcast Mindy’s Twitter Account Books Mentioned in this Show Flipping Confidential by Kirsten Kemp Tweetable Topics: “Let the experts do what they do well, and you can do what you do well.” (Tweet This!) “If a property has a major foundation issue, your profits can just disappear.” (Tweet This!) “Don’t say ‘I can’t.’ Instead, figure out a way to do it.” (Tweet This!) Connect with Ricky Ricky’s BiggerPockets Profile Ricky’s Website Ricky’s Instagram Profile Ricky’s Facebook Page Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 215. So I'm a big believer in, you know, in the cash flow, you know, in the buy and hold strategy. I think that that's the best way to get started. You know, you're able to use low-down payments and create that cash flow. 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 hype, 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. What's going on, everybody? This is Josh Dorkin, host to the Bigger Pockets podcast here with my co-host, Mr. Burr. Miss, oh, Miss Mindy Jensen. Sorry, Mindy. It's actually Mrs. Mindy Jensen. I'm sorry.

I'm so confused, you know, like there's no Brandon and it gets my head all upside down. Brandon is slacking. So today I am stepping in for him. You know, Brandon always slacks, but you know, you could step in regardless. Well, thank you very much. I love to host the Bigger Pockets podcast. I've actually done two with Brandon. I've never done a host with you. I know. It's great. I've never been your co-host. You have not. You have not. So welcome everybody. Please welcome Mindy Jensen. Mindy. Welcome. Everybody, Mindy, what is your Twitter? At Mindy at BP.

All right. Everybody, please send Mindy, what's up? At Twitter at Mindy at BP and give her a shout out. That would be awesome. I think Mindy just threw a gang sign. That was kind of creepy. No, gang sign? I don't know what that was.

Metal. Oh, that was a metal sign. Oh, nice. Nice. Cool. Yeah, so we've got an awesome show today, huh? We do have an awesome show today. I had a really good time recording this one.

Yeah, it was fun. You know, I think you and I should do more of these. And I think maybe, you know, the guy with the big giant beard should do, do less. No. I won't argue with you. No. I won't either. But we're not getting rid of Brandon.

Don't worry about it. He's coming back. He's coming back. He was just traveling. I don't know where he was. He was on vacation. But yeah, this was great. We had a great time.

We're going to get into that in a second. Before we do, let's get to today's quick tip. That was pretty good, Mindy. That was pretty good. I'm not just an employee of Bigger Pockets. I'm also a fan of the show. Oh, nice. All right, guys, today's quick tip is, did you know that the Bigger Pockets Marketplace is where you can promote deals, opportunities?

You can solicit partners or funding or you can simply advertise your services. So if you've got deals, if you're looking for deals, if you got money, if you're looking for money, any of that stuff, the marketplace is the place to get on and promote it and solicit and seek out relationships and things like that. So go to biggerpockets.com slash marketplace, and that's where you can promote it. Just as a heads up, you do need a pro or plus account to post there. But anybody on the site or off the site can check out your posting. Get exposure to hundreds of thousands of people, biggerpockets.com slash marketplace. And to upgrade your account today, you can do that at biggerpockets.com slash pro. Cool.

Hey, by the way, speaking of this fantastic show, you guys, this is show 215. of the Bigger Pockets podcast. You could check out the show notes at biggerpockets.com slash show 215. And we'd like to ask you guys really quickly if you have a chance to, if you're listening to the show, 215 of the other episodes, or if this is your first or your 15th, please do leave us a rating and review on iTunes. Those really, really help us. Right now we're actually ranked 155th on iTunes of every single podcast in the world.

And it's all Mindy's fault, 155. I wouldn't say it's my fault. Well, fault. That's a positive fault. And we want to be top 100 consistently, guys. So that means getting out there, leaving us ratings reviews, subscribing to the show if you haven't done so already. So jump on there, jump on iTunes and do that. And please, if you like us, share the show.

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on today's show, we've got Ricky Bellevaux. Ricky, Ricky's doing some really cool stuff with what condo conversions, college rentals. Ricky's doing some really cool stuff and he's doing it in a hot market, which is a problem that I hear a lot of people saying they can't find deals,

they can't make any money in a hot market. Ricky's killing it. Ricky's killing it, for sure. for sure. Well, let's bring him in. Let's see what he's got to say and let's go from there. So all right, Ricky, welcome to the show, man. It's good to have you here. Awesome. Thanks for having me, guys. Hey, Ricky. How's it going? Going good. So I heard that you're from Boston. Too bad you guys don't have any good football teams.

Whoa. Parade day today up in Boston here. So a lot of excitement going on. Why is there a parade happening, man? Did you miss the game on Sunday? Was that like the Little League World Series or something? I don't know, just the best quarterback of all time winning another Super Bowl. That was the guy who was losing all the way until, what was it, like the third quarter? Is that kind of how it was going? Yeah, yeah, making it exciting at the end. Oh, nice.

That was a ridiculous game. It was, it was. Cool. All right. So, you know, yeah, yeah, good for you. Congratulations. Mazel to whatever. Let's get into this thing.

Nobody cares about the damn patriots, okay? Nobody cares. This is not sports pockets. This is bigger pockets. And we talk about real estate here. This is, thank you, thank you, Mindy. Mindy is going to be schooling me all day. So, Ricky, how did you get started? How did, how did you decide to get involved in the real estate investing space and what got you going? My story is a little bit different. I went to Northeastern University

in Boston and I took real estate finance my senior year. And my capstone, I did a project on Mission Hill in Boston for multifamily purchasing. And after going through the whole class, writing the paper, I figured out that there was a huge opportunity. in Boston on the multifamily space. This was in around 2009, 2010. The market had really plateaued after the crash, but the rents had continued to climb. So after doing that paper, I saw that there was huge returns that were possible. So got me thinking about it, got me looking into it. And then after graduation, my mom happened to inherit some money. And I went to my mom, gave her my paper and said, can I have that money? I'm going to, I got this great.

idea to invest in real estate. Oh, geez. Yeah. How'd that go? It was good. It was about 180,000 she'd inherited and was able to take that money and start looking to an FHA purchase in Boston. That's kind of how the whole process started. I had real estate friends in real estate. So they had kind of, you know, started the hunt for me. So because you were looking for an FHA purchase, you were looking for a zero to four unit property. Yeah. Yeah, exactly. And at the time, I didn't know what the Burr strategy was, but it was the idea that I was going to buy a multi live in one of the units and then, you know, try to turn the property around, you know, once I got into it. Nice.

