Hiron Fernando is a civil engineer who also works with NuRoads Investments LLC, a company that invests in single-family and multifamily properties. In this episode, he tells us about investing in the stock market as a sophomore in college, what drew him to real estate, and his experience as a GP of 50 units in a fractured condo complex.
Hiron Fernando | Real Estate Background
- Civil engineer who also works with NuRoads Investments LLC, a company that invests in single-family and multifamily properties. His mission is to create a self-sustaining business to enrich and bolster the community with reliable, clean, comfortable, and safe housing for people in the DFW Metroplex.
- Portfolio:
- GP of 13 single-family units and 50 multifamily units
- LP of 260 multifamily units
- Based in: Dallas, TX
- Say hi to him at:
- Greatest Lesson: Be persistent and curious.
Click here to know more about our sponsors:
TRANSCRIPT
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I'm Joe Fairless. This is the world's longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don't get into any of the fluffy stuff. We don't deal with that. Commercial real estate stuff, that's what we talked about. With us today, Hiron Fernando. How are you doing, Hiron?
Hiron Fernando: Hi, Joe. Doing great. Thanks for having me.
Joe Fairless: I'm glad to hear it, and it's my pleasure. Hiron is a civil engineer who works at New Roads Investments, a company that invests in single-family and multifamily properties. His mission is to create a self-sustaining business to enrich and bolster the community with reliable, clean, comfortable and safe housing for people in the DFW Metroplex.
He graduated from Texas Tech, fellow Red Raider [unintelligible 00:01:59.22] and he has a portfolio as a general partner of 13 single family units and 50 multifamily units. And on the LP side, he is a limited partner on 260 multifamily. So he's got the GP side and LP side. So with that being said, Hiron, do you want to get the best ever listeners a little bit more about your background and your focus?
Hiron Fernando: Sure. So kind of a high level background about me is I went to school, like you said, at Texas Tech, and majored in civil engineering; graduated in 2012, and started a full-time job in 2013... And rewinding back just a little bit, in 2009, I like to say it's kind of the best time I could have possibly fumbled around in investing in the stock market... And that's kind of what I did. I got interested in investing through investing in the stock market, and it was the very bottom of the market, and I did pretty well on that, and kind of invigorated me to invest and be an entrepreneur, and started at my current job in 2013, and something like 10 months after that I bought my first home. I did a fix and flip on that one, and decided that wasn't quite for me, but did some single-family rental properties after that, and did that up to probably 2019, until I realized that I'd like to get some economies of scale, and do more multifamily. And so that's when I purchased this fractured condo complex, the 50-unit that you mentioned, and jumped into that... And I've been kind of focusing on multifamily ever since.
Joe Fairless: Lots to unpack. 2009 -- you told us you graduated from Texas Tech in 2012... That puts you as a sophomore, or so, in the stock market?
Hiron Fernando: Yeah...
Joe Fairless: Okay. I was not investing in the stock market as a sophomore in college. How did you get into that?
Hiron Fernando: Yeah; you know what - just kind of being prudent, I guess, is one way to say it... I had scholarships from school, and just was prudent in the way that I had a $270 monthly rent at the place I lived at, and just didn't need a whole lot as a college student, so I saved up a decent amount, and invested in the stock market, and that's kind of how that went.
Joe Fairless: Why didn't you just continue to invest in the stock market, versus start going into real estate, since it had been working out for you so well?
Hiron Fernando: Oh, okay, great question... So like I said, I invested at the best possible time, when everything was at the bottom. I thought I was the best thing since sliced bread, and kept on doing it actually all through college... And towards the end of it, I started realizing, "Oh, this isn't actually that easy. You actually have to do some due diligence and research", and realized that it's just so volatile. It's just so up and down. So yeah, the first couple of times I got some really good wins, but then realized the reality is it's very volatile...
And my dad's actually a realtor, and I kind of got exposed to real estate through him. He's been a great mentor for me, and I've realized that, hey, real estate is just a lot more stable and predictable. I think those are the big things.
