July 17, 2018

JF1414: A Vision For The Future Helped Him Build A Large, Diversified Portfolio with Scott Price

Today’s guest has a phenomenal way of setting goals and doing things everyday to work towards those goals. We’ll hear about that in the beginning of the episode, followed by more details on the actual investing he has done so far. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Scott Price Real Estate Background:

  • Husband/wife team leading Bonvolo Real Estate Investments
  • Recently a full time real estate investor after 14 years investing while working full time jobs
  • Has a self-funded portfolio of multi-family, SFR, office, retail, medical, & land in WA for buy & hold cash flow
  • Got to where they are by creating & following vision board & plan
  • Say hi to him at http://bonvolo.com/
  • Based in Seattle, WA
  • Best Ever Book: 4 Hour Work Week by Tim Ferris

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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, Scott Price. How are you doing, Scott?

Scott Price: Doing well, Joe. Thanks for having me on.

Joe Fairless: My pleasure, nice to have you on the show. Scott is part of a husband/wife team leading Bonvolo Real Estate Investments. He recently became a full-time real estate investor after investing for 14 years while working full-time jobs.

He self-funded a portfolio of multifamily, single-family, office, retail, medical and land, and he’s a buy and hold for cashflow investor (he and his wife). They are based just North of Seattle, Washington. With that being said, Scott, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Scott Price: Sure thing. We’ve believed a long time in the power of real estate for income over our long-range plan, so what we did was a long time ago we created a vision board and a plan for what we wanted to do, and real estate was a big part of that. We started accumulating properties on our own.

I actually became a full-time real estate broker for three years, and then I went back into team/program management positions at some companies, but I did that just to immerse myself in real estate. We’ve been gradually expanding, we’ve been opportunistic, and what I mean by that is, as you can see, we’re fairly well-diversified in our asset classes, and it’s not so much a diversification strategy as it is a looking for good deals strategy. When we find something, we know enough about each of those asset classes that we jump in.

Most of our properties are in Washington state right now. We have dabbled out of state, but most of them are in state for us. We own them all ourselves. Our next steps now that I’m full-time and semi-retired, so to speak, is to grow the business more and actually get into syndications, which will be the next phase for our business.

Joe Fairless: You and your wife created a vision board a long time ago, you said… Did that ever evolve, or have you maintained the same vision board the whole time.

Scott Price: It has evolved somewhat, but the overall priorities for us have remained pretty constant. We still have the same vision board from 15 years ago up on the wall of our office, and it’s a bit of a guiding light. We not only look at it and the things that we’ve done and are currently doing are on that vision board. It’s a visual one, so it actually has pictures of things that we wanna do with our lives.

On top of that, we make it more actionable. By each morning, I actually have a form that’s printed out [unintelligible [00:03:40].02] sheet of paper, and it actually has actions related to that vision… So it’s not just general what we wanna have in the future, but it’s “What can I do today to help make that occur in the future?” and that’s important to us… And it’s how we’ve been able to get to the point where we now are doing things that we really enjoy, and real estate is our full-time source of income, and we’re also doing a lot of fun things on our own because of that income.

Joe Fairless: Do you show that vision board to people whenever they come into the office?

Scott Price: I do, and I actually–

Joe Fairless: What’s on it?

Scott Price: I recently gave a presentation at a local investors club and I took a picture of it and put it up in the PowerPoint just to show people what an example looks like. Some people said that that part of my presentation was actually the most important to them, to really put it in a much broader context of why you’re doing the real estate, not just getting bogged down in the details of real estate by itself.

Joe Fairless: What’s on it? What are some things?

Scott Price: It starts with where we wanna live. Three years ago we moved to Whidbey Island. That’s where we wanted to live, and we made it happen, and actually through real estate, because there’s not much of an economy here, so we had to create our own economy, so to speak… And we wanted to build an interesting, cool home on the waterfront, with some eco building features, and we’re two months away from moving into that.

Our main source of income is gonna be real estate – that’s on there… At that point we didn’t yet have a kid, and that was in the center of that; we now have a kid… And around family and friends, and then we have things that are important to us in terms of working with the community, as well as our hobbies.

Joe Fairless: What’s something that has not been achieved that was originally there a long time ago?

Scott Price: I would say it’s more that some of our hobbies changed, so relatively smaller things. For instance, my wife put on there to learn the hammered dulcimer, which is a musical instrument… And we had some dancing lessons on there. Those have kind of fallen by the wayside, but I’d call those pretty minimal kinds of things. We’ve replaced those with other interests, so they just got replaced over time. Smaller things like that…

Joe Fairless: So the large stuff that you had on there, from a business standpoint, was achieved, correct?

