April 23, 2018

JF1329: Creating A Big Portfolio In One Zip Code & Selling To Large Investment Funds with Theo Jones

Theo got his start in real estate at the age of 22. Now, about 8 years later he has his main strategy in place and has executed on that strategy so far. Theo likes to build a larger portfolio in one zip code, and then sell to an investment fund. He’s already done this in Atlanta, with plans of doing it again and again. He also has some buy and holds and other strategies, as well as tips about what can go wrong with your partnerships and how to be proactive in keeping everyone in a partnership happy. 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.

With us today, Theo Jones. How are you doing, my friend?

Theo Jones: I’m great, thanks for having me, Joe.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Theo – he is doing fix and flips; he’s also developing a vacation rental in the U.S. Virgin Islands. He bought his first investment property eight years ago at the ripe age of 22 years old, and he’s got a construction business where he helps real estate investors in the construction field. He’s based in Atlanta, Georgia, but he does his fix and flips in Louisiana, and he’s got his construction business in Atlanta, and he is developing, as I said, in the U.S. Virgin Islands… So we’re gonna talk to him about all this stuff. With that being said, Theo, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Theo Jones: Yes, sir. Thanks, Joe. I’m originally from Northern California, a place called Oakland, California, and I moved to Atlanta at the age of 20, and upon moving here, like most people — everyone’s trying to get new opportunity when they move, so… I’m riding down the interstate and I keep hearing the real estate commercials – “Come on down, come on down, it’s free. Come to the course.” I went. Rich Dad education. Then from there, it just opened up my mind. Then all I did from that course in 2007 to 2009 when I bought my first rental property is just focus on putting my money away. That’s all I did. And focus on studying my market and what I wanted to do, so that’s how I got in. Then from there it just started to grow.

Like you know, Joe, that time of the market, it was just — yes, it was at a downward spiral, it was at a slump, but if you could see the opportunity and you had cash to buy, you could do a lot, and that’s basically where I was at. So it took me a couple of years, but I was able to raise money to grow the portfolio. Basically, we were just investing in single-family homes, buying them, fixing them and renting them out. That’s what I got into. I had already known about construction growing up, and then that just gave me more in-depth experience about residential constructions and specializing in the rehabs. That was basically my beginning in getting into real estate and how I got started, and how it kind of came to fruition.

Joe Fairless: So your first deal was at 22, after attending the Rich Dad, Poor Dad seminar. You put the information into action.

Theo Jones: That’s it.

Joe Fairless: And then what did you buy next?

Theo Jones: My first house was a duplex, and then from there it was a single-family, about a 900 square foot house. All the properties I bought, Joe — I created a portfolio over about six years’ time, and all those properties are all in the same zip code. On average, they were about 800 to about 1,200 square feet, 2-bedroom, 3-bedroom; they might also only have one bath… And they were just 1940’s, 1950’s, cinder block foundation… The majority of them brick houses, just the old-school Atlanta type houses.

Joe Fairless: Do you still have those properties?

Theo Jones: I just finished selling all those just a couple months ago. I sold them all. My goal was to create a whole portfolio within that zip code and then sell it to some of these big funds, like Invitation Homes and all these big companies now, but… Their interest I think has gone elsewhere, so it took me a long time to sell them all, but I sold most of them individually, and some of them as packages… But yeah, they’re all sold and I made a great profit holding them for three or four years, with a cashflow.

Joe Fairless: How many at the peak did you have in total?

Theo Jones: Oh, man… I really went by the residents, because I was managing this… I think it was about 26 residents, and we had a couple multifamily; the six-unit is what we’ve just sold. We’ve made a killing on that. We bought that for 140k, sold that for 380k three years later. So most of them were duplexes, single-family, and then we had that one multifamily, but about 26 tenants in Atlanta alone that we were managing.

Joe Fairless: Okay. Let’s go with that six-unit. You bought it for 140k – that’s incredible, the 380k… How much did you put into it?

Theo Jones: About 100k.

Joe Fairless: You’ve put about 100k.

Theo Jones: It was about 10k/door, and then termites had eaten through the wood, a lot of that had to get replaced in the cross-space, a lot of exteriors, all new windows, gutters [unintelligible [00:05:10].16] Everything you could think of. That was about 20k, 30k, 40k we put into it, and that raised it, got it up, and we just sold that one in November.

