BiggerPockets Real Estate Podcast - 681: Real Estate Horror Stories: Navigating Six-Figure Losses, Stabbings, and Sewer Problems

Episode Date: October 30, 2022

There’s a dark side of real estate no one talks about. Crime, destruction, theft, violence—you name it, we’ve dealt with it. With the spookiest day of the year coming close, we’re going to tell you all our terrible real estate tales. Everyone on podcasts and YouTube wants to show you how easy it is to invest, how it’s an assured path to wealth, and rarely what type of mistakes you can make. But we’re flipping the script, bringing in some of the best and brightest in real estate to show that the grass is usually greener where the septic tank is. Today’s guests, who have all collectively succeeded at failing, are Andrew Cushman, Jamil Damji, and Matt Faircloth. If you’ve been a BiggerPockets listener, these names may sound familiar to you, but if you’re brand new, let us introduce you to these industry giants. Andrew is a multifamily expert and one of the smartest names in the game on screening and underwriting (analyzing) properties. Jamil built the nation’s largest wholesaling operation and is an expert guest on On the Market. And Matt, CEO of the DeRosa Group, literally wrote the book on Raising Private Capital. But these titans of industry only made mistakes at the beginning of their careers, right? Not quite. They share today a selection of stories that will make you realize that the only successful investors are the ones who can both literally and figuratively weather a strong storm. And if you think it’s all cash flow and cruises for these investors, you couldn’t be more wrong.  In This Episode We Cover: Why you should ALWAYS check out a property before you buy (and what happens if you don’t) Becoming the "Sheriff" of your investment and how contractors can easily take you for a ride 1031 exchange mistakes and how to negotiate with a seller even when you’re on a time crunch Always staying in your lane and trusting your gut when a deal doesn’t feel right Paying more for insurance and how to financially prepare for a natural disaster  Why even with all the pain, real estate investing is the best wealth vehicle in the game! And So Much More! Links from the Show Find an Investor-Friendly Real Estate Agent BiggerPockets Youtube Channel BiggerPockets Forums BiggerPockets Pro Membership BiggerPockets Bookstore BiggerPockets Bootcamps BiggerPockets Podcast BiggerPockets Merch Listen to All Your Favorite BiggerPockets Podcasts in One Place Learn About Real Estate, The Housing Market, and Money Management with The BiggerPockets Podcasts Get More Deals Done with The BiggerPockets Investing Tools Find a BiggerPockets Real Estate Meetup in Your Area David's BiggerPockets Profile David's Instagram BiggerPockets Podcast 661 Vantage Point Acquisitions The DeRosa Group Jamil’s YouTube Book Mentioned in the Show: Raising Private Capital by Matt Faircloth Connect with Matt, Andrew, & Jamil: Andrew's BiggerPockets Profile Jamil's BiggerPockets Profile Matt's BiggerPockets Profile Jamil's Instagram Matt's Instagram   Click here to check the full show notes: https://www.biggerpockets.com/blog/real-estate-681 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 681. And this was a big one. Because we put the insurance carrier on notice the day before, we got in line before everybody else, you know, if you have a fire at your property, okay, you're probably the only one making a claim. But if you're in a situation where a hurricane devastates 100 miles of coastline, can you just imagine the volume of claims the insurance carriers are processing? We saw properties that sat untouched, unrepared for two to three years because they didn't get their claim in fast enough.

What's going on, everyone? I have David Green, your host of the Bigger Pockets Real Estate podcast here today with a special Halloween episode brought to you by me and some of my good friends, including today's co-host Jamil Damjee. Jamil, happy. Happy Halloween, man. I'm super happy to be here. And it's a scary, scary, scary show. Yeah, it's a scary and fun show. So in today's show, we are telling real estate horror stories in the spirit of Halloween.

We are going to be joined by my friends Andrew Cushman and Matt Thercloth, as we all share things that basically deals gone wrong and what we did to try to survive them. Jamel, what were some of your favorite parts of the show? Oh, man, just how prepared Andrew is first and foremost. Secondly, Matt's hat? Get out of here. And third, you are the best Sergeant Slaughter I have ever, ever seen. Flatter, he'll get you nowhere. but that's probably not true.

This is my first time ever dressing up for Halloween, and it's here with you guys today. Before we bring in the show content, let's get to today's quick tip. And it is, it's very tempting to want to skimp on insurance, and when nothing goes wrong, that can feel like a good idea. But reconsider that.

After listening to today's show, you may never want to skip on insurance again. So make sure that you are underwriting thoroughly and preparing for what could go wrong, not assuming everything goes right. Running your real estate business doesn't have to feel like juggling five different tools, and the tools are blades or flaming torches.

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There are two kinds of real estate investors, those who have reviewed their insurance and those who think that they have. Most don't realize their coverage wasn't built for how they actually invest. Vacancy periods, rehabs, short-term rentals, or LLC-held properties. These gaps surface only when filing claims.

That's why investors work with N-R-Reg. They specialize exclusively in real estate investors, understanding portfolios, risk at scale, and cash flow protection. One claim can erase years of returns. If you own a rental property, Don't assume you're covered. Have NREG review your insurance with someone who gets investing at NREG.com slash BPPod. That's NR-E-I-G.com slash BPPod. All right, with that any further ado, let's get to the show. And today, we're going to be sharing our multi-family horror stories. Andrew, I hear you've got something to share with us. Yes, I'm Andrew Cushman. I'm addicted to multifamily and I have some horror stories. Hi, Andrew.

Hi, Andrew. Hi, guys. You're in a safe place, Andrew. Thank you. So tell us about it. What happened, Andrew? Well, this was back in the early part of my career, 2013, so we were two years in. This was Dallas, Fort Worth, Texas.

And this was our maybe third or fourth deals. And it was one of those situations where the broker tells you it's a C property, but that's because no broker or ever their seller will ever actually tell you that it's a D. It's always just a C. It's like a dove bar. If you bite into a dove chocolate bar, it's pretty sweet. But if you bite into a dove soap bar, it's kind of bitter. And we were sold chocolate and we got soap.

And so on the day of closing, I'm sitting there in the office. And it's getting the afternoon like, man, what is that smell? It just kept getting worse. And a couple hours before the end of the day, we found out that the sewer pipes, underneath the building, it had crawl spaces, and this was built in the 60s, that means, you know, plywood floor, and then there's two to three feet of space under there. The sewer line had broke and spilled the entire crawl space with about two feet of sewage water and all the stuff that floats in that. And not only affected the office, it affected every other unit in the building. So that was Friday

afternoon of closing. That was a great start. Saturday, the first weekend that we owned it, One little red flag that we missed at the time was that there is a convenience store right next to our property where, let's just say, unsavory transactions would occur. And on that Saturday evening, a transaction went bad, started a little scuffle, which somehow ended up over our fence and onto our property. And we ended up that night with a quadruple homicide plus four stabbings. And, you know, so I was like, all right, probably can't get a whole. whole lot worse from here and then at the other property that we bought basically at the same time five o'clock in the afternoon somebody climbed up on top of the leasing office busted out the skylights and threw Molotov cocktails down

through the skylights into the office in an attempt to burn it down so that was that was my intro to Dallas Fort Worth it was very exciting needless to say it I figured well it can't get a whole lot worse from here So we did eventually sell those properties and get out of them and everything turned out okay. But what came out of it and what changed is we talked to, we went over, back in episode 279, we talked about the screening process for properties. Those two nightmares are a big part of where that came from. The mistake we made is, you know, we did go to the market in person to check them out.