Scott Price: Yes.

Joe Fairless: So did you add in, or did you swap it out with new business stuff, so that you’re constantly striving for more?

Scott Price: Yes, so that’s where the more specific actions of what we do each day come into play, because on a vision board it’s really at the high-level of “We want our income, as well as our wealth generation to come through real estate primarily”, and it’s at that broad level; it’s not necessarily directly actionable, but it’s a goal, it’s an objective.

And then in terms of what we do each day – yes, it’s around increasing our income, increasing our portfolio and growing the business and what we can do around that on both the supply line, or the deals coming in, as well as the capital side of the equation.

Joe Fairless: And clearly, this is a critical component to what you do, because of how you have it incorporated in your daily routine… That’s why I asked a couple follow-up questions about it. And the last follow-up question, and then we’ll move onto some of these deals that you’ve got is the print-out that is printed every day – is the only question on it “What can I do today to help make this occur?”

Scott Price: It has four main goals that we’re currently focusing on from that long-range vision, and then below that it has — for each main goal we have, I would say, on average, about four actions. Those are actions that are in the perhaps six-month timeframe in terms of something to be accomplished. Then I have a column on the right-hand side that says “At the end of the day, did I do that? Yes/No/Partially.” So I grade myself every night, basically.

And we don’t work on every goal every day. What I do at the beginning of the day is I actually say which ones I’m going to do and what I’m gonna do specifically for them that day, and then at the end of the day I grade myself on what I actually did.

Joe Fairless: Is it all paper, or do you do electronic?

Scott Price: I’m a very electronic guy, so to speak, meaning I have everything on my laptop and my phone, except for this. I do scan them when I’m done, just so that I have a record of them, but I’ve found that just having a physical piece of paper sitting on my desk with a pen beside it, and I look down it and it keeps me focused on what I need to do, and I check it off, “Yes, I did that” – it’s easier, it’s more tangible, and it’s better than trying to open some app on my computer and look for it in there; it’s always just sitting right there and I just change it out every day.

Joe Fairless: You were a full-time real estate broker for three years, and then you went back to another occupation. Why did you stop?

Scott Price: Mostly because I was getting involved primarily to learn the ins and outs on the legal side, the contract side of becoming a broker. I’m actually still a broker, but I don’t represent clients; I just have it purely for investing purposes.

And the main reason I got out was I was mostly working in residential sales, not so much commercial sales; I did, occasionally. And I really enjoyed working with the good clients that I had, but every once in a while the tire kickers – they would take six months of my time and result in nothing… It just kind of got a little wearing. I just said “I’d rather work on things I know I can have a really good outcome.” It’s a bit of a numbers game business, and you’ve gotta have that approach.

I like the positive numbers, but the negative numbers — it just wasn’t that interesting to me, so I got out of it, but I kept the license going for investing.

Joe Fairless: What type of full-time jobs did you do in addition to the broker thing we already know about?

Scott Price: I was primarily in either team management or program management positions with technology companies. I’ve worked with some startups, I’ve worked with some large companies that you’d definitely recognize their names… A wide range of places, but generally team and program management.

Joe Fairless: What skills did you apply in those positions that you’re applying in your real estate investing?

Scott Price: I would say the two biggest ones are 1) coordinating, managing and leading a team of people, because that’s very important to our business model in terms of the partners that we work with… And by partners, I mean things like property managers and contractors and attorneys and things like that. So that’s one really important element.

Then the other important element I would say is project management in general… In other words, being very organized and on top of things. My earlier background has been in project management and I found that’s helped me quite a bit as well in real estate.

Joe Fairless: You’ve got multifamily, single-family, office retail, medical and land. Is that accurate?

Scott Price: Yes. Just a few examples of each… Again, we’re opportunistic, but yes, I do, and I feel comfortable with each of them. I know some people say “Get rich in a niche” kind of thing, and that’s fine, and I certainly understand that. I understand enough about each of the asset classes and what to look for that when a good deal comes along I have enough buffer in there to be able to invest in all of those.

All of our properties have been successful. We’re choosy. That’s one of the reasons why we’ve been doing it for so long… We’re not buying every month kind of thing, we’re choosy on the ones we’re purchasing.

Joe Fairless: What was the most challenging asset class  to learn underwriting for?

