May 30, 2017

JF1001: A Hidden Wealthy Niche that Involves a Fine Tuned Team

Condo conversions are tricky, and not for the novice investor. Our guest talks about his team including an architect, and Attorney, contractors, and other individuals that are needed to convert buildings into condominiums. This is a great show that has a purpose to give you a little insight into this hidden niche that has made many people wealthy. Tune in!

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Ricky Beliveau Real Estate Background:

- Owner of Volnay Capital
- Specializes in both buy and hold as well as condo conversions
- Currently have 6 condo conversions in different stages in/around Boston.
- Based in Boston, Massachusetts
- Say hi to him at

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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Joe Fairless and this is the world's longest-running daily real estate podcast. We only talk about the best advice ever, we don't get into any of that fluffy stuff.

With us today, Ricky Beliveau. How are you doing, Ricky?

Ricky Beliveau: Joe, I'm doing well. How are you?

Joe Fairless: I am doing well, nice to have you on the show. A little bit about Ricky, he is the owner of Volnay Capital. He specializes in both buy and hold, as well as condo conversions. He currently has six condo conversions in different stages in and around Boston, and he is from and based in -- well, I don't know where you're from, but you're based in Boston, Massachusetts. With that being said, Ricky, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Ricky Beliveau: Sure. As you said, I own Volnay Capital and we're based out of Boston. I started out, I went to Northeastern University, and at Northeastern I actually stuck to a class called Real Estate Finance, and in that class we had to do a paper on some type of real estate investment, and the property that I chose was actually a multifamily building near the college. After graduation and looking through the figures and seeing the opportunity there, that's what kind of jumped me into the real estate business by buying my first multifamily in 2010.

From that point forward, I've continued to acquire rental properties, and about three years ago I made the jump over to the condo conversion side, and doing condo conversions over the past three years, mostly centered in East Boston, which is an up and coming neighborhood, close by to the downtown area.

Joe Fairless: Condo conversions - what do we need to know about condo conversions?

Ricky Beliveau: The condo conversions market - you're able to create a large amount of value by taking a single property and splitting that into three individual units, and updating the deeds with the city, and then you're able to sell those off to individual buyers. By doing that, on what would be a single project, you're actually able to create three sales out of that one project.

Joe Fairless: From a fundamental standpoint, that sounds great - you buy one and you get three at the end of it. Tell us one deal that you're working on, and the numbers on that deal.

Ricky Beliveau: A deal that we just finished up - it's actually one of the most successful deals that we've done to date... The acquisition price of the property was for 650k, and at the time that was about the going rate on the market; it wasn't that I got a great price on it... It was a pretty good deal on the purchase. The renovation cost on that project was 575k, and the building was 4,300 square feet, so it's a large property. That brings the total project cost on that into $1,225,000 all-in project cost. The sell out on that was 1.7, so it left a profit after fees of $447,000.

Joe Fairless: How long did that take?

Ricky Beliveau: We tried to turn it around 10-12 months. That project actually spread over the year mark. We had some issues when we were trying to get started, so it kind of delayed the beginning of the project, but all in we were about 13-14 months on that project.

Joe Fairless: Okay, 14 months worth of work to make about $450,000.

Ricky Beliveau: Correct. ROI on it was around 36,5%.

Joe Fairless: Okay. What are some challenges that came up in that one that made it take longer than what you projected?

Ricky Beliveau: When we acquired the property, the property was tenanted, which when you're getting in the business of doing condo conversions and there's tenants in place without leases, you can kind of expect that there might be some issues getting the property, relocate those tenants, find them a new place to live and then be able to start the project. That's what happened here - when we acquired the property, one unit was vacant and two units had tenants. We were able to relocate the top floor tenants into a new apartment, but the second-floor tenants, we were going back and forth for a few months regarding what their needs were. I was finally able to relocate them into one of my rental properties around the corner. Just that process delayed us about 3-4 months.

Joe Fairless: How were you able to eventually relocate them? What convinced them to do that?

Ricky Beliveau: The property they were currently living in, which was the one we wanted to put under construction, their rent was currently $1,200/month. What we agreed upon to have them moved is I was able to lower their rent to $900/month. Then I also had my guys move them from that property to the other. So with a reduction of rent by $300, as well as me covering moving costs, we were able to finally come to an agreement to have them relocated.

Joe Fairless: What did you propose initially?

Ricky Beliveau: The initial request was that they don't have a lease in place and that they would relocate. In this market it's tough, because as the rents are continuing to rise, a lot of these people are not able to afford in that neighborhood anymore, so it becomes tough for them. We try to really work with the tenants and find ways to find resolutions, instead of having to go to court.