Yeah. So, you know, in December 2010, after putting an offer in on a, you know, a couple different offers in, I finally found one that, you know, it was way bigger than I had originally planned. I'd been putting offers in on, you know, 600,000, $700,000, $700,000 properties. And my buddy brought me to see one. And he was like, this is the one you want. This is what we were talking about. And it was on the market for a million dollars.

Okay. So for a million dollars, but the max FHA loan you could get at the time was an 810, 810,000. So with a bunch of negotiation, working the seller, we ended up getting it down to 930,000 purchase price. Nice. So the first building I bought. Was this a four family property? Three family property. So three family property for 800, what would you say? 930,000. Ooh. So that is not, you're not in Detroit anymore, are you, Mindy? No, this is a large building in Boston. Wow. So when you say large, what do you mean large? How big is each one of these units?

So the building's 4,500 square feet. When I bought the building, it was a nine-bed three bath. It had the first floor was rented and the third floor was rented. So I was going to move into the second floor unit. So that would be my unit. And then I would renovate that unit. And then the plan was like a little bit different. I was going to have the third floor move into that unit once I was done.

And I would move upstairs. So I kind of was able, within a whole year, I was able to renovate the property. All right. So let's talk a little bit about numbers here. I mean, you know, a lot of people who hear this think you're crazy. Wow, you're spending that much money on three units. Obviously, you're in Boston. So things are a little more expensive in markets like Boston, New York, L.A., San Francisco.

What do the rents look like on a property like that? So when I bought it, the rent for the first floor was $2,100, and the third floor was $2,300. And now they all rent for $4,100 a unit. Wow. So it's $12,300 a month in rent roll. So what's in your units? How many bedrooms, bathrooms? Four bed, two baths.

So they rent for just over $1,000 a bedroom. Wow. So $12,000 a month rent roll. And you did that by obviously improving the property, right? So you went in and fix it up. I'm assuming this is in a higher class neighborhood, a better neighborhood. Yeah, so it's located right near all the major colleges. So it's all college rentals. All the renters are college students with parents that are co-signing on their leases. And there's a zero vacancy rate.

You know, since I bought the property in the end of 2010, I've never missed a month of rent. So, okay, so you're renting the units out to like a handful of college kids per unit. Is that kind of what you're? Exactly. Yeah, four college kids per unit. Wow. Okay. So do you rent out each individual? bedroom or do you run out the whole space? No, it's a single lease. So a single lease with four signers and then four co-signers. Wow. So that makes it somewhat complicated. What would you say to people who are thinking about doing this? What are the headaches that kind of come with doing that, the four signers and four co-signers per unit? So when I first started, I didn't use a property management company and I was involved in that process of getting it rented, getting the

co-signers, checking out the tenants. And I quickly realized that property management, using a property management company is the way to go. So after about a year of doing it myself, I hired a property management company and they handle all the tenant relationships, all the lease signings, and everything on my behalf. So I would recommend, I highly recommend using property management. Let the experts do what they do well, and then, you know, you can do what you do well. I have a good story from back in the day that first year. I remember I was at a bar. It was like 1130 at night and I get a call from a tenant that he smells gas. And that I quickly realized I was like being the one on call at 1130 at night wasn't for me. So that's- Do you want to go deal with your college students gas at 1130 at night?

No, definitely not. So how did you find your property manager? How do you, what are some tips you have for finding a good property manager? So it's all about networking. So the, The property manager that I actually use is friend from college, started a real estate company in Boston. And, you know, we continued to work together after graduation. And I trusted him. I think with property management, you know, you hear horror stories about people upcharging, people overcharging, not properly managing it. So I think it's meeting face to face, getting to know your property manager and, you know, really being able to trust them. You know, in the early stages, keep a really close eye on the numbers and what they're billing you for.

So that then, you know, as the property continues to mature, you don't have to worry. about that, you know, you have that trusting relationship. No, that's great. I want to, I want to ask you a couple of things. I want to go back a step and then actually come forward. So you took finance, real estate finance in school, right? Correct. How do you think that was helpful in your real estate investing? How did that give you a head start? I mean, to be able to go and buy a million dollar three family property, I'm assuming some of that knowledge that you picked up in school was helpful. How much? So I think it was more getting my mind to think about real estate and about the numbers of real estate. I mean, a lot of the class

had to do with, you know, hotels and all different areas of real estate that wasn't what worked for me. But it got me thinking about the numbers and about opportunities, you know, whereas before that, I wouldn't have been, you know, even looking into that situation. So I think it really just opened doors for me. Awesome. Awesome. Very cool. So all right, that's great. I mean, again, there's a lot of opportunity. There's, there's programs out there. There's online programs through some of the major accredited universities that have credible educators teaching it. Definitely encourage people who want to learn more about real estate finance to potentially check that out.

Keyword accredited. Accredited and credible, right? And credible. Yes, two keywords there. Yes. Very important. All right. So I want to jump back to this first rental.

