January 12, 2018

JF1228: Two Unique Ways To Find Your First Off Market Apartment Deal

Joe and Theo tell us a couple surprising and proven ways to find an off market apartment deal. You might be surprised how easy it is for you to add these techniques to what you are already doing in your real estate business. We’ll get a couple of quick updates on their businesses and how they can apply to us. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Joe Fairless: Best Ever listeners, how are you doing? 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 investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

Normally, I interview a real estate investor and get their best advice ever, but today, as we usually do on Fridays, we do Follow Along Friday, joined by Theo Hicks. How are you doing, sir?

Theo Hicks: I’m doing great, Joe.

Joe Fairless: Great, I’m glad to hear that. Today we’re gonna be talking about what we’ve got going on in our real estate entrepreneurial endeavors and how that relates to you and how we can help you out along the way. Specifically, we’re going to talk about two surprising and proven ways to get off-market apartment deals, and some other miscellaneous things that might be helpful for you. Let’s dive right in.

Theo Hicks: Let’s dive right in. The first one we are calling direct mail with a twist. So it’s not a drink you get at a bar at happy hour, it’s actually a version of something to add to your direct mailing campaign that you’re already doing. Basically, what you do is you include a call-to-action when you’re mailing out to apartment owners, inviting them to your already established meetup. They can come as either speakers or as participants, and the goal is that we’re inviting them — obviously, the benefit for them is that you’ll be presenting or someone will be presenting some sort of information that’s relevant to an apartment investor. For example, you invite them to your event and say that you’re gonna do a presentation on seven ways to increase NOI on an apartment building.

Joe Fairless: Yeah, and taking a step back, the reason why we came up with this is because when you send out direct mail, you might not get a response from people. They might not be ready to sell. And that’s okay, because that’s just what you expect with direct mail, right? You’re not gonna get a very high response rate. However, if you start building a relationship with these owners, regardless of if they’re looking to sell, then I think we can all agree that’s gonna be beneficial, in multiple ways.

So when you send out a direct mail, perhaps the first couple pieces don’t have a call-to-action to a local meetup, but maybe the third, fourth and fifth do have a call-to-action. Okay, you weren’t getting a response from them on the first couple pieces, so try a different approach – instead, invite them to a local meetup that you host; you could say “Come to this meetup on X, Y, Z date and learn seven ways to increase your NOI”, or three surprising tips for decreasing your expenses. Then they’ll come to the meetup, then you can start forming a relationship with them, and that’s even better than them responding via phone and you having more of a transactional approach with them, versus you’re building a relationship with them, because then you can be in touch with them over the long run and you’ll stay top of mind when they are looking to sell.

This is for investors who are local to the market that they’re seeking to find a property, because you would need to have a meetup that is being hosted, unless you have a team member who is hosting a meetup and then you partner with that team member; that would work. But primarily, this tip where you have in your direct mail piece a call to action to attend a local meetup to provide value to these owners. That’s for if you are local.

Now, we’ve got another tip that is for if you are not local. Regardless of where you live relative to where you’re seeking to invest, the following tip will be helpful for you.

Theo Hicks: Yeah. I know we’ve talked about — because for this tip you or someone on your team needs to have a meetup that they’re hosting, and we were talking about how to do that on this podcast before, but we also have a blog post that’s basically a step-by-step guide and it gives you examples of three different meetups that different investors have hosted… That blog post is called “To Source Real Estate Deals And Generate More Wealth, Start a Meetup Group.”

Joe Fairless: Well, if you’re listening to this via Facebook Live, then we’ll have a link to it in the Facebook comments, and we’ll also post that link in the show notes when the episode goes live via Apple and wherever else you get this podcast.

Theo Hicks: Something else I wanted to mention too is that the idea of in your marketing material providing value-add content or inviting them to something that’s gonna add value to their business – I know you’ve had a lot of real estate agents who have found a lot of success getting leads by doing that, so just sending out a basic “I represent sellers”/”I represent buyers.” As an agent, they send out different tips, like “Here’s four ways to buy your first house”, “Here’s four ways to prepare to sell your house”, so that way you’re still top of mind, and you’ve already helped them out, so they’re more likely to help you out in return.

There’s a lot of just added things that are in play when you’re adding value to someone proactively before they do anything for you, as opposed to just sending out a “We buy houses” or “We sell houses” flier.

Joe Fairless: Yeah, I remember there was a guest who talked about how he was getting a ton of leads; he was a single-family home wholesaler, and he in his direct mail and on his website provided ways for homeowners to keep their homes. If they were in trouble, then his whole approach was “Here’s ten different things you should do in order to try and keep your home.” He found that by being the source for helping people keep their home, he was getting a whole lot of leads for people who went through that process but still couldn’t figure out a way to keep it, so they had to sell, and then ended up selling to him.