In this case, once we started the negotiations, the first attempt was just to work with them as we had the other units, and find them a place to move and pay for the moving costs and pay for their first month's rent. They weren't open to that idea. They were really set in stone that they wanted to stay in that neighborhood in that area. As we went back and forth, an opportunity came up that I had just acquired another building that was a block away, and I was able to use that property as an offering and move them over into that building.

Joe Fairless: Did they ask to have some sort of agreement so the rent wouldn't go from $900 to $1,900 after year one?

Ricky Beliveau: We signed them up on a two-year lease, but actually backdated it with the date because of the four months that they had held up the start of construction, so it ended up being a little bit less. I think instead of a 24, about 20 months. So it was a 20 months lease at $900, and then after a year it went up to $990. So I was able to build in a 10% increase after year one.

Joe Fairless: After year one, okay. And if you didn't have them relocating to that unit, how much would it rent for?

Ricky Beliveau: That was a third floor, three-bed apartment; we probably would have gotten around 1,600-1,800. It definitely was a financial hit, but when you have approved plans and you're able to start construction on a property that can create the returns that we just discussed, those are small potatoes in the long run.

Joe Fairless: Yes, a no-brainer. You said there was one vacant and two were leased; one was more challenging than the other, they left... Was that the primary reason why it was held up for 14 months?

Ricky Beliveau: Yes. That cost us about four months before we could start the demo. So in the end, the project timeline was still around 10 months, but from demo to completion we lost four months in negotiations.

Joe Fairless: What do you have to do when you demo?

Ricky Beliveau: When we started out three years ago, we would be more selective with our demo. We wouldn't get into the property and take everything down to the studs. We realized that to create the quality product that we want to and build the reputation that we have, you really have to start from scratch. Demo days -- it takes us about 2-3 weeks to demo a property. We'll send in a team of guys and they will take it all the way down to the studs, remove everything and we'll start from scratch.

Joe Fairless: So you're basically building from the ground up, but you have the framework, or the studs there.

Ricky Beliveau: Exactly, keeping the exterior skeleton of the property, and then rebuilding from there.

Joe Fairless: So you do the demolition, and then what part of the process tends to go, or is more likely to go over budget than others?

Ricky Beliveau: At the beginning we were seeing more items going over budget than we are now. The recommendation I would make is to really know the numbers and negotiate the prices upfront. When you're getting into one of these projects, we sub out everything; it's all subbed out. We hire a GC firm to handle the project, and then the GC firm hires all the subs. So before a project even demos, we've already negotiated, and the majority of the expenses of the project are already locked in with those subs. The fact that we've done so many now and that we have these long-standing relationships, and that they know that it's consistent work, we're able to see those numbers come in much closer to budget than we did when we were first starting. I think having clear cut budgets upfront with these contractors and with the subs is very important.

Joe Fairless: And you talked through at the beginning of the high-level summary of doing condo conversions - creating a large amount of value by splitting them into (in your case) three units, from one to three, updating the deeds with the city, and then selling to individual buyers. Can you elaborate more on the splitting it into three individual units? Explain how the thought process works for someone like myself who hasn't done this.

Ricky Beliveau: The actual process of making the switch from a single property into three condos - it really would depend on your state and also on your city. Using Boston for an example, the process is we work directly with our attorney, as well as our architect. Those are the two parties that are really involved. From the architect standpoint, they need to redraw up the documents to submit to the city that will show now what the assessment should be for each unit. Now when the city looks at this property, they need to know what is the size and ownership of each unit. They require an architect to do that section of it, where then they stamp that and they submit that.

The second part is with the attorney. The attorney takes that information and they're gonna compile that along with the condo documents. Those are guidelines that are set up on behalf of the association, showing the rules and regulations of the building you're creating. That's all put together and then submitted to the city. So it's really a team effort. You need an attorney involved, and you'll need an architect involved.

Joe Fairless: Where do you spend most of the time managing? Is it the demo, the architecture process or the attorney process?

Ricky Beliveau: For our condo conversions, I think the most involvement I would have is with the architect. That's just because we need to meet at the property, and he needs to take exact measurements of the whole space. So we would walk through the property and go through everything and make sure that we're properly calculating the unit square footage, which is also very important to me on my sellout side - I wanna ensure that we're properly calculating and that my buyers are getting the square footage that actually is there, and that they're not paying for something that's not correct. So I would say working with the architect on his end.

Joe Fairless: How much does that cost?

Ricky Beliveau: On a project like that we build it into the original budget for the architect. The same architect who does our plans from start to finish, as well as code review and all that - he builds it into his budget. I think it's around $2,500-$3,000 for his time that he spends on the condo document side.

Joe Fairless: Do you engage either one - the attorney or the architect - before having the property under contract, just to have an idea of what the business plan is and that it is something you can execute on?