So what's the upside of having this college rental? You had talked about having zero vacancy. Yeah. Obviously, it seems like that's a good. strong possibility in this type of rental. And then what are the downside? So let's start with the upsides first. Yeah. So I mean, at the time when I got into it, it was the upside was that the fact that the building property value had maintained the same since 07. So even in 07, the market in Boston hadn't gone down. So the property value had maintained right around $900 to a million,

even straight through the crash. But then following the crash, the rents had continued to rise as these colleges continue to grow, right? And there's more and more need for college rentals. So then in the years to follow, we quickly saw those rents increase every single year. You know, as you can see, going from 2000 to 4,000 per unit, you know, created not only a huge upside on the cash flow, but then also the value of the property, you know, has almost, you know, is over doubled since I had purchased it. Were you able to predict, by the way, up front, did you know that the market value of those was going to come close to 4K or did you think it was somewhat lower?

I definitely didn't think it would get all the way up to 4K. I mean, when I ran my numbers originally, I thought that I'd be, you know, by getting in there, by adding an additional bedroom and another bathroom, that I would be able to get them up into the 3,000 range. And then after that, the market just continued to take off. So it wasn't that I had looked at it. And I was like, oh, I know I can get 12,000 a month rent roll. It had grown, you know, as the market continued to mature.

Nice. Little cherry on top. Yeah. Awesome. Awesome. All right. Cool. So that's great.

Talk about the vacancies. How is it that you're getting zero vacancy rate? And, you know, kids typically will leave their units and go elsewhere, right? They move on. So how are you able to actually keep it so close to zero or at zero? Right. So, I mean, it all comes down to, I think, in a college rental market is their co-signers. You're not, we don't allow the college kids to, you know, to just sign the lease themselves.

we require that their parents are also backing it. And anytime we've had a situation where we're missing rent or, you know, someone's doing something that they shouldn't be doing at the property, it's a quick email out to the co-signers, which is their parents. And all of a sudden, the issue stops and the rent comes in. Nice. Awesome. That's great.

So are there any downsides to college rentals? You hear all these, you know, party schools that have the kids that are destroying the rentals. Not in Boston. It's like those Harvard nerds and all those other guys. They don't really party too hard to do. So there's no party. people at Boston in Harvard? Yeah, maybe a few.

We've definitely had some tenants that have done some damage to the units. We have a full month security deposit. So, you know, if there is any damage, we're using that to make the repairs. But, you know, we've had a few issues over the years with the community, but there's, most of the time, it's been pretty smooth. So we did a show. I think it was with Darren Sager way, way back. Not Mindy and I.

That was, it was with the tall guy. The other one. Yeah, the other one. And he had talked about hardening his rentals. So he was putting in really good flooring. He was putting in, you know, better, more hardcore durable appliances, things like that, spending more money where a lot of people's instincts were to spend less money on a college rental. I think it was Darren.

And, you know, he swared by it. Swore by it. Swares by it. Swares by it. Yes. So are you doing anything like that to harden the rentals? or are you just kind of putting, you know, standardized stuff in there? Well, that first one, I really had no idea what I was doing.

So it was more just going to Home Depot and buying these supplies that I could afford for it. So, I mean, in the end, you know, went with the solid laminated flooring, you know, some solid wood cabinetry, you know, and it's worked out well. I mean, I think looking back at it now, the decisions I made definitely worked out well for the property. And I think by making those decisions going forward, it definitely could help someone else. Awesome. Okay, so let's go back to, you said that you made a lot of improvements to the property. You've added an entire bedroom and bathroom. Where did you get the space from?

And what other improvements did you make to the property? I thought when you first purchased it at 930, I thought you grabbed a whole brand new property. No, I'm not from Boston. When I'm looking at buying property, I'm really looking at that upside, you know, whether it's back then or even now. So if you can find a double parlor so it has an extra dining room or, you know, even, you know, a dining room in general, I look at that as a room that's a bedroom, right? You know, nowadays for college rentals or even, you know, young professionals, the use of a dining room has dropped, you know, it's almost doesn't happen anymore. So you're able to take that dining room, close that off, and then create another bedroom. And in, in my rental market, bedrooms equal more cash flow, right?

So you're able to take it from, you know, what a three bed rents for to a four bed rents for, you're immediately, going to see an increase. So I still use that today. So when I look, you know, I'm looking at properties and I'm doing my analysis. I, you know, I'm looking at what the current cash flow is and I'm saying, is there ability to add another bedroom? Is there an ability to add another bathroom? You know, and I think the most important is the bedrooms. If I'm able to increase that bedroom count, I know I'm going to be able to increase the cash flow. That's great. That's awesome. Awesome. So, so what, what's this thing worth today? I just got it repraised for $2,150,000. Wow.

In seven years, it went up. Doubled? Yeah, double. I don't do much. Yeah, over doubled. I just took out an equity line on it. So I just got a new appraisal on it. Wow.

Congrats, man. That's great. That's not a bad first deal. And I'm sure mom is real happy that she'd lend you that money. She's very happy. Sweet. All right. So what next?

I mean, that's not all that you've done, correct? Right. No. So after that, I actually, I got myself into another college rental in the similar area. about a year and a half later. Similar process, I was able to add more bedrooms, increase the value. And as that business was going well, I was then able to get, after my third project of, you know, doing rentals, I was able to then cash out refinance all three of them. One thing that occurred is I was expecting to get more cash tonight. When you work with the lender, a lot of them tell you, oh, yes,

of course, we'll give you this, we'll give you this, 75% LTV. You know, and then when I went to do my cash outs on these three projects, you know, you know, when I went to do my cashouts on these three projects I was expecting to really be able to launch my real estate business. And two weeks before, instead of giving me full 75 LTV, they were decided they were only going to give me 100K per building, which, you know, that was almost half of what I was expecting to get at the cash out refinance. So it was a little bit of a hiccup in the growth, but it was still a solid amount of cash coming back, you know, to move to the next stage of my business. So really quickly, so the second was another college rental similar area. Was it a multi or was it a single? Four family. Another four family.