Theo Hicks: Again, the first tip is the direct mail with a twist, a call-to-action into your direct mailing campaigns to invite the apartment owner to your meetup event where you’re presenting valuable content.

The second one is using a wholesaler. This is actually an example from episode…

Joe Fairless: 213.

Theo Hicks: …213 of the podcast. Basically, the idea is that most apartment investors – including you, Joe – start off buying single-family homes, so they have single-family homes–

Joe Fairless: And you! You have 12 units.

Theo Hicks: I’ve never bought a single-family home though…

Joe Fairless: You bought a duplex.

Theo Hicks: I bought a duplex.

Joe Fairless: Alright, whatever.

Theo Hicks: Yeah, close enough. So assuming the wholesaler is reaching out to single-family owners, they might have an apartment building that they have, and they’re just selling off properties they acquired early on in their careers. So just simply ask a wholesaler to probe their leads for apartment deals. So ask them, “Do you also have any other properties you own, like an apartment deal?”

Joe Fairless: It’s such a no-brainer… It’s a gigantic win/win for you, because you now have wholesalers working on your behalf. They’re spending money on direct mail, and they’re spending money and time on finding leads, and you’re not spending any money and they get a huge win because all they have to do is ask one more question that they usually ask when they’re speaking to their leads, and that is “Do you also own any other real estate?” If the answer is now, then whatever, they just go do their thing with the single-family home or the duplex. But if the answer is, “Yes, I actually own a 12-unit”, or in the case of the guest Jonathan in episode 213 of this podcast, they owned a 16-unit if memory serves me correctly, and he ended up buying a 16-unit deal. And he had been looking for apartments to syndicate, couldn’t find any, so he just went back to his roots, or at least to this approach. Then through this, he found a 16-unit deal, and then he was able to close.

So all you have to do – or all you get to do – is ask wholesalers who you have relationships with or you form relationships with “Would you like to get the largest commission check of your life?” Don’t say it salesy like that, but basically they have an opportunity to get the largest commission check of their life by asking that one additional question to their leads, and then you pay them a fee, whatever you negotiate with them, if and when they find you a deal. And if they don’t find anything – alright, fine, no sweat off your back, but if they do, then that’s something that could have big benefits for both of you.

Theo Hicks: You already touched on this, but a really big benefit for the wholesaler is that there’s no extra effort or money spent on their part, because all they do is simply — whatever marketing piece they’re sending out, just adding one extra sentence to it. That’s really it. They may have a little more conversations, but at the end of the day if they actually get in one deal, it’ll more than make up for any extra effort or money they have to spend, which is gonna be very little in the first place.

Joe Fairless: Yeah. I use to get direct mail for my single-family homes, and now I don’t get it as much, really at all, but when I did, it was all through my homes, and I was like “No, I don’t wanna sell, but whatever…”, so I just threw it away. But if I did reach out to them about a house and they did say “Do you own anything else?” “Yeah, I do”, and they said “Well, I actually have a buyer who wants to buy your apartment, depending on if it meets certain criteria”, I don’t know if I would be interested, but I’d at least listen. And then I’m just one person. Other people might react differently. Other people might say, “Oh, well actually I am coming up on my loan that’s being due, and I do have to figure out if I’m gonna sell it or refinance in the next 18-24 months, so yeah, I’ll send you the info”, or “Tell me more about who your buyer is.” I’d probably qualify the buyer a little bit before I talked much more… But at least it opened up the conversation, and it’s an absolute homerun idea to do, in my opinion…

As apartment investors it’s a no-brainer, because it also brings more relevance to attending local meetups. If you already attend a local real estate meetup, you likely are not around a lot of other apartment investors; you’re likely around a lot of wholesalers, fix and flippers and people who buy and hold single-family and duplexes, most likely. It’s more beneficial for you to attend those types of meetings if you already attend, because you can get more out of it because now you can work with those wholesalers by simply proposing this to them.

Theo Hicks: Exactly. If you follow the first method, of the direct mail with a twist, you already have a meetup, so that’s where you meet your wholesalers, so it’s kind of a natural segue into the second strategy.

Joe Fairless: Absolutely. So those are two ways to find off-market apartment deals that are most likely surprising to you or you haven’t come across in that specific way.

Theo Hicks: Moving on, do you have any business updates or personal observations from the past week?