Ricky Beliveau: At this stage, now that I have more experience with these properties, I'm comfortable in making the decision without my architect involved. When I was first getting started I would try to have him come with me to a showing that I thought was a great opportunity, or if I saw a property and I wanted to get his opinion on it, I would try to have him meet me there, as well as my contractor. But now over the years that I've been doing this, I'm much more comfortable in making those decisions on my own. So now the process is once I get a building under agreement, I'll then immediately schedule a time for both my GC and my architect to meet me at the property as soon as possible to start the process of getting the budget together from my GC, and then from my architect get the plan started for the project.

Joe Fairless: With the process of updating the deeds with the city, what type of challenges have you come across that probably are unique to Boston, but maybe some aspects of it can be applied towards other markets?

Ricky Beliveau: Right. In the Boston market it's actually pretty clear cut. There are standard processes followed, and you're able to do this conversion. I'd say that one thing that your listeners should definitely look into is if they're going to get into one of these projects, speak to an attorney before you begin, or even before you acquire a property with the hopes of doing this kind of conversion; each market is different. I've talked to investors in other markets where the process is not as easy as it is in Boston. You wanna make sure to speak to an attorney and get that information up front, before you're midway through a project and then you're having an attorney tell you that that property is not condoable. I'd say do the legwork up front and have those conversations.

Joe Fairless: How do you find the right attorney and architect for this?

Ricky Beliveau: It's a great question. I preach to everyone I talk to that networking and relationships is what really makes this business. I try to spend as much time as I can every week meeting with people and networking. That's the only way you can really know that someone is the right contact - if someone can vouch for them that you really trust. A mentor of mine introduced me to my attorney, my architect I played soccer with in college... Almost everyone in my business that I work with is connected to me in some way, closely in my network.

Joe Fairless: You didn't do a Google search.

Ricky Beliveau: No Google searches.

Joe Fairless: If someone doesn't have those connections, do you have any suggestions? Maybe certain traits or qualifications that your team members have that you would look for if you had to start over in a different city?

Ricky Beliveau: The first person that I would go to is a real estate agent. If you reach out to a real estate agent who has a large number of listings, or you can pull the data that they've been successful and they were one of the top agents in that market, you can then go to them, take them out to lunch and try to ask them to open up their network to you. What you're offering to them is always a back and forth - you're saying "Hi, I'm new to this market, I'm new to this business and I want you to be my agent. I've done my legwork, I've looked into you as an agent."

If you commit to them that you're going to bring them business, they'll then open up the doors to other individuals who could help you out. Obviously, since it's not a direct connection, you're gonna wanna do some more legwork before hiring an architect or an attorney, but I think that if you can find someone and get references, and it's someone who's very successful in your area, you can't beat that. That's what would be my recommendation and that's what I would do. If you [unintelligible 00:17:38.18] me into Cincinnati and I had to compete with you, I'd go out and find the top real estate agent on the block.

Joe Fairless: I would never compete with you in condo conversions. [laughs] I'd be like, "You win, you win! Mercy, mercy!" Ricky, what's your best real estate investing advice ever?

Ricky Beliveau: I would say know the numbers. I think that in real estate now it comes down to the Excel file. I look at the property and the first thing I do is I sit down at my computer and I run the numbers, whether that's for a buy and hold or for a condo conversion. Before I'm even walking out my door, I have already decided if this is a good buy or not. Obviously, things can come up when you get into the property, but you can know by (I'd say) 95% if that's going to be a purchase that you're gonna make before you leave your computer.

Joe Fairless: What are the main inputs?

Ricky Beliveau: From a condo conversion standpoint, I'm looking at the building square footage... The most important thing from my standpoint is I'm looking at my sellable square footage, so I know that I can sell those condos for a certain price per foot. When I look at a building, if the building is only 1,500 square feet, I know that when I make it into condos I'm gonna lose the common area. There's gonna be a very small sell-out on that, because the units are very small.

So I'm gonna look at the property and I'm gonna say, "Alright, what's the total building area?" Usually, you can say about 85% is what you'll be able to sell, so usually about 15% is a good guessment of common area. So you do 85% of the total square footage - that will give you the sellable square footage. And then since I have a really good grasp of my market, which is also important - knowing where you're going to invest, I can then take that square footage and I'll know what it costs me to build with that square footage for my construction costs, I also know what I can sell it at with those numbers, so before I even go see this property, I have a spreadsheet that's already built out with my profitability.

When I get to the property, there could be things that come up - foundation issues, things that could make me adjust my sheet, but those are all items I'm able to enter in before I even leave my computer.

Joe Fairless: What does it cost to build?

Ricky Beliveau: Right now we're running our numbers for [unintelligible 00:19:50.27] renovation at around $150/foot. It ranges. Sometimes we're under that, sometimes it goes a little over that, but in Boston that's the calculation we're using to see if a project is feasible or not.

Joe Fairless: And what's it selling for?