But one of the things we do now is we do Google Street View. we get in our little, you know, take the little yellow man and make him walk around the neighborhood and see if he gets robbed, right? So what you can, what we missed is that convenience store, because it's in a low income neighborhood, is going to be a real problem. The median income there was too low to support the rents. And then crime was high. So when you take low income, high crime, and then unsavory neighbors and put those together, you've got a very rough property that has been extremely difficult to turn around because you can turn around a property, but you can't turn around the neighborhood. So now what we do is we screen, we won't buy a property that doesn't

that doesn't sit in an immediate income area that's high. And that's going to vary by market. But for us, it's 40 to 50,000 at least. We only buy in low crime areas. We do a thorough street view and then we send somebody in person if it looks good. And for us, we don't buy 1960s properties anymore because the physical decay, it can be overwhelming, especially if you haven't budgeted for it. So yeah, that was some of our early horror stories, and it framed what we did for every deal after that. Unfortunately, we haven't had anything like that after that, but yeah, it was quite the fun introduction to multifamily. Wow. I mean, that's obviously a nightmare, but it gave you a lot of tools that will keep you out of a nightmarish situation in the future. And I think that that's the whole purpose of waking up in a nightmare, right, is to not have them over and over and over and over and over.

again. Exactly. I mean, we don't regret it because it made us that much better for the, I don't know, whatever, seven or eight years afterwards. And we also did things like, you know, hire Mr. Slaughter here to come live at the property and patrol it for, for, you know, every night and every day. I think we had two or three officers on there. We let the police practice with their K-9 units on the property, right, try to kind of help tamp things down. So, yeah, we learned a lot. And it heavily affected our process going forward. And again, fortunately, we have not had to deal with that any further since then. Incredible. You know, I've been accused of being an unsavory character myself as Hugh Hefner, and I would have to say that I take pause and a little bit of fence to you wanting to stay away from

unsavory characters. I think everybody deserves a place to rest their head and wear a bathrow. But thank you so much for sharing that horror story with us, Andrew. It was enlightening, to say the least. Matt, howdy partner. Howdy to you. I also hear you've got quite an interesting horror story that you'd like to share with us. Hopefully you'll be able to tie in how this horror story and that hat came to be. The hat brother is just sometimes you got to be the sheriff on a property as a property owner. And you got to knock heads, whether that's on a C class property, B class property, whatever it is. There's going to be things that an owner needs to, police and remove, whether that's improper management, bad books, theft, which is what my story is about, my friend, or whatever that may be, or tenants that are bad actors and making bad choices or, you know, having bad deals go down at the drug at the convenience store across street. Almost called it a drugstore.

No, convenience store. Probably was a drugstore as well. But yeah, we're kind of cops and bringing, bringing multifamily to the next level. So this story is that. So this involves probably my first triple-digit multifamily property. It was the 198 units. It was the first time that we bought something anywhere near that large. And it was in Fayetteville, North Carolina.

Fayetteville is all one syllable, fable. You know, so. And we had bought it. And the property manager that we had hired was new to North Carolina. And they had a regional manager, which is property. managers are structured with a regional manager that's over typically a bunch of properties that have site managers that work and that sit at the property and have maintenance teams and that. But the regional sits over the whole thing and it's really their job to grow and manage the

existing portfolio. So regional was really solid and she put a great site team in place and right like a week after we closed, she quits. And so the the property management company had had changed a heart and decided, well, she quit. We don't really want to hire a new person right now, so we're going to try and manage this property in Fayetteville, North Carolina, from Atlanta. And so they tried to manage it way remote. And so with that equated to was the site team was really left to run the property by themselves. And so you've got, you got somebody that's, you know, hours and hours away that's responsible for keeping their eyes on the property.

And, you know, when the cats away, the mice will play, my friend. And that's just how it goes. Nobody with this hat was watching the property aside from us. So what happened very quickly, two things. We had identified to the property manager, to the site team, that, hey, we want to renovate all these apartments because they're all, you know, Vera's very circa 1970 with lovely wood paneling on the walls and 1970-style kitchens and whatnot. And we knew that the tenants were paying like, you know, $500 or $600 a month in rent.

for ones in two bedrooms, whereas the market was $800, $900 a month, and we were going to make major investments in the property to bring those units up to new condition. The site manager took it upon themselves to write a letter to all 198 units, 198 tenants, telling them, hey, new manager is going to make some major investments in this site, and just so you know, when your lease renews, you're going to go from $500 to $800.

Just, you know, be on notice. They put that on every tenant's door. We went from 80% occupancy to 30% occupancy in two months after that notice was posted. Again, without a little bit attacked and that kind of thing, you know, and when the cats away, the mice will play. So that was obvious nightmare number one is just occupancy falls way off and that. So fast forward, we ended up having to remove that property manager, not just because of that, because of a lot of egregious issues that we had had. And the second issue, horror story that came up had to do with yet again not having a

regional sitting over this property. The maintenance technician was here. I still remember his name, still remember his face. Every time I came on site, man, he'd be outside picking up trash with his little, you know, his little long stick with the claw on the end of it, you know, that they use and a little bucket. And he'd plant new flowers. Like I was told by other site team members.

that like a couple of days before I would come down. He would plant, you know, some new plants just to show off a little bit, you know, the property and all. He's called me, sir, and no, sir, the whole time. And he's called me, very respectful, got my cell phone number, would call me every here and a while, every here and again to tell me how things were going. And yes, sir, no, sir, the whole time. And he had a bunch of vendors lined up to do work on the property and people that he knew from the neighborhood were renovating apartments and stuff like that. And he was the best. And he was my best friend. And I thought that he was the, the, the, the, the, the one that was going to bring that property around. And I defended him when other people started to tell me, hey, that guy's not doing his job sometimes and this and that. Like, no, you know what? He's great. And not just because he calls me, sir. He's amazing. I love the way he shows up.

So we terminated the PM company. And my business partner, Justin, goes to the site a week later. And a guy in a, you know, beat up pickup truck, you know, kind of any real estate investor knows what the truck of a local scrapper looks like, you know, the guy who's there whose job is to collect scrap metal and take it to the scrapyard and they get dollars per pound for it. Local scrapper truck pulls up, you know, with a truck full of metal that he's found around the neighborhood. And he says, hey man, you got any appliances to sell me today? You know, and I'm like, what are you talking about appliances? And my partner, Justin was like, well, no, we don't sell you guys appliances.

And he says, well, no, the guy that works here, the maintenance tech, he's been selling me appliances that you guys pull out of these turned apartments. He's been selling them to me for $300 for a full set of appliances. And what? And go, yeah, yeah, yeah. And so in a business, for it when you're in multifamily, when you're turning apartments, the appliances that you pull out of one apartment when you renovate and upgrade, those appliances could be used for parts and spares and maybe a tenant loses their refrigerator, but you can give them the refrigerator you just pulled out of the apartment after it's been cleaned and use it until you're soon enough to buy a new one. This guy was selling all of our appliances to the guy in the

beat up pickup truck, right? Then it turns out, did a little bit of digging, that there was a homeless guy living on site. And we approached him and we said, why, you're living in one of these apartments. He was furnished. He had like taken furniture. He had found in the neighborhood and was, had a furnished apartment that he was living in with a key. Guy had a key. Right. And we're like, what how how did this happen how are you living here oh the maintenance guy has been renting me an apartment i just pay him in cash you know four hundred dollars a month in cash then he's been he's been letting me live here right and i was like what where are you getting the money from oh well i do work orders for him and some of the other guys and i do some odd jobs around the site and they pay me

and i just give pretty much give the money back to him and rent so this maintenance tech was selling used appliances to a local scrapper guy and had a homeless guy living one of our apartments that was, which who was also doing is work orders, right? And the third, again, it keeps going. The third time thing that came up on that same site visit, the guys that were turning the apartment. So when you've got a multifamily property like this, you tend to find like a local contractor, a couple of guys in a truck or a bigger outfit or whatever to go and replace cabinets and clean out the apartments and put a new flooring and spend you know you end up spending somewhere between four to seven thousand a unit to turn these apartments around right well