That was a four family. Yep. And then what about the third one? The third one was actually, it was supposed to be my first flip that I was going to do. So I bought that in South Boston. It was a condom that it was pretty much condemned. A hoarder was living there. You could barely get in. My now wife found it. I didn't even want to go to see it because the pictures were so bad. The square footage was listed at 591 square feet. And I was like, there's no way this is worth worth the purchase. She's like, I went and saw it, you have to come see it. So I went and walked in and I immediately realized something was wrong. The square footage was way bigger than 591 and had an amazing roof deck with the city views and it was listed for 245,000, which at the time in South Boston was a

steel. I was able to go on the city websites and found out the whole living room was an addition. So there's a 200 square foot addition that had been permitted and added, but was never done, was never reassessed. So the building, the unit was actually 791 square feet and the agent hadn't done any research. So they were selling it per square foot at like a 591 square foot value. Wow. And that happens a lot. I mean, so how would somebody, and I think Mindy, you're probably a good one up for this. How does somebody go and find those gems, the ones where the agents and having quite done their homework and incorrectly write down square footage, something that you may not have normally visited? to check out. I think you just have to look at the pictures that are online and look at the pictures

that they're putting in there. A lot of agents will take the easy way out and say, buyer to verify all square footage, which is a good indicator that they don't know what they're talking about. There, you know, the buyer is technically responsible for, for verifying all the square footage anyway, but when they say that, that could be an indicator that there's, you know, an add-on room that they don't, an unpermitted add-on room. I want to know how you permit how you add onto a condo. That's a good question. So it was the other units had already had the additional square footage, but it was just a flat roof where the living room was.

So the third floor, this is a third floor unit. The other two units had already had that area built out and it was just a flat roof. So then what the owner of this unit did is he built an addition out onto that flat roof to include that additional 200 square feet into his unit. Oh, interesting. I don't think I've ever seen that before. This is a very interesting. I mean, it was condoed back in the 70s, which you don't see very often that someone split a three family into condos back in the 70s.

So it's been condoed for a long time. Got it. Interesting. Interesting. And where did you get the down payments for the second and the third property? You said you borrowed money from your mom for the first one. Yep. So the first one was from my mom.

And then for the second one, I was a year and a half later, I was able to do another low down payment FHA purchase. So that one was, I bought it for $825,000, but the loan limit was $810 at the time. So I only had to put down $33,000. So at the time, I had been recuperating cash flow from the previous property as well as working full time. I was working in finance. So I had the cash to purchase that next property as well. Got it.

So when you say that you got an FHA purchase, that's an owner-occupied loan. So you moved from the one unit to the next, from the one property to the next? moved into the basement apartment of the next property, correct. You didn't want the penthouse? Why not? I did, but it was the lowest rent was on the basement unit. So moved into that one. Got it. And that's obviously, I think, a pretty solid tip for those people who are thinking about doing this strategy, right?

I mean, I know it's tempting to say, hey, I'm going to take the best unit. But if you take the worst unit, you typically can make more money or at least, you know, defer more of your costs. doing it that way. So exactly. There you go. Cool. All right. So you got through these first three properties.

You know, what was the, so we had that hoarder story, the four family. And how did that hoarder project turn out, by the way? So it's actually the one I'm sitting in right now. So instead of, instead of doing my first flip, I was renting around the corner. And when I finished, I decided to move in. So I still live in this unit today. And this was one of the three that I was able to cash out. And I ended up putting set.

75,000 into it, and I was able to cash out 100, about, you know, six months or a year after finishing. And what's it worth today? Around 600,000. So you pay 220, give or take. You put 75K in, give or take 300K, and it's worth now six. When did you buy that? 2013.

Wow. Wow. Yeah, South Boston has been one of the hottest real estate markets in Boston for the past couple years. That is crazy. That's really crazy. Awesome. All right. So you got these first three properties. You're not done yet, are you? No. So then I actually, well, yeah. So I was trying this is kind of like Brady. Is that is that?

Yeah, I got, you know, two more to go. Ouch. But yeah, no. So then I actually was looking in, you know, obviously you hear people on, you know, all the time like, oh, it's too expensive. I couldn't afford it. So Boston at that point started to be very, you know, very, very hot for real estate. I mean, it's gone through 2007. By that time, it was into 2013, people were, you know, buyers were back, investors were back, and, you know, it was becoming more and more difficult to purchase. So I was trying to buy in an area in East Boston, which is I'd heard a lot about. It's near the downtown area. And I kept getting outbid on every building I was going for.

And, you know, I was running the numbers and I couldn't afford to pay any more than I was offering due to the cash flow. What it was is all the big investors were, they were going to take the appreciation. and run with it. So it just wasn't working. So at that time, I was, I had to do something. So I was like, well, maybe I'll try this condo conversion game. So I switched the way I was analyzing properties from looking at, you know, my cash flow returns that I could get and looked at it as what could I get if I was to split these and sell them as condos. And at that point, I was, I went reran the numbers. I said, I can pay more than these investors are are paying if I'm willing to do condo conversions. What is the condo conversion really quickly? So condo conversion is when you purchase.

a building somewhere between, you know, I guess you'll be two to four to even larger number of units, and then you convert it into condos. So you change the deed from a single unit into three units or four units, and then you would sell those off to individual buyers. Got it. What's required of that? I mean, how? So I go and I buy a duplex, for example, and I change the deed. And so each of the units gets, gets its own deed now. And then I can sell each of those properties as a separate property. How does walk us through the actual steps? Right.

So I would highly recommend using an attorney. Really? So I just went to night school. So the actual process of having the deed amended and resubmitting that is, you know, it's all you have to have an architect who is going to redraw up the condo documents, the plans that go with that so that when you submit everything to the city, they're able to, you know, document exactly what you did and then now what the current units are and their size and all that information. So you need a really good architect to handle part of it as well as an attorney to, you know, handle the creation of the documents as well as the submitting it through the city.

And what about HOA? Yep. So all that's, you know, your attorney will handle the process of setting up the budget as well as the creation of the condo docs. And then once you sell, that is, it does get complicated. because when you create three condos, you have three separate buyers. A lot of them are first-time home buyers. You have to have someone run that association, which, you know, when there's three first-time home buyers, there's not always a guarantee that one of them wants to step up and take on that type of responsibility.