Scott Price: I would say — well, the most challenging one was actually land, just because in our case it was more flips, flipping land, and I don’t generally do flips, to be clear… Everything else is for buy and hold, and the land was to resell. We’re not developers, so we were not buying it to develop, but instead to flip to someone else.

That’s a whole different ball game in terms of learning how you can work with the local municipality to determine what can be done with the land, and that may or not always be true, depending on who you’re talking to, and what is the actual value of this land afterwards… So it’s not the NOI (net operating income) approach of multifamily or even office and retail; it’s a different beast. So that one was probably the hardest of all of them.

Joe Fairless: How did you learn it?

Scott Price: It was a combination of things. Number one was reaching out and talking to people, getting to know people who had already worked in that area, meaning they had already done both land purchases, land sales, and then they’d just done some flipping in general. That was one thing.

Joe Fairless: How did you find them?

Scott Price: Also, wherever I could, I would certainly read books, listen to podcasts, things like that to get other people’s experience. And then some of it I frankly learned on the job, so to speak, especially going into a county office and learning what can be done to a particular piece of property… There’s some that you can learn from others, but you’ve gotta stand there in that line and talk to that planner and learn something on the fly. There’s a little bit of risk to that. That was the riskiest part of our portfolio, by far, just because of all the moving parts on that one.

Joe Fairless: How many times have you invested in raw land?

Scott Price: I would say probably five or six, something like that.

Joe Fairless: What were the results, the lowest and best? What are two examples?

Scott Price: Yeah, I would say — I had two examples where I just made a little bit of money, and in retrospect I wouldn’t have done it, just because the amount of time I invested relative to the amount of time I invested relative to the amount of money I made, the hourly rate, so to speak, wasn’t very good.

Then on the other side I doubled a couple of them without actually even going through all the entitlements and all that kind of stuff… So it’s been a range.

Joe Fairless: For the lowest one where your hourly rate wasn’t worth it, as an education that it gave you, if you were presented that same exact opportunity but in a different disguise in the future, what would you look for that you didn’t look for initially on the other one?

Scott Price: I would do more due diligence up front with the local government, whoever that is – if it’s a city, if it’s a county, whatever it is – and I would do more in advance. In both cases I did some; certainly, I didn’t just buy it and then figure it out kind of thing, but at the same time there were some nuances… The folks in charge, so to speak, at the local government, just didn’t go out of their way to tell me, and I had to kind of find out on my own, so there was that risk… Again, they turned out okay in the end, but that was the biggest learning there.

I don’t do land flips anymore. It’s interesting, but that’s something that’s in my past. I’m more buy and hold for cashflow at this time.

Joe Fairless: I’ll ask you about some of those buy and hold investments. One last follow-up question on the land – what were some of those nuances that you had to learn kind of the hard way, after you got into the process?

Scott Price: For instance, one example – I purchased 72 acres that was near a beach town, and it had the potential to be subdivided, but it had this very unusual overlay on top of it that was related to this resort zoning. And the trick was to essentially get rid of that resort zoning, so that it could be subdivided. Essentially, to boil down a much longer story, I was told wrong information by the people that I initially talked to before I bought it.

So the lesson there was not only to talk to them, but to double check and to actually look at the wording of whatever regulations or zoning is involved, not just always take the word for it… Because they just literally told me wrong information that I went in on.

Joe Fairless: Multifamily, single-family, office, retail and medical – which one is your favorite?

Scott Price: I would say my favorite is multifamily. That is pretty consistent with a lot of people right now, which is the problem… In other words, there’s a good bit of competition in that area… But at the same time, that’s generally my favorite. The reason for that is if you’ve done your due diligence — we always start at a really high level; we never start at the property level, we always start at the overall market level… We look at the local economic drivers, we’re looking at what’s being built in the area, all that kind of stuff, before we get down to the details of what is that property’s NOI or anything like that.

If you get that larger scale aspect covered, meaning the local market and its drivers, then generally speaking, multifamily can withstand some ups and downs in the economy, and there’s generally gonna be demand, and even if things go bad, you might have to reduce your rents, but you’re not gonna have a lot of vacancy, that kind of thing.

When you get into office and retail, I really like the fact that you can get into triple net properties, which for the Best Ever listeners that aren’t familiar with that – it’s basically properties that the tenant takes care of everything, essentially; they take care of property taxes, the insurance, their own maintenance, things like that. So it can be fairly turnkey, hands-off, kind of easy… They also tend to have very long-term leases, so you can get five-year leases, or even more. I just got a ten-year lease, for instance, on one of my properties, and that’s great… But the downside is that sometimes on those properties when it goes vacant, depending upon your market, it might be a year until you get that actually filled again.