Joe Fairless: So New Roads Investments... You work for that company, correct?
Hiron Fernando: I'm the owner.
Joe Fairless: You're the owner, alright. And when I search for that online, I don't see a website. Do you have a website?
Hiron Fernando: No, there's no website. It's just me at the company, and it's the holding company for my real estate investments.
Joe Fairless: Okay. So do you have a full time job as a W-2 employee? Or is this it?
Hiron Fernando: Nope. I'm a full-time civil engineer; been practicing that ever since I graduated, and that's my main focus. And this is a side hustle, [unintelligible 00:05:50.18]
Joe Fairless: Got it. So you are employed as a W-2 employee somewhere, as a full-time civil engineer, and then separately, you have New Roads Investments, and this is your, as you call it, your side hustle.
Hiron Fernando: That's right.
Joe Fairless: Cool. Alright. So now that we have the foundation established - that's helpful context - let's talk about your portfolio. Let's talk about being a general partner on 13 single family units. So you own 13 single family homes, or do you have some duplexes and triplexes mixed in?
Hiron Fernando: Yeah, I have two duplexes, and the rest are single families.
Joe Fairless: Alright. And you did that until 2019, and then you said you did a fractured condo complex. Now, is that the 50 multifamily units?
Hiron Fernando: Yes.
Joe Fairless: Alright. What is a fractured condo complex?
Hiron Fernando: Yeah, great question. So a fractured condo is basically a condominium complex that has multiple owners. So it's fractured, because you're not buying all the units, you're buying a portion of the total units. So this particular complex has 70 total Units, and we own 50 of those. So that's why it's called a fractured complex.
Joe Fairless: Alright. And who is we?
Hiron Fernando: I actually have a partner in it. So it's me and one other person. So we have a company that holds that property.
Joe Fairless: What are your responsibilities, and what are your partner's responsibilities?
Hiron Fernando: It's actually evolved a little bit over time; when we were doing the due diligence to purchase, it was all hands on deck, whatever was needed, both of us kind of handled it. But now it's transitioned a little bit more towards my partner handles more of the HOA type duties, and collecting dues from HOA owners, and handling more of that side. And then I work on more of the asset management side and operations.
Joe Fairless: Okay. And in order to purchase the property, who had what responsibilities? Who found the deal, who put up the money, and - I guess those are the two parts, two main parts... Who found it and who put up the money?
Hiron Fernando: Really, like I said, I met my partner in the summer of 2019, and we started looking for deals. We knew that both of us really wanted to get into multifamily, so we started looking; we went through a handful, quite a bit of deals, actually, and found this one in probably November of that year... And it was actually kind of luck, I guess, through online forums. That's really where I found this one posted. It really wasn't advertised in the open market. It was kind of a pocket listing, you would say, but it was advertised on an online forum.
Joe Fairless: Which one?
Hiron Fernando: It's a local DFW Real Estate Investing forum, a local form.
Joe Fairless: Okay. If you google "local DFW listing forum", would it be there? Or how did you come across this forum?
Hiron Fernando: I actually had some friends of mine who were also in the industry mention it to me... And I've actually met the owner from a local meetup.
Joe Fairless: The owner of the forum?
Hiron Fernando: Of the forum. Yeah. Or the manager... Yeah, the manager of the forum. So that's kind of how I got plugged into it, and was on there for a couple of years, and pretty active in it... And just somebody had commented, "Hey, I have this fractured condo complex. Anyone interested?" So that's kind of how that came about. And then yeah, moving forward, we negotiated everything, and it turns out, it was right in the middle of COVID. March of 2020 COVID happened, and we closed in May of 2020... And there's a whole story behind that, of working with the seller and the bank, making the bank comfortable with the asset, and getting that all squared away... But yeah, in terms of the funding for it, both of us were 50/50 equal partners, so we both put 50/50 equal capital for the downpayment or earnest money.
Joe Fairless: And how much was the money?
Hiron Fernando: It was right around $400,000.
Joe Fairless: Okay. And that covers the ,downpayment and what else did that cover, that 400k?