they said to us well okay who are we paying our commission to and we said what do you mean your commission and they said well every time we turn an apartment we had to give a five hundred dollar commission to the maintenance technician uh as our as i as his fee for him referring us to this job. So do we have to give that to you guys now? And we're like, no, no, no, no. So it was, uh, and it was more, but it was just one of these lessons, uh, Jemeel, that, that you've got to have oversight. And, and, uh, you can't just trust a yes sir, no, sir kind of person who's going to tell you what they want to, what, what you want to hear. And by the way, the fact that he's planting flowers two days before I came should have been a sign. You should

be planting flowers, period. Not just when the owner is going to come to town to put your best foot forward when the owner is in town to make yourself look good. So, uh, just bottom line is oversight, oversight, oversight, people watching, uh, watching staff. Because again, can't say it enough. You know, you need people wearing this hat here. And when the, uh, when the cats, when the, when the, when the cats away, the mice certainly do play. Sounds like you had yourself quite the entrepreneur there. He was, he did well. I would think so. Yeah. Yeah. Yeah. You can't, you can't, uh, slight him for trying, um, in that. But he, he, he, he, he, he, he, he, he, he, he, he, he, he, he, he, he, he, he, he, he certainly did try very hard. But unfortunately, he was an entrepreneur with our money in that. So I'm

glad to get a glad to have gotten him on down the road to whatever his next venture was. You moved him into the business development role, right? So we hired him, right? Yeah, let me let me use your superpowers for good. You ever had a moment like that, David, where the cat was away and a mouse came out to play? First off, let's get something clear right now. This is my podcast and I still run it. And you're Welcome in my ring. But Matt Faircloth, the next time you show up for a Halloween episode dressed in your three-year-old's cowboy hat, thinking that kind of effort is going to fly here.

You got another thing coming. Okay, brother. Now I'm going to let it slide. It does a really good story. You bring you some good content. But I expect more, and I'm going to see more in the future. I promise to get a full-sat cowboy hat next time. Well said.

Speaking of the future, why don't you tell us about your multifamily? family horror story, David, because I'm sure with all the experience you have in the business, there's got to be some spooky things that have happened. You asked me a question before I went on to that ridiculous tirade right there. What was it about? I asked you if you had ever had an opportunity to see the mice come out to play when the cat went away. You know, that happens more I'd say with employees in my businesses than it has with any actual investment property. I haven't had a situation like that yet, but oh my goodness, have I had some horror stories.

By the way, I think Andrew might have one that we're invested together on one of those properties, the hurricane one. So he'll probably get into that. But I just had like a big 1031 that I didn't really want to do. Long story short, somebody had stolen title to my properties. We're a bit of a target. We're in a platform like this. So I had to sell that very quickly, which forced me into a 1031 that I didn't want to be in.

And then I learned in the middle of the 1031, there's a rule that no one had told me the entire time. And that is when you sell your property, you have 45 days to identify your next properties and 180 days to close. We all know that. No one told me that you can only identify twice as many much real estate as you sold. So if you sold $5 million of real estate, you are only allowed to identify 10 million, which is the ones that you can pick from. Now, normally that is not an issue because most people don't have that much capital to deploy. In my case, my portfolio was almost free and clear. So I sold about $4 million worth of real estate and I could only identify $8 million with the real estate. However, I had to reinvest almost $4 million, which is very difficult

to do if you can only identify $8 million. What makes it worse? I did not know that this was a problem until day 44 of my 45-day identification period, which created a very interesting 24-hour period where I had to identify properties, and basically, if I identified anything that I didn't have in contract, it wasn't going to close. So it was too risky to put a house on there that I didn't know I could put in contract.

So I had to go out and put properties in contract in one day that were then I had to close. There's no way, like I couldn't not close on these properties. So a lot of your inspection strategies, they're not going to work in that scenario. So first story, like that set me up for some of these horror stories that are going to come as if that wasn't a horror story enough. During this period of time,

one of these properties, we had a survey conducted, and it turned out that there was a 30-foot encroachment of the neighbor's lot onto my property. So basically 30 feet of the property I'm trying to buy, the survey reported was hanging over the neighbor's lot, meaning if they wanted, they could just come take a chainsaw and cut 30 feet off of my house. Now, it's not that uncommon to have some form of an encroachment. Boundary lines don't always get drawn super clear. It's very odd that you have 30 feet of a house. It's usually like a gutter hanging over or something like the fence didn't get put in the right place. This was very significant. And this was a house. It was more than a million house. It was like $1.2 million. It had appraised at 1.35 million. So I was excited about buying it.

It was coming with a lot. This is what's funny is I bought this property and I got the lot next to it. And even though they had all that space, they still chose to build their house as close to this other lot as they possibly could get. So I'm in this position now where if I don't close on this thing, my whole 1031 is going to blow up. We had to tell them that we were in a 1031 to get them to go into contract in one day. So the seller was actually a pilot. He's flying his plane and we're desperately trying to find houses that we could put into contract. So what we did was we had his agent look, the seller's wife looked up who the flight attendants were on the flight, sent them a text message via the plane's Wi-Fi. They go,

knock on the cockpit door and they're like, hey, I got to read you the terms of this deal to know if you want to put in contract. And he's like, I'm flying a plane. I don't want to deal with this. I'll do it later. And they're like, no, no, no, we've got like four hours. And you're not going to land for three and a half. You have to make the decision right now. So he already wasn't super happy with how this whole thing went down. And I don't think he got the price he wanted. He got the price he was willing to get. He didn't know about the foreclosure. But basically the seller's like, I'm not fixing it. You can just, you know, go to H.E. Double hockey sticks here. And I'm like, I don't want to him to know that I have to close, but I also don't want to buy a property that's 30 feet hanging over

the neighbor's lot. I'm in a bit of a horror story here. So we went back and forth for probably three weeks on this. I tried to buy the portion of the lot that my house was hanging over into from the other guy. He didn't want to do it. I tried to make the seller buy it. He didn't want to pay any extra money. Long story short, it turned out that it was just the surveyor was an idiot. Didn't know how to do their job. It wasn't a problem. We had a second survey order that showed there was nothing here. So there this three weeks of like sphincter tightening that did not have to happen. I suppose that like muscle doesn't get worked out very much. It definitely got worked out during that period of time.

So that horror story ended up being just, you know, a haunted house that didn't have real ghosts. But during that same 1031, I did run into a cabin that I bought in the Smoky Mountains that came with a pool. Now, pools out there tend to be inside of a structure. They're not just like built out in the open because they would freeze during the wintertime. So the pool was awesome. And it would like almost double how much I could rent this cabin out for. It's very hard to find those.

They rent for a lot more. It's a really big pool in a huge structure. The problem is the pool was leaking. The pool was being redone. So when I put it in contract, I wrote into the contract. The pool has to be evaluated by a licensed professional to the buyer's satisfaction. And if I don't like it, I can back out get my earnest money back. However, this 1031 disaster could stop me from being able to back out of the deal.

So now I'm locked into it and I don't want the seller to know that I'm locked into it. I want them to fix the pool and the work that was done basically they replastered it. It was still leaking afterwards. So you don't know how bad the problem is. I don't know a ton about pools and no one out there could really give me the answer of is this an issue where we're just going to fix like some leaks in plaster or is this like the plumbing itself is leaking and it's not going to hold water. So I'd already negotiated about $25,000 in closing cost credits when I put under contract. The seller wanted a an early close. I wanted a delayed closing. He was threatening to just basically not close at all if I went past the close of escrow. That forced me, like, I can't bluff anymore if he threatens to not do it. So I was able to negotiate an additional $30,000 credit in order to fix that pool from the seller, not knowing how bad it was going to be. So it was kind of like, well, you know, like, I don't know if that's enough, but it's better than losing the entire 1031 here. So I went forward with it. And we get done. we go fill up the pool, it's leaking again. We send out another pool specialist.