Joe Fairless: Congratulations on that. With that property, the acquisition cash, the 140k – is that your out of pocket cash, or did you partner with other people?

Theo Jones: That was cash. I started by myself; a couple years later my father came out from California and started investing with me too, saw the opportunity. Then we got another investor from New York, and just merged everything together he wanted to invest, so we just created one LLC and put everything under one entity, and it was all cash, we didn’t do any financing.

Joe Fairless: Okay, so it’s you, your dad and a New York guy who bought the six-unit… And you paid cash for it, the 140k, so no debt on it, and then you put an additional 100k out of pocket into the property.

Theo Jones: Correct. That was over (I would say) 30 months time. We put about 100k into it. After every resident moved out, we rehabbed every single unit the exact same way.

Joe Fairless: And with the returns on it, why not maybe put a loan on it now that it’s stabilized, and get the majority of that cash out and keep the property?

Theo Jones: Yes, you are 100% correct, Joe. The only problem is that the partnership was not the best. That was the problem. We almost financed the whole entire portfolio. We were in contact with Blackstone Lending, we almost financed everything, took out a blanket loan… But it just wasn’t right. But I agree with you, yes; in the best situation – yes, you refinance that and just keep it rollin’. And that’s the thing – I think we should talk about it a little bit too, Joe, you’ve gotta make sure your partnerships are tight, because things can go… I don’t wanna say bad; it’s not like we’re in a bad situation, but people have different ideas of growth and management and how things should be operated, and that can hinder growth; that’s kind of what we do. I had a sale just based off that… And it wasn’t any hard blows, but it’s just what had to be done. We just couldn’t see totally eye to eye, you see what I’m saying?

Joe Fairless: Yeah, and I appreciate that. That’s gonna be helpful for a lot of people. What were some of the sticking points that couldn’t be resolved?

Theo Jones: I think for me, growth. We were probably about 1,5 million total at the peak. My goal was to be at the minimum 3 million mark, and get a refinance then… But everybody has a different risk, everybody has a different tolerance, everybody just looks at things different, and I think his risk level and his tolerance was very different from mine.

Joe Fairless: And I assume you’re talking about New York, not dad. Would it have been possible to buy out New York partner during that refinance stage, so that if you did put a loan on the property and you did the cash-out refinance, and then just buy that person out with whatever cash you would have received if you had sold it?

Theo Jones: You’re 100% correct, and the only reason I didn’t do that either is because unfortunately what happened right around that time when we were getting ready to divest a six-unit, is that Hurricane Maria hit my house in St. Croix… Still right now we’re just at a point where I just had to kind of liquidate fast.

Joe Fairless: Got it.

Theo Jones: I didn’t wanna go through the paperwork unfortunately to do it, and I didn’t wanna create more paperwork for me… Not create, but it would have been another speed bump. I think that was the ideal situation, but I’d been kind of banged up indirectly over the last year, especially with the hurricane; it really threw us off, so I just said  “What is the quickest thing to liquidate, the smoothest thing?” …so I can transition this money and put it into unfortunately this almost emergency situation. That’s kind of what happened, because we liquidated two months after the hurricane.

Joe Fairless: That makes sense, and my thoughts are with you. Fortunately, you’re safe. Was that a rental property?

Theo Jones: Yeah, so that property we started building in 2015 from the ground up, about 3,800 square foot, two-level vacation rental in St. Croix on the West side of the island… And we actually started renting it; we had the roof on the top, but the top unit, the personal unit where my mother was living – she was managing that property – the top unit where she would live at was not complete, but we were cash-flowing and everything on the bottom unit, and then the hurricane came and kind of did its thing… So we’re just in the mode of reconstructing and rebuilding, and it’s a learning lesson.

We found a lot of flaws in the construction, so it’s actually a good thing… I hate to say it. Some people look at it as a bad thing, but I hate to say, I think it’s almost a blessing in disguise. And I don’t mean a lot of flaws, but we’ve had engineers out to look at the property, and they’re saying “Hey, this thing could be done to prevent this in the future”, because unfortunately, as you know, Joe, we’re dealing with this more, so… It’s definitely [unintelligible [00:10:18].20]

Joe Fairless: Was that covered under insurance?

