BiggerPockets Real Estate Podcast - 66: Flips, Apartments, & Protecting Yourself From Professional Tenants with Michael Blank

Episode Date: April 17, 2014

On today’s show, we sit down with real estate entrepreneur Michael Blank to talk about his journey from a successful house flipping business and his entrance into apartment buildings… and the systems needed to run his investments well. Michael is a business entrepreneur through and through and today we get to talk about everything from getting started, investing with no money, working with (and as) a wholesaler, and even hear the story of the professional tenant that almost destroyed Michael’s investment career! This show is packed with useful, actionable tips, so don’t forget your pen and paper on this one… you are going to need it! In This Show, We Cover: How Michael started his investing journey by flipping dozens of houses per year Why building up a network of wholesalers is important How Michael raised money to fund his flipping The “magic question” to ask when raise private money Michael mistakes and successes when getting started Developing a great real estate team Using virtual assistants in your business Michael’s transition from flipping to apartment complexes Michael’s tricks for finding great commercial real estate deals Michaels take on the topic of rent control Michael’s major mistakes in his REI career… and that one tenant in DC And so much more!  Links from the Show BP Podcast 033: How to Close 27 Deals in Your First Year While Working Full Time with Sam Craven eLance.com Loopnet.com Marcusmillichap.com Cbre.com Tweetable Topics “Cutting corners hurts you and your business at the end of the day.” (Tweet This!) “When you have a good team, firing on all cylinders, you can do amazing things.” (Tweet This!) “You get what you negotiate.” (Tweet This!) “The secret to success is to be intentional.” (Tweet This!) Books Mentioned in the Show Rich Dad, Poor Dad by Robert Kiyosaki Pitch Anything: An Innovative Method for Presenting, Persuading, and Winning the Deal by Oren Klaff The 4-hour Workweek by Timothy Ferriss Connect with Michael! Michael Blank’s BiggerPockets Profile TheMichaelBlank.com Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast, show 66. 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 dressed in a fancy coat, Mr. Brandon Turner. What's up,

Brandon? Why you all decked out in that woolly coat there? Well, we had like spring for like five minutes, but it's gone already. Oh, I'm so sad for you. Yeah, a fat guy in a little coat. Hey, I tell you what, man, it was earlier in the week. It was 77 and the next day it was that night, It was 17 degrees, and I had turned my sprinklers on. And my entire, like, I forget what it's called, but this one of the sprinkler assemblies in the morning had exploded. And there was water shooting all over my front lawn. Thank God for my neighbor who laughed at me. Well, hey, besides that, how are things?

Things are good, man. Things are good. Working out of the new office here in Denver, loving that. It's going well. So Bigger Pockets Headquarters is. fun. It's fun. Yeah, how about you? What's going on? All well? All is well. I'm almost done with my fence so my dog can no longer escape out the back. That's great. That's great. I'm glad you've been employing slave labor to get that done. Child labor, not slave labor. Come on, Josh.

Brandon's got his children, his neighborhood children, painting the fence, you know, hammering it in. Yeah, that's awesome. Hey, they do good work. that's great that's great you should send your little crew my way i could use their help no way awesome man awesome well show 66 of the bigger pockets podcast we're pretty excited about this one for those of you guys who are listening definitely make sure to jump on the show notes if you've got any questions or anything it's at bigger pockets dot com slash show 66 and before we move any further. I just want to make a quick plead to our listeners. You guys,

we definitely appreciate all the feedback you give us and we do take it all into consideration, even when we disagree with it. That said, in order to better get the word spread about the Bigger Pockets podcast, we really, really ask that you guys help us out. And to

do that, all we ask that you do is jump on iTunes and leave us a rating and a review. It shouldn't take you more than two or three minutes and, you know, give an honest rating and review. And that will help us climb in the charts and get more people listening and more people helped out by the Bigger Pockets podcast and ultimately more people involved in the community. So please help us out and do that. All right. Before we introduce our guest, let's get to today's quick tip. That was like the

angry tip. That was my ACDC quick tip. Oh, is that what that was? Yeah, yeah. Way to hell. Yeah, yeah, yeah, yeah. Yeah, don't go there. All right, today's quick tip is a little self-serving, but we are, again, asking for your help, you guys. If you could do us a favor and check your email's spam or junk folder and look for any messages from bigger pockets

and click the button on your email that lets your email provider know that it's not spam. We're testing out some new email software, and we want to make sure that the new system doesn't end up in the wrong place, and you can all help us make sure that the email providers know that we're only sending good stuff, not ads for fake mortgages and other unseemly products that Brandon is a regular user of. Just the mortgages. All right. So why don't we introduce our guest today?

Today on the Bigger Pockets podcast, we're chatting with Michael Blanc, a restaurant entrepreneur turned house flipper turned apartment investor from the Washington, D.C. area. Michael's got a ton of wisdom to share about raising private money, finding good deals, and tells a really, really important and shocking story about the worst tenant I've ever heard of and the legal problems that the tenant caused that almost destroyed Michael's first apartment deal. So you're definitely going to want to hang around for that. Seriously, if you don't know how to beware of professional tenants, or what a professional tenant is, you really, really have to listen to the show.

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approved in 47 different states. So your next big deal could be just around the corner. Ready to unlock your property's true potential? Visit hostfinancial.com. Don't let old school lending hold do back another day. That's hostfinancial.com. So that's pretty much it. Again, check us out on the show note to biggerpockets.com slash show 66. And with that, let's bring this guy in. Michael, welcome to the show, man. Good to have you here. Hey, thanks for having me. I really appreciate it. Oh, thank you. Michael, I think you are the like 15th Michael we've had on the show since we started. Somebody's going to correct me in the show notes and tell me how many we've really had. But yeah, well, we were glad to have you anyway, even if you aren't quite, you know, original.

That's pretty original. That's called, dude. Ouch, shoot. Starting already. You know, 30 seconds into the show. I know. This is abuse you signed up for, man. You knew it was coming.

All right, well, cool. Well, hey, why don't we start with the question we usually start with? How did you get started investing in real estate? All right, good question. So I have a software background. I have a master's computer science, which I feel is a, you know, qualification to get into real estate. So that's the route I chose. and if you don't have that, you're just not going to be able to succeed in this business.

I'm sure mom and dad were so proud when you decided to quit. So after throwing that away. No, seriously, you know, I actually, I read the rich dad, poor dad, when I was like 35 years old, I'm like, I'm such an idiot. I'm wasting my time here. I need passive income, you know, and, and so I, you know, there's two things I did is, I got started with real estate and I got started with what I, you know, thought was a cash flow business, which is restaurants. And we'll talk about that later.

