April 3, 2018

JF1309: Get Out Of Student Loan Debt Through Real Estate Investing with Brentin Hess

Brentin was able to pay off all his student loan debt with his investments in real estate. It didn’t come easy though, he worked hard to complete flips, and purchase some buy and hold properties as well. To hear how he got started from scratch and is now moving forward at a fast pace, be sure to tune in to this episode! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Brentin Hess Real Estate Background:

– He flipped his way out of college debt. He has done 16 flips over 3 years

– He has 13 rental units with a partner

-Certified Keller Williams Instructor

– Served as an Accounting and Finance Analyst for the Department of Defense for 5 years

– Is an instructor and Board of Directors Member for the non-profit, Keller Williams Kids Can

– Based in Baltimore, Maryland

– Say hi to him at: www.brentinhess.com

– Best Ever Book: Millionaire Real Estate Investor

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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 fluff. With us today, Brentin Hess. How are you doing, Brentin?

Brentin Hess: I’m doing great, how are you?

Joe Fairless: I’m doing great, nice to have you on the show. A little bit more about Brentin – he has flipped his way out of college; that was the subject for the Bigger Pockets interview that Brentin did. We’re gonna talk about not necessarily his way out of debt – he flipped his way out of college debt – but rather how he has evolved his business and how he brought on a partner to have now a 13 rental unit portfolio.

He’s done 16 flips in three years, and he’s also a certified Keller Williams instructor. Based in Baltimore, Maryland, one of my top five favorite cities to visit in the U.S. With that being said, Brentin, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Brentin Hess: Sure. You nailed it. I am Brentin Hess, 24 years old, from Baltimore, Maryland. I got my real estate license at 19 on winter break of college; I didn’t do anything with it the first couple years, and then when I was 21, I met a mentor and he had a lot of money and not a lot of time, and I had all the time in the world, and in fact, I was at negative dollars, I was in student debt.

So we came up with this idea of “Why don’t we join forces and see what it’s like in the real estate investing world?” I was attracted to that opportunity, we came across a flip, and at 21 flipped that first house, and that’s where a lot of the stories come into play; it’s always that first flip.

From there, I’ve since been through a couple partnerships. Now I’m flipping solo, and like you mentioned, I’ve done 16 and counting. And then for the rental side, this year I’ve set a goal to get into rentals, and through various scenarios, I now own 13 rental units with a partner. And with all this, somewhere in there, in the early stages, I did leave my full-time salary job, to do this full-time.

Joe Fairless: Well, congratulations on that. How old are you?

Brentin Hess: Thanks. I am 24 years old.

Joe Fairless: 24 years old. When did you leave your job?

Brentin Hess: I left my job as soon as I graduated college, so right around twenty two and a half years old, so about a year and a half ago.

Joe Fairless: Okay, and how did you support yourself when you left your full-time job?

Brentin Hess: I was flipping for about the last year and some change of college, and it was with that money I was able to cash out to fund the first many months of no income, because the pipeline wasn’t that hot. I had one going on at the time when I left.

Then I did that to also pay down the college debt. So that lump sum of money – I had 34k in college debt, I paid that off, and then had some runway thereafter.

Joe Fairless: How did you meet the mentor?

Brentin Hess: Full disclosure – I have many, and I’m very grateful for that. The first one was – he’s a realtor (his name is Stew) in our office, and he had been doing a great job saving money, and he had rental properties, and then him and I decided to flip.

Joe Fairless: Okay, you were already a real estate agent, and then someone in that office is who you met, and you two connected, right?

Brentin Hess: Right. It’s amazing, the people inside this industry. Once you get your feet wet, just the people as far as — I mean, I raise capital from people in the industry, now looking backwards, and partnered with others, and gotten deals with others… It’s just a great industry of entrepreneurs.

Joe Fairless: Okay. You met your first mentor through being an agent, and that is at Keller Williams, I imagine…?

Brentin Hess: Yeah, my parents opened this brokerage 12 years ago, so I often joke that I had KW [unintelligible [00:06:00].22]

Joe Fairless: Right. [laughs] Well, you might actually have had that; that might be a thing, I don’t know. So that’s how you [unintelligible [00:06:08].06] then you flipped a house, it went well, and then you flipped other homes. But you said you’ve been through a couple partnerships – can you elaborate on that?