Ricky Beliveau: Right now in East Boston the prices have really rose. Now we're in the high fives, low sixes per foot.

Joe Fairless: High five-hundreds?

Ricky Beliveau: Correct, yeah. For a property that's closing 1st May, maybe the average sellout was 573/foot.

Joe Fairless: And then the only other factor is the cost of acquisition when you factor in the costs, right?

Ricky Beliveau: Yeah, it's acquisition, and then there's the other soft costs - there's the carrying on the interest, the insurance, attorney's fees... So that $150 is just the cost that would actually go towards the construction of it. There's still the other soft costs that would need to be added in.

Joe Fairless: Okay. Is there a rough percentage that you use for that?

Ricky Beliveau: No, I build those out in my analysis. I look at the acquisition price, I know what rates I'm getting from my lender, so I'm able to build that out. I use a 12-month timeline to give myself a buffer, so that I know where my interest will be if it does take me 12 months. It's always better to overestimate these numbers and then in the end come back extremely happy with your results, than underestimate and then end up losing money.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Ricky Beliveau: Let's do it.

Joe Fairless: Alright, let's do it. First, a quick word from our Best Ever partners.

Break: [00:21:22.24] to [00:22:17.18]

Joe Fairless: Ricky, what's the best ever book you've read?

Ricky Beliveau: I'm not a big book guy, but lately I've been really enjoying the How I Built This Podcast that came out - that's been really enjoyable the past few months.

Joe Fairless: That's a book, or a podcast?

Ricky Beliveau: A podcast.

Joe Fairless: Okay, it's a podcast on how he or she built the podcast...

Ricky Beliveau: No, How I Built This is a podcast that interviews some industry leaders - Mark Cuban, the founders of Instagram, for example, about how they got started and how they built their business, and the complications that they had to get to where they are. It really relates to real estate. We're all looking to build these businesses, build our real estate empires or companies, and listening to these really successful people tell their story - it really translates to the real estate business.

Joe Fairless: Best ever deal you've done?

Ricky Beliveau: We already ran through my last condo conversion, but it's actually the first building I ever purchased. I currently own it today - it's my largest rental property. My purchase price was $930,00 and reappraised for 2,2 million.

Joe Fairless: That was your first purchase?

Ricky Beliveau: Correct.

Joe Fairless: Wow, how did you get the funds for that on your first buy?

Ricky Beliveau: I used FHA Owner Occupant, and in Massachusetts at the time the max one you could get was $816,000 for FHA, and then actually using the paper that I wrote I went to my mother, who had just inherited some money, and I asked her if she would invest in the property with me. So she gifted me $160,000 to get me started on that first property.

Joe Fairless: And that was a single-family home?

Ricky Beliveau: No, it's a three-family property. When I purchased it, it was a nine-bed, three-bath; I lived in one of the units and I got my hands dirty and renovated it and turned it into a 12-bed, six-bath.

Joe Fairless: [laughs] Of course you did.

Ricky Beliveau: I was able to really drive up the rents and drive up the value. And also, I bought it at the perfect time. Boston in 2010 had really plateaued. From 2007 to 2010 it had almost been dead even, and then right in 2010 is when the market started to explode, and it hasn't stopped since.

Joe Fairless: Best ever way you like to give back?

Ricky Beliveau: Right now I'm a member of the Venture Mentoring Network at Northeastern. What that is is it's startups and college students who have ideas and they're trying to start their businesses. Right now I'm mentoring a bunch of college students, trying to help them get their businesses going.

Joe Fairless: What's a mistake you've made on a deal?

Ricky Beliveau: Thinking back, one mistake I made from the start was that I tried to self-manage my rental portfolio. I think that you can't really deliver the high level of service that these tenants need when you're doing it on your own, at least from my standpoint. I quickly realized that it was a mistake that I was trying to do that on my own, and I was able to correct that by hiring a management company to take over that for me.

Joe Fairless: And where can the Best Ever listeners get in touch with you?

Ricky Beliveau: You can find me on Facebook, Instagram, Twitter, all at Volnay Capital. You can also find me on my website,

Joe Fairless: And I recommend the Best Ever listeners to go check out Ricky's website, It's got pictures of the condo conversions, it's pretty cool.

I really enjoyed this conversation on condo conversions, and other deals, but really we focused on condo conversions - the challenges that we might come across. Definitely a red flag if tenants are there, there likely will be issues. It's not a deal breaker, but just expect for there to be issues. And then knowing your numbers, talking through how you calculate the back of the napkin math, and then you have your financial model, so obviously going much more detailed. During our conversation you gave really good, high-level back of the napkin approach for how to evaluate deals. Thanks so much for being on the show, Ricky. I hope you have a best ever day, and we'll talk to you soon.

Ricky Beliveau: Joe, thanks a lot! This has been great.

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