But that's really... Wait, somebody told you that restaurants was a cash flow business? Oh, yeah, they are. They're definitely not an appreciation play. They're definitely cash flow. But on the real estate side, it was definitely flipping houses was the first thing I started doing. Okay. Flipping houses. So what got you into that? Like, how did you get from rich dead port ad to flipping houses? Well, I want to know why you chose restaurants, actually. I mean, you know, from my perspective, I hear getting into the restaurant business and I think, oh my god this is the biggest nightmare possible yeah so you know i um i have a little bit of a leg

up on because i made some money in a software IPO and i wanted to parlay that into a cash flow producing business so i i met a few other franchisees of a concept and they described the business to me it was perfect it was like well we're gonna we're gonna it's gonna cost this much to open we're going to hire a guy to run everything and we're just going to count the money and i said, well, that's perfect. That sounds just what I'm looking for. And so that's what I did. And I basically plowed my net worth into the, you know, basically what wound up to be three restaurants. And I did hire a guy. And he was with me for seven years. And it worked out really well for about five and a half years. It really, it really did. So that's why I got into that. Gotcha. So are you

still doing the restaurant business then? Yep. Yep. That's kind of my job, if you will, at the moment. Okay. So you do that as kind of a full-time gig for the most part, or is it kind of self-managed? No, it's not full-time, but it's close to full-time. I parted ways with my operating partner, and I talked to you about a year ago. And since then, I've kind of have this job. But I'm so proud of my managers have really stepped up and I've been able to delegate more. They've taken more responsibility. And so the job is not nearly as full-time as it was, say, six months ago. Nice. Do you want to plug your restaurants while we're here? Give him a shout out. Anyone in D.C.? Come to check out. It's a restaurant. It's a franchise I was selling

California called Z Pizza. It's like a letter Z and pizza. Oh, nice. It's about 100 locations nationwide. Yeah. Wow. Awesome. A little concept.

Cool. I'll have to check that out next time. I mean in your area. Hopefully you'll buy me a pizza. I got to get perks when I can. When I can, right? All right. So you went from the restaurant industry.

Somehow Red Ridge Deadported. Ed in there and started flipping houses. Can you kind of walk us through that transition? Well, I mean, there's two things I want to do. Literally, I wanted to cash flow business and real estate. And for some reason, I dismissed kind of the buy and whole thing. I really wanted to get into flipping. And so at the time, I flipped like a couple houses.

I signed up with a local mentor and I sent up my postcard campaign. and you know I set up an 800 number and whatever and sure enough out of the first set of postcards I got a hold of one landlord out of state who I was marketing to we had a house about an hour west of here where I was marketing that geography and he had two houses and I bought both of them and made like a hundred ten thousand dollars on these two flips which was about the same amount of my salary before and I was like holy crap this is amazing you know this is amazing I mean obviously I wasn't spending 40 hours a week on this stuff and I I was like, man, you know, there is really some truth through working not necessarily harder, but smarter. And that really opened my eyes. Nice. Nice. Nice.

When was that? Was that before the crash? Yeah. Yes. Exactly. It was before the crash. It was 2005 and early 2006. And then I stopped doing it.

I did like three hours. And I stopped because I was getting very busy on the restaurant's side of things. So in hindsight, I looked like a genius because I kind of wrote out. I missed the entire recession. And, yeah, I saw it coming. And so, you know, so I got a little lucky. And I resumed in 2009. I did a couple in 2009.

And then in 2010, my goal was to really build a business. And that's where I started raising money. And I hired a project manager or assistant. And we were buying two houses, you know, every month. So that year we did about 24, did about 32 total. So in 2010 and 2011 really was the, that was, that was, my primary business at the time. Nice. Nice, nice, nice.

So on these first properties, where were those? Were those in SoCal? Was that where you were? No, these are all in the D.C. area. These are in P.G. County, Maryland. Most of them. Some of them are in Northeast D.C. So these are all blue-collar neighborhoods. A very unique market at the time where the retail market was really coming back strong in 2009, 2010. But there was a huge supply of foreclosure. So you can get them for cheap and you can sell them quick for a lot. The spread was just incredible and very unique and that now has closed in this market.

So it's very difficult to find deals now. Gotcha. And you were finding these deals, all the deals that you've done from then until today, primarily through mail marketing. Is that right? No, I got a little lazy. I did that in the early days when the market was hot, obviously. I mean, you couldn't find anything on the MLS.

That's when I had to direct mail. and I sent postcards and letters and things of that nature. But the second time around 2009, 2010, I had built up a network of wholesalers, basically through networking, and I got basically almost 90% of my deals through wholesalers. And so I got quote-unquote lazy because there was such a supply of foreclosures and people that knew what I was looking for. And as long as it was my 65% of ARV-minus repairs, I was buying.

I don't care how much the wholesaler married. Nice. Well, let's actually dive into that a little bit because I guess there's a lot of people who listen to the show who are wholesalers or who want to be wholesalers. So what, I guess, what kind of advice you can give people who are trying to get into that field? Like, what did you look for in a good wholesaler? I mean, how should somebody approach that? That's a great question, Brandon, because out of every 10 wholesalers, there's maybe two that are good, meaning they're consistent. They know how to estimate the after repair value and the repairs, and they put together.

a package. The vast majority will send an email with an address and an asking price, you know, do your own diligence, that kind of stuff. And to me, that's not really valuable. That's really not valuable at all. But the good wholesalers I would buy over and over and over again because they were much more diligent in putting together their numbers. They knew that, you know, what rehabbers were looking for? So what exactly, Michael, do you want to see in the package from these guys? Yeah, obviously you want to see more than an address, right? What do you explain? Sure. I mean, I want to see obviously what they're asking prices. I want to know what they think the after repair values and what the estimated repairs are and also what the scope of the repairs. So that way I can see whether their estimated repairs are actually in a ballpark. And photos would be nice. I mean, the more I can do without going to the property, the better. Because I got to the point where I didn't drive out there unless I got the numbers to work on paper first. So if a wholesale can't let me do that, then there's just a

Chances were slim that actually went with that deal. It would have been taking too much time to do. Yeah, and presumably those photos and all the data is really going to just make your job that much more easy. Nice. Exactly. If people want to listen to another show that we did back on episode 33 with Sam Craven, he talked a lot about that. He's a wholesaler. I mean, he does a lot of flipping too, but he talked about he prepares these packets of information.

And that was just golden information. And when I heard that, I'd never really heard it put like that before. So anyway, people, when you're done listening to this episode, go listen to number 33 if you want to know more about that. Yeah, and if you're, well, I was going to say, and if you're a wholesaler, you know, pay attention, you know, and don't be that guy that just, you know, shoots out the email saying, hey, I got properties, I got properties, you know, be diligent and people are going to take you a lot more seriously. And I think that's the problem most new wholesalers deal with is, you know, they don't know what they're doing. And I think most professional investors, like somebody like yourself, doesn't take them seriously when they don't know what they're doing. And in this changing market, you probably have to include the market rent in there because a lot of wholesalers, I'd say at this point, are wholesaling to buying holders, landlords. They're going to care about the market rate rent. Yeah, that's a great tip. That's a really good tip.

Yeah. I think a lot of times people just think of wholesalers working with flippers. But, yeah, it's a lot bigger than that. So very cool. Well, hey, how are you funding your flips back then? I know you had some money from the IPO, but was that you were funding yourself? So at the end of my run, I had to basically deployed all my money in restaurants. and some real estate that I held.

And so in 2009, when I restarted, I really had no more cash left, which, you know, it is much easier to use your own cash. Easier meaning that you tend to do less due diligence on the opportunities because I felt a very strong pressure to deploy the cash I had so that it would produce more cash. And I think it made me sloppy. And when I ran out of my cash, I had to actually raise money. That means I have to convince other people.

what I'm about to do is a good idea. And so you get much more discerning on the kind of deals that you do. But on the house flipping side, I found it remarkably easy to raise money because I was raising it with a minimum of $25,000. I told people that we can use their IRA and it would be secured by real estate and they would get a promissory note from the title company and the title company would handle everything. and I was paying 12% interest at the time. I can probably get away with paying a little less now, but it was such a no-brainer given the fact that it seemed like a relatively low-risk investment and a high return that I had no trouble raising that kind of money from friends and family first

and then getting referrals to other people. I just got a lot of yeses. So how did those first conversations go? We talked to a lot of people about raising money. and getting out there and telling folks, yeah, well, you know, you just let them know what you do. And suddenly they get curious and say, oh, well, how do I do it? You know, how do I get involved? I mean, is it that easy?

