BiggerPockets Real Estate Podcast - 6: Investing While Holding a Full Time Job with Arthur Garcia

Episode Date: February 21, 2013

Investing in real estate while holding a full time job may not always get the most discussion in the real estate investing world – but there are thousands (if not millions) of investors who do just that. On today’s episode of the BiggerPockets Podcast, we sit down with Arthur Garcia, a busy part-time investor who has massed an impressive collection of rental properties while holding a full time job. This show is filled with a ton of really great tips to help any investor – large or small – be more efficient with their investing time. In addition – this was probably the most humorous show to date! Before we jump into it – we want to once again thank everyone for subscribing to our show in iTunes and leaving us a review. We are up to 99 Five Star reviews and over 25,000 downloads! Thank you to everyone! Read the transcript of Episode 6 with Arthur Garcia here. In Today’s Podcast, We Cover: How to invest when prices are too high in your area. How to get started with “buy and hold” investing when you don’t have much money or time. How to use use “cost to rebuild” to predict the future of your market. Why Arthur and his wife sold their primary residence to live in an apartment while buying rental property. The “super creative way” to find flexible lenders. How to find “Portfolio loans.” A great way to legally get around the “10 loan” limit for mortgages. Why investing while holding a job gives you an advantage. Tips for finding a great property manager. The story of a topless 90 year old woman that finally convinced Arthur to hire a property manager. Tweetable Topics: “You can’t save your way to serious wealth in retirement.” Tweet This Quote! “That first rental check fueled my addiction for real estate investing.” Tweet This Quote “Do everything you can to take advantage of the downturn in the market” Tweet This Quote! “You gotta draw a line in the sand and place your bet on where you think the market is going to go.” Tweet This Quote! “To invest in real estate while holding a full time job – you need to find ways to build systems.” Tweet This Quote “What makes the top performers stand out? The Art of the Side Hustle” Tweet This Quote! Links from the Show: BiggerPockets Summit – Conference 2012 Steve Landis Michael Zuber P90X Insanity Books Mentioned in the Show: The BiggerPockets Ultimate Beginner’s Guide to Real Estate Investing The E-Myth by Michael Gerber Rich Dad Poor Dad by Robert Kiyosaki How I Turned $1,000 into Three Million in Real Estate in My Spare Time – by William T Nickerson How to Win at the Sport of Business by Mark Cuban About Arthur Garcia Arthur Garcia is a buy and hold investor in Southern California who is buying up dozens of homes while working a full time job. Arthur acquires properties using a combination of hard money, HELOCs, partnerships and private investors. You can find out more about Arthur at: Arthur’s BiggerPockets Profile Arthur’s Blog – The Buy and Hold Guys.com Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, everybody. This is the Bigger Pockets podcast, show six. 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. Hey, everyone, it's Josh Dorkin with BiggerPockets.com here with show six. I've got my co-hosts with me, Mr. Brandon Turner. What's up, Brandon?

Hey, not much, Josh. I don't know if you just heard that, but that was my cat meowing in the background, saying hello as well. I can hear something meowing. I hope it's your cat. Well, we got a great show, man. This is going to be an exciting episode ahead. We've got Arthur Garcia with us who's a sharp guy. He's not only a sharp guy, but I'm not only a sharp guy, but,

I think we're going to have some fun to come. Yeah, Arthur's actually one of the reasons I became a Bigger's Blogger originally, actually, because Arthur reached out to me and actually called me on the phone. We talked for a while, and he's kind of got me connected with you. And so I actually owe a lot of my Bigger Pocket's connection to Arthur. So I am extremely excited to have him on the show today. I was not aware of that. So I guess I'm excited as well.

Let's talk a little bit about Arthur. Arthur is a successful buy-and-hold investor in Southern California who invests while working a full-time job. And he's working towards, I believe he's working towards purchasing 25 to 30 homes during this down cycle. We'll get into it later. But he's really savvy. Again, he's a witty guy. And I think he's definitely going to blow some of our minds with his intelligence. So I'm super pumped.

But before we get to Arthur, I just want to talk about the show in general. As you know, this is show six, and our five previous shows, we're up to 25,000 listens so far, Brandon, 25K. That is awesome. Yeah. Did you think our little show would become the beast that it's become? I didn't. And honestly, I don't know if you remember this, but back in the summer, I told you, you know, when we talked about having a podcast, I said what I would love to have is within one year's time, you know, to be a top 20 business

podcast. And, you know, I think our, what, first or second week, we hit that. I mean, I thought it would take a year. And so this has been incredible, you know, already. Yeah, absolutely, absolutely. And I want to thank everybody who's listened so far, and especially those people who have taken the time to leave us reviews on iTunes. 99 of you guys have done that. That's 99 of 25,000. So, you know, hints. But listen, thanks to everybody

who has left a review. If you haven't, please jump on iTunes and leave us one. It's really helpful. Helps get the show in front of a lot more people. So definitely do it. But enough of that. It's time to get to the show. And we're going to talk about what, Brandon? We are going to talk about buying and holding with Arthur.

buying and holding and doing so while you're working a full-time job. Correct, because a lot of people that come to bigger pockets, they don't have, they're not job-free. You know, they're held down by a job and they see a lot of investors, you know, like, you know, I talk about, I don't have a, you know, I'm going to read- You don't have a job? Is that what you were going to say? I was going to say that, but I do. Because you got one now. I know, I can't say that anymore. I think you do.

Are you still working for, did you just quit, Brandon? I just quit. All right, let me re-say that. No, I think we should run with that. Okay, we can run with that. No, it's going to sound stupid. Where should we take it from? You just said, isn't that right, Brandon?

Isn't that right, Brandon? Isn't that right, Brandon? Keep going. Yeah, that's true, Josh, because a lot of people come to bigger pockets and they have jobs, and they see a lot of the investors, on there who are job-free, and they say, oh, you know, it'd be nice to have that.

But I don't think the people that are investing with a job, I don't think you get enough attention. And so I'm really excited today to talk to somebody who's got a full-time job and is a full-time investor. I mean, that's not easy to do to manage both. So I'm looking forward to our discussion. Cool, man. Well, let's get to it.