Got it. So we've actually, to resolve that, we've actually started a property management company to manage condo associations so that then we can move these condos directly into the management company. That's a great idea. That's a really good idea. All right. So what is, I mean, what is all that cost? Let's forget about the, um, the actual physical cost. But what's the cost, um, in legal docs, for example, average? Yeah. So for the, for the architect, we, it's about, he charges about 2,000, 1,500 for the creation of his plans. This is just for the legal

side. And to do the measurements and then submit that. And then the attorney's fees are around 3,000 for the, you know, to create the condo association. That's it. Yeah. That's it. So literally I go, I buy duplex a triplex. I go find an attorney. It costs me a couple thousand bucks.

I found an attorney, an architect cost me another couple thousand bucks. And all of a sudden, you know, presumably you're going to want to do separate metering, all this other kind of constructive stuff. But from a legal physical perspective, those are my cost non-constructive. Yeah. It was actually, when I first looked into the first one, I was really surprised that there was, the process was that simple. I got introduced to an attorney who had some expertise in it and he ran me through the process and it was, it was really that easy. All right. So let's talk about one of these condo conversions.

You were talking about, I think it was like a small multi or something like that that you had just bought. Yeah. How many units were there? Yeah. So the last, actually, there's one that I blogged on big. pockets that just finished up. So that one was a three-unit property that I purchased for $650. There was a 4,300 square foot building in East Boston. Got it. And so then it took us about 10 months of renovation and the cost on that was about $550,000 of renovation costs. 550k in renovation. Okay. Yeah. Okay. Yeah. And so those and those just sold and they'll be, they're closing the first week of March. So the sell out on it was, oh yeah, at one.

1.7 million on the sellout. Wow. So your costs are give or take 11.1.1 and plus, you know, extra fees here and there. And you sold it for 1.7. Yeah. The profit on it was about 450, 450,000. For 10 months. For 10 months.

I need to talk to you about a raise, Josh. That's great. That's awesome. So questions about this. Back to the HOA. first property was a condo, and I surprisingly bought in a property in a condo complex that had a very crappy HOA. Shocker.

I know. That never happens in real life every single day. So what do you do to create the HOA? Obviously, you just put a boatload of renovations in here. So pretty much everything's new. I mean, $5.50 in renovations is going to give you not a lot of original parts left over. What do you, do you put any seed money in the HOA for their coffers? Or like how do you set that up?

Good question. Nope. So we just set up, no, there's no seed money that has to go in. So we just establish, you know, we put together the budget. So I set up the master insurance policy. We pull all the, you know, the water, what the water bill will be, the common area electric. We estimate on the snow removal and any type of expenses that, you know, are expected to go with the property. We then build in an additional increase in the fees that will end up start, we'll start building the association's account, the reserve account.

And, no, that's just how it starts out. In the condo conversion, you don't have to have an established amount of funds in the account. Wow. Mindy, is it a loss for words? I'm at a loss for words. I actually am very anti-condo because of my experience. My first property was a condo. Then I moved into a house with my husband.

And then we bought a condo in the city of Chicago. And it was just two horrible experiences that I will never do again. We always had a special assessment. every minute I ever lived in a condo. In the early stages when we're creating a brand new association with everything being brand new, I think from that process for buyers, from a buyer standpoint, and from my standpoint, it's a lot easier. I mean, you hear a lot of horror stories about people who are buying into established

condo associations where, you know, there's issues already with the board. There's low reserves. But when it's a new association, you know, you don't have to deal with all those from my standpoint. Nice. That's great. Once you're out, obviously these issues become the issues of the new owners of the property to kind of resolve amongst themselves. Exactly. Or if they decide to move it under the management side, then we'll continue to take care of the, you know, the association bills and overseeing the property.

Cool. Awesome. But the three people that just bought your $1.7 million condo unit, they can band together and decide we're going to not use your property management company anymore. We're going to go our own. Exactly. They could self-manage it or they can move it under our management company. Cool. So who's the president of that HOA? Who's running that HOA? Do they have anything like that? Or is it just your company? So that one, right now they're still deciding whether they're going to move it into our management or not. And it's really going to have to be a decision that the three buyers make. So once you have all three units under agreement, we actually put the attorneys of those three buyers on the same email chain. And we're able to kind of remove ourselves from that negotiation. So we give them the condo docs. We let them negotiate them between themselves, as well as establishing who's going to be in charge.

Nice. Awesome. Last question on this before we kind of dig into the next couple deals or deal or whatever we've got left here. Is there any kind of minimum number of units required to do a condo conversion? I mean, I'm assuming at least two, right? Yeah. You know, some people are definitely doing, you know, two unit kind of conversions. I try to always aim for three or more.

You know, when you get down into the two range, the numbers just start. to get a lot tighter. So I like to have that extra unit that it was able to increase the, you know, the returns on the end. And what, what do people need to look out for? You know, you talked about the returns getting tighter. So obviously there's, you know, the expenses we talked about. But any advice that you would give to people on identifying potential properties where they can do a conversion? Yeah. So, I mean, the first thing, you know, I just, you know, I get down into that basement and I, you know, I check out that the foundation because, you know, from my, from my past, if a property has a major foundation issue, your profits can just disappear.

The other thing that I, you know, on my project, since I'm doing a complete gut renovation, I know that everything is going to be, you know, we're going to be ripping out everything. So my budget's pretty set in stone other than if I had to do major structural repairs. So for someone who's starting out, you know, I actually meet with a lot of young, you know, investors who are doing this type of project. And it's really be careful with those major expenses, you know, the plumbing, the electrical, Those will immediately wipe out your entire profits. In Boston right now, the price to do plumbing is around $40,000 on a three-family.

