September 19, 2018

JF1478: From Single Family, Cash Flowing Homes To Non-Performing Second Mortgages with Lindsay Gordon

Lindsay has been investing for the last 10 years, starting with single family homes in Philadelphia. Now she lives in Puerto Rico and buys mortgages as well as commercial buildings. She moved outside the states for good reasons, which include some ways that she is saving money on taxes. Tune in to hear how she pays $0 on capital gains! 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, Lindsay Gordon. How are you doing, Lindsay?

Lindsay Gordon: I’m good, how are you?

Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Lindsay – she has been an investor for the last ten years. She focuses on rentals in Philadelphia, and also non-performing second mortgages nation-wide… Commercial properties in Puerto Rico, where she is based, and private lending throughout the U.S. She also has a travel investment blog, and the link to that will be in the show notes page. With that being said, Lindsay, will you give the Best Ever listeners a little bit more about your background and your current focus?

Lindsay Gordon: Yeah, definitely. I was based in the Philadelphia area for about 28 years of my life, so I started investing in real estate there. When I graduated college I started just doing flips, and then got a portfolio of rental properties throughout the area, which I still have today… And then from there, I started investing in non-performing second mortgages. After that, I moved to Puerto Rico to take advantage of some tax benefits. With that move we decided to invest in commercial properties in Puerto Rico, and ever since then I’ve been doing some private money lending for rehab projects throughout the U.S, and I also started a travel investment blog.

Joe Fairless: We have a lot that we can talk about. Alright, after you graduated college you built a portfolio of rentals in the Philadelphia area, and you still have those… Will you tell us about one of those deals? Price point, and rent and all that, just so we have a sense of the type of properties you have?

Lindsay Gordon: Yeah, for a majority of the properties, they were worth around 100k to 130k in the after repair value at the time I purchased them, in 2009-2012. I purchased each of those and did the rehab on them to get them rent-ready, so that I was all-in for about 65% of the after repair value.

Joe Fairless: Got it.

Lindsay Gordon: Once I had the tenants in there I refinanced, and I continued to get about $300-$500 of cashflow each, per property.

Joe Fairless: How were you buying them initially?

Lindsay Gordon: I initially bought them with investor capital… Just other people who wanted to private-lend. My first investor was my dad and my grandma, and then from there it was a variety of other people in the area.

Joe Fairless: And how did you structure those agreements?

Lindsay Gordon: I just had the ambassador hold a [unintelligible [00:05:42].26] mortgage on the property, just like any bank does, and then from there I paid them a percentage of interest each month, and then I paid them the full capital back when I went to refinance the property at the end of the project.

Joe Fairless: Got it. So you were buying them all cash initially.

Lindsay Gordon: Yes.

Joe Fairless: Okay.

Lindsay Gordon: Because they needed a lot of work, and you couldn’t really get a bank loan… Especially back then, bank loans weren’t really a thing…

Joe Fairless: Did they also fund the rehab budget, too?

Lindsay Gordon: Yes, they did.

Joe Fairless: Okay. So you built a portfolio in Philadelphia… You live in Puerto Rico now – how do you oversee the successful management of your portfolio in Philadelphia?

Lindsay Gordon: Thankfully, I have a lot of friends and acquaintances in the industry that I lend money… I lend money to them, so they tend to help me out a lot, taking care of my properties… Because I actually had a hard time finding anyone — I do some Section 8, and I couldn’t really find any people that do property management that would property-manage Section 8.

I just do mostly virtual — I like to set up a lot of systems in place, so all my systems are online, with paying for things and receiving payments… It’s all electronic, so that way I can do it from Puerto Rico, or anywhere.

Joe Fairless: What are some of the systems? You said online payment is one… What’s another system that you have to manage while overseas?

Lindsay Gordon: Well, I use QuickBooks for the majority of the management of everything, and that way when I receive and send payments, I know exactly what’s going on. And then I just have everything automated in my bank account to send payments out, and I also actually have tenants deposit into my bank account, or I also have a system where I have a virtual mailbox; they can send a payment there, and then I can forward that to an electronic processing system from my bank account.

Joe Fairless: Okay. And in terms of getting the units rent-ready, and any maintenance requests, how do you handle that?