Joe Fairless: No, don’t think so. Right now we’re working on our investor updates for the month. We have 12 updates… Pretty soon we’ll have 14, but right now we have 12 updates, 12 properties, so we are compiling that, looking through all the information that we’ve been analyzing over the last month, and then we’ll be sending those out to our investors. We always send it out by no later than the 14th… The 14th or earlier, so we’ve got a couple days to finalize that. So that’s really a focus right now.

Theo Hicks: Awesome. Well, on my end, as we’ve mentioned earlier, the last in-person Follow Along Friday. I’ve got a long drive down to Florida on Saturday, and a big [unintelligible [00:13:51].00] pulling my car behind me, so we’ll see how that goes… [laughs] I’ve never driven anything that big before, but I’m not too worried about it. My parents are flying down, and my dad [unintelligible [00:14:01].05] so I’m sure that if I start driving poorly, he’ll take over.

Then obviously, I mentioned it before, we did rent out our house, so we’re kind of — we’re gonna have a cleaning person come in, and we bought a lock box for the backdoor, so that I don’t have to come back to let them in. I planned on coming back to let them in, show them how to use everything, but since we have the lockbox, I don’t have to.

Also, if something were to go wrong while we’re gone, I don’t have to come back to let the plumber or the HVAC or whoever in, so we can use that just to say “Hey, lock box in the back. Go on there.” That’s the idea I got from my property management actually, so I’m moving forward and I’m gonna do the lock box approach for everything. But on my three fourplex–

Joe Fairless: Before we go to the three fourplex, you reminded me when you talked about you driving down to Tampa how one of our investors – she reached out… I won’t say her first name or last name for confidentiality purposes, but she reached out (she’s so nice) to me and she said, “Hey, can you introduce me to Theo? I live in the Tampa area.” And what did she offer?

Theo Hicks: I mentioned that we’re driving all day Saturday, obviously unpacking things on Sunday, and she offered to bring us over dinner.

Joe Fairless: Well, isn’t that nice?

Theo Hicks: I know, I saw that and I was like, “That’s the nicest thing I’ve ever heard.” My wife was like, “She just offered to bring us food!” And the type of food she’s gonna bring over is my wife’s favorite food, too. We really appreciate that.

Joe Fairless: And you took her up on it?

Theo Hicks: We’re gonna take her up on it, for sure.

Joe Fairless: Alright, there you go.

Theo Hicks: Then she also invited me to the local REIA meetings down there too, so I’m already kind of tapping into the investor network down there. I know that she owns properties down there, smaller rentals, one where I’m focused on right now, so I can definitely ask her what areas she’s investing in, and things like that. That’s what’s great about this community – it’s all over the country, so if you move, you’ve already kind of got a built-in friendship down there.

Joe Fairless: Yeah, absolutely.

Theo Hicks: So my rental properties – I’ve put them under property management since we’re leaving, and as I mentioned last week and the previous weeks, I really enjoy doing the strategy and less tactical, on-the-ground work, and I had a conversation with the property manager and we decided that we’re going to, based off of looking at the rents in the market, we’re going to raise the rents on a lot of the month-to-month leases… And I was kind of worried, because obviously I don’t want a mass exodus of people. So he started with one person – that was kind of the plan. They accepted the rent increase…

Joe Fairless: From what to what?

Theo Hicks: From $750 to $780, so a $30, which isn’t crazy, but if you pad it across all 12 units, a $30 bump, it’s a significant amount of money per year. So the idea is to implement that rent increase on all of the two-bedroom units…

Joe Fairless: The $30, on average?

Theo Hicks: On average $30, yeah. And for the one-bedroom units – that one’s a little bit different, because we actually have a newer lease for a one-bedroom that’s $75 higher than what the rest of the one-bedrooms are, so we should be able to demand a higher premium on the one-bedroom units, compared to the two-bedroom units. We’re actually thinking about starting at $700, so increasing it by $100 with one person, just to obviously test it out first, and if they say yes, we’ll continue on it; if they say no, then we’ll change it accordingly, but… So I’m really excited about that, and kind of just waiting to hear back how it went.

Joe Fairless: With your financing, are you able to do a refinance once these all these rents — let’s say all of them go through according to plan… Are you able to do a refi to get your money back out?

Theo Hicks: I don’t think the lender that I used was using the rents to determine the price. It was based off of the sales comps. Because these are four-units, so they’re technically not commercial.

Joe Fairless: Right, right, okay.

Theo Hicks: But it’s kind of like in between, because I have used lenders before where they don’t really look at the rents at all, whereas the lender that I do use, they right away look at the income you’re bringing in from your properties, and that is taking into account when calculating your debt-to-income ratio. At the very least it will increase the amount of debt we can take out by raising our rents… But I definitely plan on refinancing the properties as we pay them down, and hopefully the increase in rents has some sort of effect on the property value.