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and protection for property damage, liability, and even loss of rental income. Now is the perfect time to review your rates and coverage, get a quote in minutes at biggerpockets.com slash landlord insurance. Steadily, landlord insurance designed for the modern investor. Hey, Arthur, what's going on, man? Hey, Josh and Brandon, good to be on, man. Thanks for having me on. That's a pleasure. Yeah, I'm excited to have you. Yes, yes, yes. Hey, man, so, you know, really quickly, I just want to let everybody know. I'm super pumped about this, first of all, because when I needed a hand on the 2012 Bigger Pockets conference,

Arthur Garcia basically raised his hand and said, yes, let me help you out. I'll do whatever I can to make sure this thing's successful. And he did. He was amazing. He was our event coordinator and really did an amazing job. So Arthur, I just want to thank you live on the air here for all to hear. And anyway, with that in mind,

you are a real estate investor who is doing your thing while working a full-time job and I think that's something that appeals to a lot of people. So why don't you tell us, I guess, how you got started, why you got into real estate, what made you decide to start getting into the field? Yeah, no, definitely. I guess I'm probably your typical bigger pockets guy, you know, the one who has the day job working for the man. And at night, and when I have free time on the weekends, I'm looking at ugly houses when I have a chance. So, yeah, that's a little bit about, you know, what I do. It's more buy and hold and keep my day job until I can maybe figure out a transition plan down the road or something else.

So we won't tell your bosses that are listening to the show that you're eventually planning to quit your job. Arthur, that's not my name. Yeah, no, I mean, it's really interesting because, you know, working in corporate America, I learned this when I got right out of college, you're only as good as well as you perform, right? So I've always had that fear in the back of my mind that, you know, one day I'm just not going to be able to perform. And if something happened to me or if I got sick, I just didn't like being on that payroll situation where you don't have another backup plan. And so in college, I was kind of fortunate. I went to a private school where a lot of the folks that I was peers with came from pretty wealthy backgrounds.

Of course, me, you know, I showed up with my sandals and, you know, taped shoes and all that. But everybody around me was pretty well to do. And it was great because those four years really taught me a lot about, you know, people coming from different backgrounds. You start to see similar patterns. And one of the things that all these guys had in common, or a lot of them did, was, they owned multiple, multiple properties. One of my roommates that I can think of now, great guy, but his family owned, I think, like 20 different properties. And, you know, just talking to him over the years, I got to learn a little bit about the way that he viewed money, the way

that he viewed wealth. And the only way to really get any type of wealth other than just, you know, you can't save your way to making a decent amount of money in your retirement. You really have to find a vehicle that's going to work well for you. And real estate, you know, of all the different investment vehicles seem to be the most lucrative. It made the most sense in terms of taxes. You know, you can get someone to finance 75 to 70% of your deal. You know, I don't know anybody that if I was going to open up a bakery, nobody's going to give me 75% of the capital to just start that. On top of that, you know, you get all these great tax breaks and, you know, your tenants are paying down your debt with cheap dollars. So it's, it just kind of seemed to make the most sense.

So I don't know if that answers your question, but, you know, it was something that stuck in the back of my mind. And then when I got out of college, I had always tucked away a little bit of money. But out here in California, right when I graduated, the market was just ridiculous. From 2002 all the way to 2006, it was just, you know, I think that's, it was nuts everywhere. But specifically in Southern California, the market was crazy. I mean, people were paying ridiculous amounts of money for houses that they couldn't afford. I couldn't really get in the game. so I had just kind of put my money into 4-1K and a couple of mutual funds.

And nothing against those. They're definitely for certain types of people, but I was slowly watching my wealth not accumulate. And then it just happened that at that time, the market had crashed around 2007 or 2008. The bubble popped out here, and everything just went, you know, houses that in certain markets out here were selling for 400,000 were selling for like under 100 grand.

I mean, it just went ridiculously the other way. And it just kind of that opportunity meets preparation. I was waiting to get in. I just didn't know what to do. And that's when we decided to jump in. Nice. And yeah, so that's, when I say we, I'm talking about me and my wife. Gotcha, gotcha.

Yeah, you know, it's funny. I was in SoCal in the early 2000s. And the big story that really jumped out at me was when I heard about a friend who was an agent who knew this cop who had just paid like $1.2 million for a house. And I'm like, you're a cop. Wait a second. How are you affording a $1.2 million house? It shouldn't happen.

And with these crazy loans and all the nonsense, I mean, that to me was that sign that, man, this is just chaotic and seeing these house values just double. And then some out in SoCal was it was bananas. It was definitely bananas. So anyway, so you and your wife, all right, you guys are stoked. The timing's perfect. You say, hey, let's do it. We're going to go buy this long-term portfolio.

What happened? I wish I could tell you that I had all this strategic planning. First off, I couldn't buy a property because it was just too expensive. Not fancy. I wasn't like timing it. It was just couldn't buy a house because I just couldn't qualify for the types of loans I needed to get. So when the market corrected, we were like, now it's the time to start investing, you know? So I put this huge down payment on a primary residence because, of course, that's an investment, right?

So we dropped, I mean, a substantial amount of money to get into a primary home. And we had a little bit left over. And I thought, well, you know, maybe we can use this to buy our next investment. And it just so happened, we're like at a family get together and a family friend of ours who had owned a piece of rental property out in the Inland Empire, which is about an hour, hour and a half outside of Los Angeles. he had mortgaged himself all the way to the hill. It was at the peak, this little 700 square foot home was worth about 400,000. In this really kind of rough part of town, he refinanced the whole thing. You know, he bought all these different types of toys, not tonka trucks, but like he bought.