Electric is very similar as well. So if your numbers are, you know, you're looking to make 50 to 100 on a project and you didn't expect to do plumbing and electric and then you have to, you know, you just made no money. Yeah, for sure, for sure. Most investors spend more time chasing deals than reviewing their insurance. But a quick coverage check can be fast, easy, and one of these smartest ways to protect and even improve your property's cash flow. As the months get colder, frozen pipes, icy walkways, and seasonal wear and tear can increase the likelihood of claims. And traditional insurance companies aren't always built to handle these claims quickly or smoothly.

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Yeah, so right now I have five kind of conversions in different stages and continuing to work on those, as well as the other side of my business is to purchase. Still trying to buy buying, buy and hold on properties. But, you know, as everyone always says, it's so expensive. And, you know, even in Boston, even for me, I can't find returns here on a buy and hold strategy. You know, the cap, the cap rate is way too low. We're looking at a five cap in Boston. And I'm just not willing to purchase at a five cap.

You know, explain really quick to anyone listening who doesn't actually understand what that means, what a five cap is? Right. So, yeah. So on a five cap would mean that you're making five percent return on the property without taking out any type of mortgage. So it would be a property with all the expenses without any type of mortgage, that would be your cap rate. So a 5% return on that. And so I actually ended up, started to buy down in Providence, Rhode Island the past six months just because I was in search of cash flow. I was in search of a higher cap rate. So instead of, you know, in Boston, there was just no money to be made. So then I started looking and reaching out and got introduced to some agents down there and have been able to find some decent cap rates down there. So, you know, getting out of my market and looking for, you know, money.

anywhere. So are you, are you working full time right now? No, this is a full time job now. Okay, so this is a full time job. At what point did you quit your finance job to become full time in real estate? So it was about a year and a year and a half, two years ago was towards the end of my first condo conversion. And when I was trying to do a condo conversion project with a full gut while working full time, quickly realized that that wasn't going to work well. My boss was, bosses weren't happy and, you know, had to be at the project on a day-to-day basis. So luckily for me, the way my business had started with these, you know, cash flow and rental properties, I had the cash flow coming in that I was able to then quit my job and concentrate on real estate.

You know, so I'm a big believer in, you know, in the cash flow, you know, in the buy and hold strategy. I think that that's the best way to get started. You know, you're able to use low down payments and, you know, create that cash flow. Awesome. Awesome. So you needed to spend too much time. I mean, these projects were just draining you, right? They were taking all your time. You had to get out. Your passion was real estate at this point.

The finance was no longer your passion, correct? Correct. Right. So what would you tell somebody who's thinking, you know, hey, I just want to quit my job and go right into real estate. I've got some money. I can do it. I know you had talked about using that job as a means for having income coming in.

I always like to tell people keep the job as long as possible, and it sounds like you did that, but what would you say? 100%. I mean, I talk to people and they say, you know, they want to quit their jobs, you know, these young guys are not, you know, they want to go into real estate full time right away. And I say, you know, that W2 is going to be your lifeline to getting this business started. When you meet, you know, lenders, they want to see that, you know, the W2 paycheck coming in on a weekly basis. And then that's going to help you get those first loans. until you've had an you become established in the real estate game they're not going to give you

loans based on what you've done uh or or your dreams of real estate so stick with your stick with your yeah stick with your day job use that money to come in and then do the real estate on the side um you can balance both yeah well some people Mindy eh but some people so let's talk about how you're getting these properties rehabed are you a DIY guy you out there swinging a hammer. No, no swinging the hammer for me. Look at this guy. This guy has never picked up a hammer in his life. He could swing a hammer. Come over here. You can swing a hammer at him. Ricky Belavaux. He's like from France or something. He's from Boston. He lives in Boston. He's from Boston. Did I do that right? I'm not very good at the Boston. I was close. No, so when I

obviously when I first got started in the early projects, I was doing demo, doing all the, you know, a lot of the stuff myself. Ricky, I should know, I should give you. more credit. I apologize. Yeah, but now I'm not swinging a hammer. So I hire a GC who runs all the jobs. And then he hires out all the subs. So, you know, I'm overseeing the financial, you know, the financial side, the property acquisition side, the design, you know, material sourcing. And then he's dealing with the day to day overseeing the subs and the actual job sites. And do you use the same GC over and over again? How many projects have used him for? Yeah. So he, yeah, so he's been doing the, uh, He's done every project that since I've been doing kind of conversions.

So that's, you know, where do we get now? Six or seven projects now. He sounds reliable. How did you find a reliable G.C? Yes. So when I was doing the projects when I got started, I actually, my uncle owns a development company in Boston called Back Bay Design Consultants. And I was kind of, I was using his labor, pulling him away to work with me after I left

work, you know, to help me do the renovations when I was getting started. When I got into the first condo conversion, I said to my uncle, I was like, oh, I'm going to do this project in East Boston. I just bought. And he goes, well, you're not, you can't take my labor to do a gut renovation. He's like, that's not going to work. And this is Boston, right? Like, you can't, like, you know, I'll kill you, right? You're not going to take my guys, right? Yeah. No, he wasn't happy. So at that time, so I actually had the property at the time. I was ready. I thought I was going to be starting and I didn't have a GC or any labor. So it actually took me about three months of networking, reaching out to friends, agents in Boston, taking meetings, getting quotes to finally find a GC

that I was comfortable with and that, you know, I thought could do the job. So what, what criteria did you use? So that, I mean, this is, this is really one of the biggest challenges for people. So what advice do you have for for folks on finding a really, really good contractor? So I would say if you can get someone who's directly recommended by someone that you trust, that would be the best possible way to do it. Whether it's a real estate agent or an attorney or someone who has used that contractor before that they can vouch for them, that would be the number one. You hear all the horror stories when it's someone that you are finding on Craigslist, you're finding on another website. And then that's when everyone gets in trouble. So I would say try to network, meet with people.

and the larger your network is, the better chance you'll have of finding good people. Sweet. All right. Wow. Could you network on a website? I don't know. I heard of one once. Gosh, it would sure be.