Lindsay Gordon: For rent-ready I have a guy I hired… He’s kind of like a property manager, but just for putting the tenant in place, just like a property manager would… But then after that, I take over and handle everything else. It actually saves me money in the end, because I don’t have to worry about paying the monthly fee, and I don’t really do much work. He’ll actually turn around and find a contractor anyway to come help me fix any issues that I may have.

Joe Fairless: And how many units do you have in Philly?

Lindsay Gordon: Right now I have ten.

Joe Fairless: Are they all concentrated in a certain neighborhood or area?

Lindsay Gordon: No, they’re all over.

Joe Fairless: Okay. So then you have the single-family homes, and then you switched to non-performing second mortgages… How come?

Lindsay Gordon: Well, you may get $300-$400/month for a property, but you have a lot of maintenance requests, or sometimes it’s difficult to find a tenant… And the tenants are just different; they’re not as reliable as a homeowner is. A homeowner owns their house, so they’re mostly second mortgages, so a $300-$400/month second mortgage payment.

Then a lot of times I could get that without any money invested into the mortgage, because we buy the non-performing, so they’d be really cheap; they’d be paid off in a few payments, and then after that I have a lot less to worry about and a lot less liability, and a performing note.

Joe Fairless: And you mentioned that homeowners are more reliable compared to renters, but you’re buying non-performing second mortgages, so how do you reconcile that?

Lindsay Gordon: As far as the reliability of the homeowner?

Joe Fairless: Yeah.

Lindsay Gordon: I mean, they’re not as reliable as some homeowners… [laughter] But better than a tenant, usually. It all depends on what type of tenant you have and what type of homeowner you have. Everyone varies, but in general, the type of tenants that I have, they could be non-responsive as  well, so…

Joe Fairless: Where do you purchase your non-performing second mortgages?

Lindsay Gordon: We would typically purchase them from (in the past) people like myself, people who are selling non-performing second mortgages. Then as we grew bigger, from banks, very large hedge funds, or institutional.

Joe Fairless: And then you moved to Puerto Rico… Why did you move to Puerto Rico?

Lindsay Gordon: I moved to Puerto Rico because they have two acts in place – act 20 and act 22, and act 20, you can export services and only pay 4% in taxes, and act 22, you don’t have to pay any taxes on capital gains. So my tax on capital gains is 0%.

Joe Fairless: Wow. On investments in the U.S.?

Lindsay Gordon: Yeah… It’s based on where you’re located, for securities. We treat the mortgage as a security, and then we pay 0% on any buying and selling of mortgages. Then properties in Puerto Rico also count, because it’s based on where the property is at. So when we buy and sell commercial properties in Puerto Rico, we don’t have to pay any taxes on that.

Joe Fairless: What’s a commercial property you’ve purchased in Puerto Rico?

Lindsay Gordon: They vary greatly, from a plot of land to a 10-unit small little apartment [unintelligible [00:11:04].26] building, to an office front, to an office building in a huge complex, to a chicken farm… Really pretty much everything. We buy in bulk, so we like to be opportunistic on a large purchase at a very low price, and then to resell at an also low price for investors to take advantage of a good deal.

Joe Fairless: Just so I’m understanding your progression – after you graduated college you started buying the single-family homes, right?

Lindsay Gordon: Yeah.

Joe Fairless: You said you were partnering with investors to acquire those, and then you’d exit them out. Did you do that on all of the ten that you have, that same structure?

Lindsay Gordon: Yeah, and I think I had 13 at one point, but sometimes as opportunities arise, I sell the properties. But yeah, same structure for all.

Joe Fairless: And with the commercial purchases in Puerto Rico, from vacant land to (I think you said) a chicken farm, are you structuring it similarly, where you’re working with private investors?

Lindsay Gordon: It’s a bulk purchase. We worked with one private investor for the entire purchase. It was about 55 properties. We’ve paid that investor off pretty quickly actually, and then after that it was just free and clear.

Joe Fairless: Oh, that’s amazing. So 55 properties, you had one investor… What was the purchase price?

Lindsay Gordon: It was over four million.

Joe Fairless: Four million for 55 properties, ranging from what?

Lindsay Gordon: Ranging from chicken farms, to land, to little small apartment buildings, some multifamily…

Joe Fairless: Wow. That’s a fun portfolio. How did you begin to underwrite that type of portfolio with such a diverse amount of assets in it?

Lindsay Gordon: We relied on a local girl and a local appraiser and a local lawyer that we had been working with at the time. We had already been thinking about doing some real estate, so we found a team and we put them together… We also had some experience ourselves, since we had lived here for a period of time before we purchased the properties.