Tis and all the fun. Yeah, he got a motor home and all these different types of boats and, you know, just different things. And I don't know where the money went, but it wasn't there. So once he realized that that same property was not, you know, it was negatively cash flowing for a few years. He was just done with it. And anyway, him and I had started talking at this get-together. And I had mentioned that I, you know, was interested in getting into real estate. And he just gave me this whole laundry list of how it was just a, you know, terrible thing.

rental property was no good and tenants destroy your property and blah, blah, blah. But I had, you know, up into that point, I had years of all those reading different books on stuff. And I had remember all the other things that I've read that was like counter to what he was telling me. But anyway, the long story short is that he said, well, I'm probably going to short sell that house. No clue with that meant, but I was like, hey, well, maybe I can buy it, whatever the short thing is. So we had worked with the realtor who was going to double in the deal. So she was going to represent him as the distress seller. So she went to the bank on his behalf and negotiated a reduced sale.

He obviously had a crazy mortgage on the home. And in today's market or at that time, it was only worth $70,000 or $75, according to what the comps and everything were pulling. So I walked in and I was the backup person. So she went up to the bank and said, okay, look, we need to short sell this for $70,000 or $75,000. Here's our buyer, which was, you know, enter me. I got the property for about $75,000. And I was freaking nervous, man. Because, you know, you read all these things online and you read books and you go to seminars and everyone always talking about cash flow.

But I was like sweating bullets because, you know, up into this point, I had just, it was all theory, right? I didn't know anybody who had actually been doing it except for like my roommate's dad in college. So, you know, I'm sitting there and I have to write the escrow check for like 20 grand and I'm like sweating, thinking, oh my gosh, is this going to work? And, you know, we signed all the documents and then I was, I'll start. to get nervous. But I knew at the very least, after I had the compound account, everything, the mortgage taxes and insurance was going to be a little bit under $500 a month. And based on the research, which was a whopping analysis of just looking on Craigslist. That's the best way. Yeah, this is the beginning stages of my little investment portfolio. But I went on Craigslist,

and I knew that I could rent it for at least 1050 to 1150, depending on who I could get. but I was all kinds of nervous and we ended up closing on the house and I you know I got really lucky because the guy who was owner of the home before me had just gone was you know crazy on this home he put hardwood floor in he had recessed lighting and again I told you it's like 700 square feet home like you need one light in that house that's it it's so small like you can be in the living room and the kitchen at the same time it's great but you know he put granite countert brand new cabinets. I mean, this thing was cherry, pristine condition. But, you know, I had seen all these, like, flip these house, you know, shows. So I was like, well, the front yard looks like crap. You know, I got to bet, you know, so I put C down and install all the sprinkler system and put a fence. Anyway, I probably went a little bit nuts on the rehab part because it was already turnkey. But we ended up getting a renter in there, long story short. And they rented it for, I think, $1,100. And I got to tell you, once I got that first check and I deposited into the bank account, You know, and of course, you know, you can do it at the ATM now.

But, you know, I walked in with my crisp, nice $1,100 check, and I handed it to the teller, and she just looked at it like, okay, nobody's good. But for me, you know, like for me, I was like, you don't realize you're talking to the next Donald Trump, man. This is a guy on this way up. But putting that first check in there was, you know, absolutely started the addiction. I really got hooked after that. I thought, wow, I can't believe someone's paying me to live in something that I own. and it just that was where the whole thing fueled my passion for real estate and then I could keep talking but

no that was a long story long by the way not long story short no that's a great story author that's awesome I can totally resonate with that that's one of the best feelings in the world being able to drop off that check so that's cool you mentioned your mortgage you had a mortgage of around you know your payment was around 500 a month and you're renting it for, you know, 1,100 some. But I'm curious if you could talk about that mortgage, like getting that first mortgage. You know, what can you tell us about that? You know, how did you get that? Just go into a bank or what did you do to finance your first deal? Yeah. So my first deal, quote unquote, was my big investment, my home? No. Yeah. This is the second house that we were going to get. But, you know, really, and most people

know this on bigger pockets, but this is kind of a good point. Getting loans one through four is actually not that hard. Typically for a single family home, you're only going to have to put about 20% down, maybe 25 once you get closer to that four loans. So the first four were actually pretty easy. You could go to like any big bank and most of them will lend all the way up to four. I didn't have to start getting creative with my financing until I got past that hump. And then once you get to 10, it's really more creative. But what I did for the second property was we just used the same broker we had used the first time. And that, It wasn't too crazy.

Okay. Yeah. Yeah. That's like a second loan. No, I think that's great. I think people often think that you have to be crazy and you have to be creative, but I think people forget that sometimes you can just go to a bank, drop down 25% and get a loan. Like, there are banks that still lend today.

Yeah, you know, yeah, it's interesting because, you know, you go to all these real estate clubs and everybody's trying to figure out how to get the owner to carry back the paper or to take on the existing mortgage, you know, the size. subject to stuff, which I think there's definitely a place for that. But if you have a day job like I do and you're working full time and you just, you don't know how to do all the ins and outs and you just want to get started, just getting a regular loans, you know, at least for the first few properties, aren't that difficult. And I think you touched on a really important point there. And we talked about this in the ultimate beginners guide that we just came out with, which you can get at biggerpockets.com

slash UBG. But we talk about how when you have a job, like, there's so much power there to be able to get a mortgage. I think a lot of times people with jobs think, oh, I wish I was like that investor who doesn't have a job. But, you know, when you have a full-time job, there's so much more potential for getting loans and building wealth quickly because you don't have to rely on being creative necessarily. You can just rely on the power of your job to get you there. And I think that's huge. So, you know, props to you. Yeah, and the other component for somebody who's just getting started or who hasn't maximized their 10 loans yet is hard money loans expensive.

Like we're just closing on a property this week where I'm paying about 12% on that, which is nice, right? Yeah, there we go. 12% interest on that. But anyway, when you're first starting out, you know, you're getting locked, especially now a locked fixed rate debt for 30 years at, you know, 5%, give or take. So, I mean, you really do have an advantage over somebody who, you know, can't get those types of loans. So I think if you're just starting, maybe you don't have that 20% to start with. Well, partnering with somebody is a great way to maybe either lend your credit score for a percentage of the upside or, you know, work on doing a 50-50 split. If you guys, you know, figure out some creative way to do that.

But those are the types of deals we're doing now because we can't get that good financing anymore. So anyway, I just kind of a side note to what you were saying there, Brandon. No, that's great. All right, Arthur. Well, listen, man, so your focus thus far, in my understanding, is that you're buying whole guy, right? You're not in there flipping houses. You're building a large portfolio, and your goal is to build long-term wealth via cash flow through that portfolio, correct? Yeah, that's pretty much what our plan is.