Hiron Fernando: Yeah, that was the downpayment and also the reserves. Those are the two main things. Yeah.
Joe Fairless: Okay. What about the operating budget for -- we haven't gotten into the business plan, but if there is a business plan to improve the property, what about that operating budget? CapEx budget, I should say.
Hiron Fernando: Yeah, CapEx budget. Exactly. Yeah. So after purchase of the property, we put aside another $150,000 separate to the closing for CapEx and reserves.
Joe Fairless: And that was money out of you or your partner's pockets?
Hiron Fernando: Right.
Joe Fairless: Okay. So all in right now you're at $550,000. At this point in the story. What did you purchase it for?
Hiron Fernando: We purchased it for 1.95. And it was 34 units when we purchased it, and over time, we've bought more units, because it's fractured... So we bought more individual units over time.
Joe Fairless: Oh, wow. Alright. So you started with 34, you're at 50 currently, and there's 20 more to go. Are you gonna end up buying those 20?
Hiron Fernando: Yes, that's the business plan, is to buy -- I don't know if it's all, but as many as we possibly can of the rest of it, and then package it up and resale.
Joe Fairless: Okay. So all-in, what's the total amount that you are into this deal at right now?
Hiron Fernando: So all-in we're probably -- because we've purchased more units after that 1.95...
Joe Fairless: Exactly. Yeah.
Hiron Fernando: So all-in we're probably right around 2.8 on it.
Joe Fairless: Alright, 2.8. And what could you sell those 50 units for now?
Hiron Fernando: We actually got a broker's price opinion on it recently, and we're right at 4.9 on it. It's appreciated quite a bit, because we bought it in the middle of COVID times too... And we actually did a refinance on it not too long ago. So we were able to cash out refinance and pull out all of our initial downpayment that we put into it. Downpayment plus the reserves. So right now any returns on it is infinite returns, because we don't have any skin in the game. So that's cool.
Joe Fairless: What was the valuation when you refied it?
Hiron Fernando: When we refied it - this was probably about eight months ago - it was about 4.5.
Break: [00:12:53.10] to [00:14:54.02]
Joe Fairless: Broker's opinion of value... They want that listing.
Hiron Fernando: That's right. That's right.
Joe Fairless: Take that with a grain of salt there. But either way, holy cow, you're all-in at 2.8, and you've got a 4.5 or 4.9 valuation... And you have all your initial money that you put into it. That's incredible.
Hiron Fernando: Yeah.
Joe Fairless: Why not sell it now, versus wait to attempt to try and get a handful of other units, or all 70, which - all 70 is probably not gonna happen, if you've got 20 individual owners... That's gonna be challenging.
Hiron Fernando: It's gonna be challenging, yeah. So far, we haven't been very aggressive on reaching out to the owners currently... But it hasn't been too difficult. But the last so many could be hard. And it's actually not 20 separate owners; there's probably six owners left. Most of them just have a handful of units. So that's my thought on that.
And then yeah, going back to your question about selling... I think the market has changed so drastically over the last six months, I would say. At the beginning of this year, we were absolutely planning on selling and realizing that capital... And really, the long-term goal for us was to move to something that wasn't fractured, that was just a standard apartment complex. I think it's just easier to manage.
Joe Fairless: Easier.
Hiron Fernando: Yeah. So there's been a lot of learning, and we've learned a ton from it, and it's been awesome... But just kind of getting to less headaches I think is one of our goals. And at the beginning of this year, when we got the broker price opinion, we were planning on doing it this year, but like I said, things have just changed so much, and our broker's just told us "Unless you're really in a need for capital, or some need to sell", they advise us not to sell right now, and just ride out. Let's see what the uncertainty does, and see how things shake out in the economy, and wait till maybe 2024. We'll see. But for right now, it's cash-flowing great, it's profitable, so there's no need for us to sell, other than just pulling out equity. So that's the game plan for right now, is we'd rather get the maximum value out of it and sell in another couple of years, just collect cash flow until that time.
Joe Fairless: What's the year of construction?
Hiron Fernando: It's 1983.