Joe Fairless: You can get maybe a commercial loan for all of them, then they’ll take that into account.

Theo Hicks: 100%. The only issue with that — that was my idea too, and I talked to my lender about it… Because obviously, if you’re doing the loans personally and not a commercial loan, you’re limited to an amount. The limit that we use is ten per person; so I can get ten, my wife can get ten… And I mentioned, like “Okay, if we get ten properties, why don’t we just refinance into a jumbo loan?”, that just being one loan, and I have more loans to go… But the negative of that is 1) the interest rates will be way higher than what we pay now, because we actually have really solid interest rates…

Joe Fairless: What is it?

Theo Hicks: I think it’s 4%. Thirty years for 4%. So depending on where the market’s at, if we refinance and our interest rates go way up, it’s gonna wipe out all the increased cashflow that we’ve gained by raising the rents. But if we’re able to pull out a large amount of cash and then use that to getting more cashflow, it might actually make financial sense to do so. So that’s definitely an option, it’s just there’s a couple of things I’ve gotta keep in mind before actually pulling the trigger on that.

But if we did do a jumbo loan, they would look at it as like a 12-unit property, and that way then I’ll be able to pull out probably a lot of cash.

Joe Fairless: The rents that you’re likely increasing now, they were already increased from when you initially bought it, correct?

Theo Hicks: The rents that were on the lease and that were on the rent roll were not what they were actually paying.

Joe Fairless: Alright, alright, they were higher… What they were paying was actually higher.

Theo Hicks: Yes.

Joe Fairless: What you valued the property at – those rents were based off of the rent roll, correct?

Theo Hicks: Yeah.

Joe Fairless: So you valued the property at X, and then the rents they were paying were higher than what was actually rent roll, so you’ve got a bump there, and now you’re doing another bump.

Theo Hicks: We’re doing another bump, yeah. And if we were to wanna get an even higher bumping, we’ll go in there and make some renovations, but in that area we don’t have to… The units are not super up to date, but they’re clean, they work. They have that 1960’s, 1970’s style that I personally don’t like, but people say that they actually like the way that looks, with a lot of colorful tiles. So we don’t wanna get rid of that, because I guess people will like it, but obviously in the near future, once the area that we’re in continues to rise, we’ll have to go in there and put in the granite countertops, and redo the floors and update the bathrooms. But for now, there’s really no need do; there’s no demand for it [unintelligible [00:20:20].18]

Joe Fairless: That’s outstanding. That is excellent. Congrats on that!

Theo Hicks: So hopefully once we’re settled down in Florida, after a couple of months we’re gonna be able to buy another property in Cincinnati, which is something else I wanted to mention… I talked to my property manager, because obviously we do a lot — you focus on apartments, so by working with you, I kind of see how the property managers approach larger apartment buildings different than how (at least from my understanding) property managers approach the smaller buildings.

One of the things I guess you’ve mentioned last week is how when you go and see the property before submitting an offer, you wanna make sure your property management company is with you to actually look at the property. That means you schedule it so that they’re there to look at it with you. Now, I was kind of thinking, my property manager, who probably wants to be like that big apartment property manager in the future, kind of ideas on how he can start to implement some of those strategies into his business, and one of them was offering a service to his clients who already have existing properties with him – not people that he’s never worked with before – offering to look at new properties for them.

Joe Fairless: Sure.

Theo Hicks: Because that way, it will allow him to have more clients out of state, than just have to focus just on people that are just in Cincinnati. So he is willing to do that, and obviously, that will be included in his fees that I’m paying him, if I find a property that I’m interested in buying, he or someone on his team will go and look at it. We’ve even talked about maybe taking a Facetime tour, so I can actually watch it. That’s very helpful, because I was brainstorming ways of how I can continue to invest in Cincinnati without having to come down here whenever I see a property come up on the MLS, because that’d be just chaos. So we kind of discussed it and found a solution for it, so I’m really excited about that, too.

Joe Fairless: I love that. And you’ll look at it before you put any money hard, or anything like that, right? You’d actually come here and look at it.

Theo Hicks: Yeah. I remember at first I just looked at the property online and I’m like, “Oh, this is so great!”, you’re so jacked up, and I go see it in person… What’s been really important, at least from my perspective, is going to the property to see this area, like driving up to the property, and you can’t get that without being there, you can’t get that on Google Maps, you can’t get that just by looking at the MLS listing… You have to actually go there in person to kind of get the vibe of the area, which is very important. So obviously I’ll have to come down, but I don’t wanna waste my time on certain things.