Okay, that's great. That's great. Now, why did you decide on that? Was there a specific reason? Obviously, you're working a full-time job, so flipping might be a challenge. potentially. And some of these other strategies are more of a challenge while you're working, or was there a specific strategy towards why just the buy and hold? Right. Well, I mean, at first, it was like I was telling you that last story where it was

just, hey, someone's going to pay me, you know, at the time I thought cash flow was really that $500 that was going to make from what I paid in my mortgage to what I got from the rent. Oh, you forgot the expenses part. Yeah. Once you start saying like, hey, I got to get a new water heater. Oh, geez, there goes a whole month. But, you know, over time, you start to see how those actually all add up. But the idea behind it was, okay, how do I create something that's going to create another stream of income without me having to be involved every day? You know, I didn't want to be actively working in the business, which is kind of funny because it actually ends up taking a good amount of time still.

But that was the idea behind it. But I like the compound aspects of rental property, like I was saying before, you got the more. mortgage pay down, what you're getting through amortization. You get a hedge against inflation. So your down payment has a way to just continue multiplying a lot faster than other vehicles. But there's something more that I thought was really interesting. Maybe I can take this time to talk about it. The market in Southern California, and again, this is probably just specific to California, but as I bought that second home, I was like, this is great. You know, we seem to be in a real opportune time. I started really to take the time to get educated. I went to a bunch of local

seminars, real estate clubs in the area. And more importantly, I found like three or four really, really solid investors that were willing to, I don't want to say mentor me, but they gave me time. So I called them and I would ask them questions. And as long as I didn't take too long to ask them questions, they were pretty helpful. And what we started to see here is that in the markets like the Illinois, or like the Central Valley, some of these outer regions, like maybe two hours outside of Los Angeles, the price is actually slingshot the other way. Right. So you have a had that home for $400,000, it should have never been priced at that point, but it slingshot the other way to $70,000, which it should have never gone that low because the cost to rebuild in that same

market was around $200 to $220,000. So the thinking behind it with these other investors who are really, really smart we're doing, and this is no credit to me, this is all them, is they were saying, well, look, if you can buy below the cost to rebuild and you're going to get that $70,000 property, and that new construction for that same house and that same area would be around 200,000. If you can cash flow it, hold on to it for however long it takes for that thing to get up to 130, 140. At that point, you can decide how you want to exit if you want to refinance and grow your portfolio further or, you know, take half of your portfolio, pay down the other half, or do a 1031, which is when you sell your property and exchange it for something with a little bit more cash flow, maybe more units.

So that's what all these guys were doing. So my mindset actually changed after about that second home. It was instead of trying to be, okay, I'm going to own this house for 30 years, it was more like, well, we're going to use the cash flow to pay for the expenses and to hold on to this property and try to get as many of these single family homes as we can in this downturn. Because, you know, California is cyclical. And as we can acquire as many as we can, if we could get to like 30 properties or 20 to 30 properties and let them appreciate $50,000 or, you know, inequity.

we could cash out at that mark and maybe be, you know, two million or one point in equity at that point. And then we could, like I was saying, we could either pay off half of the portfolio to live off the cash flow or take back some paper. Anyway, it was at that point we actually said, okay, wait a minute. This is not just a hobby that we want to do on the side.

We can actually make a legitimate business out of it. So from there, we, you know, not only just catching a rent check from that one house we had, we said, you know what? We need to do everything we can. to really take advantage of this downturn in the market. So from there, we went, I mean, I talked to my wife and she was like, oh, oh, you know, when Arthur gets his little ideas and sits down, he's about to throw a curveball.

And I said, all right, look, here's what I think we should do. And she's like, what is it? I said, we need to sell our home. You know, the big investment that I was telling you about, that first one I bought. And she was like, really, do you think so? I said, we have money tied up in this home. We get rid of it. We live an apartment for a few years.

we can probably pick up, you know, three or four more houses just from this one, from this one sale. And she was kind of hesitant, but she's like, look, you seem to know what you're talking about, so let's give it a shot. So after we own the home for about a year, we put it right back up on the market. Our neighbors thought we were crazy. Our family members were like, you're completely out of your mind. What are you doing?

You just bought this home. And, you know, our real estate agent was really happy. He was the only one that was excited. We sold the house. So we actually got a little bit more than what we paid for it, which, you know, it wasn't intentional. But hey, I'll count that as a successful flip. And then we went gangbusters. We were looking for every opportunity we could to buy as many of these.

And it was a certain type of home. It wasn't, we weren't going to pay anything more than $50,000 to $80,000 in our market. And we were planning on, we're going to just hold on to these properties until we could get to a point where we felt they appreciated enough to liquidate them. So it was really hard because there's, there's a lot of properties in that property. price range at that time, but they weren't in good neighborhoods. So we had to really be very specific, and we couldn't finance them as quickly as we wanted to because, you know, my wife was working part-time, so I was the only one that could qualify for all the mortgages. So after you get your credit rung about, oh, 20 times, you know, it gets more difficult and you have to find different

lenders to work with. But that's how we went. We went gangbusters and tried to buy as many as we could. And that's, you know, pretty much what happened after that. So, It's interesting because as an investor, you don't want to be a speculator, right? But you said something that actually should resound to a lot of people. It certainly did to me, which is the market was underpriced. And you knew the market was underpriced because the cost to rebuild was far higher than the current value of the property. So you knew that if you were to acquire these properties at that value, that at some point they'd hopefully appreciate. Now, I'm just curious because in this case, it worked for you.

But why don't we look at a place like Detroit, for example, where you can buy a house for, you know, a model car. And you'll, you know, $5,000 and you got a house. Certainly it costs more than $5,000 to rebuild. build, what was different and what convinced you that, you know, this was, what made that any safer than potentially buying a property in a super depressed area like that? Yeah, no, those are some really good points. And that's why I was trying to say that, you know, what I was doing or what I'm doing is really based on what has happened historically here in California.