Theo Jones: No, it wasn’t. But we got FEMA money, and we actually raised a lot of money and gave a lot of money back to the community. This actually was a great thing. But no, they didn’t cover it just due to the type of insurance we had, because we were under construction, so it was a lot of little unique… You know…

Joe Fairless: Sure. Okay. You live in Atlanta…

Theo Jones: Correct.

Joe Fairless: You’ve just told us about a property in St. Croix…

Theo Jones: Correct.

Joe Fairless: And you are building a property in the U.S. Virgin Islands right now, and you are doing fix and flips in Louisiana…

Theo Jones: Correct.

Joe Fairless: I don’t even know the question to ask, but I guess the question is why all these different areas? There’s the question.

Theo Jones: Okay, that’s a great question. UDI Group, my company – we like to go in under-resourced environments (that’s the term we use), and we like to go in and figure out how to strategically move in those markets. We understand the markets that we’re in – I understand Atlanta; I’ve been here for 10 years now. Louisiana – I have family members there and people managing the assets there, so we understand that market well… And my family is originally from the U.S. Virgin Islands, so we understand the opportunities, the market we’re traveling, and… We just understand the markets, because we kind of were in the markets, you see what I’m saying? So that is just kind of how we operate. We wanna be inside the market that we live in, so we can live and breathe and understand it, to give it what it needs so we can get the best return back.

Joe Fairless: You’ve got family in each of those markets. It makes sense.

Theo Jones: Family, friends, managers… Someone that’s there on the ground that can give you information that you could not see otherwise.

Joe Fairless: Where in Louisiana?

Theo Jones: We’re in New Orleans right now.

Joe Fairless: New Orleans. How many fix and flips are you doing right now there?

Theo Jones: One on the market; it just actually got relisted this morning (on the East side, in Gentilly) right now. And we’re looking for other opportunities, but unfortunately we’re trying to do a little bigger, so we’re trying to figure out how we can go in and execute and do something big as far as just the individual one-offs… So that’s what we’re strategically looking to do more over this summer.

Joe Fairless: So the one that is on the market that got relisted – educate me on what “relisted” means.

Theo Jones: Oh, okay. Basically, we have a property we just tore down, rebuilt it in Gentilly, East side of Louisiana. The price – it was listed at 459k, which I thought was a little high, but I’m not in the market; the individual that gave me the information said “This is the price.” We didn’t get the offers we wanted, we didn’t get the feedback we wanted, we didn’t get the viewings we wanted, so we took it off the market in order for it to seem fresh on the listing. Instead of just dropping the price down, we wanted to take it off the market for a day, then relist it, put it back on fresh with a lower, new price, to try to get a little more attention and try to get it locked up and under contract.

Joe Fairless: Okay. It was listed at 459k. What’s it listed for now?

Theo Jones: 429k. So we did a big drop, because we want a bidding war. We don’t want one offer to where it’s just one offer; we want multiple. So that’s kind of our technique right now, and I know I’m kind of still new to New Orleans a little bit (me personally), but I know we’re just getting onto Mardi Gras and all that, so I think right now we relisted that and we should be on a roll coming up this next week.

Joe Fairless: Let’s assume it sells for 429k – how much did you buy it for and how much did you put into it?

Theo Jones: It was a Katrina house, auctioned off by the city. The land was 21k, the construction was about 175k as it stands. So what’s that, about…

Joe Fairless: A little under 200k.

Theo Jones: About 200k, yeah. There’ll be a couple of fees and stuff on top of that, so yeah. A little more than 200k.

Joe Fairless: Cool. And just curious, the couple other fees, what are they?

Theo Jones: Agent, just have an insurance… You know, all that. The closing costs, staging it, the power, the gas bill – all those little things that seem to pop up and add up at the end of the numbers that we’ve gotta take for granted.

Joe Fairless: What’s been your most profitable project?

Theo Jones: I would have to say probably this one coming up will be profitable, but work was obviously involved… So for me, the most profitable one also probably was the six-unit, but there was a lot of work involved there, so if you ask me personally – I bought another six-unit burnt, but it was four blocks from the Georgia Dome, and as you know, they’ve just torn down and rebuilt the new Falcon stadium… So this was about two or three years ago, I bought a six-unit burnt, 35k cash; I think six months later I sold it for 80k. I did nothing to it.

