Jason Lee is the president of and full-time multifamily broker at JLM Real Estate Inc., a commercial real estate team focusing on multifamily sales and 1031 exchanges in San Diego County. In this episode, Jason discusses the three most important actions he takes when hiring a contractor, three tips for breaking into commercial real estate through sales and brokering, and the hardest lesson he’s learned in his career so far.
Jason Lee | Real Estate Background
- President of and full-time multifamily broker at JLM Real Estate Inc., a commercial real estate team focusing on multifamily sales and 1031 exchanges in San Diego County.
- Portfolio:
- 120 units for a $50M asset value
- Based in: San Diego, CA
- Say hi to him at:
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed and I'm here with Jason Lee. Jason is based out of San Diego, California. He is president and full-time multifamily broker at JLM Real Estate Incorporated, a commercial real estate team focusing on multifamily sales and 1031 exchanges in San Diego County. In his own investment portfolio, he has 120 units, worth 50 million in assets under management. Jason, can you tell us a little bit more about your background and what you're currently focused on?
Jason Lee: Yeah, of course. Thanks for having me on. So more of my background - like most people, I didn't plan on real estate being my full time career and really diving all into it. I was going down a dark path that my parents wanted me to go down. I was at San Diego State University going down the pre-med route; they wanted me to be a doctor. And basically, two and a half years in I kind of had a breaking point where I was too miserable and I just had to find something new, so I networked with everyone that I could at my school and my current friend base, and I saw that a lot of their wealthy parents, the wealthy kids, they came from real estate... So I thought there had to be something in this arena. So that's how I got my start into real estate. I was kind of just in a really rock bottom spot in my life and wanted to find something new, and it worked out really well for me.
Slocomb Reed: When did you start in real estate? And what did you start with?
Jason Lee: I started in real estate when I was 21 years old, I got my license and 2018; I had less than 500 bucks in my bank account at Chase Bank, and decided it'd be a great idea to intern at a commercial real estate firm that pays no base salary, no hourly wage, and it takes anywhere from six to 12 months to close your first deal. So that was a tough learning year for me, but like most people, the first year in real estate is insanely hard. So that's when I got started. And then now fast forward almost five years later, here we are today, with almost 250 million in multifamily sales and then a decent-sized portfolio.
Slocomb Reed: The portfolio that you have acquired - have you done that with partners?
Jason Lee: I had one partner. We did not raise any outside capital; it mostly came from buying duplexes and fourplexes that are really good value, and doing a 1031 tax deferred exchange into bigger assets. So it all came from me and my partner's 50/50 capital; we saved up from commissions. and he runs a hard money fund, so his business, and kind of combined it and grew from there. So no other outside partners.
Slocomb Reed: Nice. And that's scaled to 120 doors, and 50 million in asset value in four or five years.
Jason Lee: Yeah, the portfolio started -- it's been about three years since we started buying; so yeah, three years.
Slocomb Reed: Gotcha. I'm reading between the lines here a bit, Jason, but it sounds like there was significant appreciation while you own at least those first smaller assets during your ownership. Were you buying distressed assets? What is it that allowed you to 1031 so quickly through properties?
Jason Lee: Yeah, my role and what I'm really good at is I'm good on the phone, I'm good at finding deals. I'm talking to owners all day long, seeing if they're looking to buy, seeing if they're looking to sell, if they're looking to list their properties... There is that small 1% to 2% of time where -- there's not a lot of distress overall in San Diego, because properties here overall do very well, and they do very well even in the worst of times. But there are some situations - like, for example, I bought a fourplex from a meth dealer/pedophile who had a bunch to code violations on the property. We bought that property for $1,000,001, and a market value with 1.6 million; sold that property for 2 million after doing rehabs. Ended up doing a 1031 exchange into a 11-unit property by the beach. So finding those properties 1% of the time where there's some sort of crazy story or insane motivation or big family issue - that's when we really find the good opportunities, and we just capitalized on the ones that I came across.
Slocomb Reed: That's awesome. I'm an apartment owner-operator in Cincinnati, Ohio who has built a smaller portfolio with doing similar things, significantly lower valuations than you see in San Diego County. When you say that you spend all day on the phones, I'm curious how much time dialing is that in a week.