We’ve never had one go that long, but we have had one that went six months vacant, and it was just sitting there. We still have to pay the mortgage and pay the expenses. So that’s the main risk a lot of times with office and retail – you’ve always gotta be thinking about who’s the next tenant, and it’s much more involved than who’s the next tenant in a multifamily to think about. You’ve gotta think about “Okay, can this be a restaurant? If it’s a restaurant, what other restaurants are in the area? Might they go there, or might they go somewhere else?” It’s a whole different way of thinking.

Joe Fairless: That triple net lease – was that a retail or office? That example that you’ve just said, the one that went vacant for six months.

Scott Price: Oh, that was actually a medical office.

Joe Fairless: Medical office. Alright, so month five of six months – lets’ take a time machine back… You don’t know, since we’re in month five, that you’re going to get a lease… What are you considering in month five, and what are you doing?

Scott Price: A couple things… One of them is I’ve generally bought with enough flexibility that if I need to reduce rent, I will, but that’s obviously not the first step that I’ll take. I certainly will increase marketing… I generally — even though I am, like I said, a broker myself, I almost always work through other brokers, and I try to work through the best brokers.

So I buy through other brokers, they just treat me as a buyer, and I just have to put a little note in the contract that says “Buyer is a Washington state licensed real estate broker” and that’s it, and then in cases like this, I would market through a commercial leasing broker who ideally knows his/her stuff, and also is actively marketing it.

It boils down to making contacts… A lot of times, when there is a lack of demand, then it can be one-on-one contacts to local similar companies or whatever it is (office or retail) and actually seeing if they’d be interested to move. For instance, in that case we were listed with a commercial broker, but my wife was actually the one who got the tenant, and she literally walked around to local medical offices with a flier and brought them in and told each individual office or whoever she could talk to about our property, and that’s how we got the tenant. We didn’t get it from the internet, we didn’t get it from the broker, we got it through my wife walking around with a flier.

Joe Fairless: In that case, does the broker still get his/her fee?

Scott Price: Yeah, it depends… So officially yes, but in that particular case – we have a really good relationship with that broker; I’ve also purchased other things with him, and he just said “No problem, you got the business. We’ll do other business again in the future.” But officially, by the contract, generally speaking, most contracts would say that they would receive the fee.

Joe Fairless: Do you still have multifamily, single-family, office, retail and medical and raw land in your current portfolio?

Scott Price: Yes.

Joe Fairless: Which one takes up more of your time, relative to others?

Scott Price: Multifamily. Even though we have property managers for all of our multifamily properties – that’s been a really important part of our business model, is wherever possible to include property managers and not to self-manage, especially on multifamily… But nonetheless, there are things that we have to make decisions on, and a water heater breaks, and floods next to our unit… Then we go and check it out and determine the next steps, and things like that.

It tends to be more drama. The difference between a medical office tenant, well-established professional environment, they just pay their bills and take care of everything, versus the drama and the complexities of multi-unit buildings can be significantly different. So multifamily tends to take most of our time.

Joe Fairless: What is your best real estate investing advice ever?

Scott Price: The thing that I’ve found most important is to create an environment; what I mean by that is be sure, as you are going into your real estate investing career or whatever that is, to surround yourself with good ideas, and feed your mind with good information from books, and the people you’re surrounding yourself with, and also to make sure that environment fits into your long-range vision. To me that’s been the driving force for us, and I think that if you get into the nuts and bolts of real estate and you miss that broader picture and you don’t create a positive environment for yourself, you’re missing a big part of it and you actually may not stick with it unless you put that in place.

Joe Fairless: Where did you get all the equity for your deals?

Scott Price: From a number of different sources. We own all of ours at this point, or like most people, us and the bank own all of our properties. So we’ve just been very creative in using funds moving forward. I’ve rolled all of our profits forward, so all of our income and our profits, say from a sale – they don’t go to paying for a car or anything like that; they’re always rolled forward. That’s actually the reason that I’ve had a job that I’ve worked for so long – because I haven’t taken on partners yet, and we’ve just self-funded our portfolio. And having independent income not only made, frankly, getting some loans easier, but our income took care of all our expenses, and then our real estate income just grew, it kind of snowballed over time.

I also would do cash-out refi’s, I’d take loans from my 401K, I even have a solo 401K where I have two properties in that, so it’s kind of like a self-directed IRA, but a little bit different… And just always looking for ways to use our funds and roll it forward into the next deal… And that’s also why we’ve kept our properties fairly small.