Joe Fairless: Okay, pretty good. And what area of DFW is it in?
Hiron Fernando: It's actually in the Lake Highlands area of Dallas, and pretty close to -- I think there's a property, Apex, that's really right next to it...
Joe Fairless: I know that property.
Hiron Fernando: ...that you know of. Absolutely. So it's like literally right next door, right across the creek from the apex. So that's where we are.
Joe Fairless: Which is - in case everyone didn't pick up on that, that is a property that my company owns. Fair enough.
Hiron Fernando: Yeah.
Joe Fairless: With your approach that you had initially with this property, the fractured ownership condominium... And you mentioned earlier that it's challenging, compared to an apartment building. Can you elaborate on some specifics of what has been challenging with this type of asset, versus, say, an apartment building?
Hiron Fernando: Yeah, Joe, I think that's interesting, because going into this, this is the first project that I've done that's more than four units... And I think going into it, [unintelligible 00:18:18.19] your show and a whole bunch of other shows, I think I kind of thought the process would be pretty simple. You just let the property manager run with it, and it's pretty easy. It just kind of runs itself, is what I thought. But getting into it, especially because it's fractured, I think, there's been challenges.
I think one challenge that I want people to hear about is the number of units really makes a big difference... Because I think this project was too small for the big guys. The really big multifamily property managers that does 70, 80 units - this is just too small for them. But it's too big for the ones who does the single family stuff, or the duplexes. It's too much.
So I think initially, we started off with a property management company where they did everything remotely; they didn't have any on-site personnel. They would just send people, leasing agents or handyman, as needed... And as we went from 34 to 50, it just needed dedicated help. And so we transitioned; we found a on-site, and we found two handymen to come in and support the property on a more full-time basis... And that really helped a lot. So there's some growing pains and learning through that process.
And then on the flip side, on the fractured condo side, there's just more rules that you need to go through; you have your HOA bylaws that you need to follow, and there's a board of directors that needs to get elected... And any changes that happens to the grounds, or anything that's maintained by the HOA, whether it's painting, or improving the gutters, or lighting, the pool, whatever, it needs to go through a board of directors and get approved and voted on before anything can change. So I think there's just another level of paperwork and processing that has to happen, when everything has to be elected on.
But part of the benefit to it is we have a majority stake. So my company has a majority vote on anything that gets voted on. So that helps a lot. So we've been able to pass a couple of special assessments as well. A special assessment is basically when the HOA says, "Hey, we're going to be repaving all the parking lot." So that's something we recently did. "And here's how much the total amount is, divide that by the total number units; this is your proportional share of the improvements." And so that's one way to help with some of the improvements. Whereas at an apartment complex, you're responsible for 100% of the check. Obviously, we own majority of it, but you still get supplemented some percentage of the total fee.
Joe Fairless: Yeah. When you bought it. 34 divided by 70 is 48.5%, so you weren't at 50% yet. But then, once you pushed over to that 50%, was that a big deal from a process and approval standpoint?
Hiron Fernando: Yeah, it was. And that was kind of the game plan from the get-go, is to have majority ownership. But yeah, I think it streamlines the process significantly by having the majority voting shares. And [00:21:31.14] but there's some rules like you have to have more than 67% of the owners agree. So we can't just willy-nilly make all the calls... But it certainly helps.
Joe Fairless: 67% of the owners agree... So right now -- oh, the owners, not the units.
Hiron Fernando: Correct. Right.
Joe Fairless: Ah, okay. Yeah, cuz you own 71% of the units, but 67% of the owners; there's a distinction.
Hiron Fernando: Correct.
Joe Fairless: Taking a step back, what's your best real estate investing advice ever?