Joe Fairless: You just sat on it.

Theo Jones: I just sat on it. Of course, as soon as we got the 80k locked up, we got offers for 150k.

Joe Fairless: Of course, but… You know, hindsight is 20/20, you know?

Theo Jones: Yeah, yeah. And you know, it’s all good. It worked out. But for me to do that in four months, without doing anything – to me that was probably the best for me, in hindsight. Even though it was a small deal, it still was pretty decent money.

Joe Fairless: Oh, absolutely. And when you say burnt, you’re talking about the whole thing was burnt to the ground, or was it something else?

Theo Jones: That’s a great question. The funny thing is, Joe, it was an older gentleman who owned four apartment complexes. We were trying to buy them all, but I got so frustrated with him because he kept going back and forth; all the other units were rented, and he wouldn’t come up with the leases, so I’m like “Well, let me just buy the one.” And by the time we bought it – yes, unfortunately, these are very rough neighborhoods in Atlanta… Unfortunately, somebody burnt up the top unit, but they didn’t totally get burnt to the ground. It was fixable, it was repairable, but I think the ideal thing there was to tear down and rebuild, because that was already zoned for redevelopment, it already had all the TADs… Everything you could ever want is right there in that area; anything you could get from the city, grants, all that. So I think that was a great selling point, and he did not know how to market the property with those things, so that’s what we were able to do… But yeah, it was a little distressed with the burnt part.

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

Theo Jones: For me, it’s narrowing it down; staying focused… Because there’s a lot of different investing out there, there’s a lot of different avenues, lanes you can go in. I think you just have to really figure out what works for you. I understand distressed environments; a lot of the properties we did rentals was with the Housing Authority, also known as Section 8, so… I understand that. That’s what I understand. And I think that me going into high-end rentals – I don’t not understand it, but I don’t totally understand it… But I think people go into other lanes because they see money on the outside. But if you don’t know how to operate something… You can have a Ferrari, but if you don’t know how to drive a stick or a paddle shifter, it’s not really gonna work out for you.

So at the end of the day to me management is my number one thing, and that’s my best advice. If you cannot manage it – and I actually worked for big management companies for a while back in 2014 and 2015 – I just think it’s pointless. Or having someone that can manage it, and focusing, narrowing it down and sticking in your lane and perfecting your lane and what you do, and do it the best.

Joe Fairless: When you worked for the big management company for those two years, what’s something that you learned that you now apply to your business?

Theo Jones: Oh my goodness, that’s a whole other story. It was actually a Inc. 500 company. We were managing, in that office alone in Atlanta, at our peak, probably about 3,000 doors. For anybody that knows the big funds, we were managing Tricon American Homes, [unintelligible [00:18:31].09] all those big funds. That’s really who I study and that’s who I modeled in what I’ve done after. But Joe, the best thing – and this is what I call it – the landlord/tenant psychology to it. It’s [unintelligible [00:18:47].16] at times like “Are you really dealing with a problem, or is there not really a problem?” So it’s really getting down to what is the core issue – are you just not happy, or is your toilet really broke? You know what I mean? People might not be happy, and they’re calling and they’re going on and on and on, and they’ve got this laundry list of repairs, but it’s like “Is that something that’s really broke, or is there something else you’re upset about?”

So for me, it’s really getting down to the core issue, because I really want to help people, but I know there’s some things I cannot help them with, and we provide – for a lack of better word, when we were in our heyday, when we had all our Section 8 rental properties, the inspectors, as soon as they walked in, they knew… They knew, because the quality was just impeccable to anything else.

So for me it’s providing the top notch quality and providing service, and I learned a lot in management on how to do that better, how to do it more effectively and how to deal with people, how to talk with people, how to get things done in a timely manner.

Joe Fairless: If I am one of your tenants and I call you up and I say “Theo, my toilet’s broken”, what do you say?

Theo Jones: Well, first of all, it’s gonna be all online, so if you put it in, we’re gonna come out there. But if your toilet’s broken, your blind needs to be fixed, this, that – this long barrage of things, we’re gonna come look at it all of course, but is it really broke? We’re just trying to make sure… You know what I mean, Joe? Is the toilet really broke? Yeah, we’re gonna fix it. But I have one tenant – I just wanna try to keep this short… One tenant – I learned a lot from him. He would turn off the breakers and say that the heater was broke. [laughter]

Joe Fairless: He just wanted some attention. He liked you guys so much, he just wanted a friend to hang out with.