Joe Fairless: How long did you live there prior to purchasing the 55-property portfolio?

Lindsay Gordon: I believe it was a year and a half later…

Joe Fairless: Okay. What did you do — did you buy anything in that year and a half period?

Lindsay Gordon: We bought one property outside of that, and then the rest we purchased… We actually purchased 54 at once, but shortly after, a couple months later.

Joe Fairless: And with the four million dollar portfolio, now you said you bought the investor our relatively quickly… How does that math work, where you were able to buy them out in a quick period of time?

Lindsay Gordon: Well, our deal with the investor was that we were allowed to pay them back each month, and we could pay them back from all the proceeds of the sales of the property. So I had sold enough of the property worth to pay them back in — I think it was about six or seven months.

Joe Fairless: Wow. Okay, so of the 54 or 55 properties, you sold some of them off in order to pay that investor back, and then you’re keeping the rest free and clear?

Lindsay Gordon: Yeah… We’re still continuing to sell them. I have seven left, and it’s been about two years since we’ve owned them.

Joe Fairless: Wow… So out of the total — was it 54 or 55?

Lindsay Gordon: 55 in total, because I bought one outside of that.

Joe Fairless: Okay, I’m with you… Of the 54-unit portfolio, you have 7 remaining?

Lindsay Gordon: Yes.

Joe Fairless: Interesting… And how many did you need to sell in order to pay the investor off?

Lindsay Gordon: I feel like it’s been a long time and I kind of forget, but…

Joe Fairless: About half?

Lindsay Gordon: I wanna say about 20…

Joe Fairless: 20. That’s incredible. And of those 20 or so — basically, I’m wondering how much more was left? I guess let’s start this way… You purchased it for four million dollars; what was the value of those properties at closing?

Lindsay Gordon: That might be confidential information; I’m not sure I’m allowed to share it.

Joe Fairless: Alright, fair enough.

Lindsay Gordon: [unintelligible [00:15:12].09] on the portfolio, but it was a significant discount. There’s quite a bit of risk going into that… We were very nervous at first, because even though we lived in Puerto Rico, we know maybe too well the problems that there are in Puerto Rico, and we weren’t sure about people wanting to purchase things in Puerto Rico… Shortly after we purchased the portfolio, they had all the bankruptcy issues, and then after that we had the hurricane… So it’s been a rollercoaster ride, I guess, of different events.

People are still buying, investors are still investing, and people in Puerto Rico actually had more cash than we thought, to buy these properties cash, the ones that are not financeable.

Joe Fairless: Wow… I can imagine the different challenges… Which one was the greatest challenge out of all of those that you mentioned, and how did you overcome it?

Lindsay Gordon: Well, actually, the hurricane – it only just postponed people purchasing… But once it was over, then it actually helped spawn some people to have to move out of a property that they had, into one of our properties… Because we didn’t really have much damage (if any) from the hurricane, which was great. The bankruptcy didn’t really affect things…

When you thought people weren’t buying, people were buying… So it didn’t really affect things too much. I think now — it was a bulk purchase, and I have a few properties that are just not as desirable, and that’s probably my biggest hurdle… It’s “How do I sell these seven random properties that no one wants?” [laughter]

Joe Fairless: Is one of them the chicken farm?

Lindsay Gordon: Actually, I sold the chicken farm.

Joe Fairless: You sold the chicken farm… What’s an example of one of them that’s challenging to sell off?

Lindsay Gordon: I have a property and it’s supposed to be worth about 300k. I think we have it listed at 293k. It’s a big plot of land and it’s in a fairly desirable area, and it’s by a lot of shopping centers, and it’s not too far from the ocean, and the city… I think we just haven’t found the right buyer for that type of property, and it’s just land… So that one is difficult.

The other properties are more rural, and they’re hard to sell because they’re just in the middle of the island.

Joe Fairless: How did you come across the 54-property portfolio?

Lindsay Gordon: Well, I’ve been networking and working with different banks and different large brokers, and originally I connected with these brokers for second mortgages, but they found a package of properties… They knew that we were in Puerto Rico, and they presented it to us, as well as everyone. It was a bid, and we won the bid.

Joe Fairless: All cash?

Lindsay Gordon: Yes.

Joe Fairless: With the purchasing of properties in the U.S., compared to Puerto Rico, what are some of the main differences that you’ve experienced?