But in addition to that, let's say my complete forecast is off, off track. And I'm, I miss it by a long shot. And to get that $50,000 in appreciation, it takes 20 years instead of the next three or four. I would be completely okay with that because the way we're structuring the deals is that even if I can't get to that level within the next relative short future, you know, each of these properties are cash flowing. We have solid financing behind all of our units. And we're, you know, I'm not doing this for a day job. So I'm not living off of that rental income. It's just a secondary thing that we're doing on the side.

you know, after hours. And one of my mentors is actually a BP member. I don't know if I can call a mentor, but Steve Landis is a guy that I, you know, look up to a lot out here in Southern California. And him and his partner met with me a few months ago. And they kind of pushed it on me and said, look, at some point, you have to draw a line in the sand and make a bet where you think the market's going to go. And as long as you have your deal structured correctly, you've got equity, your cash flowing. You're always going to be in a very, you know, I don't know, what's the word, offensive position in your properties. So that's how we try to strike all of our deals. Even when we do partnerships, we always try to make sure we're buying the right kinds of property. And because I'm not, you know,

trying to do, you know, 50 houses a year, it's completely scalable, at least in the amount that I need. Yeah. Well, and, you know, I think as long as you're being smart about it and acquiring these properties that do cash flow. You already talked earlier about having that, oh, wait, expenses are more than mortgage and taxes and insurance. There's more to it. So obviously factoring in all the expenses into your equation, if you've got a cash flow at the end of the day, you know, appreciation is just, yeah, it's something additional, right?

I mean, it's a bonus. And so, you know, it clearly sounds like that's kind of the path that you're taking. So, yeah, and to go with that point, too, I mean, appreciation is like, I look at that as the icing on the cake, but what we have here, at least in this market in Southern California, you have a, I think that we're going to start to see the prices revert back to the cost of building. And it's already happening. Let me give you an example. We just purchased a home, I think, about, I want to say about three months ago that we got for $59,000. And the home that's across the street, the exact same one, because the last, four or five months in our market have just been ridiculous. Cash investors flooding in, hedge funds, people are paying, waiving their appraisal contingencies have completely buoyed the properties. Now that same home was selling for $85,000. And that's just in a matter of like three months.

And I'm not saying it's going to continue to grow at that pace. But, you know, it's definitely going to start to get closer and closer of that cost to rebuild. So, I mean, it is appreciation, but I'd like to think that we're locking it in. you know, due to the construction costs, we're just trying to factor that part into our equation as well. Yeah, that makes a lot of sense. Did you know your house gets bored when you leave? I can't actually prove that,

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And they have the results to prove it. Go to mine.com slash show me to see how mine performs and get your first month free, which is much cheaper than learning the hard way. You know, earlier you talked about how the first four deals were pretty easy to finance. After four, you know, did that, did your strategy change at all in financing? I mean, it must have. You couldn't just walk into a bank, can you? Or is that still what you do?

No, no, not anymore. But one of the things we started to learn, right, is after that third, we got the third deal and the fourth deal. Well, as we start to get a deal number three, till number four, till number five. As we started getting higher, I started to learn the difference between a broker and a direct lender. And that was kind of an eye-opening experience because when we were working with the broker, the underwriting guidelines while we were in escrow, I can't tell you how many deals I almost lost. I was so upset because we'd have like a smoking deal with like a lot of equity and it was in a good neighborhood. And then our lender couldn't follow up because they were, you know, outsourcing all the underwriting. And here I was, you know, standing there trying to close to get this deal.

and I knew if we couldn't close in 30 days, we were going to lose it. So what that caused me to do is to go back. And this is one of the things I do now with anybody who wants to work with me, like a mentor type thing. I always tell them to put the list together of all the lenders in their market and to just go down the list and try to learn as much as you can about the financing aspect of the deal. So you can understand the underwriting guidelines right from the beginning because there's all these overlays that each of the lenders require.

and some of them are a lot more relaxed and some of them are more detailed. So knowing what those parameters are before you get to that point is super helpful. Anyway, so going back to me, that's exactly what I did after about our fourth mortgage. I was like, okay, who are the people we can build a relationship with? And I found a couple of lenders that were not only willing to just lend me money after that fourth or fifth property, but they were willing to help me move my financing around to kind of give me coaching to say, okay, here's where, here's how you need to move your money here. Here's how you can finance this deal so that I could get to those 10 to those 10 loans as

as quickly as possible. I don't know if that answers your question. Yeah. Do you have any advice for finding those lenders? Yeah, actually, you know, I think, well, my super creative way of finding out the lenders in my market was I literally typed in like Inland Empire, direct lenders, mortgage brokers, and then the list on Google. And whatever popped up, I put like in an Excel spreadsheet. And I'm not kidding you. I probably called about 40 different loan officers. And I talked to everybody from hard money guys to, you know, guys who are just, you know, working at a community bank.

All these different aspects because, you know, you don't know where those rat, those, not rat holes. You don't know where, you don't know where those rabbit holes. There could be rats in those. But you don't know how far they're going to go. And I'll give you a good example. One of the folks that I spoke with had, it was this community bank. And he gave me the address and he said, I think we can, I think we can work with you. And I said, okay, well, I'll go out and meet you.

And he said, I think we can't give you a mortgage, but we can give you a home equity line of credit. Okay, great. So I drive out to go meet him. And then I like, drive up to this Walmart. And I'm like, Walmart? I got to have the address. No, the address is right. So I walk in.

And of course, you got the whole colorful landscape that Walmart offers, you know, people with ponytails and bat tails. and bat tails, little children running around with those shoes, you know. And so I go there and I'm thinking, this is crazy. But right in the middle of the Walmart, there was this little community bank. And I walked in, I talked to the branch manager. And I bring in like, you know, I was wearing, it was funny because I walked into Walmart wearing like a suit. And because I wanted to be like professional. And then everyone, Walmart, no one was wearing shoes.

You know, it was kind of. But I go in there and. If you get sued by Walmart. I was going to say if Walmart decides to be an advertiser, we'll just like this. Exactly. It'll just be like blank at that point. I do not condone Arthur's activities nor his commentary about Walmart. We certainly appreciate Walmart as a centerpiece of the community.