Or, you know, what does one of those conversations go like to your, you know, your cousin John who's, you know, potentially curious about what you're up to? Yeah, I mean, they'll ask, hey, what's new your life? I say, you're not going to believe it. You know, I'm getting into, I'm flipping houses right now. And, you know, it's a 25,000 minimum. it's secured against the real estate and you get the promise or you know it and I pay 12% interest you know uh and people are really excited about that and I was like oh by the way I mean you wouldn't happen to know someone that might be interested and they go well I might be interested

that's that's my favorite question to ask I think all of my private lenders ever have come that way has been do you guys know anybody that'd be interested I love that question yeah yeah and and if they if they don't then you say well they might they might and you talk to a brother and yeah he's very interested and he will most likely know someone else who is also yeah hey michael so i mean it seems pretty darn easy i mean i i think i think a lot of people have this you know big fear like oh what does the pitch look like and what does it need to you know what do i need to have and and that was pretty simple and and ultimately fairly convincing i mean you didn't really tell me much about what you're working on but you know if if you're confident in and what your opportunity is and

what you're looking for, I think for those people listening, it's fairly straightforward what you might want to ask people. And here's one other tip, Josh, because I think about it. Someone who's never done this before, they don't have a track record, right? So what I always, and this is important, you basically just make up a deal, right? You create up a flip from nothing and you say, hey, I'm going to buy it for this. I'm going to put in this misrepair in. You have photos, and you put this little package together, and that's what you show your investor saying, look, I haven't done a deal yet, but I'm going to do the one and it's going to look, just like it. Yeah. And, you know, and that will make it more real to you and it'll make it more

real to the investor. Now, obviously, once you've done a deal, you start building a portfolio and you show that to the investor. But in the very beginning, that is my advice on how to get over that. That's a great idea. As long as you're straightforward and don't lie. You know, don't say, hey, this is a deal that I did and it's some BS deal that you made up. No, no, you got to say this. Yeah, yeah. Right. Yeah, exactly. Yep. Yeah. Now, that's awesome. There's a, there's a book I'm reading right now, called Pitch Anything by Oren Klaff and really, really, really good book all about, I guess,

making pitches to people, whether it's for finance and whatever. It's not a real estate book, just in general. But one of the things he talks about in this book is to always position yourself as the prize, right? You don't go to somebody saying, I need money, I need money because I'm desperate for money. You position yourself as I'm the prize. I've got something worth investing in and do you want in on it.

I mean, it's just a mindset shift if you can do that and become the price. prize. It's a, it's kind of a revolutionary thing right there. Hey, Michael, you're more of a prize than Brandon at this point. Just, you know. Ouch. Ouch. All right, man.

So, you know, you get into this flipping business. What are some of the big mistakes you made while you were flipping? I really haven't made any, Josh. No, I'm just kidding. Awesome. So, moving on to the next guy who's not lying. I'm just kidding. No, here's the

thing is that, and you approach this a little bit like a portfolio approach, meaning that you're going to make some mistakes, you might even lose some money, as long as you're making more than you're losing, that's kind of what counts, and you try to minimize your losses. But, you know, see, up top of my head, some of the things I did wrong was, you know, overestimating the after-repair value. One example, especially when the house is maybe a little smaller or, you know, it's got a funky layout or it's on a major street or it's bordering a questionable neighborhood, stuff like that.

So in other words, when there's something questionable, it makes it hard to comp. It always makes it difficult. And in hindsight, you could have said, well, either I should have walked from the deal or I should have lowered it. It's sometimes hard to do, but that's one mistake. Then on the construction side of things, you know, not pulling permits for everything probably is one mistake. And sometimes it's ignorant. Sometimes you're trying to see what you can get away with if it's a small cosmetic, you know, project. And, you know, and then you get caught.

And now, you know, and now you're like, you know, either way, the constant was the same. Whether you knew it or not, now you have expenses and fines and stop work orders. So basically what I'm saying is do it by the book. And the third one is, you know, with the face. Yeah. And then, you know, with the face. I think I could cut you off real quick. I want to make a point on that.

A couple weeks ago, I had some siding work done on my apartment. and it was just a repair, so I replaced a couple sheets. Well, the couple sheets started into six sheets, but the guy was working on the weekend on it, so he just did the whole thing. Well, you don't need a permit for two sheets, but they thought six sheets would need a permit in heating. It was a weekend.

Anyway, now I have to tear off all the siding that we put up, all six sheets and have them inspect and then put it back on again. Exactly. Yeah, if it's even like borderline like that, like I should have just gotten a permit for the two and then I would have been fine. But yeah, yeah, anyway. Okay, go on.

More mistakes. So doing it by the book is probably good advice. It'll cost you more money in a short term. But in hindsight, cutting corners probably basically hurts you at the end of the day. And that same goes with, you know, with basements. You know, these older houses have wet basements putting in a drain towel system up front, which is very expensive, underwriting a deal with something like that in there. If it's at all, there's any question whatsoever about the basement is a good idea because

they will bite you in the butt, you know, later. Yep, yep. Sounds like you've been there. Yeah. Yep. What are some of the things you think you did well at then? What caused you to succeed so well at flipping? Well, I mean, I think I did a thing well after I did poorly,

which is I was going to say building a good team, I did well, but only after I screwed up the first time around, meaning when I got started in 2010, I wanted to go big, but I had an untested team. I had a project manager who was a, it's sort of a friend of mine, and he did one of my houses, but he couldn't handle, he was very poor, an administrative side and people skills actually.

He just were overwhelmed. I didn't have, I had new assistants. I had new, you know, somewhat new real estate agents. And I just had an untested team. Really, it should have been more tested. So halfway in the, in the through it, I made some changes and replaced those team members with ones that were very competent. And it's everything you do in business.

It's all about the people, right? And if you have, if you don't have a good team in place, you're going to have problems. On the other hand, if we have a really good team that's really firing all cylinders, it's amazing what you can do. Yeah, yeah, for sure, for sure. Let's talk a little bit more about that team then. I mean, who did you all have on your team at the time? And how did you kind of bring those people together and find the right people?

Well, I was going to say, you know, before even that, you know, at what point did you realize it was time to build the team, right? How did you know, I'm not going to handle all this, you know? Or was that just an upfront? Yeah, I'm not going to handle all this. Well, I mean, I knew what I was doing before. So I knew what that was involved with. And the first thing I did is I hired an assistant to help me with the paperwork.

So there's a lot of paperwork involved with buying property and selling a property. Dealing with the title companies, dealing with the investment. A lot of paperwork there. And where'd you find an assistant? This one I found her locally. She was also, she started coming on as a bookkeeper. And she could handle a little bit more. But I've since then hired several virtual assistants to do that.

and there's no reason why one of my VAs couldn't do some of the stuff, that there's no reason for them to be, you know, locally where you are. And are these VAs in the U.S.? Are these overseas? I have mostly hired, all of my eyes are in U.S., and I usually use eLands.com. I found it's been great. I've used it over and over.

Sometimes it takes a little while to find the right person, but you will find the right person with some persistence, and I've used that with great success. Oh, that's great. That's great. All right. So you've got the assistant, you kind of get the processes, the paperwork part going. You said you had a friend of yours become PM project manager.