Jason Lee: If you're a real estate agent or broker who is looking to get into real estate, this might help you a lot. Something I learned from my broker/mentor at my old firm is you want to get at least 25 contacts a day. So it's either 25 yeses or 25 no's. Usually it's 25 no's. So you want to talk to 25 breathing people on the phone each day, 125 people a week, if you want to get ahead of the competition and really get your business going. And that takes usually about five to six hours of hard dialing to get there. As my business has grown, and as I've hired agents on my team, my day consists more of meeting with clients, meeting with people like yourself, trying to grow the brand... But when I was first starting, I was hitting the phones for probably eight to nine hours a day.
Slocomb Reed: That's a lot, for sure. Sounds like it's panning out though. What other advice you have for people who are looking to get into real estate through sales or brokering deals?
Jason Lee: The biggest advice I can give is - there's a lot of brokers that hire people who are just looking to get started, and they give them no guidance, no training; they just tell them to "Get on the phones and find me leads." And that's why there's a lot of brokers who fail, who just get started in the business. The most important thing for you to have a chance to succeed - because it's a very cutthroat business, it's very tough to break in, in commercial real estate sales, is you have to have someone who's willing to mentor you, willing to show you the way, who will put time into you.
I got lucky because I had a broker who trained me, went to meetings with me, cared about my success when he saw that I was hustling and cared about the business... So I think the most important thing is having a good partner on your side, that can show you the way, who's been doing it for at least 5 to 10 years minimum successfully in the business.
Slocomb Reed: Find a solid mentor who can teach you what you need to know. Spend the majority of your working time when you get started getting in front of owners, getting those yeses and no's. What else?
Jason Lee: I would say the biggest thing besides that is being organized. I think whether you're a real estate investor or a broker, you have to really stay organized. You have to use a CRM that works for you, that you like; I've tried a lot of different CRMs, but prospectnow.com is my favorite, because all the properties are on there that you need; every city, you can classify by asset type; you can make tasks for follow-ups, you can make notes super-easy in the platform. So whether you're an investor, broker, lender, whatever it is, I think having a good CRM, so you can follow up with brokers or property owners regularly is absolutely crucial to success in the business, because the money truly is in the follow-up.
Slocomb Reed: Jason with as short as your run-up has been, have you lost money on any deals yet?
Jason Lee: It's a great question. I haven't lost money, but I've made really dumb mistakes where my costs have been a lot higher. I've never sold a property lower than the cost that I bought it at, with the purchase price and the cost to renovate, holding costs, all that stuff. But the second property I bought was a four-unit in National City here in San Diego, and I got a referral for a contractor from one of my clients, or kind of a client... But anyways, an investor in the area who's well known. And I think he basically gave me his worst contractor, because number one, he wasn't licensed; number two, never got back to me. And number three, he stole money from me.
When I was two months into the rehab, I'd given him a good chunk of money, I didn't really understand construction that well yet, so I didn't understand that there were certain progress points a contractor had to make in order to give them their next check, their next payment... And I probably given him half the amount of the contract and he'd only done 10% to 20% of the work. The mistake I made is I wasn't checking on the rehab enough. I was on top of him, calling him at least three or four times a week, but he was lying to me directly. And basically, when I stopped giving him money because he had to finish certain parts of the rehab, he basically just ghosted me and took the money and ran. I probably lost a total of $80,000 to that guy. So that was probably the biggest mistake I've made in my real estate investing career... And something that the audience can take away from that mistake so that never happens to you is to make sure you have at least two or three trusted referrals when you work with a new contractor; make sure you walk them their projects that they have going on. I didn't walk any of his projects, I didn't ask about him. Another huge mistake that I made.
And then third, just make sure that the contractor has his license. I was trying to go the cheap route, and unlicensed contractors are always the cheaper route... But that bit me in the butt really quickly, and those three mistakes led me to losing almost six figures on a renovation project that should have been way less.
Slocomb Reed: Jason, how many renovation projects have you had thus far?
Jason Lee: We have done a little over 25 projects so far.
Slocomb Reed: Your market and my market, Cincinnati, Ohio are polar opposites in a lot of ways, including the weather. I imagine that means that our relationship with contractors have to be different. I want to make some assumptions, again, coming from my Midwest brain here, where we have high cash flow, very low property values and low rents, where we have to do a lot to protect our capital when working with contractors... Because I am imagining that the amount that we pay our contractors is greater in proportion to the value that their work adds to the property. So when it comes to picking the right contractor, Jason, California and Ohio are different as well. What are the three most important things to you? It sounds like one of them is that they are licensed?