Bigger, bigger something. Bigger. Bigger pockets. Bigger pockets. Yes. I've heard that they've got a couple of real estate agents on there. Yeah, they might have a few. Real estate investors.

Yes. Nice plug, Mindy. Wow. You've really taken over Brandon's job here of the shameless, selfless plugs. Well, he's slacking off and not here. I have to fill his shoes. Yeah. I can't fill.

You can put both feet in each shoe. There you go. All right. Well, before we move on to the fire round, I want to ask, my last question is, do you have any other tips on condo conversions for people? For people who are pumped and motivated and excited about it, you know, what questions? What advice do you have for folks? So I would say is, you know, you really want to dig into the numbers, right? So don't, you know, really, really look in, look at those comps, get all the comps because there's going to be stuff that's going to come up.

So you want to make sure that your sellout is really properly calculated. And I always recommend don't be, don't throw your top comp as your hope, you know, what you think your sellout's going to be. Right. So if it's a project and the, you know, the highest comp you see is 500,000, but the majority of them are falling in the, you know, mid fours, low fours. Stick with that number when you're doing your calculations because that's how you're going to end up. underwater is if you need to get that $500,000 per unit. So I would say concentrate on the numbers. Nice.

That is so, so, so true. It's so tempting to see that big 500 number and, oh, I could do that. Aim low. The market will bring your price up to five if it's worth five. But aim for the base hit. Exactly. Awesome. So, okay, so you've done condo conversions and burr and live-in flips.

And what's next for you? So just right now continuing to grow the, you know, grow the business doing both acquiring more buying holes and now these condo conversions, looking to find some land deals and do some ground up construction here in Boston. It's very competitive, you know, for, you know, to find good land to build on. But we'd like to get into building somewhere between six and 12 unit buildings, you know, somewhere in or around the Boston area. Nice. That's awesome. Cool. Do you have a goal for how many doors you want to have? No specific number.

All the doors. Yeah. I want all doors. No, just continuing to grow at a steady pace. You know, last year went up, gained around 15 or 16 units. And so kind of continue around that pace. And, you know, the units, those units in a market like Boston are obviously worth a lot more than units in St. Louis or, you know, I don't know. Detroit.

I keep coming up. Have you been to Boston? That's right. Yeah. When you, when you compare the two, it's, uh... It's weird. It's weird. Yeah.

All right. Cool. Well, let's move on. It's time for the fire round. It's time for the fire round. Fire round questions come directly from the Bigger Pockets forums that can be found at biggerpockets.com slash forums. Nicely. You know, you do that a lot better than Brandon does.

You should hire me. I might. It's so easy to pick on this guy. Even when he's here, I pick on him. But, you know, like when he's not, it's just, I don't know, something about it. All right. So first question. The first questions.

First question. What are the cost to consider when doing condo conversions? I'm not looking for dollar amounts, but rather specific concerns to be focused on. Nice. Kind of covered that a little bit. But, yeah, what do you say? Yeah. So I think, you know, when you're going into a project, I would say the first thing you want to do is you want to really take the time to draw out.

an Excel sheet or some type of calculation. I think on Bigger Pockets, I think you can find some help with this. So for calculating out everything that you're going to be spending. And one thing you'll realize when you deal with these contractors is a lot of times there's things that you're going to end up having to spend money on that are not going to be included in their original quote. So be very careful with the line items of everything you want to be completed so that nothing's missed when you're doing out all your calculations.

Nice. And you can find that at BiggerPockets.com slash analysis. So cool. next question. What are the pitfalls of converting to a condo? So, you know, we kind of touched on the downsides, but are there any other pitfalls that we might have, might not have covered? Like, if the market's going the wrong way, if markets going down, is there a potential danger? Anything else that people might want to look out for? Yeah. I mean, there's, you know, obviously when you, when you take a property that's a three family, there's, you have, the buyer's scope on that is,

you know, you have a lot of investors who are interested and, you know, that are interested. And, you know, that are interested in the full property and its full value. So when you go and splitting it into condos, you're removing the fact that the majority investors aren't interested in purchasing condos. So when you go and split it, if there was to be a downturn in the economy, your buyer list could dry up from the,

you know, young professionals or someone who'd be looking to buy because those investors are no longer interested in purchasing individual condos. Investors would be more interested in the full building. So I think if you were to split into condos and you start selling them off, you could get stuck with one, Luckily in a city like Boston, you could always then switch it to a rental and just, you know, it hold it as your own. But that could be a risk.

But I, you know, the risks are, you know, are pretty minimal. Cool. Yeah, it seems like a, I don't want to say risk free way to invest, but especially in a hot market where it's just, the prices just keep going up. Okay, so you also have. There is no risk free way to invest. Please do you do diligence before putting money down on a property. Well played. So you are also looking at buy and hold properties. Something that I come across on the forums a lot is leases and clauses in a lease. How long is your typical lease? And do you have any clauses that you're particularly fond of? Right. So on our buying holds, we try to do it's always for a year lease. If they'd wanted to do a longer period, we'd be open to it, but we stick to a year lease period.

So I have two different management companies. I use one up here in Boston, then one down in Rhode Island. Each of them have a different structure that they use on addendums and a different, you know, different things that they require from these tenants. But I think the most important thing is just screening the tenants and making sure that, you know, that they have a solid payment history, that they have good references and that, you know, you're going to be getting that payment. on the month, you know, every month. Awesome. All right. Last question is on evictions. So how do you deal with roommates of, I guess the question is, how do you deal with a bad roommate when you're doing, when you've got these college rentals? So if one of the roommates is being particularly bad, do you get involved?

Do you get dragged into it or do you have the roommates handle it? How do you deal with that situation? Right. So if they were, you know, so if there's a single roommate that is, you know, causing issues or is not paying, you know, the nice part about having them all on a single lease where they are all responsible for each other is that we are able to then leverage that relationship. So if someone's, if an individual person is not paying, then we're able to then go back to all of the people on the lease as well as their co-signers and then leverage them against that person to get them to

start paying. That's where you try to avoid having individual leases for each bedroom because then that's that, you know, an individual person, you have to take them to the eviction court. when it's a full group, you know, you're able to then have them put leverage against that other person. Yep. That works very, very, very well. So nicely done. Cool. All right.