And then what about everything else? Yeah. And so he was my quote-unquote general contractor who managed others. And I did replace him with another general contractor. So in my mind, there's a lot of investors, rehabers that do this themselves. And you can do it to a certain point. I did not want to be that hands-on. And at that volume, there's no way you can do it yourself.

So you're going to need one or maybe two very strong general contractors that handles all that. So how hands on were you? I mean, were you the guy who pulled the trigger on the properties and then pretty much once you've got it systematized, turn the reins over to your people and maybe went and walked the site once in a while, just answered questions? Or what was your job in the whole process? Yeah, exactly right. What I would do is I would make sure the deal worked before on paper. Then I would go out and look at it with my contractor to make.

And then within a day, he would get me the estimate back. And then at the same time, I had my realtor give me the after repair value. And the other thing I want to make is if you're going to do that, you've got to trust your realtor. A lot of realtors tend to overestimate the ARV. Mine, I almost fought with him on the other way around. He was very conservative, really new investments. And after one or two deals, I simply said, just tell me what your number is. And then my contractor, what's your number?

I put it in my spreadsheet and if that worked out, I would then negotiate the price, send the contract over, and then the assistant would handle the rest, really. Yeah. And it sounds like, I think, a lot of the more experienced flippers that we've talked to and that we know from the site and tend to do, and it's going to sound like it's a negative, but it's not the cookie cutter approach to their flips. You know, kitchens that pretty much the same, the scale of repairs pretty much the same paint. color is the same. So it seems like your team knows at this point what you want. And so you don't have to do too much work at that point. Just a lot of checking the numbers of proving what people are deciding to do and letting them run with it. Yeah. I mean, in the beginning, clearly, you're going to be much more involved. But if you play your cards right, you will start pulling back from that. And that allows you to do more. Do you see a lot of connections between, you know,

entrepreneurship in the business world and the real estate world? I really do. I think, you know, we call ourselves real estate investors, but at the heart of it, really entrepreneurs. And we have a lot in common with almost any other entrepreneurs. Just the details of your day are different, but your mindset, your challenges, your goals, there's a lot of commonalities. Yeah. Yeah. So what would you tell somebody who, you know, we ask this question a lot, and it's nice to get different perspectives. What would you tell somebody who wants to get into flipping houses, who may not have the experience in that industry. How would you tell them to start out? What would your approach be? Well, my approach is to first educate yourself. You know, read books, sign up with a mentor,

take a seminar. And that's all fine. And then a lot of people kind of end there. And what I'm seeing is that most people fail to take action. They feel like they don't know everything. They're afraid of failing. And they just sit on the sidelines. And that kills me. Because I say, look, you can read this book, you can buy the seminar, and then you just got to do something. Just start doing something. Yep, for sure. I think there's so many people that just get trapped in that

continual state of learning and learning and then paying to learn and then paying more to learn and then paying more to learn. It's this never-ending cycle where they never actually do anything. Yeah. Yeah, get out there, do something. All right, well, so you flipped houses, and whenever we talked about that, I've been talking about it

kind of in the past, because you're not really flipping houses anymore, right? Less so, no. Focus on other stuff. All right. So what's your current focus of your business now? Well, my focus really is, you know, commercial real estate, specifically apartment buildings. So I've always felt this, that the problem of flipping houses while it generates cash, there's nothing passive about it.

You can certainly leverage your time, but if you're not looking for deals, managing your contractors, et cetera, you know, you're not making money. So it's really a job at the end of the day. And what I really want to do is, you know, go back. to building up that passive income, which, in my opinion, there's nothing better in the world than doing that with apartment buildings. Right on. Right on. And the nice thing about it is presumably at scale, you know, you've got management in place

and you're not dealing with the headaches of tenants and toilets and other joyous things. Exactly. The whole outsourcing is built into the deal, right? And apartment buildings is like one of the only business you can get financing for, reliably. Every bank will give you financing. You can't say that about any other business in the world. And so there's a lot of advantages. That's interesting. It's something I don't think we've actually talked a lot about. But I think investors are, they always complain how hard it is to find money. But coming from somebody who's got experience in other facets of fundraising and raising capital,

I guess it's kind of cool to hear that it is that much easier to raise money for for real estate. Yep. Yeah, right on. So let's talk about your first apartment. Your very first Bigger Pockets blog article was titled How I bought a 12-unit apartment building with no money down and how it nearly bankrupted me. So why don't you tell us a little bit about that story?

Right. So I found the deal. I started looking for apartment buildings back in 2011. And this one actually came through a wholesaler. It's not the primary way that I've been looking for apartment buildings. We'll talk more about that. But this one came from a wholesaler who referred me to houses to flip. And he knew of another wholesaler who was marketing this building. And it was listed on the, on the MLS, I believe. It's been on the market for a while. So that's how initially ended up looking, finding this particular deal.

All right. So you find the property. I mean, you know, the title of the article itself is kind of interesting. You did this, no money down, had that work. Well, when I, I wanted, when I first started setting out, I wanted to use investor money to do that. And so when there's no money down, I was going to put my own money into it, but I had found five investors who were very interested in participating in this deal. And I needed $250,000 at $50,000 each. And I said, well, shoot, I got five guys who want to get in this. I'll just, well, I just won't put my money in. And so that's how that happened.

no money down part of it. Gotcha. And what was your percentage as the ranger of the deal? All right. So the way I structure each deal is I need the investors to make between 12 and 15% average annual return over, let's say, the life of the investment, which I'm telling people is five years. And to achieve that based on the cash flow and the appreciation of that, I could retain about 50% of the building and still get that for my investors. So I retain 50% of the building, which is a little unusual. Normally, it's between, you know, 25, 30% that you retain, depending on how you structure a deal. This one just happened to work out that way.

I mean, that definitely sounds a little bit high. Were they hesitant in the approach? I mean, it seems like something that they may not take kindly to. I mean, I'm not trying to insult you at all or the deal, but I'm just going to be. I think people might be wary. 50% you know and you're not putting anything in. Well you got to understand also it depends on who your investors are. If you're, these are friends and family so they're going to trust me. They're going to know that I, you know, and I said, look, it's important to you guys make your 12 or 15% and this is

how we're going to do it. And there's a good, there's a chance that if they don't make that, I may, you know, give up some of my equity to make that happen. Right. But if you don't have, if you have other kinds of investors, let's say a little more sophisticated investors, the deal will change quite a bit. Oh yeah. Okay. You may have to do prefer returns, they're going to question your equity in the deal. So the deal will look certainly differently if you have a different set of investors. Well, and it kind of comes down to the end. You get what you negotiate. There is no book out there that says this is what a real estate deal should, you know, this is how it should be split. There's no rule. There's no law that

says this is how it should be done. It's whatever you negotiate. So. And that's right. And when you're first starting out, the way I do it is I'll sit down with an investor and I say, look, here's kind of what I'm thinking. And I'm thinking this kind of return, what do you think? And they go, that sounds about right. I'm thinking, you know, it's got at least a five-year hold. And they go, okay, it's a little long. But okay, you know, I'm thinking this kind of cash flow, we pay once a year, what do you think? And they go, okay, or they'll give you feedback. And you do that versus going to your investor going, here's how it's going to be. And then you do that with a handful investors, and you kind of see where people are. And then you go back to them saying, okay, based on what everybody

is saying, here's how we're going to do it. What do you think? And so you kind of make a little more interactive, at least with a friends and family round. Well, actually, with any round, really, you kind of pull your investors and you kind of see what's reasonable and what's not. Yeah. Now, that's great. That's great. So for those people who might be looking for apartment buildings, you know, how would you recommend they start looking for good deals? You know, what do you do? Well, I would say the primary, and there's so many different, you know, gurus teach different things, sending letters and probates and networking with attorneys and so and those can also yield results, but I would say the number one way to find deals is through commercial real estate brokers.