Brentin Hess: Sure. All have ended well, and they stared with great intentions. It’s one of those things where there comes a point where the vision might not align, or the values… To be a little bit more concrete, it’s simply that I had different goals. I wanted to get out of the exclusive partnership, because if I found myself finding the deals, then I was able to the figure out how to fund the deals. At that point I was like “Okay, we have to figure out if this is truly a win/win or not”, and I still have a great relationship with everybody, thankfully. Nonsolo and nonexclusive.

Joe Fairless: Okay. At the beginning you were more 50/50, because you were each bringing something, but then as you evolved as a real estate investor, you were able to bring the other aspects, therefore it didn’t make as much sense for you to continue the existing partnership.

Brentin Hess: Right. And those conversations made sense in that aspect… Going into it upfront and saying, “Hey, I’m here to learn, and there might come a time where you know enough and you have the drive to wanna do it on your own”, and that’s all it was. It wasn’t too big of a surprise, but I was 21 when I got started with no experience and no money, and I’m thankful for that partnership, very much so.

Joe Fairless: You said in 2017 your goal was to buy property and own it, and you said that you’ve done that now, you have 13 units through “various scenarios”, so please educate us on what are those various scenarios.

Brentin Hess: Sure. My business partner [unintelligible [00:07:56].18] we saw a three-unit on the MLS, zero days on market, and he was showing me how to truly underwrite these multifamily deals, having some himself… And we went out and we went to the property to view it; at that time, the listing agent was away, and we met the owner there. While with the owner, we were talking to him about why he’s looking to sell, and his future plans, and he mentioned in there, which then would be his motivation – he wanted to sell all his properties in Baltimore and move to Florida. He wanted to get rid of all his headaches. That was like that time where we asked the question of “Why are you looking to sell?” and “Do you have any other properties?” It led to that, and then from there we said “Why don’t we just make a deal where we buy your whole portfolio? What does that look like?”

So it went from a three-unit on the market to a whole 11-unit deal. It was a portfolio deal, three 3-units, two single-family… And I joke that the other eight units were technically off-market at that point. So I know there are a lot of conversations about “Deals are hard to find right now on the market.” Well, a simple question of “Does the owner have any other properties that he’d be willing to sell?” – that question itself is a lead gen tactic for off-market deals.

Joe Fairless: Oh, absolutely. That’s a very simple, but powerful question that should be asked in every transaction, that could lead to some larger stuff. You asked that question, he said in this case “Yes.” Then what do you do?

Brentin Hess: That’s a good question. At that moment, we realized that we were getting ourselves into a much higher price point than we imagined.

Joe Fairless: [laughs] That’s what I was alluding to, yes.

Brentin Hess: Yeah, so the situation pushed us into raising capital, and I was doing it on a smaller scale, for like bridge loans for flips, and it was at the time — this portfolio we bought for $423,000. We financed it interest-only with a local community bank, for six months, with the intent of once we renovate the 11 units – they were all vacant, so we place our tenants… When we get it to the certain debt service coverage the bank needed (one and a quarter), we were able to then take their six-month interest-only loan and refinance that, and they would just hold that note with their terms.

So we had to come up with 25% down of that 423k, and then we also needed our closing costs and whatnot. So we went out and raised money from friends – no family this time, or actually any of the times – and we… Now at this point I started building this muscle that I now am continuously working on.

Joe Fairless: Let’s talk about that deal… How did you structure it with your investors?

Brentin Hess: Sure. Effectively, it’s interest-only, annualized, there’s no equity; because of the relationships with the investors and the conversations had, I cannot disclose the interest rate, but to get an idea, it was in that 15%-20%. It’s supply and demand, I suppose, where now money becomes more cheaper when you build the bench and the pipeline… And it was a great learning experience. We raised that money, and now we refinanced it. The bank has the note, we had zero dollars of our money in the deal from the very beginning, and we were able to refinance and pay all of our investors back. That was seven months later.

Joe Fairless: That’s outstanding.

Brentin Hess: Thank you. In the midst of all that, we came across another two units, we bought that… So we have 13 units, no money in the deal.

Joe Fairless: With your own money, or you just raised more money for those two units?

Brentin Hess: Yeah, raised more money. We lumped it into the portfolio loan. I guess long story show now, with the valuations, the 13 units are right around $860,000. We have a note for 75% of that, and we don’t have any money in the deals.

Joe Fairless: Wow, 860k, a note for 75% and no money in at the end of the seven or so months, you said?