They say, I think you need to redo the whole pool. So it's probably going to be like $55 to $65,000, I would guess just because it's hard to get people out there. I'm kind of working with traveling contractors now to go out there and rebuild an entire pool, which technically I got most of the closing costs put towards the pool. It just made the deal not quite as good because I was intending on using those for furnishing the property. Like it was a new construction cabin, even though the pool had been built by some terrible

builder. So that was a bit of a horror story that we're still trying to work out. There's another cabin that I have under contract right now. Funny story. Did you guys know there was a Nashville, Indiana? No. No. Freaking South, man.

They've got like the same names for cities in all kinds of different states. I didn't know that either. So what I thought I was doing was going under contract on a cabin with an appraisal of 1.365 in Nashville, Tennessee. And I'm getting it for a million 50. So I feel really good about this. And then by two weeks in... There's a book in read, long distance real estate. investing. Wow. Yeah, that's exactly right. I want David Green money where I can just buy houses

wherever they are, whenever they are just because I don't want to pay taxes. So I hadn't closed on it yet, but I'd realize about two weeks in, oh, this is not Nashville TN, this is Nashville I. That T in the eye is a very big difference. One little dash across that eye. Talk about cross your T's and dot your eyes. Oh. Very nice there. So the good news is the fundamentals of the deal don't change. It's underwritten with the same information. The seller has previous guests that are booking. We have a very good understanding. It's probably right now it's bringing in about $160,000 a year in revenue. There's ways that we can bring that up higher. But I just was shocked like, oh, this is not even in the same state that I thought I was buying this property in, but it was still like almost

$300,000 of equity. I'm going to move forward with it. Well, it turns out it's in a very rural area. So now we're having a hard time finding a lender that wants to lend on it because they have haven't heard of Nashville, Indiana either. It's in a very remote location. It is making good revenue, but that still makes a lender nervous. And it's also on six acres of property, which is another thing that lenders don't like. They like the actual improvements to have more value than the land. So luckily, the seller has extended escrow like three times on this because we have to go find different lenders and then we have to order a new appraisal. So that hasn't turned into a horror store yet, but it was very, very close to one when I realized I was buying a house in a

completely different state than when I had looked at the contract and looked at the the numbers and said, sounds good, sign me up, didn't notice that it was in Indiana and not Tennessee. I did have a nasty, a barely averted horror story in Jacksonville. So I had a property that was leaking sewage, similar to what Andrew was saying from underneath the house. And the property manager came and said, hey, it's going to be about $26,000 to fix this. And I'm like, the whole house is only worth like 110. It might be worth it to just let the house go. Like what on earth are you talking about $26,000? We've sent three plumbers.

This was the cheapest bid we could find. And it's like, well, why do they, what's going to cost that much money? Of course, crickets. They can't ever tell you what the person's doing. They're just relaying this information. So the plumbers were saying we basically got to rip apart the entire like foundation of your home to try to figure out where the leak is coming. I sent a couple other plumbers out that I made a phone call and I found one that said,

oh no. I can tell you it's coming from either this bathtub or that one. If it's that one, I don't even need to dig into the foundation. If it's the other one, I'm just going to cut right down through the bathroom, figure out where it is. I can fix it. And then, long story short, that was a $4,500 problem, not a $26,000 problem. So one of the things you got to learn is when you get the first piece of information,

don't freak out. It's usually coming from someone who's not very interested in saving you money. They're interested in saving themselves time, which is frequently the case with property managers. And then the last example I have came from a house that I closed on in Smoky Mountains. This is before the market shifted. So it was listed at 1.6. I think that we ended up getting it for like 1.64,

but with a $65,000 closing cost credit. Very, very big number, which we were basically going to have set up where the seller, rather than running the money through escrow, was going to put it towards a contractor that was going to go and make the repairs that needed to be made on the house. And I gave it up to them. You can make the repairs before we close or you could do it this way and you can make it after.

I believe that was the details. Well, they ended up once they realized the deal is going to close and we had waived our financing contingency, they just turned off the air conditioning to the entire cabin. And this was a cabin with a pool inside of it, right, where there's a lot of mildew. So you can imagine in a couple days, it's amazing how fast that mold spreads. It's like a petri dish in there, right? Like super humid, middle of summer. So the entire pool room is like mold everywhere. So I basically my the, the agent was like, well, there's nothing you can do.

You got to close. I was like, no, no, no, no. There's nothing you can do. You've got to close on this. They still have to deliver the property in the condition that it was in when we put it into contract. Even without a contingency, that's part of the contract. So the sellers didn't want a bunch.

They were like, nope, you have to buy. We ended up at a standoff. And I was like, well, good luck trying to keep our earnest money like with this. And you're going to be taken back a cabin with a ton of mold in it. Like, you're not going to be able to sell it for a couple months as you try get that fixed. So we negotiated an extra maybe $10,000 or $15,000 of credits to get the mold closed. We closed and then we had to go in there as soon as it was closed and fix all the mold, which actually worked out well because we also needed time to get furniture ordered and

like get some tweaks made so the property could be ready to be rented out to other tenants and get pictures taken. So we didn't actually lose any time of having that house on the market because we just fixed the mold at the same time we were doing other things. But those are all situations that could have easily blown up a deal and cost a ton of. ton of money. It just made someone not want to invest in real estate at all. Sergeant, sir, may I make two comments? I'll allow it. All right, two things. Number one, I love all these stories because we all get on this podcast

and we talk about these deals and these successes and it sounds so easy. And the reality is, is even someone like you who's been doing this for a long time, tons of deals, tons of knowledge still has challenges and real world problems. And so when everyone listening, you go out and do this, problems. And if you get problems, it doesn't mean you're necessarily doing it wrong or you're not going to succeed. Like, we're all still having problems even today. The second thing is, I love the story of you hunting down the flight attendants and getting them to message the pilot. Like you ask, one of the things you ask at the end of most podcasts is what is the one thing that separates successful investors from

those? That right there, the relentless persistence in creativity. Who would have thought to, well, let's see, I can figure out who the flight attendants are, get through the. the plane's Wi-Fi, message them and have them interrupt the pilot. Like one out of a hundred people would do that, but that's what separates us. I love those stories you told. I appreciate that. You have to, everyone in your world will typically tell you it can't be done. It's not hard to get a lawyer, a CPA, an agent, and anyone like, oh, we can't do it. He's flying right now. Rather than asking you the question, well, how could we do it? How could this work? And so I appreciate what you're saying there, Andrew, but I think if we just ask different questions,

like how could this happen? A lot of the time, the answer isn't that wild, right? That's true. Before you get there, I wanted to compliment you on something because I've seen a lot of newer real estate investors think that no matter what happens, the seller's in control and they're going to tell me, oh, you got to close, you know, and oh, too bad with them all yours. There's like this, you know, three pages deep in the contract that says that the buyer agrees to take the property he has is. But I think that it took some strength to come forward and say, no, realtor, I'm not going to close. They have to give me a credit because you underscored something that most contracts say, and that the seller has to deliver the property pretty much in the condition that

it was when I saw it. If the conditions changed, like if I'm buying a house and a storm comes through and a tree splits that house down the middle, guess what? That's not the same house that I looked at, right and that mold story should get underscored to anybody listening that you are in control you don't have to close um you you do have the right to raise a flag and say this is not the condition that i was aware of and i and i want to consider to some consideration or something because conditions have changed well thank you cowboy i experienced something very similar to that david when i was trying to sell the playboy mansion and they did an inspection of the grotto you know a lot of things happen.

Can you imagine what would show up in that inspection? How did the conditions change? Yeah. That was wild, David. Incredible, incredible. Incredible story. But it absolutely shows just how seasoned of an investor you are. And the fact, like you, we've heard from Andrew and Matt, that you can remain in control.