And clearly when you walk into Walmart, there is a shoes-only policy. So be sure to show up at Walmart with shoes. Thank you. You can show up the shoes. You don't have to have teeth, though. But anyway, anyway, so I'm. I walked in and I talked to the branch manager. We start talking.

I spent about a good hour and a half with him. And he tells me that he can extend out four different lines of credit to one person. So I thought, well, there's four extra loans for me right there. And then he goes, but this is another thing about working with us. Once you build a relationship, I'm going to introduce you to Dale. So he brings Dale over. Dale's the portfolio manager. So he actually does these rare things that you hear about.

You know, it's like the chupacabra. You know, like you hear about portfolio loans? But, you know, it's hard to find them. And this guy comes out and he does portfolio loans. So this one bank literally opened up 14 different opportunities for me to continue making purchases. Nice, nice. So anyway, so that's how I did it, Brandon. They set up a list and then not, you know, not being afraid to just call everybody.

And a lot of them say the same things. But every once in a while, you're going to find somebody who has lax overlays or is willing to kind of say, here's how you could do it if you still want to do this, you know. And they may be in a Walmart. They may be in a Walmart. May not have teeth, but they're there. No, that's really, really good advice. I mean, I think people oftentimes, you know, they'll call one lender or two lenders, and that's it.

You know, they're like, oh, they're all the same. But I've always found that, you know, some lenders are just really, really good, even though they have the same rules. I mean, most banks have the same rules and the same guidelines. But the actual banker that you work with or the lender you work with oftentimes can find creative ways, not even like, not illegal, not immoral. I mean, just creative ways to make the money. things happen and oh yeah you know we have this portfolio loan or whatever you know so i think that's a great tip let me give you give you another little tip here something you wouldn't find necessarily in a forum post um and uh one person from my i wrote an article for BP a couple of weeks ago about um how to

how to do this and one of the guys called me and he was like there's no way to do this you know once you get 10 loans it's impossible and i said well who's buying the properties and so well it's me and my wife. I said, okay, does she have a W-2 job? Yeah. And I said, are the loans in both of your names? Yes. I said, well, why don't you go back to the same loan person that you're working with and have each of you qualify for the loans? Just because both of you are on title, it doesn't mean that you have to both take out the debt. So one couple can literally get 20 Fannie Mae loans if they're buying the right types of property. Because if your cash flow positive and you're working with the right lender, they can use that

cash flow to basically count the extra debt you're incurring. So literally, if you find, you know, one bank and they're willing to work with you, you can do 20 loans and eight home equity lines of credit. So that's 28 loans. That'll definitely get you to where you're wanting to go at least.

Yeah, that's awesome. Yeah, definitely. Definitely. Cool, man. Well, let's let's get back to the job thing. You've got a, you've got a J-O-B and, you know, you work during the week. How do you actually, you particularly, Arthur, how do you invest while you're working?

How do you manage tenant calls? How do you manage, you know, finding deals? When are you working? When are you doing your real estate? Yeah. So having the J.O.B, you know, working for the man. Does he have teeth? Yeah. He has teeth. And he has a checkbook too, which is why I like him. The thing is is that, you know, the first year we got started, you know, we had all these units that we're starting to acquire. And when you have like two properties or three properties or four, it's, you could still manage it doing both. But once we started getting people starting to pay late, tenants who had, you know, their mom was sick or you had to go and try to evict them, you know, my market's two hours from where I live. And that was mostly just because

those are the only places where the numbers make sense in Southern California. So for me to go out there and post a three day notice or to try to evict someone, it's just, I'm wasting a lot of gas. I'm wasting a lot of time. And I remember going to my tenant one day. It's this lady who, nice lady, but she speaks really broken English. And she's salt to the earth, but she's taking care of her sick mother. So I go there and knock on the door. She opens the door and her mom is just like sitting there in the living room. She's got no shirt on. And she's like kind of sedated. And she's like 90 years old. And like, I don't know if she didn't know that I was like, you know, that her mom was exposed. And I just said, you know what? After.

seeing that, which no one should ever have to see. You know, there's a reason. We just, yeah, we should not see this. After that happened, I pretty much figured out we have to find a way to scale this. And for me, it was reading a couple of posts by Michael Zuber, who's a, he's an awesome contributor to the BP blog. And he's somebody that I would, I would like to call my mentor, even though, you know, I don't necessarily talk to him on the weekly basis or anything.

But he's provided a lot of guidance. and one of the things he had told me early on was that, you know, property management for him, because he's in a similar industry as I am, it's just the cost of doing business. So that was really the biggest change for me after that first year was moving over to property management. They don't manage the properties as good as I used to. I'll be the first 10 minute, and they don't take care of it as well as you would. But it's the opportunity cost that I'm giving up by not managing the situation myself. So I just look at it as sunk costs.

When I find a deal, I just have to find a deal with that much more meat than the bone because I got another mouth to pay for. So, you know, that's how we do it. So that's one component, it's property management. The other component is we have a really good contractor in our market who, you know, when he overcharges me on a few things, I kind of let him know, hey, you're overcharging me. But, you know, I want you to know that I'm going to let this one go because I want them to understand that like there's a value here. there's relationships that we're trying to build. And I'll give you an example with that same guy. We were buying a house about two weeks ago.

And he looked at two properties for me, came back, called me in about half hour after you walked through those properties and said, this one's going to cost 12 grand. It's in a better neighborhood. But this one that's going to cost you, you know, five grand to rehab. It's in a worst neighborhood, but you can get in cheaper. So I would go with that one. And, you know, not having to drive out there, not having to do a detailed inspection on the whole thing. he's worked with me on all the properties we own and he does all the maintenance on my stuff.

So it just, you need to find ways to build systems. And that's pretty much what we spent the last three and a half years doing is building systems while working with local realtors and making connections so that we start to really know our market and have people doing a lot of the work for us. So we're just more managing things. And one more side tip is we work with contractors that only work with us on email. They'll take phone calls and stuff too,

but there's a lot of these handyman guys that just don't do email. And just at a sure simplicity for my life, it's just easier to have somebody who works with me an email. That was kind of one of the big changes because a lot of times I'll just give you a quote over the phone or they'll text you and it's just, you know, that helped me a lot. Yeah, that's great. Yeah, it's a really good tip.