The largest property we’ve owned has been 40 units, and other than that — on the multifamily side, they’re usually between the 12 to 20 size, and it’s just because we roll our profits forward until we have enough down to put into that, and bam, we go ahead and buy it, and we keep doing it, we keep rolling [unintelligible [00:23:38].25]

Joe Fairless: Tried and true approach, that’s for sure. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Scott Price: Sure I am.

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

Break: [00:23:51].05] to [00:24:54].26]

Joe Fairless: Best ever book you’ve read?

Scott Price: The 4-Hour Workweek, by Tim Ferriss. Two reasons for that – it really got me thinking about leveraging the expertise in businesses of others to grow my business, and then also really important is the idea of designing the business for my lifestyle, instead of getting into designing the business for itself.

Joe Fairless: Best ever deal you’ve done?

Scott Price: I bought two buildings on the same property, two office buildings, at auction, and I bought it for 295k, and to answer your question about creative financing, this is a good example of it… Basically, a family member had owned a house outright, and I said “Why don’t you get a loan at 4%, I’ll pay you 9%, interest-only loan, you make the spread…” So they put in 200k, I put in 100k, and then bought it — because there was a time after the auction to put in the money… And then I financed it at 75% LTV on the purchase price, so I got 75k back, so I only had 25k in at that point… And even though it was 50% occupancy, at that low of a price it still was generating about 25k a year in net income after all expenses, including the loans and everything… It was still generating about 25k.

After about one year I had no capital in it, because I had the 75k back, and then I got 25k in just cashflow, so basically at that point it was kind of like an infinite return kind of thing… And then after a year it seasoned, so I did a cash-out refi and I got another 450k out of it, and I put that into another property that was generating about 25k a year in cashflow, and then also the cashflow from those two I then within a year rolled into another property that was generating roughly about another 25k/year.

So I rolled all that forward with it being effectively after a year no cash out of pocket, but generating lots of cashflow income. Then after about five years I sold that first property and did a 1031, sold it for 2.5x what I paid for it, and then rolled that into a 17-unit apartment complex.

Joe Fairless: That is incredible, it’s just a snowball going downhill is what it is. What’s a mistake you’ve made on a transaction?

Scott Price: I’d say the biggest one was actually before 14 years ago, when I started really investing, and when I got out of college, I bought a condo for me to live in, and then I soon afterwards bought a house and kept the condo as a rental, and the only books I was reading were ones about “How to be a landlord”, which meant not grow your business or not how to use the expertise of others, but how to do everything yourself and be a jack of all trades.

The first tenant was great, the second tenant sucked, basically; I mean, it was just really a bad situation… And I sold it. I said, “Oh, this real estate thing is terrible.” I actually briefly got into stocks and day-trading, and it just distracted me. The mistake, the learning was that I didn’t even really — at that point, out of college, I didn’t know any investors or anything. I didn’t even really know about property managers.

Then after I did some more research and I was getting distracted, I realized “Okay, well there’s a way to deal with this problem. There are people who professionally deal with bad tenants like that”, and then after that I just always wrote a line item in my deals of having a property manager and got back on the real estate train again.

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

Scott Price: I am on the board of directors of a land trust, and we’re working to preserve basically the scenic and the natural beauty of the island I live on North of Seattle. That’s one thing.

Then the other thing which is fun is I’m actually in the process of self-funding a public community park that will have nature trails on it, and it will integrate sculpture in the forest. I already own the property, and the next stages will be to start building the infrastructure for that.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on and get in touch with you?

Scott Price: The best way is to go to our website, which is Bonvolo.com. Or you can e-mail me directly at scott@bonvolo.com.

Joe Fairless: Scott, thank you so much for being on the show. The vision of where you wanted to go and now where you are at was put in place a long time ago, and it’s constantly a reminder for you and your wife of what you want to achieve and how specifically you’re gonna do it, because you have a process in place on a daily basis that you fill in and you have accountability for yourself on that day. You said you grade yourself each day on your progress. Really not surprising to me that you’ve accomplished what you’ve accomplished since you’ve been so laser-focused on this for over a decade, a decade and a half.

I loved hearing about the pros and cons of triple net leases – everything’s great when they’re filled; when they’re not, your wife might have to walk around with a flier to office properties and try to get them to move into your property… Which did work, even though you hired a brokerage. This just shows the hustle that you two have. Then also the scenario where you bought the two office buildings for $295,000, and then that turned into a snowball of many, many mounds of cashflow as a result of it.

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

Scott Price: Thank you, Joe.

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