Theo Jones: You’re right. And we provided him great service, don’t get me wrong, but we had to draw the line, like “Hey bro, you’re creating issues.” We’re gonna provide you a great service, a timely service, and I think you’re right, Joe, that people are so surprised when we pop up the same day, or next morning, instead of that three-day gap to get the call back. People do appreciate it to a certain extent, and some people will take advantage of it. I think that’s kind of what happened in that situation, but we want to provide the best service. When the inspectors came to look at our house the next day, our policy is have the house finished.

We just want things done swiftly, we want people serviced swiftly, because I think that  reduces the problems in the long-term. The faster you can react to your residents, I think the less problems you’ll have moving forward. That’s probably also some of my best advice.

Joe Fairless: Absolutely. That is a fact for not only residences, but investors, and customers, and anyone who works with you in life. Relationships – wives, husbands… Everything. Alright, we’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Theo Jones: I’m ready, sir. Let’s do it!

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [00:21:46].03] to [00:22:28].11]

Joe Fairless: Okay, best ever book you’ve read?

Theo Jones: 80/20 Principle, Richard Koch.

Joe Fairless: Nice! Perry Marshall’s got a book 80/20 on marketing and sales. That’s a really good one, too. You’ll probably like that.

Theo Jones: I’ll check that out.

Joe Fairless: Best ever deal you’ve done that we haven’t talked about already?

Theo Jones: Best ever deal I’ve done – on one block in Atlanta I bought four properties, none of them on the market, two of them I bought from private real estate funds with no agent, then sold them all together as a package deal to another investor about three years later after, making some great cashflow. I think that was one of my best deals because the people on the block really appreciated what we did. It really means a lot.

I still drive down the block and people still get out and give me hugs and stuff, so that really means the most out of all of them.

Joe Fairless: Yeah, it brings things to life for what you’re doing, versus the P&L statements. It’s pretty cool. What’s a mistake you’ve made on a transaction?

Theo Jones: Man… I think it’s just not looking through things close enough, rushing. My mother always tells me “Slow down, slow down, slow down…” So I think rushing. It’s really no specific deal, but it’s just not looking at things. It’s several deals that I just — like, I bought five properties at one time, and the whole time in one of the properties I was looking at the wrong property, and I didn’t realize until like the day of closing, “Oh my god, I was looking at the wrong property the whole time.” [laughter]

I had to tell that to my investor, too. We were moving too fast, but it still worked out, don’t get me wrong. The deal was still so good, it could have not even came with that house, but… Just moving too fast and not checking everything. Joe, as you know, checking the contracts – hiring attorneys, hiring accountants… Don’t overlook those little things. You’re trying to save money, but you’re not saving money. So just don’t think you can do stuff fast in this game.

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

Theo Jones: I like to go into schools and talk. I like to talk about exactly what we talked about here, I like to talk about the kids, how I took my $5,000, bought my first rental property, and collected over $75,000 in rent and then sold that property for 150k. For me, it shows them it’s possible. Because I can always ask them, “You guys can save up $5,000, right?” They all say yes.

So that’s one of my best things. I just enjoy that. I love going into schools and just trying to put it in perspective that there’s other things that you can do besides what we’ve been taught in school.

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

Theo Jones: The best way, by email. It’s info@theloniouscjones.com, and pretty much all my social media is TheloniousCJones. Check me out there. YouTube, Instagram, Facebook, the whole barrage, and I get back. Hit me up though on email; I get with the emails the fastest, so if you really wanna get with me, hit me there, and I look forward to hearing from anybody.

Joe Fairless: Thank you so much for spending some time with us and talking about your business, your approach, the partnership advice where having alignment of interest, especially with growth and how things are managed, different risk tolerances, how you approach — you gave us a lot of different case studies for deals, from the New Orleans one that you just relisted, to the six-unit that was four blocks away from the Georgia Dome, and then the landlord/tenant psychology, too.

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

Theo Jones: Thanks so much, Joe.

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