And with the right mind and the right knowledge, you can absolutely take control of the deal and put yourself in a better situation. So thank you for sharing that with us. I think we all became a little bit smarter and wise. for it. Well, before I throw it to you, Jamil, I think Andrew also made a point that's worth mentioning. When you listen to a podcast, there's this concept called survivor bias, which means you typically only hear the stories of the people that survived and did well. We hear about Elon Musk. We hear about Bill Gates. We hear about their empires. We don't hear about the hundred of thousands of entrepreneurs that

failed because no one wants to interview them on a podcast. And if they did, nobody would listen to it. We're like, what did you do that made you suck? I want to be like you. It's always the opposite. it. So what happens is you only hear the people sharing their best stories because not only are they the ones on the podcast, but they don't want to come and show you their warts, right? They want to put the filter on their portfolio that makes it look as good as possible. And we were kind of joking around earlier that you ask an investor how many properties they have and they tell you how many doors they have. I'm like, well, technically it's got a garage door, a side door, a screen door, a bathroom door, a front door. Yeah, I got 12 doors, right? Maybe they have one house. Like that is

just how investors, especially when they're at meetups and they feel the pressure to look cool. want to talk. And it creates this air that mistakes never happen. Nothing goes wrong. People don't lose money. And that the baseline expectation is that. And if you get anything less than the baseline, you're not good at this and you should feel bad and you shouldn't invest. But if you actually sat and watch some of your heroes at work, you would find that it's complete chaos. In fact, I'll even tell you this in the military. It's not much different. I had this impression of the military my whole life that it was like this disciplined, orderly place because you always hear about discipline, discipline, discipline, okay?

And then I met friends that were in the military and they said, no, it's complete chaos. It's madness. It's logistical nightmares. It's frantically trying to figure out why this thing got delivered to the wrong place and how we're going to get these people this thing and there isn't enough shoes of this size for this area. And the reason that they value discipline so much is it's so necessary in the chaos. And then I started to notice as it became more successful and I started to meet other successful people. Man, the pretty buttoned up version that you see on Instagram of like any of these guys walking

through their flip is never what their business looks like. They have employees doing dumb things. They have maintenance people run inside hustles off of their own properties and selling their appliances. They don't even know what's happening in their CRM. They probably don't know what's happening on their tax bill. It's absolute madness for every single successful person that you see. They just don't share that. Nobody wants to get up there and say, I don't know what my numbers are. I just know that I'm making money because I still have a capital in the bank. That's a much more realistic picture of what this is than this super tight, perfect, edited video that you get where someone says,

here's how you analyze a deal. Like, as everyone knows, you cannot control for everything that goes wrong in a deal. So I'm going to wrap this up by just saying, if you're making success, if you're staying somewhat profitable, if you're acquiring properties, you're probably doing better than 90% of the people that are out there. It's not perfection that you're striving for. And don't let that become your baseline. David, can I add to that because I just want to first of all, high five, yeah, and I think it's brilliant.

And I think that what really does, you know, what really creates success is trying again after failure. And like the property I talked about in Fayetteville that got done to 30% occupancy, we brought in a new manager, we refinanced the property, we renovated it, we got it up to 95% occupancy, right? And, you know, had you accepted, oh, moldy pool room, guess I got to just take it. no, I'm going to put my boxing gloves on and fight and stay in the ring. I'm not going to lay down. And I think that that's really what failure is, is quitting at a setback. The real success is trying again at a secback. Because it's funny, I just listened to Ray Kroc's personal story called grinding it out. Two of my buddies and go abundance referred it to me. So I just listened to it. Ray failed a ton of times. But he tried again. He grinded it out. And he tried again. And he tried again.

after failure. And I think that that's what really underscores success as a real estate investor as well. You're going to have stuff stolen. You're going to have a broker try and push you to close on a deal where you're getting duped on or something like that. So it's really willing to fight again and try again. And then that that's really what defines success, not no failures. Certainly not. It's a great point. Yeah. What if your CRM actually did the hard work for you? I know, crazy. ReSimpley lets you pull seller lists, skip trace them at no cost, and contact your leads by call or text without bouncing between apps. Then it's AI agents takeover. Answering calls, following up automatically, even grading your conversations so you can focus on the deals that

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Hiring Indeed is all you need. Jamil, I want to ask you, you're sitting there in a bathrobe. You're obviously in a posh hotel. You're looking fantastic. It would appear that everything in your world is working out about as perfect as it could be. I mean, your beard is symmetrically perfection. I can't imagine that you could have any horror stories. Am I wrong?

You are absolutely wrong. In fact, you spoke of warts, and I've got a wart juicier than the end of any witch's nose that we would see on Halloween. I hoped I would never hear the warts. words whart and juicy using the same sentence again. Well, let's get into it. Let's get into it. So as you all know, I'm on a bigger pockets podcast called On the Market and had an opportunity to dive into a deal that I was in escrow in in Phoenix, Arizona. And this is where I'm going to, I'm going to actually blame my co-hosts for helping me push me along and getting into this deal. Because for those of you that don't know,

I'm a wholesaler. I primarily wholesale property. Very rarely do I hold. And here was an opportunity. And the reason why I even got into the opportunity is I had a massive tax bill last year. And I keep being told from my fellow real estate investors and every single one of my co-hosts on the on the market podcast to buy houses, buy property so I can depreciate it and lower my tax bill. And here I find this opportunity in Phoenix, Arizona. It's a 53 unit off-mobile. market property in an A-class neighborhood. It's a B-class building, but it's an A-class neighborhood. In fact, it's around the corner from my house. So walking distance, I can go there. I could hang out. If I ever got in trouble at home, I could stay in one of the units. That would be my dog house.

So I'm looking at this opportunity because A, it would provide me a great depreciation situation. So I would write off a lot of income. I was able to get into it. the deal at $12.5 million. Now, that deal, although it seems like, hey, Jamal, that sounds a little bit pricey at $12.5 million for 53 units. Right two days after we had gotten under contract, I had a potential wholesale buyer. So I had a multifamily buyer who wanted me to sell my contract to them at $15 million. Right. So that would have been an immediate $2.5 million wholesale. fee. Now, as a wholesaler, to me, that would have just been an incredible situation. I would have been able to get their earnest deposit to replace my earnest deposit. I could have assigned the contract

over and possibly have made $2.5 million. So I bring this situation to my brothers and sister on the on the market podcast, and I say, what should I do? Should I buy this property or should I wholesale the property and make a quick fee? Now, I was convinced. thoroughly convinced that, you know, Jamel, it's really important that you hold. It's really important that you invest for cash flow. And it's really important that you keep more of your money instead of just generating cash or your wholesale business and giving it all to the IRS. And so I make the decision that we are going to move forward with purchasing the property. Now, to kind of set the stage for you guys where this is in my career, this is just recent. Okay, this is two months ago. So we get

into contract on the property, well, a few months ago, we get into contract on the property in April. And, you know, this is like the market is really hot right now, right? We don't, we're not seeing really anything coming around. There's talk of potential rate hikes, but we're still not there yet. And my business partner, who was very, very experienced in the world of multifamily, she, a multifamily broker herself, had assured me that we would have lenders just throwing us money for this deal. And we had a financing contingency. Our earnest deposit on the property was $475,000. So immediately, guys, I just want to explain to you, I'm getting nervous, right? Because I don't, even though I do a lot of transactions, typically in my wholesale business, I can do anywhere between $50,000. to 80 transactions a month. So I'm really not afraid of buying and selling property. But I'm nervous

to put out all of this money in earnest deposits. And as we're checking the boxes through our escrow time, the financing contingency date is coming around. And I have, I'm nervous because we don't have a loan quote. We don't have any commitments from lenders yet. And I ask Sophia, my business partner in the deal, if she is confident that we are going to line up lending. And she was so confident that the lenders who had all given her commitments were going to come through. In fact, her answer was, Jamil, it's not how much, it's how little we're going to have to put down. We have lenders right now who want this building. They want this.