But you've got to find the good ones and you've got to convince them to take you seriously. So especially if you don't have a track record, nearly every professional you deal with will not take you seriously because you're like the 99% other investors out there who are wasting their time. So the first step, really, is to identify the commercial real estate brokers, contact them, tell them about what you're doing, what you're looking for, and convince them for an in-person meeting to a coffee or lunch. And then in that meeting, you basically tell them about yourself, and obviously you have no track record. And it's surprising, by the way, how little your house flipping track record counts for apartment buildings. People could care less, really what it is. So what you're basically doing is you're trying to show a track record.

record of success. I have a software startup. I do pizza restaurants. I flipped houses. Okay, I haven't done any apartment buildings. Okay. Sorry about that. And so then you talk about your success and other areas. You talk about the other team members you've been able to build up. So if you have a good real estate attorney, bring him in. If you have some investors on board, you know, bring them. if you have a lender, anyone on your team, you'll highlight the team and you make up for your weaknesses in that way. So, yeah, and then you just stay in touch with that broker. And the key is when they send you a deal, you got to turn around quickly. You got to respond to that broker because 98% of his customers never look at any deals they send out.

So you want to be the guy or gal that says, hey, this deal won't work me like this, but this would. there's why. That's really good advice. Yeah. And so now the broker, number one, knows that you're serious because you actually crack and open his email and his marketing package. And he's getting a better sense for what you're looking for. Yeah. Yeah. So how do you find him? I mean, you know, I'm looking here, you know, we've got, you know, 50 real estate brokers in this part of town. And, you know, how do I choose between all 50? I mean, it's going to be a headache, isn't it? Or is there some kind of easy way to decide who's good and who I don't want to be working with? Yeah, I mean, I don't know if there's an easy way.

I think there's a system way. And I've always used loop net. I've done this twice now. I've done it when looking, before I bought this building, I was looking for apartments in Texas. So I basically, I actually had an 82 unit on a contract before I pulled out because of the restaurant side of stuff. But I did basically build a team in Texas. And so I use loop nets, you know, loopnet.com. And I normally don't use it to find deals because normally that's where deals go that no one really wants.

but what you can do is you can look for the kind of asset you want to buy in the area you want to buy it and you and you can contact the broker on those and so I start a spreadsheet where I track all the brokers and you can then click on that broker's profile to see all the listings right so the more listings that broker has in my mind the more experienced and the better they are and then you start you start reaching you start reaching out to them and build a relationship in that way so I just use I use loop net and it's a little bit of a numbers game I say, you know, call 10 brokers and see where it leads you. Good advice. Yeah, that's great. I love that tip. I've heard, I think I read on the blog, you wrote a couple articles about that. And I thought that was fabulous, just contacting the brokers who may not have the exact deal right then, but they may have other deals coming down the pipeline.

And if you can get in that pipeline, then you can do well. So, very cool. Yep. Well, hey, going back to the 12 unit, then, won't we go back to that story? Because I want to know, you know how it bankrupted you. but what kind of, or almost banked up to you. You know, we had the sensational headline, but what kind of condition was it in when you took over? It was, I mean, this is, again, this is a blue-collar neighborhood.

It was built in the 60s, so it was in fair condition, meaning that the windows were outdated. The roof was leaking in places. The units were cosmetically outdated, but it had really, you know, had good, good bones. So the condition was okay. What I did for the deal is I estimated about $90,000 in repairs for a new roof and to, as we turned over the units to turn them over and make them nice and shiny in the process. So that was kind of the condition of it. Okay, cool. And then when you took over, I guess, what kind of challenges did you have?

What did you face when you were, I mean, did you have to do a lot of work to get it fixed up to, you know, fully rented? I mean, what kind of work did you do at that point? We had two units that were vacant. So as soon as we got in, we were able to renovate those. And in hindsight, being a rehabber, I over-renovated them. They were probably a little bit too nice. It didn't have to be as nice as they did because the tenants are pretty rough on the units, Brandon, as you know. And so you want to make stuff not necessarily nice, but sturdy.

So that's probably the way to do it. So I made things a little dainty and shiny, maybe, right? And then we replaced the roof. Those were probably made some improvements to the common areas. Yes. But a lot of it was done over time. I got to say one reason I got into this property was because the rents were low. So the previous owner was getting an average of 550 per one bedroom, but the market really is at 775.

Wow. So once I saw that, I saw an opportunity. But the problem is in Washington, D.C., there's rent. control. And so you can't just say, hey, today your rent will be $1,000, having that, you know, take it or leave it. You can only raise rent very systematically and very incrementally. And so I knew that to get the units up to market rate would require turnover as well as time. Interesting. So what's your take on rent control? It's a topic that I don't think we've actually broached in 66 shows. And I'm curious. about it. Do you think rent control holds property values down? Do you think it potentially keeps

properties renovated to a lesser extent that they might normally be? Do you keep competition down? What's your take on rent control and its effect on rental properties? Well, it always depends on what your perspective is, right? So if you're a capitalist, you have one perspective. I actually have an interest in transitional housing and affordable housing. I do have an interest in that. And if you look at it from that perspective, I can see the purpose of it, right? It keeps affordable housing for people so they can live close to their jobs. I can tell you in D.C., if that were not the case, the city would look quite a bit different.

And you can be certain that rents would be much higher and the buildings would be nicer. So I would say from a capitalist perspective, it certainly keeps rents down. It keeps the quality of the buildings down for sure. So from a profit-making perspective, you know, not having rent control would be much better. Yeah, yeah, for sure, for sure. All right. So hopping back to this property, how many units was it? It was 12 units.

So was there an on-site manager or who took care of that? Well, it was a property manager who I interviewed in the process leading up to this, who, you know, who was in Washington, D.C. and so, yeah, he basically took the building over. Gotcha. Okay, cool. For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real,

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This is a paid advertisement. I guess let's get to the story of how did you nearly, you know, get bankrupt on this thing. He's avoiding the topic, Brandon, clearly. I want to know that the sad story. The wounds just recently healed. Wait, hold on. Let me get Ben and his violin. Yeah.

So, I mean, people have warned me about washing D.C. and, you know, when you're, anyway, everybody warns you, right? So, but what actually happened was far worse than what people warn me about. And it went something like this. There was a tenant in there who, for some reason or another, I don't know, was disgruntled in some way. But he wasn't just disgruntled. He actually knew the system. He knew the law very well.

He knew landlord-tenant law. They all do, by the way. What's that? They always do. the professional tenants when it's when it started when it started

you know I thought you know I was I thought his mission was his mission was to bankrupt me I think he felt that I was a capitalist pig and he he wanted to show me you know what happens to people like me

and what he what he started doing well he wasn't paying the rent that was the least of things but what he was doing is he was basically calling the authorities for real things and primarily made up things. But when you do that, authorities normally respond. And when an authority and an inspector comes to the property, they will find something. And normally they won't find just one, but they'll find a dozen things.