Well, it's time. Famous for. The famous four. Bindy, what is the first question of the famous four for Mr. Ricky? These are the questions we ask of all of our guests. Ricky, what is your favorite real estate related book? So I'm not the biggest reader about real estate. But I do have one that I wanted to shout out, which is the flipping confidential.

You guys remember this show, Property Ladder that was back so long ago on TLC. Oh, with Kirsten. Kirsten. Yeah, Kirsten Kemp. Oh, she was awesome. So this is so long ago. But that's what actually was the first show that I was watching about flipping. They kind of got me interested in it. I don't even remember when that show was on TV.

So that was probably the only real estate book I've ever actually read. So shout out to Kirsten Kemp. important and meaningful book for your career, right? There you go. Yeah. Nice. What about business books? Anything stand out for you? So same thing. Having read a lot of business books, I wanted to shout out a podcast, though, that I've been listening to, which is how I built this. I don't know if you guys have listened to that. Very, very impressive podcast. It's got, you know, people from all different startups, you know, Instagram, you know, just tons of different people and walking them through the process of how they built their business. And it does, you know, it kind of correlates. what we're trying to do here with, you know, with your real estate business. So, highly recommend it. Cool. Cool. What about hobbies? What do you do for fun? Love to travel and love to golf. So waiting for this winter to end up here so we can get back

on the golf course. And that kind of counts as business too. Get the other developers out on the golf course. Let's go golfing then, do. Says Josh, who just went skiing. Over here in Denver, we do skiing instead of golfing, at least in the winter. Yes, for sure, for sure. Okay, our last question is, what sets apart successful investors from those who give up, fail, or never even get started? So I think that it just is to not say I can't, right? I mean, I feel like you hear so many people I meet with, you know, young investors who are saying that's not possible, I can't do it. And I think there's always a way that you can get around something.

So when you come into, you know, come up to something that you think you can't accomplish, it's don't say I can't is to, you know, talk to people, meet with. with people, find someone who can help you because there's a lot of people on the bigger pockets forums or just in general that are willing to help and they can, you know, can get your career started in this business. I know, you know, someone comes to me with a great deal and they might not have the capital to do it. I'm happy to include them in as, you know, some type of partner or, you know, show them the ropes. So I think, you know, don't say I can't. It's, you know, figure out a way to do it. I love it. I love it, I love it too. I think that's really important to have them to, to recommend that people bring something to the table.

Yes, definitely. Cool. All right, Ricky, before we let you go, where can people find out more about you? How can they link up with you? So you can find me on the Bigger Pockets. You can also find my website is vulnaycapital.com or you can find me on Instagram at Volney Capital or Facebook, Volney Capital. Perfect. And we'll link to that in the show notes at BiggerPockets.com slash show 215.

Ricky, thank you so much for coming on. We really do appreciate it. Awesome. Thank you guys. It's been awesome. You got it. Take care, man. Thanks a lot. Bye, Ricky. Bye. Bye. All right, guys, that was Ricky Belvo.

Big thanks to Ricky for coming on the show. That was great. That was an awesome show. I loved learning about his condo conversions and his tip about taking unused space like a dining room and turning it into a fourth bedroom. I'm now going to start looking for places with dining rooms. Wow. That's going to be hard to find, Mindy. Places with dining rooms. Listen, not other places a dining room. Really? Welcome to 27. What?

What? I live in Longmont. Oh, that's true. Oh, that's true. No, that's great. Yeah, listen, if you can find an opportunity to take a property and add value to it for yourself as a landlord and add value to your tenants, it's going to be a win-win. So I love the idea. I love taking properties and transforming them into something else and taking different uses that may not be as valued today, like a dining room, for example, because

frankly, my wife actually, it's funny, like two weeks ago, my wife was like, yeah, you know, we never used our dining room. I was like, no, we do, we do. And I was like, wait a second. Oh, yeah, we do. We've used it three times since we've been in the house in a year and a half. And so that morning, of course, we went and we had breakfast in the dining room. I built a dining room in my current house, and I think I've used it at Thanksgiving three times. It's currently housing 5,000 cases of Girl Scout cookies. Yeah, that's awesome. And we did buy one of them. So, 5,400,

4,900. That is hard. That is. It is. I don't know. I don't know. Anyway, you guys, great show.

Big thanks again to Ricky. You can check out the show notes at biggerpockets.com slash show 215. That's biggerpockets.com slash show 215. Please give props to Mindy. Shout her out on Twitter, like I said before, at Twitter at Mindy at BP. And otherwise, Mindy, that was awesome. What do you, what do you got going on?

I just hoping to sell a lot of Girl Scout cookies. Nice. Nice. And maybe buy some real estate and do some. Well, yeah, I'm thinking to myself, oh, my goodness, I saw this really awesome, well, this really awful property. There was no space to make any money in it. Oh, wait a second.

I can just take a dining room and make another bedroom out of it. If I could put another bedroom in there, I could make money on it. So now I have to use my real estate license to go in and see this house again and rethink my plans. Yeah. Now, the only challenge to the idea of this dining room, I think, is it's going to be on the layout of the property. Like, you know, do you want a bedroom coming right off the kitchen or however kind of the house is laid out? It may not obviously always work. No, but sometimes it will.

Yes, indeed, indeed. Cool. This is right. It's really shared. Indeed. All right. Well, Mindy, thanks again for being my co-host. Everybody, thank you for listening.

Check out next week's show, show 216 on the podcast. We've got, of course, more exciting guests coming for you. Do tune in, and please do share the show. And if you have any questions or comments, jump on the site at biggerpockets.com. Create your free account today. Thanks so much. And see you later. I'm Josh Dorkin.

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