They want to be the lenders on this loan. I can almost guarantee that we'll be able to get this thing done at 90% level. leverage. Now, imagine that, a building 53 units and 90% leverage. As somebody that's not primarily investing in multifamily real estate, this just seems like an amazing opportunity. And I'm with someone who I trust, who I will absolutely, who I believed would have the contacts and the relationships in the industry that would actually come through. And so there we go. We blow through our financing contingency and we deposit another a couple of hundred thousand dollars into the file. And now we are in $475,000 hard in earnest money.

And the rate hikes start. And they happen fast. And it was so dramatic how quiet the lenders became. Because as I'm reading the headlines and as I'm watching the retail housing market just come to a grinding halt, I get very nervous about whether or not we're actually going to have a lender that's going to come and make this deal happen for us. And I'm calling Sophia daily. I'm asking, you know, do we have anything? Has anybody given us a firm quote?

And as the days progress, her responses become less and less assured. In fact, we get to a point where she made a phone call to me and she was in tears. She said, I've been in the business for near a decade and I've done hundreds of deals. and I've never had my lending partners ghost me before. And we are talking about a multifamily horror story here, and it's a Halloween episode, guys, but this isn't the kind of ghost that you want. This is the kind of ghosting that when you got near a half a million dollars up for grabs,

it's the scary kind of ghost. And, you know, I feel terrible. I feel terrible about the situation as a whole, because for me, you know, the first thing I had said to myself before I got into this deal was, Jamil, you are so talented at what you do. And this is me talking to myself in the third person, so I apologize if I'm offending anybody with that.

But, you know, I'm really talented at finding deals. I'm really talented at wholesaling. And I always tell myself, don't get out of your lane. Stay in your lane, fool. You're good at what you're good at. You understand what you understand. And now you're playing in this world that I had, not ventured into before, and I truly am worried, right? What am I going to do? So as the days

get closer and closer to our close of escrow, it's obvious that we are not going to find a lender. In fact, all of the loan quotes that we were getting back had the building valued at $8 million. Now, imagine that. You get into escrow on a property, and it's $12.5 million. You were able to find a buyer immediately for a two and a half million dollar lift. So I would imagine this, I'd go so far as to say that the value of the building was 15 million, right? If I could find a buyer two days after going under contract for an additional two and a half million dollars, I'd say the value of the building was maybe even more than 15 million, considering how fast that buyer would come to the table. But the fact that I allowed myself to get bullied into moving in, moving forward with this deal and

purchasing this deal instead of just wholesaling it like I should have. because I would have at least gotten that earnest deposit from the buyer. At the end of the day, what ended up happening was we had to walk. We had to walk away from the deal. We did not close. There was no way that we could finance the property at the purchase price. The lenders did not like the deal. We tried to go back to the sellers and renegotiate.

We explained to them that everything had changed, that the world had been flipped upside down, and this building was no longer worth the $12.5 million that we were in contract at, not even close. and they were not willing to negotiate with us. They had us pinned up against the wall, and they walked with our $475,000. And that was a really tough lesson for me at this level.

Now, I've been in real estate since 2002. I've been doing this for 20 years. And the first time that I ever went broke was when I got out of my lane in 2007, and I started investing in condo conversions. And so this whole game, of wanting to get involved in something that's outside of your expertise. And again, that was the first time I was in multifamily was back then.

This is the second time I try to get involved in a deal, and I got burned. And it was really tough. It was a really tough pill to swallow, especially because I consider myself an expert. I consider myself somebody who should have known better. And I didn't. Well, that is a situation where the market shifted so dry. drastically and so quickly. You probably, I guess Andrew Matt could probably support this if I'm right or not, but I imagine you had cap rate expansion at the same time as interest rates rising

at the same time that lenders are pulling back and saying, oh, we don't know what's going on in the market. So now we don't want to lend out all of our capital. And I went from all systems go, full steam ahead to slamming on the brakes at the same time. And when you had all three of those things happen, you get put in a situation where it looks like you made a mistake. But at the time you put the deal in the contract, there was no way of knowing that was coming. And I think we get used to real estate just, well, this is the way it works. This is just what we do. Do you know what's in the contract as an agent? No, but I don't need to because it always just goes fine. I don't have to understand the bold situation like Matt brought up. We had a similar situation at the one brokerage where

we had like probably 50 clients that had rate locks and rates went up so fast so quickly from what the Fed did that the lenders literally said we are not going to honor. the rate locks. We will not lend at that. We're just not giving the money. And we had to go call over 50 people and say, yes, your rate was locked. We didn't realize that this could happen. But lenders are just saying whether they have a legal right to or not. We're just not doing it. We're not funding. If you want the money, it has to be at this. Yeah, we told you 15% down. We changed our mind. We don't want to lend our money at 15% down. Now it's 25% down. And we're talking about people that were in like the high fours to mid fives that were bumped up to like mid sevens. And this is like at

the last couple days for some of them before they close. Like you look like a total butthead having to tell somebody that, but like it just happens. The market shifted so radically fast. And we've been talking about how hot the market gets, but it could cool off just as fast. And we're used to seeing this type of thing with cryptos and securities and equities and like now it's happening in the real estate space. And it's absolutely, wow, that's a horrible story, you know, like I remember when you reached out to me, I was like, oh, I bet you he just needs a little bit of capital. We'll bridge the gap. And then you explained it more. And I was like, oh, God, that's true. Like it went from 15 million to eight million. There isn't a thing that you could do on this one.

That's one thing that, you know, I think a lot of people miss or underestimate is how quickly the capital markets can shift, right? Yes. You go back to 2007, you could hear the collective sphincters of lenders just tighten. And it just shut off, right? There was no nothing. synchronicity throughout the entire country. And then that had that the domino effect goes from there. So that's probably one of the most important things to watch. We saw that in COVID. Remember that when there was like shelter in place? And they were just like, nope, no loans going out at all.

Fannie's not lending. Freddie's not lending. It doesn't matter where you are in your escrow. Nothing you can do. I, Jamil, I appreciate your vulnerability because I, you know, and David talked about this before about how people, there's a real estate investor persona on social media that were all superheroes and we're either closing deals going on vacation or going to a mastermind, one of those three.

And that, because that's all real estate investors do, according to social media. That's it. We don't ever deal with anything else, any problems or whatever. We're just, you know, hanging out with people, you know, or closing deals. That's it. And I appreciate your vulnerability because it is that those things that I listed are maybe 3% of real estate investing. The 97% is grinding it out and dealing with deals and dealing with curveballs and that.

And it takes courage to put out the other 97% of real estate investing that sometimes you lose. Sometimes, you know, you end up having the wins that you can't control change. So kudos to you on getting real, man. If you had that deal over again, again, you know, like, if you're aside from like not doing the deal, right? What would you do different if you don't mind? Just throwing that out there. Well, you know, first things first, I should have put together the wholesale. situation because truth be told if I had if I had put together the wholesale deal which is what I

am good at doing anyways I would have had the buyer's earnest money locked in the buyer that was going to take the property from me in the first place they were all cash so they wouldn't have even been subject to this situation with the lending it was it it it would have been the perfect scenario. Now, on the other side of that, I wouldn't feel good about this person buying this property from me at an inflated price anyway. So there's that other side of the coin, right? I'm not interested in finding a bigger fool. I don't believe in that. I believe that everything that we do finds a way back to us, right? And again, my intentions weren't bad in originally wholesaling the deal. My intentions are always good when I wholesale. I want to provide value to my buyer. I want to provide

value to my seller and I love being in the middle and I love being able to create value for myself by connecting the dots. So first things first, Matt, what I would have done is I would have followed my instinct to always take the bird in the hand. That's the man that I was built to be and I should always eat my birds when they're in my hands. So. Yes, that is the next step. That's why you have a bird in your hand. Yes. Right. Yeah. Why not eat it? So. Even if it's crow. Even if it's crow.