Lindsay Gordon: I would say — I’m pretty new to real estate relatively; I was just born in the ’80s, so I don’t know what it was like back in the day, but I always feel like Puerto Rico is very similar to the U.S., but just maybe years behind… Just like, we get Uber ten years later… Everything comes later here, and when you see some of the infrastructure, you think that it looks like it’s from the ’80s or ’90s still. So I would say that it’s probably similar to real estate maybe a few years ago, where there’s still some opportunity for incentives in real estate.

As far as the process of a real estate transaction goes, it’s pretty standard though, because we still follow U.S. guidelines… So we felt secure in that. But there can be people paying each other off behind the scenes and we don’t know what really is going on. Sometimes they’re fighting, and I just stay out of all that. They bring me the buyer, and that’s all I wanna know.

Joe Fairless: All the listeners in Chicago are shaking their heads, “Yeah, we know what you’re talking about.” [laughter] With the investor who invested four million dollars cash with you all – and I’m obviously not asking you who they are, but we have a lot of listeners who want to find private investors who have the ability to invest four million dollars in one deal with them… So how did you find that investor?

Lindsay Gordon: We’d known the investor for ten years as well. He was just someone local to us in the area, that we had always networked with. We started working with him on non-performing second mortgages; he was more familiar with that, so even though that might seem risky or scary to some investors, he understood that well and he was willing to work with us. From there, we transitioned him to the Puerto Rico commercial properties.

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

Lindsay Gordon: For me, I think some people get held up on the details of investing in real estate, whereas if you just start doing it, you’ll realize that it’s no more than making calls, following up and sending e-mails. For me, people think, oh, I’m so smart — I’m really not. I just hear a good idea, I make sure to find people that know what they’re talking about, that can help me and validate my ideas, and then I just do them.

Joe Fairless: Most people would not move from Philadelphia to Puerto Rico because of tax reasons, even though it makes a whole lot of sense, because taxes are the largest expense, for the most part… What do you think about whenever you move from Philadelphia to Puerto Rico? Do you think about the portfolio that you have in Philly, and how it’s gonna be such a crazy change, or do you just not think about that at all and just say “Hey, it’s better for taxes, and it’s an experience, so let me just do it”?

Lindsay Gordon: I thought it was a good business move and it was better for taxes. I had no idea actually how valuable Puerto Rico would be to me, and by purchasing commercial properties, that has been probably one of the best money-making opportunities that I’ve had, along with that tax savings.

I’m not really afraid to do what other people are not doing, and that’s what I think is the most important thing in investing. If people are talking about something, then I’m not really interested anymore.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the best ever lightning round?

Lindsay Gordon: Oh, boy… [laughter]

Joe Fairless: You’re ready. You moved to Puerto Rico, you bought a four million dollar portfolio, you’re wheeling-dealing chicken farms – you’re ready. First though, a quick word from our Best Ever partners.

Break: [00:21:53].20] to [00:22:33].01]

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

Lindsay Gordon: I haven’t read a book in a long time; that’s probably a bad thing…

Joe Fairless: That’s alright. Best ever deal you’ve done, that we haven’t talked about already?

Lindsay Gordon: My first workout on a non-performing second mortgage I was able to get the homeowner to put 20k down, pay $300/month and still had a $60,000 balance, which they paid off in cash about three years afterwards. I had bought that note for $8,000.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Lindsay Gordon: Sometimes pushing borrowers too far, when I don’t really know what their limit is.

Joe Fairless: What’s the best ever way you like to give back?

Lindsay Gordon: I like to volunteer my time, and if I’m able to, I go to a local Boys and Girls Club here in Puerto Rico, and to an animal shelter.

Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on?

Lindsay Gordon: They can go to my

Joe Fairless: Cool. I will put that in the show notes page. Lindsay, thank you so much for being on the show and talking about your story… The 54-property portfolio, how you partnered up with the investor who you had built a relationship with over a decade, how you got started by borrowing from family, all cash, and then improving the property, putting a loan on it, and then paying them back and owning the property, with the loan, but making some cashflow from it… And then the differences between Puerto Rico and U.S. from your perspective.

And ultimately though, your approach – you hear about something, you find people who know about it, so they can validate it, and then you do it. Talk’s cheap, and you certainly are walking the walk there… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Lindsay Gordon: Thank you.

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