Hiron Fernando: I would say to be persistent and curious is two of the main things that's really helped me. Even in my engineering career, or in real estate, I think being persistent is one thing that's so important in my mind, where I don't think I'm typically the highest bidder on a project. I'm usually a couple of rungs down, because I'm not going to overpay... But I've had luck with several deals, where just being persistent and talking to the broker, say, "Hey, where does this stand?" Sometimes things fall apart, the highest bidder... And so yeah, just being persistent and making sure I'm on top of things... Especially in the single family side, I've had so many deals come back to me... And like I said, not the highest bidder, but still get the deal, just because 60 days down the line you reach back out, as the first one didn't work out, and now I can have a chance at it, that kind of thing. So I think persistence is important.
And then the second part of what I said was being curious; just kind of understanding the mechanics of why is the seller looking to sell? Or what's most important to him? Is it just the price, or are there other components to the deal? Closing quickly, or hard money down, or whatever the case is; just being curious and asking questions to really gauge and understand the other person's perspective. I think that's huge in real estate, and in life in general.
Joe Fairless: We're gonna do a lightning round. Are you ready for the Best Ever lightning round?
Hiron Fernando: Yeah, absolutely.
Joe Fairless: Alright, what deal have you lost the most amount of money on?
Hiron Fernando: Okay, I'm gonna change the question slightly to maybe the worst deal I've ever done... Because I've not lost money yet on the deal. I'm sure that'll happen someday... But the worst deal that I did was my second flip... And I did not lose, but didn't make as much as I was hoping. Great area, but we over-improved. And we wanted to sell right in the peak summer time, and it ended up taking more time than we thought, and sold it in December, and that's a slow season. So we took a good haircut on that... But yeah, we've made about $13,000 on it, when we were projected to do 35k. So took a pretty good haircut on it, and I had to roll up my sleeves and do stuff just to make it happen quicker. So that wasn't a very fun experience, but learned a lot, and I stay away from flipping now.
Joe Fairless: Over-improving property and the timing were the two takeaways I got from that.
Hiron Fernando: That's right.
Joe Fairless: Best ever deal you've done?
Hiron Fernando: Oh, it's got to be the condominium. That's been amazing. Slam dunk. And it was just good timing, because when we bought it, it wasn't obvious it was going to be a slam dunk. We were nervous; it was in the middle of COVID, and we were nervous about it. The numbers all looked good on paper, but who knows what's gonna happen with COVID...? So it wasn't obvious, but it's really paid off, and the persistence has been good, and we're hoping to exit out of it at a strong cap rate, and strong retained earnings on it. So yeah, that's probably my best deal.
Joe Fairless: Best ever way you like to give back to the community?
Hiron Fernando: My wife and I, we sponsor several young girls in Sri Lanka; the parents are from Sri Lanka, and there's a lot of need there, and there's several young ladies there that's really talented, but their families just don't have the means for them to get good education. So we sponsor them for anything they need for education. They're still kind of going through high school right now, and we really enjoy just getting to pour into them, and help them... I just think education, especially for young girls, is just so important in that country, and being able to support them in some way, to have really a sustainable way to make money and to live after they graduate is huge. And being able to make a difference in a few people's lives I think gives us a lot of pleasure.
Joe Fairless: Best ever way that the listeners can get in touch with you?
Hiron Fernando: You can reach me at my email address, it's just first name dot last name @gmail.com. So hiron.fernando [at] gmail.com. And people who are local to Dallas, I usually do a lunch or dinner with people at least once a month, and I really enjoy getting to bounce around ideas... It's a two-way street, but anybody who wants to email me, or if you're in Dallas and want to meet up, more than happy to share some wisdom and bounce around ideas. Please reach out.
Joe Fairless: Your story is impressive, and it represents Texas Tech well, so I'm proud of that, too... Not that it had any part in this, but I really enjoyed hearing your story, and congratulations, from early on with the stock market, and then evolving your process... What got you to the point where you're at you realized wasn't going to get you further, so you had to switch, you had to evolve, and so it was impressive... And you've constantly evolved, from stock markets to single family homes, to multifamily units now... Thanks for being on the show. I enjoyed our conversation. I hope you have a best every day, and talk to you again soon.
Hiron Fernando: Alright, thanks a lot, Joe. I appreciate the time.
Website disclaimer
This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.
The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.
No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.
Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.
Oral Disclaimer
The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.