I love it. I should have. Oh man. Good job, David. I should have just done the thing that I know how to do. You need to make a YouTube video about it, have a bird in your hand as like the thumbnail for the video and tell this story. However, we're also resulting. You guys know like the poker term where like we look back and we say it didn't work out.

We're like, I should have something different. If you had closed on that deal and saved all of your money and paid no income taxes for the year, this would be an example of you telling everybody else, hey, this is the way you got to do it, right? I wholesale instead I went into this thing. So I like Matt's question because maybe on the next deal, you do the same thing, but you figure out a way to protect the earnest money deposit. No, you're absolutely the right, David. And Matt, the thing that we actually made an error on with the contract is, you know, we put this thing under contract when everything had gone bananas, right? So sellers were dictating terms and it was a very oppressive contract. But when I spoke to Sophie,

my business partner in the deal and I asked, you know, is this normal? Is this level of aggressiveness part of the way that people are transacting in multifamily right now? Because for me, even though the market had gone crazy, when I'm buying distressed property, I still have an out. I still have an inspection period. I still have a way to negotiate the, you know, a change in condition. And, you know, accordingly, that just wasn't available in the multifamily space at that time. Right. So I think, I think it's really important to understand this. And for the greater bigger pockets audience that's listening in, guys, take notes to this. When things start to get superheated, right?

When the market just gets so crazy that people are throwing away due diligence, that people are putting caution to the wind. Like when you are starting to see these conditions present themselves, understand that they can't last long. and that just might be the time when you sit something out. So, you know, Matt, I would have written a different contract. I wouldn't have gone into that deal where the earnest deposits were so aggressive. I wouldn't have gone into the deal where the timelines were as tight as they were.

I felt nervous about it right out the gate. I took another individual's word. This is another thing. The reason I'm a real estate entrepreneur is because I don't like putting my destiny into the hands of other people. But when I'm ready to write a check for $450,000 and somebody else is telling me that don't worry about it, we got the lending covered, I mean, what's wrong with me? Really, though? Like, where was my discernment at that time? And so there's a lot of lessons here, and it's a lot about me.

I really think that I allowed the heat of the market. I allowed greed, right? because I thought I had an incredible deal, and the greedy goblin inside of me let me make decisions that were outside of the benefit of my family. And I made a huge error. And you know, you're right, I had to be vulnerable. And I'm sharing this so that people can understand what it looks like when you're making a wrong turn. Well, thanks again for your vulnerability, madam. I feel that. what I got is that I think it's only time to get great in business at one or two things, right? And dabbling at $12 million is one of those things where it's like, man, this could go greater, it might not.

Like, if I want to buy a fixer-upper or a wholesale or an Airbnb in a market that your wholesale business is playing in, I'm calling you. Somebody that's closing 80 wholesales a month, dude. What? Like, that's like, that's insane. Like the fact that you built that level of business is off the charts, right? So if I want to either loan head a wholesale or to buy a wholesale deal in one of your sandboxes, you're the guy. And that, you know, for those that are, if you're looking for, you know, like a negative K1 or something like that for passive losses, there's others that maybe a lesson is there's others that can help with that kind of thing that could have helped destructure a better contract or whatever, man.

I love your attitude around it. I think they, you know, obviously shook it off. I appreciate you going there. And I think that, you know, it's one of those lessons. Just, you know, this business can deliver really, really bad right hooks. And as I said before, it's one of those things where, like, the successful real estate investor is the one that doesn't let the right hook knock them down. They just stay in the ring.

You're going to make that money back with your wholesale business. You know, I mean, you're, it's, you know, you'll just double down on wholesales. And you'll, and this will be just a really expensive. but less than you'll easily recover from because of what you built already, because of your core genius and your core greatness in the business. Thank you, Matt. And your amazing sense of fashion. Yeah, you know, I think I'm going to start adopting the look.

Yeah, I'm going to adopt a look as an everyday thing. It's very natural for you. Andrew, did you want to share your last horror story about the flood? Yeah, this is a horror story that has, unfortunately, is very timely. I was almost going to say, not to cut you off, but like we may be hearing. horror stories when this comes out from the actual situation going on Florida right now where there's a hurricane coming and you can't control that. You don't know what's going to happen. This is a great example of the fact that like trying to blame yourself for things you couldn't

have seen coming never never works. Right. And this one, you know, so the previous example I got, you know, I talked about we sold those properties. Basically investors broke even. We just got out of it and moved on. This one has a much happier ending. We purchased 150 units down in Linhaven, Florida. Florida, which is Panama City Beach area, Florida Panhandle. This was fall of 2016. I believe we closed in November. It was a C-plus property in an A-minus area for real. And so I had a ton of opportunity.

We renovated it. It took us about 18 months. We bumped the rents. We had just gotten to stabilization. Our manager, we said, you did a great job, and she moved up in the management company, went off-site. New manager came in three days later, 1.30. p.m. on October 10th, 2018, Hurricane Michael came through with 161 mile an hour winds, the strongest hurricane in recorded history to hit the Florida panhandle. And I have a screenshot that I keep of the

eye wall of the hurricane directly over our property. And in three hours time, we went from 100% occupied to 9% occupied. The property used to be covered in beautiful tall pine trees. They all came down and sliced up the buildings like bread. And we actually had a guy who the next day we had to chainsaw him out of his unit because he was trapped in the unit. So, you know, what did we do to make that potential tragedy, potential horror story not be any worse than what it could have been? For one, I am a wannabe athlete trapped in a nerd's body.

And one of the benefits of being a nerd is I've always. love meteorology. So I was watching this storm since it was a wee baby storm in the Northwest Caribbean. And I had a gut feeling that this wasn't going to be good. So one of the things we did is our team. And if you have a property in, you know, in any area that is subject to a disaster, whether it's hurricanes or fires or, you know, whatever, sit down and think through, you know, what can you do to prepare for the event that you might not be able to control, right? There's still ways to mitigate it. So number one, we got time. tons of supplies in advance. We had cases and cases of bottled water. We had mounds and mounds of

sandbags. We have tons of plywood. We basically forced everybody except for a few stubborn folks to just get the heck out of town, get out of your units. That's a big reason why we had no injuries despite, you know, 18-inch trunks coming through the buildings. The next thing we did, these two things made a huge, huge difference. We actually had one of our big contracts. from Atlanta come down to the Florida Panhandle and stay at a hotel the night before about 50 miles inland. So he was still safe, but he was very close to that. He'd be able to come help us out that very next day. Again, we knew this was coming. Also, the day before the storm, we filed a claim with our insurance carrier. Even though the storm hadn't hit yet, we knew this is not going to be good.

And the thing is, is you can actually go back and cancel that claim and just say, oh, never mind, zero claim. We put the carrier on notice the day before that we were expecting a claim. And then, you know, we also knew we were in hurricane country. So we had $350,000 sitting in the reserve account for in the property's reserve account just in case something happened and we needed it. So, so what happened? Three hours later, knee deep water in the parking lots, buildings either flattened, destroyed, ripped apart. Again, like I think I mentioned this, we had no injuries the next day we were able to start remediation because we had our contractors already lined up right we were they were they came straight to us we were to bring

water to the residents we were able to you know get a gener have a generator and have one unit with power power was out for something like three months right so we had one unit that had power so people could come in cool down charge phones all that kind of stuff we were able to pay contractors immediately with our three 350,000 to get in there and start cleaning up. Get water out of units. Get the trees off of the unit so that the building doesn't suffer more damage from additional rain. It's Florida. It's humid. Those things will turn black with mold in like 72 hours if you don't deal with it. And this was a big one. Because we put the insurance carrier on notice the day before,

we got in line before everybody else. If you have a fire at your property, okay, you're probably the only one making a claim. But if you're in a situation where a hurricane devastates a hundred miles of coastline, can you just imagine the volume of claims the insurance carriers are processing? We saw properties that sat untouched, unrepared for two to three years because they didn't get their claim in fast enough and it took that long for them to get through the process. We had our first quarter million dollar check from the insurance carrier two weeks in. Also, also, we had what's called loss of rent insurance, meaning, you know, with like nine, 14 units left, we didn't obviously have the income to pay the mortgage or those expenses or salaries anymore.