And so what started happening is as we were doing renovations, he was calling the government office that enforced work permits. and issued permits and things of that nature. And D.C. is very strict. The law is very strict. You need a permit to replace a light fixture, to replace a toilet. You need to pull permits, and it has to be done by licensed contractors. It can't be by, you know, a plumber that has a license in Maryland that is perfectly qualified to do deal.

It's got to be a licensed person, okay? And that person will charge you $500 to walk into the permit office, whether the permit costs $25 or not. So, and part of it was ignorance where we didn't know that the, and normally these laws aren't enforced to the letter normally. But because he was calling the office every second day in emailing, he wasn't just emailing the inspector. He was emailing the supervisors and the people in charge. And so we had basically, you know, a laser on this building. And at one point, they called for a hearing and it was me and my property manager, the inspector, the inspector supervisor, the number two in command.

And I'm wondering why there was so much firepower in the room. And the guy was like, what is going on over there? I mean, we're just getting barrage with emails and phone calls. And basically, they fine made $25,000. Wow. Which I, you know, quote unquote, settled for $5,000. So I didn't have to go to court. But it was my right to go to court for that.

And that really opened my eyes to how, you know, how strong. the laws were and, you know, and again, another, not that we were trying to go away with stuff, it was largely ignorance, I suppose. Anyway, so that was that. And then, you know, he called other authorities like the lead paint people and local associations. And, you know, he made it difficult for the contractors to work there. And, yeah, so those are stuff that we're dealing with there. Wow.

So this guy was somebody that you inherited, correct? Yeah. Okay. So ultimately, there's probably very little you can do to avoid somebody like this if you're inheriting a building, correct? Well, there's something that I was told to do and didn't do. Oh, what's that? Yeah, which is, I was told to search the court records by tenant to see what kind of legal activity that it was. Oh, that's actually really interesting. I never thought about that. Had I, and I did it in, I did it after the fact, and I discovered that two of my tenants that were giving me problems had actually had the most active court record. And you don't really care too much about, you know, domestic and civilian disputes.

You really care about the landlord tenant stuff. If someone's been in court for eviction or any landlord-tenant matter, they're going to know how to file a suit filling out a one-page form. They're going to know how to get the free legal advice at the courthouse, and they're going to know all these things. And especially in D.C. and other jurisdictions is very tenant friendly. And that may have, you know, may have made a difference. I don't know. I don't know. Yeah. I mean, I think that might be probably one of the single best tips we've ever had on the show.

I really do. Well, I mean, I've inherited some bad tenants. And I've dealt with that. And it's an absolute nightmare. and, you know, I never really even thought about that. Yeah, you know, you look at the rent roll, you look up who's on it, and, you know, I mean, if you end up buying a building with one of these professional tenants, I mean, you could really find yourself in a lot of trouble and costing you,

costing you dearly as you've experienced. So, well, now, in hindsight, then, had you found these guys in your search, would you have potentially not done the deal? That's the big question. That is the big question. You know, we're all so eager to do a deal. And sometimes we have blinders on, especially if we're more inexperienced. It goes for rehabbing also.

I mean, I would pass on deals now that I would have done two years ago. So, you know, would I have done anything differently? You know, but honestly, probably not. Yeah. Probably. I would have said, okay, I see it. I can handle it. Well, now if it happened today and you came upon the same building with the same numbers

and you saw this guy in his court history, would you say I could handle it or would you pass? You know, it depends. I would probably ask the previous seller about this guy because they're not going to volunteer information. I would say, hey, tell me about this guy. You know, tell me about this guy a little bit. Tell me how he is.

Yeah. And, you know, and then I might pass on, I don't know. Yeah. But based on what I know, no, no, I do not want to go through this again. That is for sure. Yeah. And I've got a feeling that, you know, similar to, you know, well, at least the law when you're hiring employees,

you know, your references can't really say much. But, but, you know, a landlord can certainly say so. But if they're selling the building to you, they want to get this guy and this building off their hands.

That's probably why they're selling. Oh, yeah. Oh, yeah. A guy, yeah. So how'd the story end? What happened? Well, you know,

the other thing he did is he sued me in three different dockets, probably every six weeks for, wow, repeat things. And then the judges, I tell you, man, I was in court more than, I don't like being in court. Makes you very uncomfortable. I get very anxious.

I get out of there. I'm literally drained. I have to take a nap. And so, you know, this was like, I don't know, our fifth court appearance. And the judge recommended an informal hearing. And so it was me, my property manager of the judge and the tenant. And he's going through these things. And he was listing the offenses.

And they were, well, anyway, the judge knew that. that they were, you know, a little bit made up. And all of a sudden he gets up and he stands up. He reached out his hand. And I've been quiet the whole time just watching this thing going down, you know. And he goes, you know, I'd like to talk with Mr. Blanc for five minutes. This is a tenant saying that. It's a tenant.

And I was like, you know, I was like, what? And I said, well, of course. And you know, I made three attempts to communicate with him in different ways that completely failed miserably. It was bad. So he reached over me and said, I like, five minutes, the judge and the proper manager excuse himself, and I'm sitting here. I can't remember what we talked about.

You know, all I know is we agreed to grab a cup of coffee afterwards. So they come back in and the judge says, well, what do you want to do with this case? And he says, I'd like to dismiss it. And they're looking at me like, what in the world did you guys talk about where we're going? So he signs a paper and we, you know, shuffled down and all of a sudden I'm having coffee in the courthouse cafe with this guy. And we're talking about our lives and our families. And I was like, man, I'm sharing way too much stuff with him.

And so is he based on our history. So we're having this really cordial conversation. And then after about 50 minutes, I said, oh, by the way, what about the rent you owe? And he goes, he goes, I'll take care of it. And you don't have to worry about me anymore. So what was it that? I honestly, you guys, I do not know. I think the good Lord had mercy on me.

be honest with you. I still don't know exactly why I do know that his motivation wasn't entirely directed at me. He felt like the city was not doing their job and he wanted them to do their job. And a lot of that was motivated by that. And he wasn't aware of all the stuff that costs. Because I said, look, the stuff I'm spending all this stuff, I was going to renovate the, you know, I was going to replace the carpet and I was going to do this. And I don't have the money for it anymore. and he wasn't aware of that. And so it was kind of one of those discussions that just opened both of our eyes, I guess, and he has not made a call since then.

That was a year and a half ago. And he's still one of your tenants. He's still one of my tenants. Have you considered just kicking him out? I mean, like, you can't just kick someone out in D.C. You can only evict someone if they're not paying the rent. But like at the end of its lease, you can't just ask somebody to, you know, I'm not going to renew your lease.

We're going to remodel your unit. No. Not. A month-a-month-month lease is the same as a lifetime lease. Wow. Really? Yeah. Wow. Here's the thing about DC, that DC is extremely difficult to make money in. However, there is incredible opportunity in DC as well from a real estate perspective. How so? Yeah, what's the, what's the upside? I see a lot of potential downside all of a sudden. The upside is that it is a very stable market. So vacancies are very low. and there's a lot of demand, especially if you're looking in areas that are improving,

there's lots of demand. There's a lot of old buildings like this one that have been mismanished for 20 years because of rent control, they're basically undervalued. So if you can get in there, and for example, if you put Section 8 subsidized housing in there, they're exempt for rent control. So if you can do that, it will add value immediately.