Jason Lee: Yup. Definitely. One point is they're licensed. The second most important point is I want to walk at least two or three of their current projects and see how that's going, and I want to talk to the owners of the projects that I walk, to make sure that he or she is doing the project in a timely manner, without having any major issues or hurdles, there's no crazy amount of change orders for ridiculous items. And I'd say number three is, when you look for a good contractor, it's very important to make sure that everything's in writing.
Another big mistake I didn't mention is I didn't have every single line item clear and every cost clear. I think the deal I had with him, barely anything was on paper, where I lost a lot of money from the rehab. So now I have every single [unintelligible 00:12:34.08] number, every single cost lined out for the kitchen, bathroom, flooring, stucco, windows, all that stuff. Because we do a complete renovation. They're massive projects; we replace the roof, electrical, plumbing, so we're buying properties at a discount for a reason - they need a lot of TLC.
So I would say be overly cautious when you put things in writing. Even if you think you're overdoing it, I really think that you're better off overdoing it than not doing enough, because that's where a contractor will try to screw you. There was one example that I can give where I didn't put the exact fridges and laundry machines and appliances to put in the units. And because I didn't do that, it wasn't in the contract, the contractor wanted to save as much money as he could, and he put the cheapest used disgusting fridges and laundry machines in the units, and it ruined the entire project, because the unit looked horrible. And he basically said "We didn't have it in our contract, so I didn't know any better." So that's a good example of why you should always have everything in writing.
Slocomb Reed: Absolutely.
Break: [00:13:40.18]
Slocomb Reed: Let's do a bit of a market comparison here. I am envisioning a one or two bedroom apartment under 1000 square feet. When you need to turn one of those apartments, obviously we're talking about more than just painting flooring. Maybe you're redoing the kitchen, possibly taking out a wall, and opening up a dated floor plan, something like that. What does your budget range look like for renovations like that? And when you're done, what's the rent gonna look like?
Jason Lee: For a one-bedroom in a good location, I'd say class B location in San Diego, and not by the beach, more mid city, a one-bedroom with the finishes we use will cost anywhere from 20k to 25k, to do the full interior rehab, and the rents you can expect on that are anywhere from $2,000 to $2,300. And for a two bedroom, you can expect the costs to be anywhere from 30k to 35k usually, depending on the size of the units. But those units will rent from anywhere from $2,600 to $3,000, depending on the size and the area. So yeah, those are some basic numbers for you.
Slocomb Reed: If you decided not to renovate, and when you acquired the property, you acquired the apartment it was in rentable condition, what would the rent have been? I guess the real question here is, if you're spending 20k-25k, or 30k-35k to achieve a solid market rent, how much has your rent actually increased resulting from that 20k to 35k expense?
Jason Lee: Same markets, if I were to just do the bare minimum, paint, flooring, touch-up and spend three to five grand on it, there'd probably be anywhere from a $600 to $700 delta on the unrenovated units versus the renovated... Plus, in this market in San Diego it's a lot easier to rent renovated units, even though it's at a higher price. People here like to have a high quality of living, especially in the sub markets we look in. So it really helps a lot. Plus, our cap rates are a lot lower than most locations, so having that extra $600 to $800 bump in rents a month, you take that across 20 units, and you created millions and millions of dollars worth of value, whether if you didn't spend that money on the rehab. So we look at it from a cash flow perspective and an equity perspective as well when we're doing our renovations.
Slocomb Reed: That makes a lot of sense. Do you self manage?
Jason Lee: We do not. With the amount of time I take to help my clients and being on the phones, training my agents, asset managing our rehabs and all that stuff and our properties, taxes, it'd be impossible to self manage; we've got two or three really good manangers that we partner with around the county. Without them, it'd be a tough life. So very blessed to have great third party managers on our team.
Slocomb Reed: Last question, and then I'll give some input from Cincinnati, and we'll transition the conversation; how much you pay for property management?
Jason Lee: Property management right now is anywhere from 4% to 6% of the gross income per year rents collected. So if we collect 100k in that year in rents, we can expect paying that manager anywhere from four to six grand a year. And then on top of that, they do have some leasing fees; they charge us $350 to $400 per unit filled. So those are really the only main costs that we have in our management agreements.