Brentin Hess: Correct, yeah. That’s a $645,000 note. The one thing that I’m extremely grateful for is that relationship with the portfolio lender, given my little track record that I shared, I had just graduated college, left a salary position, and my business partner is in real estate sales and he does investing, too… We both don’t look amazing on paper, especially not for a note of this size, and it was the portfolio lender that I had been working with him through my flips, and that track record plus a couple meetings, plus doing everything we possibly could… We in fact brought on a signer to co-sign with us on the purchase side, and then once it was an income-producing portfolio on the refinance, we got one of my friends who has a W-2 job – we refinanced him off the loan. So now it’s just us two on the loan. We had to get kind of creative.

Joe Fairless: What compensation, if any, did the co-signer have originally?

Brentin Hess: That’s a great question. We paid him $2,000 to co-sign on this loan, and we had an outside agreement that we put together and drafted up, so we had that signed in addition to him being on the loan, so that he was even further protected, for whatever that’s worth.

Joe Fairless: Got it. Some sort of personal guarantee if something were to happen. I’m with you. What did you all do to this portfolio that increased the value from 423k – assuming that’s what the value was at the time – to 860k?

Brentin Hess: We renovated the units… They were all delivered vacant, so we did all the renovations, and we placed all the tenants. We still have one commercial space — they’re all residential spaces, and one is a commercial unit. We’re working on it right now getting the commercial unit rented; all the other units are rented right now, and they are income-producing.

Joe Fairless: Wow, I missed that part, if you said it earlier; I didn’t write it on my notes as you were talking… They were all vacant.

Brentin Hess: Yeah, they were all vacant, which… One may make a case for how that was helpful…

Joe Fairless: Yeah, yeah, it could be better…

Brentin Hess: Looking back on it, it probably was… If you wanted to get in and get out and get this thing stabilized as quick as possible. The concern is the bank doesn’t per se love to give you a note with a non-income-producing property that’s not in great shape.

Joe Fairless: Yes, that is a concern. What questions did the portfolio lender ask you during those couple meetings, and what were your responses?

Brentin Hess: A lot of it was track record. I actually go back to when I first met him… Because we didn’t have the financials so much, so it was a lot about “Okay, what is your focus and what are your income goals?” and also it was like “What have you done in this space? How do I know that you’ve been able to renovate properties and you have your systems in place etc.?”

So going back when I met this portfolio lender, I was cold-calling them to get allowed a credit at a bank for flipping with my first partner (it was actually a partnership), and inside of that process I came across this guy. When I met him, I brought him a sandwich… Many have heard me tell this story – when I brought him a sandwich, apparently that one sandwich made us memorable, to the point where they were kind of closing their doors on giving out these lines of credit… In fact, he remembered us because of the sandwich, brought us back in… So now every time I meet with him, I bring him a sandwich. [laughter] Now we’re at the point where we go out to dinner, and just that relationship has been developed over time… And it was that simple, small, little thing, like “What can you do to just kind of stand out from the pack of this very saturated real estate investing industry?” That was one thing that I wasn’t truly doing intentionally, I just wanted to bring the guy a sandwich, because I would enjoy that, if somebody brought me a sandwich.

Joe Fairless: I love sandwiches, too. You renovated 100% of the units and placed the tenants… What was a major challenge during that process, and how did you overcome it?

Brentin Hess: Oh yeah, definitely tenant placement. We completely underestimated how quickly we can get these things renter. I was like, “Okay, well when they’re rent-ready, we’ll do everything we can to get that marketed and get tenants in there.” Well, what I realized was as some of them were ready, others were still being renovated, and with the time that it was taking to focus on the renovations and the loan and everything else, the bookkeeping etc., I decided to leverage out the tenant placement to people who have vetted tenants in my market and they know the programs.

So I would say eight of our tenants or nine are program tenants, so they’re subsidized, Section 8 and other programs… And all of this was through the relationships with tenant placement professionals. We pay somebody first month’s rent and they find the tenant. One of the greatest pieces of advice that I’ve received in this process was to make sure that it wasn’t a non-exclusive agreement. Therefore, at one point I had ten different tenant placement professionals marketing and lead generating the place, so the tenants eventually — it shakes out the one or two really good ones that you’re working with, and then thankfully they’ve placed them. But that in itself was a many months process.

Joe Fairless: Based on your experience, what is your best real estate investing advice ever?