I think, you know, the finding somebody who will work the way you work is really, really important. and you've demonstrated that. Can you talk a little bit about property management and this contractor? As far as management, you know, it's definitely true. It's hard to find somebody who's going to manage a property as well as you would if they're not going to, you know, they're not going to put the love behind it, so to speak. But how did you find your property manager and, you know, do you have any tips for other folks who are looking for somebody?

because you put a lot of trust in these guys. So what would your advice be? Yeah, I guess the thing for me is I'm still looking for that great property manager. So maybe someone can call me. Me and another investor friend of mine who are buying in the same market, I took a list of 10 people. He took a list of 10 people. And we just kept calling different folks,

figured out what their placement fees were, how much to manage the property. on the monthly basis. Do they charge for, you know, sending somebody out to the property? Because a lot of times they'll send a handyman out there and they'll mark it up 20% and they get to keep that spread. So there's all these different things that we did. We called all these different folks. And there was one guy in town that was kind of a, oh, at the time, he was a smaller operation. Now he's kind of blown up. But between my investor buddy and myself, we kind of leveraged him and said, look, if you'll work with us, if you'll waive your

placement fee and if you'll lower your monthly rate down, you know, will you consider working with us? And the idea of getting all these properties at once just made him salivate so he was completely on board. So now we pay, I think, $70 a home to have him manage it. So it's not a percentage on our rent. It's just that's what he charges. He doesn't charge a placement fee. And as far as the contractors go, he lets us use our own people. And they'll they let, you know, he'll actually pay it. So they'll, they'll bill the management company directly. But there's no, I mean, I'll be honest with you, there's no great way because he's not the only guy I used. I used about three different ones.

And I'm still trying to find new people who will, you know, because it's a tough business because you get somebody who you really like and then they end up doing something different because it's typically that it's usually run out of some office where they're an assistant. They're not really a property manager. So you really have to try to, you know, find someone that you're going to be okay with and comfortable with. And then just go with the expectation of knowing you still have to be actively managing your

property, even if that means like, all right, did we place the tenant? Okay. You know, every time I go in my market, I still drive through all the homes that we have and just to see, okay, well, this one needs, the fence is falling down. We need to, you know, trim that tree back. So I'm still really involved. The thing I don't want to have to do is I don't want to be driving there seeing someone's mom naked on the living room couch. So, yeah, so that's, I mean, that's, that's really what it is. And honestly, some are better than others, but it's, it's just a matter of interviewing them and kind of rolling the dice to some extent. Yeah. Yeah. I mean, I've had some really, really bad luck with property managers. And, you know, the biggest piece of advice that I've got is, you know,

you keep an eye on your property manager. You definitely want to watch what they're doing. Like you said, I mean, you might have a property manager. You go by the property and the fence is falling down. Where the hell with the property? Where were they? What were they doing? You know, that is their job. But, you know, they're not going to, they're not going to catch all that. The attention to detail, I've never heard somebody say, hey, I've got the greatest property manager ever. You'll never hear that coming out of the mouth of a real estate investor. And it's really messed up.

I mean, that's something that people should be priding themselves upon. But, yeah, just keep an eye out for these guys and watch what they're doing. And I think if you're doing that, then you know, you can be a little more comfortable because, like you said, you don't want to walk in and, you know, put the three-day notices and deal with the naked grandmas and all that stuff. That's the only thing people are going to remember from this podcast. People with no teeth and some naked ladies. This is BiggerPockets podcast show six with Arthur Garcia,

biggerpockets.com slash show six. This is the naked grandma episode of the podcast. There you go. Tune in. Yeah, yeah. Now that's great. Well, we're starting to get towards the end of this show. So can we talk a little bit of.

about what a good deal looks like for you and your method of analyzing those deals. Okay. No long stories. I'll try to give some meat here so that. So when I first started for me, it was a 20% cash on cash return. That's what I was looking for. That's what I was happy with. And that is, you know, for people who maybe don't know what that is, that's when you get a percentage of your money back on the yearly basis. That's about 20% of what you put into the property to get the home. So, you know, I don't know. I can't think of quick math, but it's when you get about 20% back from what you put down. Invest $100,000, get $20,000 back. There we go. Is that quick? Is that fast?

I was like, yeah. Look at Mr. Math over there. Hi, I'm Mr. Math. So that was how we first started. And then as I got better, well, I had to get better at buying property because like I said, when you first start off, getting, you know, getting a 30-year fixed mortgage at 4%. It's going to be pretty easy to get 20% on your money. It should be anyway, if you're buying the right kind of house. Once you have to put 30% down or now I'm, you know, sometimes I have to put all cash to get homes. You've got to really find other ways to do it. So the new matrix I have is I'll carry a property for 10% cash on cash if I can get 90% or 80% of my capital back out within the first six to 14 months of ownership of that property. So I may carry a property in cash flow,

you know, maybe a few hundred dollars a month. And then in six months, refinance it via a he lock. And now my, you know, initial capital is mostly pulled back out of it. And I maybe have 10,000 in the deal. And I'm still bringing in, you know, $500 a month or something like that or $400 a month. And now I have my working capital to go back and, you know, deploy to do another deal. Now, how do you be careful? How do you make sure that you're not spreading yourself too thin? Yeah, that's a really good point. I think a lot of it comes from planning, and I think the biggest thing is cash reserves. One of the things that a lot of people talk to me about sometimes will email me, and I want to get into real estate and all this stuff. And I said, well, if you want to do buy and hold, you need a little bit of cash. I'm not going to be the guy here telling you you can buy with no money down.