Now, unfortunately, my previous property manager was against Section 8, so we never did that. And I now have a new property manager out of three months ago, and it makes such a huge difference because Section 8 pays 845 for those bedrooms that the previous owner was getting 525. Now you add that

times 12 and the building should be worth a million dollars, right? So I'm bought it for $475, it should be worth a million. Once I get there, I'm in year three now and maybe another two, three years or so, but that's some of the opportunity. Yeah, and you know that's something Brandon and I had a nice

discussion about a week or two. We were debating section 8 and rent control And, you know, we had said, listen, you know, there's areas where Section 8 pays far more than market rent. And there's places, obviously, where it pays less. And in this case, you know, I mean, there's definitely a huge opportunity for you. And that's fantastic. Yeah.

Yeah. Very cool. No, that's great. But you need to have the right property manager. And I think it's probably a lesson also. And sometimes you don't know that up front. You know, I know the answer to the question to ask, but sometimes you just, don't see how someone performs over time.

And so you just have to make a correction. Well, let's talk about your property manager real quick. You said you had another one, and then a few months ago you switched. So why did you switch and how did you find your new one? Yeah, so, I mean, I generally don't like to say bad things I want anyone. And it's not that the property manager was bad. I think there was just not a great fit. And what I mean by that is, you know, Section A is very prevalent in this part of the city,

as is in some other cities. So you really need to find someone who knows and specializes in Section 8. And then for me also, the property manager had a lot of smaller, you know, single family houses, duplexes that they were managing. And this was a 12 unit, which was a little big for him, but it was really kind of my entree into the commercial world. And I really wanted to go bigger. And so I was looking for more systems, right, of the property manager. I was looking for certain reports that he couldn't provide. and not without long emails and phone calls.

And if I contrast it with my proper manager now, the reports I'm looking for are just there. They're real time. I log in and it quickly tells me the story of what happened to last week, last month, whatever else. So it's the reporting that I was looking for that I was missing. And what reports were those? I mean, what was the information that you weren't getting

that you wanted to get? Right. So, for example, a delinquency report. When were rents made? What dates were the rents made? What is the current balance? So that kind of thing. I want to know, well, I want to know P&L. And I want to know it as soon as they write a bill, I should be able to grab a P&L in real time or close to real time. I want to know what the work orders are. I want to know when they were opened, when they were closed. I want to know what checks were written. And I want to know what unit that was for. So I can, you know, I say, well, how much do we spend on unit 202? Why are we spending so much money? What is going on there? So I can ask questions about why we're spending so much money on 20-2. Well, maybe it's because I'll paying a butt 10 in whose calls every week. What's going on? What are we doing in there? So it's those kind of things. Yeah, yeah. Yeah, very cool. Very cool. Well, hey, let's talk a little bit more about raising money because you raise money for these

apartment deals. I guess how do people start that whole process? I mean, we talked about it for flipping earlier and we talked a little bit about it. But let's say I'm a new investor. I mean, maybe done flips, whatever. And I want to raise a million dollars for an apartment building. Where do I start? My family and friends don't have a million dollars. Right. Well, that's that's a good point. All right. So, here's what you do. All right. So here's what you do. The first thing you start with your friends and family because those are, you can only start with people you already know because that's what you

have, right? And some people are more fortunate and people to know and people are less fortunate. You know, I say if you, if you're in a trailer park, you can raise this a million dollars. It might take a little longer, but the methodology is exactly the same. So you do two, you do two things. One is you create a sample deal. This is this is my secret that no one is, I've not seen this repeated anywhere else. So the first thing is you make that sample deal. It's similar to what I talked about on the rehabbing houses. If you don't have a previous deal, you just make one up. Now, you got to tell people you make one up, but you basically create an investor package. And the way you do it is you go on LoopNet and you download a marketing package.

Or you go to Marcus Millichap or CBRE to the larger ones, because their marketing packages are so fantastic. They have everything. They have photos. They have information about demographics. They have rental comps, sold comms. They have as is financials. They have performance.

They have everything you want in your package. So you take that thing and you just repurpose it. And you create your own deal package out of that. This takes a little time to do that. But once you have that, you can take that to your investors and saying, here's a deal when I get one it's going to look like that

and you use that as a tool to talk with the investor so the second thing you do is you talk to everyone you know you talk to that's like we talked about earlier hey I'm doing this thing 12 to 15 whatever 10% return you know anyone and you talk about that

and oh the other thing also mentioned a minimum investment because it qualifies people don't just say I'm looking for money and people say well I go to $1,000 and you may not want a thousand dollars want a thousand dollars, you may want it 25,000, or you may be 100,000. So mention that it's a minimum investment in the return, do they know anyone? And they go, well, I don't, I don't know anyone, but my boss might, you know, might be interested. And then they'll make an introduction.

You follow up with that person, and you talk to them via email and phone, and you get to do a, you do a meeting with that person. And in that meeting, you basically build credibility, right? So same thing you did with the investors previously. You talk about your ambitions and you talk about your team members. Yeah, you know, that's really, really good advice. That's really good advice. So, very cool. All right, well, why don't we move on to a section of the show that we like to call the... It's time for the fire round. All right, so the fire round, these questions all come from the bigger pockets, forums, and we're going to fire the match you and see what you say. So first question,

my tenant asked for a two-week extension on the rent. Would you give it? Well, I guess it would depend. Is this a chronic request or what? I don't know. I think previously I would have said, yeah, I'll work with a tenant. Now I would say I'll work with it, but I will file the eviction today. And so when you pay me that, I will then cancel the eviction. And you have to do that in D.C. because of the way the laws work, they get the clock ticking.

So in D.C., I would say, no, I'm sorry. I have to follow the process. But my nature is to try to work with someone. Yeah. Yeah. No, that's good, good advice. And I think anybody who's going to cut somebody a break should probably follow that advice anyway and really follow the process.

I think that's where most new investors really start finding themselves in trouble. They're lenient or they don't stick to it. You know, when it's time to file notice, file the notice. And if they come through afterwards, you know, okay, then maybe we could pull it. You know, when I first got started, land. Lording, I used to, people used to call all the time and they would just say, hey, I'm going to be a little bit late on the rent. Is that okay? And at first I said, yeah, that's fine. You know, I'll work with you. That was the beginning. And then as I got more rentals, I started saying, well, that's kind of annoying. So what I started doing is charging an extension fee. I said, sure, it's going to be 25 bucks to extend it for five days. And I had people every month, four or five people do it. And then that lasted a little while. But then people, I think they just got tired of paying that. And then they stopped. And maybe two. two, three, four months, they kept paying the extension fee. The same people. And then they stopped. And I haven't had to actually, I don't think anybody's

asked me in three or four years now if they could have an extension anymore. And they probably don't remember that I did that originally. But anyway, that's an idea that somebody could try if you wanted to. I don't know if it's worth the risk, but it was like an extra hundred bucks. Hey, Brandon, it's called a late fee. Well, I would charge the late fee if they were past the other year. This is an extension fee. Yeah. It's like, it's like halfway in between, right? The late fee was 50. The extension fee was 25. I was being A $25, I don't like you fee, and you're really making money. Actually, we charge a notice serving fee.

I mean, we charge the late fee of $50. And then if we have to send the guy out to serve him a notice, which we always do, we charge another 35 because that's what we ought to pay the guy to do it. So, I mean, it's a hefty fee that they start getting if, I was reading today that, like, late fees are illegal in some places of the country, which I did not know. Well, and I was going to ask you, you know, that very question. I'm not sure that that's kosher everywhere. And all the feed that you might be adding may work in your jurisdiction.