Brentin Hess: My best real estate investing advice ever is consistency. One of the things that I had mentioned was that I’ve gone through many gyrations of sending out mailers and placing signs, and just the lack of consistency in those actions – I would have been just as well off if I took all my money and walked up to a trash can and dumped it in there.

Joe Fairless: What do you do now consistently from a marketing or lead gen or whatever standpoint?

Brentin Hess: I commit to mailing at least 12 mailers. I do split-testing, so now I do 12 mailers in six months (every other week), or I’ll do once a month for 12 months. Regardless, I commit to that; I’ll pay three months in advance every single time, and that’s just my way of not looking back, like “I already paid for it. It’s gonna go out.”

Joe Fairless: You mail how many a month?

Brentin Hess: Total number? Oh, I was saying that what I’ll do is every lead in my mailer list, I’ll make sure that I hit them 12 times, whether it’s 12 times  in 6 months, or I hit them once a month for 12 months.

Joe Fairless: Oh, okay, I understand now. I was like, “12? You could ramp up your game a little bit.” Okay, I’m with you…

Brentin Hess: Yeah, I’m only mailing a few thousand.

Joe Fairless: Yeah, every lead that comes in, you contact them in some way 12 times.

Brentin Hess: Correct, yeah.

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

Brentin Hess: I’m ready.

Joe Fairless: Alright. First though, let’s have a word from our Best Ever partners.

Break: [00:18:39].17] to [00:19:08].01]

Joe Fairless: Best ever book you’ve read?

Brentin Hess: Best ever book I’ve read is Millionaire Real Estate Investor, by Gary Keller.

Joe Fairless: It’s a great book. I haven’t read that book, I’ve read Millionaire Real Estate Agent, and that is a great book, even though I’m not an agent; it inspired me to hire an assistant as your first hire, and that helped me grow my company. I should read that other one, Millionaire Real Estate Investor.

Best ever deal you’ve done?

Brentin Hess: It truly was this 11-unit I went through, simply because it jump-started that track record, the confidence and all the building a rental portfolio, which is ultimately the end game. I’m really grateful for that. And then for a flip, I did make 63k with my partnership on the flip.

Joe Fairless: A mistake on a transaction that you haven’t mentioned already?

Brentin Hess: A mistake on a transaction I haven’t mentioned already… On a flip itself, I was the one finding the subcontractors, managing the subcontractors, and with underestimating the renovations budget, and I was spending a ton of time with managing the subcontractors to where I calculated it and I only made 10k in a flip, and I spent about 100 hours in the deal… So what I didn’t realize at the time was I was essentially working for $10/hour.

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

Brentin Hess: First and foremost, I am a proud uncle of two. My niece and nephew are my world; both [unintelligible [00:20:29].11] have fought for their lives, so every minute I can spend with them is a contribution minute that I very much cherish. I also teach for a non-profit Keller Williams (KWKC) with one of your former guests, John Newman. I also run a Facebook group – RECN Stories; that’s simply where we just document entrepreneurs’ lives, and there’s no monetary means tied to it, just giving back.

Joe Fairless: What’s the best way the Best Ever listeners can get in touch with you?

Brentin Hess: Reach out to me on Facebook or Instagram, send me a message. I will respond to everybody; it might not be exactly that minute, but I’ll get around to it. It’s just my first name and last name, Brentin Hess.

Joe Fairless: Well, thank you for being on the show. This truly is a story of resourcefulness, I think that’s what it boils down to. You’re given an inch and you take a mile, in a good way; it seems like you’re constantly connecting with others, growing, contributing, and ultimately it leads to deals like this portfolio, where you originally wanted a 3-unit, and that grew to 11, and here comes a couple other properties along the way, with that portfolio.

The lessons learned, I really appreciate you sharing, from how to get the portfolio lender on board, to bringing someone in to co-sign with you who has a W-2 job, how you structured it with investors, you paid a premium, but at the same time you cashed them out in a relatively short period, and now you own the property with your partner. Some would say that’s a much more desirable structure from your standpoint than if you gave them equity and now they’re long-term partners with you. So there’s tons of ways to structure it, and I’m glad you talked us through this, as well as your lessons learned.

Thanks for being on the show, I’m really grateful. I hope you have a best ever day, and we’ll talk to you soon.

Brentin Hess: Thanks, I appreciate it. Talk soon.

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