With loss of rent insurance, the insurance company cuts a check to cover all of that. And so we were able to keep our staff and still pay the bills and still pay the mortgage. We never defaulted. We were never late. And then this is a beautiful thing from our side and from our investor's side. we bought that property for $4,125,000. When it was all said and done 18 months later after we'd renovated it, the insurance carrier invested a little over $6 million on our behalf renovating and repairing that property.

So now we basically have a 2019 construction property. And it's like, well, wait a second, Andrew, how do you buy a property for $4 million and get insurance proceeds of $6 million? It's called making sure that you get full replacement value policies that are rated for whatever disasters could hit your area. So if you're in Texas, you need to be covered for hurricanes, wind and hail, all that kind of stuff. You're in California, maybe earthquake. So on the Gulf Coast, it's called category rated insurance for named hurricanes. And we, you know, the lender will say, oh, you only need $70 a square foot.

We said, no, no, no, no. It actually would probably cost us 100. we're going to pay more on our insurance premiums to make certain we're covered. And a lot of times if you gamble and just get a lower premium by lower coverage, it's going to work out just fine until you have a building burned down or a hurricane takes out the whole property and you max out the limits just trying to get the place rebuilt. So today, that property, like I said, it's about 29. It's effectively 2019 construction that net operating income is 50% higher than it was before the

hurricane. And the building that we bought for $4 million, even in today's environment, is worth 18 to 20 million. So, you know, people always ask, oh, man, you know, what do you think about buying in, you know, areas where you can get hurricanes or, or fires or all this kind of stuff? And, you know, as you can do it as long as you properly evaluate and mitigate the risks, right? So that, I will, I mean, honestly, that was one of the, probably some of the 18 most stressful months I've ever had in multifamily. And that, that first 24 hours of just sitting here on my computer watching the hurricane passed directly over us, knowing what was happening, the amount of rain

and 160 million on our winds. And I had staff and team, you know, people who lived there was, again, probably one of the worst experiences have had multifamily. But with proper mitigation strategies, even horror stories can end up working out well. I think this is not a horror story, brother. I think this was a hero story. I mean, you... The amount of planning, the things that you had in place there, there are maybe this many people on the planet who care, who care to have stockpiled water, to have had resources, to have done the things that you had done as a property owner, as a business owner, as somebody who has the, who's been given the position in life where you're truly in charge of people's safety and of people's livelihoods. I've never heard of somebody being that well prepared for a disaster before because look, it's not human nature to do so. But I have to say, Andrew, you impress the hell out of me, man.

That was an incredible, incredible foresight. And I think that anybody who had the opportunity or has the opportunity to live in one of your properties or to be anywhere near you with respect to how you do business is a lucky person. And I got to give credit to our on-site team and staff. They are the ones who enacted everything and made it happen and delivered the water and cut the pine tree, you know, all of it and got the contractors, all that stuff. So, I mean, it really, you know, I'm sitting out here in California, you know, safe and warm and dry. And they were the ones walking through needy water and knocking on doors and making sure everyone was safe. So it really came down to, you know, having an awesome team in place.

And then, like you said, you know, having something set up in advance so that they could do that. I commend you too, Andrew. And I think that on the analytical side, with regards to insurance, it is tempting when you look at a deal to say, okay, well, maybe I'll do some co-insurance here, which is where, you know, the insurance company kicks in some money and you're pretty much self-insured where, you know, if you need $100,000 worth of damage, if that happens to one of your properties, the insurance company kicks in maybe, you know, 80%, and you have to kick in 20%. And in exchange for that co-insurance, your premium is going to be much, much less. that is penny wise pound foolish when you have an issue like you did because you would end up

losing 20% of that money that the bank kicked in to renovate your property. So I commend you for being more analytical about it. And I've seen many, many real estate investors make insurance errors. And as you said, maybe you never need it. Maybe you get to just keep that cash flow and you drop your premium by 10%, 15%, and that just goes right to your bottom line. Or maybe a real catastrophic issue happens that you need insurance. insurance on. And the more real estate you buy, the more likelihood of having an insurance claim is

going to come up in the future. So I commend you for not being penny wise and pound fullest on your insurance, which enables you to pretty much build a brand new apartment complex with the insurance company's aid. And there's one other thing that's really important that I forgot to mention. If you have a little kitchen fire that's going to cost five grand, don't worry about it. But if you have a building burned down or something significant, go get a really, um, I really experienced public adjuster. That is somebody, because the insurance company is going to send out their own adjuster, and their goal, they run a business.

It's not, you know, it's not nefarious, but their goal is to collect premiums and not make payouts. And so they will send an adjuster out and try to give you as little as they can for the damages. A public adjuster will basically argue on your behalf of, no, this shouldn't be $100,000, this should be $150. On any kind of catastrophe like that, it is a full-time job. The contractor's scope for repairs was 1,100 pages. There is no way I had the skill or ability to negotiate with the insurance company over that kind of thing. The public adjuster, again, who we talked to a couple days before the storm, we made sure we were front of his line.

He really is a huge piece of why that worked out well is because we had somebody advocating who knew how to advocate in that kind of scenario. on our behalf. Jamil, before we get out of here, where can people find out more about you? You can find me on my Instagram at J-D-A-M-J-I. I also have a YouTube page where I share all kinds of tricks and tips on how to get a great wholesale deal, and that's just YouTube.com slash Jamil Damjee. Andrew, same question. Yeah, I shouldn't be, but I'm a social media ghost. So the best way to find me is just Google Vantage Point acquisitions. It should bring up our website, which is vpacq.com. there's a couple of different ways to contact us on the website, or you can also connect on Bigger Pockets and on LinkedIn.

And Matt. Sure, it's Sheriff Fairclough here. You can get a hold of us at DeRoosa Group.com, D-E, wearing my son's cowboy hat, D-E-R-O-S-A group.com, D-E-R-O-SA group.com. You can pick up a copy of my book, Raising Private Capital, Bigger Pockets, bestseller over there. You can join our investor mailing list, and you can check out our social handles on our website, Dorosa Group.com. Guys, this has been one of the better shows I think that we've ever done.

We showed the warts. We showed the cream that we used to fix those juicy warts. We got to see Jamil in a robe. And we got to see me actually for the first time in my life dressing up for Halloween. So we also got to share some amazing horror stories that I hope everybody benefits from. So each and every one of you, I want to thank you guys for being here for sharing the ugly as well as the good. I hope to see you again.

We're going a little long. so I'm going to get us out of here. Listeners, if you like this, let us know in YouTube. Log in, go to the comments, tell us what you liked, what you didn't like. And if you want to see more of this content in the future, and then be sure to like, share, and subscribe. Thank you very much. This is David Sargent Slaughter Green for Jemiel Hugh Hefner Damgey. Andrew Hang Luce Cushman and Matt didn't know we were doing this today, DeRos.

And Matt didn't know we were doing this today, Faircloth. Signing on. Thank you all for listening to the best. BiggerPockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. On the host and executive producer of the show, Dave Meyer, the show is produced by Ian K, copywriting is by Calico content, and editing is by Exodus Media.

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