Like I there's ways to do that, but you know, you're going to be making almost no cash flow on those types of deals or there's a reason the guy's giving you the property for no money down. You know what I mean? So I'm a big advocate if you got to have ample cash reserves. Maybe even not doesn't all have to necessarily be sitting in your bank. You might want to have a home equity line of credit that's not fully tapped out that's got money sitting in there or you just have to be prepared for the worst. And like I said, every property we get if I can't refinance how. I. of it, I'm okay with that. Like if I have to sit on this profit for five years or 10 years, only making this amount of money, I'm okay with that because there's typically something I can do to the property to manipulate the value down the road or I have a strong equity position in it. Like, you know, maybe I can enclose that patio and make that third bedroom or, you know, add an extra bath or enclose the garage. So there's usually a couple of ways to get out of it. But you do have to be careful because if you start to scale a little too fast, you can get kind of paint yourself on a corner. Yeah, yeah, no, I agree completely. I think one thing you said there

that's really, really important for people to know is about having multiple exit strategies. You know, you said you would be happy if, if, you know, one thing happened, you'd be happy if another thing happened. And I think that's key right there is you can't have one way out of a situation. And that's the downside of using a hard money lender. You know, a lot of people jump into hard money and they say, you know, well, I got a year, I got six months to sell this, so no worries. And that doesn't always work out that way. I know that's happened to me, and I know it happens to a lot of investors. Sometimes the property doesn't sell or sometimes you can't get the refi that you want.

And you've got to have that exit strategy. Yeah, that's exactly right. You got to know exactly what you're looking for and make sure that there's each property you get. Like there's another way to add value or you're buying undermarket or you can do something to manipulate the price. So, yeah, that's a great point. Nice, nice. All right, man, well, listen, as we come through close here, we always have a, a set of questions we like to ask and I guess we'll start with with uh you know what's your what's your

favorite real estate book Arthur okay I came prepared for this one he's been listening to the show and has no yes so I'm going to say something like the e myth no I'm just kidding it's like everybody said that one I just bought that I actually I now have it welcome I actually was uh previewing it on the Kindle myself the other day. So that's pretty fun. There's this, there's this really good book called Rich Dad, Poor Dad, Guys. You should check that one out too. I've never heard of it. No, that's actually a good book. But the one I would say for someone who's wanting to invest in as a buy and hold person and keep their day job, it's by William T. Nickerson, how I turned $1,000 to $3 million while holding a full time or in my spare time. I think it's something like that.

I'll send you the link on it. But yeah, it's how I invested $1,000 and it became $1,000. I just read that a couple weeks ago. It was really good. And I actually just sent it in the mail over to another bigger pockets member because that book's expensive. And, you know, like, it's been out of commission for a long time. But it's a really, really good book. Yeah, that's a great one. So I really like that book.

Nice. All right. Well, then I don't have to ask the next question. What's the next question, Arthur? My favorite business book? Well, that's exactly what I was going to say. Hey, see, you know, I may not be sharp on my numbers, but I know. 10%

To add value to the viewers The listeners here I thought I'd bring one in that no one's brought up yet My friend Nicole actually mentioned this one to me It's by Mark Cuban It's How to Win at the Sport of Business And I've just been reading that book And it's kind of a motivational

I really like Mark Cuban I think he's like pretty sharp on stuff Big fan But yeah So it's actually a series of blog post from his blog And he just kind of put him in one book Bigger Pockets should do something like that. Kind of like the ultimate beginners guide.

Biggerpockets.com slash UBG. Yeah, but that book is solid. Both of them, by the way, the one by Mark Cuban and by Brandon Turner. Both are really good. And Josh. And Josh. Well, yeah, of course, Josh. I take umbrage at the fact that I get no credit on the book that I was, you know,

a part and parcel to. Okay, by Joshua Dorkin and Brandon Turner. There you go. There you go. All right. Yes. And speaking of Mark Cuban, we would love to have you on the show, Mark, if you're listening, by the way. There we go. Go fabrics.

All right, man. So, you know, you're a SoCal guy. You got any hobbies? Are you surfer? Or, you know, what do you do for fun? Long walks on the beach at night in the twilight. Yep, that's always a popular one out here. I, you know, I just got into working out now.

I'm a big CrossFit guy, so I do that on my spare time. So you could do CrossFit while Brandon's doing his P90X. You guys can do it over Skype or something. That's insanity. P90X was so last year. All right, last question for you, Arthur. Me and Brandon will watch each other work out there. All right, last question, Arthur.

I ask this to everyone because I love this question. What do you believe sets apart the top performers, the ones that are successful, and those who come and go quickly? Oh, there we go. You ready for it? I'm ready. The art, this is a Joshua Dorkin term here, the art of the side hustle. I think that's the big differentiator because you know what? It's like anything.

Real estate's like any other business, any other thing in life. the people who get the best results or the ones who put the time in. Whether that's going to a few seminars or taking the time to call a couple of investors, it's good stuff. So I would just say the people who go that extra mile, knock on strange doors to try to get

information that you need to make your business more sound. That's great, man. That's great. Well, listen, everybody, you can find Arthur on Bigger Pockets. We'll have his link to his profile in the show notes. again, for those of you who are paying attention to those show notes, it's biggerpockets.com slash show six. Otherwise, where else are you?

Are you on Facebook? You're on Twitter, Gplus, or you know, where else can people connect with you? You know, I have a blog, the buy and hold guys.com. That's right. You do. The buy and hold guys.com. It's a great blog, by the way. Yeah.

You can go there or you can find me on Bigger Pockets. So either one. Yeah. Cool. Listen, listen, this was great. lots of fun and really appreciate having you on the show. I think people are definitely going to learn a lot from what you had to say. So thank you so much.

Thanks, guys. It was great having this conversation. It was fun. Yeah, it was fun. Thank you, Arthur. You guys, take care. All right, everybody. And that was our show with real estate investor Arthur Garcia.

As we've said a couple times before, this has been show number six. And you can check out all the links and additional information on the show notes at BiggerPockets.com slash show. six. It's kind of hard to keep focus as Brandon is making faces at me through the other side of Skype. But I'm going to keep going. Before we go, we just

want to say thanks to all the great reviews again on iTunes. And if you haven't left one, please do so in your iTunes player. Also, don't forget to check us out on Facebook at facebook.com slash Bigger Pockets. This is Josh Dorkin, signing off.

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