Slocomb Reed: That's interesting. I'll start there for the sake of our listeners in this comparison; you're not getting property management in Cincinnati for under 8% to 10% plus fees, in part because our rents are so much lower by comparison to call it average income and cost of living property managers; 4% of $750 a month is very different from 4% of $3,500 a month. Frankly though, it doesn't sound like our rehab numbers are all that far off.
I know recently when we have takeout a wall, open up a 40-year old floorplan, brand new LVP, new cabinets that are not special, but that are ordered from a cabinet supply company... Standard shaker cabinets, decent countertops, stainless steel appliances that are not special... We are running lower numbers, but it sounds like frankly labor is not that much more expensive in San Diego than it is in Cincinnati based on the numbers, although the rent rates that you're able to increase to are much more substantial. That's an interesting point of comparison. Maybe I need to be investing San Diego. Jason are you ready for the Best Ever lightning round?
Jason Lee: Yes, sir. Let's do it.
Slocomb Reed: What is the best ever book that you recently read?
Jason Lee: The best ever book I've recently read is "What it takes" by Stephen A. Schwarzman, the founder of Blackstone. Really cool read on his story and what it takes to build a massive company.
Slocomb Reed: Yeah, I read that one recently, too. It's solid. What is your best ever way to give back?
Jason Lee: Ooh... Honestly, probably the biggest way I've given back so far is to my family. My mom struggled through jobs growing up, I really saw her struggle going from job to job, clean houses to get us out of financial instability, which really broke me and caused a lot of trauma. That is probably the reason why I work so hard today. And the biggest thing I did to give back to someone is probably during the holidays giving her over six figures worth of checks to show her how appreciative I am of the way she raised me, and the hard work that it took to basically get us through life. That's one of the biggest ways.
Another way I want to give back is just through giving information and knowledge on platforms like this, that many people never have the chance to learn. I really think the school system has failed many, many generations, mine especially... So I really think that having free knowledge and having information to this kind of stuff is amazing, because someone that might never meet a real estate investor can just go on the internet now and find some more info on how to invest in real estate. So I think those two ways, for sure.
Slocomb Reed: Outside of hiring the wrong contractors, Jason, what is the biggest mistake you've made in your real estate investing career, and what was the best ever lesson that resulted from it?
Jason Lee: I think the biggest mistakes I made in my career was caring about the Commission's and the dollars over the relationships. I wish when I first started I would have been like I am today - I cherish my relationships a lot more than I cherish my commission from the properties that I sell, whatever it is. Back then I was kind of trying to churn and burn, and make a quick buck here and there... But I've learned to realize that a much better way to live life and do business in general is to create deeper relationships and do 5 to 10 deals with them a year, instead of trying to do 5, 10, 30, 40 deals with 40 different clients. So I think that's the biggest lesson I learned.
Slocomb Reed: On that note, Jason, what is your best ever advice?
Jason Lee: Best Ever advice I can give to someone is if you're listening to this show, and you're afraid of taking a risk, you're afraid of buying your first property, you're afraid of leaving your job to pursue a real estate career, you want to start something new - it's never going to feel right, it's always going to feel risky. And 75% of our thoughts are negative thoughts, so a lot of negative thoughts are gonna flow to your brain when you decide to buy your first property, or to make a change... So all I can say is if you're listening to this, hopefully we can inspire you to start now and make a change and start investing, because I think right now is the best time to buy real estate, while a lot of people are sitting on the sidelines and being fearful.
As Warren Buffett says, be greedy while others are fearful, and be fearful others are greedy. So if you were on the sidelines in 2020-2021, early part of 2022, when everyone was buying, now's the time to jump into the market and really take advantage and create those relationships and buy some properties for a solid discount.
Slocomb Reed: Last question - where can people get in touch with you?
Jason Lee: Thanks for that. The best way to contact me is through either YouTube or Instagram. I reply fast on there. All my social media is a Jason Joseph Lee, my full name, or you can check out our website at JLMrealestateinc.com.
Slocomb Reed: Awesome. Those links are in the shownotes. Jason, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this conversation, please do subscribe to our show, leave us a five-star review and share this episode with a friend you know we can add value to through this conversation we've had today. Thank you, and have a best ever day.
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