But I think I have to check locally with what's allowed and what's not allowed. Yeah, I think typically, like, we have it written in our lease what we're going to charge them. And having anybody question it yet. And hopefully you're lawfully putting it in your lease as well. I think so. All right, Michael, what would you consider a deal breaker when looking at a multifamily? And I'm sure you have more than one deal breaker. So share a couple.

Yeah. Well, there's one in particular. I mean, no, the money deal breaker for me is not being able to provide proof of rent deposits. Because it was very relevant. This, you know, they say, oh, you know, there's 10% vacancy. Great. What's a delinquency? You know, show me who's actually paying the rent.

You know, I don't want to give you my tax return because, you know, I don't have a separate one for the building. All right. Well, then give me your, you know, bank deposit. You need some kind of proof of what's actually being collected over the last 12 months. And I, you know, when you're buying these smaller buildings, I've just seen a lot of documentation missing because usually their mom and pops, you know, small owners, they're not really that, that's systematic. But this is one thing that I would insist on. A lot of other stuff, you just have to kind of say, well, it's not there.

I'm going to have to take a chance on it. But you do want to see what the level of delinquency is in the tenant. So to me, that is a deal breaker. Yeah, that's good advice. And I wish I had that nugget before I bought my multifamilies. Thank you. Thank you. Better late than never, right?

All right. Next question. Should I ask my family members who invest in a syndication with me? I'm going to qualify that a little bit more. Should I ask my close family members if I should invest in a real estate syndication, meaning my mom, my dad, my brother, my sister, my kids? Yeah, so the answer is yes. The answer is yes, but you have to put it up, you have to, yes, there's a downside to that, right?

So if a deal goes bad, now you've got to live with that, you know, during the holidays. So, um, so can you pass the gravy and $25,000 please? Yes, that's exactly right. So, but I mean, you know, I don't know. I think if you don't do it, I think you're leaving an opportunity on a table. I just, I think my answer is yes. You just got to get over it and you've got to make it work. Okay, cool. Right on. All right. What's the most expensive item you've ever put into a flip? I don't know what this means. Like, what do you mean? Well, the person was asking, like, have you done any like repairs that were really like

over the top? Did you put like a gold toilet or something? Yeah, something. Like that was just expensive and ridiculous, anything like that. Pated floors, you know, I mean, something. Not really. I mean, I would say it's been, that's not been the issue. except for the apartments. I think you can over-improve rentals. So if you're doing that as a rehabber, the standards are quite a bit different. I think on a flips, it's been the other way.

What should I have done that I try to cut? And that's now biting me in a butt during the inspection because I didn't put up this, that, and the other thing or didn't replace the trim. Everything else looks great, but the trim looks like, you know, not good. So that's been the, I think, the error on the rehabbing side. Gotcha. Gotcha. Gotcha.

That's right on. All right, cool. Well, hey, why don't we move on to the final section of the show? We like to call the Famous for these questions we ask everyone, Michael. So we want to know your answers. Number one, what is your favorite real estate book? So I don't know if I have a favorite real estate book.

Okay. Oh, well, there you go. That's all right. It's a good answer. You know what? And probably my favorite answer of 66 shows. I love the fact that you don't have one. So that's awesome.

All right. Well, he did mention Rich Dad poured out of the beginning, so I'm going to say that one for him. There you go. By proxy, right? What about favorite business books? Shirley, you probably have some business, non-real estate books that you feel are valuable to you in your business.

Yeah, and these are the kind of books that change your thinking. This is when they transform your thinking. And Rich Dad was probably the first of those books that did that to me, where I just said, man, wow, I was so off, you know, of where I, you know, and that was kind of my first experience where it's such a little book, so simple, and yet it was so profound, right? And then the other one, you're going to know all these, everybody said the same thing, but E-myth was kind of the next thing to me. And it was one of those things like, wow, yeah, right on, right? And then I think the other one was, when I read the four-hour work week was the same thing. I'm like, man, right, wow. You know,

you just kind of go, wow, right? Yep. And it's not. They don't necessarily teach a specific tactic, but they change your thinking. Yep. Right on. All three books. Good choices. Yeah, for sure. What do you do for fun, man?

What kind of hobbies do you have? All right. So, yeah, I play competitive tennis. I played in college, and I play the USDA tournaments. Oh, cool. And so I love, yeah, I love doing that. What a coincidence, because I played tennis in, like, high school. Oh, yeah.

Like, I played one time ever in my whole life. I would like to watch Brandon swing a tennis record. No, you don't. A fun Vine video. You don't want to see that. You don't want to see that. I do like Vine though. That is a fun thing.

Come follow me on Vine. Woo! Look at that plug. All right. Final question. What do you believe sets apart successful investors from those who never get started or who fail? Yeah, I think the secret of success, not just with entrepreneurs, but in life in general, is to be intentional. I really like the word intentional.

here's what I mean. The majority of us, including wannabee investors and entrepreneurs, tend to drift through life. They don't really, they're very happy and comfortable with where they are and the house to live and the job they have, and they're really never compelled to do anything different. So there's a drifting. If you want to do something new,

you can't be in the rut in the comfort zone. You have to get out of that. So the successful entrepreneurs are ones who pay attention to their discontent and want something better. And the second thing they do is they commit. These are people that say, okay, I want this and I'm going to commit to it. And then third, they take action. And this is like we talked about earlier.

A lot of people simply stop there. They never take action. They'll buy another book and they'll go another seminar, but they never take action. I think those are the three. And then obviously, once you're in it, as entrepreneurs, you have to persist. You know, there's going to be challenges. And if you give up on the first challenge, challenge, you're never going to make it.

Those are kind of like the four that I could think of. That's awesome. Yeah, good stuff. Well, listen, Michael, it's been fantastic having you on the show. I think we've all picked up probably quite a few really cool nuggets. We definitely appreciate having you on. Where can people find out more information about you in 23 seconds or less? Well, first of all, I'm bigger pockets, right?

I'm writing articles about apartment building investor investing every single week. I appreciate the opportunity to do that. My website is the Michaelblank.com, and I have additional articles on there. I just launched a podcast as well. That's on iTunes. And I also have a YouTube channel, and you can find all that stuff on the Michaelblank.com.

Right on, man. Well, listen, thanks so much for being a part of the show. We also appreciate having you on Bigger Pockets. And for those folks who are listening, if you've got any questions for Michael, you can ask on the show, at biggerpockets.com slash show 66. That's biggerpockets.com slash show 66.

Thanks again, Mike. Hey, appreciate it. Thanks very much. Thank you. All right, everybody. That was Michael Blunk here on show 66 of the Bigger Pockets podcast. We want to thank Michael again for all the information, the insight, the tips. And hopefully you guys will avoid dealing with some of the chaos that Michael has

has gone through from listening to the show. And that, of course, is the goal of the Bigger Pockets podcast is to help you guys out to be better investors. So thank you for listening. That said, another way to become a better investor is to jump on BiggerPockets.com, to read our articles, to get active, engaged in our community. If you are not doing that, you are absolutely missing out.

The people who do get involved, not only do they grow their businesses and get better at investing, but they find partners and deals and do all sorts of cool stuff. So get involved, get active, join today. If you haven't already, get on the site. With that, I also want to remind you, jump on Facebook. Make sure to like us because Brandon really wants to be liked. I like friends.

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get on Bigger Pockets, and really more importantly, get out there and make it happen, make your investing work, be active. And that's really about it. So thank you so much for being a listener. We'll see you on the next show. I'm Joshua Dorkin. Signing off. 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. Be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. Thank you all for listening to the Bigger Pockets Real Estate podcast.

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