Joe Fairless: When I was buying single-family homes, that’s what I was doing. I was living in New York City and I was buying in Texas – and this is before Facebook Live… My real estate agent would take a video and he would just shoot the video of the whole house when I was buying homes, and that would give me a sense of the home, and it was just like I was there. It passed the initial sniff test or it didn’t pass the initial sniff test based on that, which was really helpful.

Theo Hicks: I think I remember you were saying that for some of your single-families – you’ve never even been in them before.

Joe Fairless: By now, I might not have been to one of them. I only have three. I used to have four, I sold one. One of them I don’t remember ever going to. I definitely have not been inside one of them, so…

Theo Hicks: I figure that once you build a trusting relationship with the broker or the property manager and they understand what you want, then you can trust them to make — not necessarily make the decision to buy it, but just be like “Hey, is this a property that I would be interested in buying, or is it something that’s outside of my comfort zone?”

Joe Fairless: With single-family homes it’s easier too, because even if you get it under contract, the inspector — how much is a house inspection? A couple hundred dollars? At most you’re out a couple hundred — well, maybe there’s some miscellaneous other costs, but let’s say $400… Which is a lot of money, period, but especially at the time for me was a lot of money, so I didn’t wanna get to that point, but even if I did, there was limited downside to then getting the inspection and it turning out that there’s all sorts of things wrong with it. “Okay, I’ve gotta back out of it. I missed out on $300-$400, which is terrible”, but with an apartment building there’s more costs involved with that, with inspections and due diligence, things like that… And just relationships in general – much smaller community and fewer opportunities, and you just don’t really wanna go down that road.

Theo Hicks: So those are my updates, just to finish off… So a month from now we will be in Denver for the Best Ever Conference.

Joe Fairless: Wow! Yeah, it’s wrapped up a month from now. We’ve had a successful conference a month from today.

Theo Hicks: Yeah… [laughs]

Joe Fairless: That’s great, yeah. BestEverConference.com. We don’t have a lot of tickets left. We will sell out, that’s a fact, and if you wanna go, then we’d love for you to go. BestEverConference.com, go check out the speaker list; we’ve got a lot of excellent speakers and there’s also a Bigger Pockets meetup that’s not connected to us, but I’m going, I think you’re going, Grant’s going, Colleen (my wife) is going, Samantha (who is on our team) is going… So we’ll all be there. And Ben, who is co-hosting the conference with me, he’ll be there, I believe, at that meetup… So that would be good.

You’ve gotta go check out the Bigger Pockets headquarters that Thursday at the meetup, and then roll right into Friday, Saturday when we’ll do our conference. We’ve got a happy hour Friday night for all the conference attendees, and it’ll just be a lot of fun and information.

Theo Hicks: Yup. Also, make sure you go on Facebook and join the Best Ever Community. I saw that we had a pretty long, lengthy post that had a lot of engagement on there, that Grant posted.

Joe Fairless: Yeah, it was a post about top things I’ve witnessed — and this just happened… It’s kind of a — not a pet peeve, but I had to get it off my chest, because I’ve witnessed a lot of things recently from some entrepreneurs who are self-sabotaging their real estate business, or in some cases with some people who are not even in real estate, and they’re just messing up from an entrepreneurial standpoint. Business is hard enough to have a successful company and to build it, we shouldn’t have self-inflicted wounds… And I came up with a list with Grant, who’s on the team, and we posted about all the ways that we found people who are being hurt with self-inflicted wounds on business.

So yeah, Best Ever Community, go check out that list, add to it… We’ve got a lot of people who have added to it – that’s what you were talking about – and it’s a great way to take this conversation and put it online and stay engaged.

Theo Hicks: Lastly, make sure you subscribe to the podcast on iTunes and leave a review for the chance to be the review of the week. This week we’ve got a review from SammyGirl7, and she (I know it’s a she) said… “High-level investing advice plus a great entrepreneur” was the title. She said:

“The advice that you can get from each guest on the show is unparalleled to anything else I have listened to before. Not only does Joe bring on investors in the real estate world, but also some high-level entrepreneurs that I learned a great deal from as well. I highly recommend it for real estate investor and business entrepreneurs.”

Joe Fairless: SammyGirl7, thank you so much for that. It’s a team effort, that’s for sure, both from all the Best Ever listeners who are listening and participating in the conversation on Facebook, as well as the team here who helps find the guests. Grant – he finds the guests primarily, and Samantha, who interacts with a lot of them, and Theo helps me with the content, and then myself, who does the interviews. So thanks for that compliment, and everyone please do a review in iTunes; that will be very helpful to help us keep the content going strong.

It was great catching up with you. I hope you have a best ever weekend, and we will talk to you tomorrow.

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