Bryan is the author of a popular real estate book, Buy it, Rent it, Profit, and he’s here today to share his best knowledge with us! He used to travel the country and host a seminar where he would have investors write their problem on the board (no tenants, low cash flow, etc..) and he would solve them before you left. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Bryan Chavis Real Estate Background:
- Multifamily investor and property manager
- Author of Buy it, Rent it, Profit
- Syndicated almost $5M worth of multifamily properties
- Based in Tampa, FL
- Say hi to him at www.bryanchavis.com
- Best Ever Book: Bible
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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, Bryan Chavis. How are you doing, Bryan?
Bryan Chavis: I’m blessed, man. How are you?
Joe Fairless: I’m doing well, and I am looking forward to our conversation. A little bit about Bryan – he has syndicated nearly five million dollars worth of multifamily properties. He’s a multifamily investor and property manager. He’s the author of the book “Buy it, rent it, profit”, and he’s based in Tampa, Florida. With that being said, Bryan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Bryan Chavis: Yeah. My background is nothing too decorative. I started in the multifamily industry leasing apartments, worked my way up into acquisition, and then decided one day to venture off on my own. I really didn’t have two nickels to rub together, so I had to come up with an idea, and I came up with an idea to write a book or a manual, and then just kind of traveled around, and wherever anyone would listen to me or allow me to rent a room, and just perform workshops, teaching people how to stabilize their property, which of course was my day job from 9 to 5, in a property management multifamily space.
Basically, I was just teaching people how to stabilize properties, things that I took for granted that were pretty academic coming from the industry. I quickly realized that not a lot of people who are not institutional investors — they didn’t have the resource to the training and education that I did, so I’d seen an opportunity to educate and train individuals, and that’s kind of really how it started.
Joe Fairless: Well, I would love to learn more about that. What was the process that you took people through when you taught them how to stabilize their property?
Bryan Chavis: That depended upon who was in the room. My thing was it didn’t matter who you were, you just write your problems down on a board when you came in, and I would solve it. That was kind of the whole– that’s how the brand kind of took off, because people were actually getting in there, with no fluff… Back then I didn’t even know what a bootcamp was, I didn’t really understand what — I don’t think funnel [unintelligible [00:05:02].15] were a thing of relevancy back then, but… Really, I had zero marketing. I just was trying to build a name by solving people’s problems. They would come in, and if they were dealing with evictions, or if they were dealing with unoccupied tenants, or whatever it is they were dealing with – cashflow problems, or whatever it was, I would of course give them the system and show them how to actually do it right there, in front of the group, and I would do about 10-15 questions…
And I had a manual, so I wrote a book, which is ironically, the “Buy It, Rent It, Profit!” book, the distant relative of this book… So I wrote this manual, and it basically had everything, all the systems these individuals needed to know. With the systems, they identified the work that needs to be done, and then the systems then also told the users how to go about performing it. So that was my pitch on the operations manual. They had everything they need in this manual.
So I would teach them, and then sell the manual at the end of the class for $100. That was my thing and how I got started, and originally how I thought I was going to make it rich, so I can fund my own multifamily investments. Things started to take off. Eventually, it was published by Simon & Schuster, and the book eventually – don’t despise the humble beginnings, because I was selling out of the trunk of my car; that book now is one of the only books in real estate investing in the U.S. Library of Congress, “Buy it, rent it, profit!”
Joe Fairless: Bravo! That is pretty cool.
Bryan Chavis: For somebody that barely has a high school diploma, I feel like that’s something I can kind of hang my hat on and be extremely proud of. But yeah, so that’s kind of how I got started; I got in with Simon & Schuster, which was a tremendous blessing. As we all know, they’re one of the world’s largest publishers…
Joe Fairless: How did you get in with them?
Bryan Chavis: That’s another funny story… I was working with a boxer named Winky Wright at the time, and Winky Wright was fighting Tito Trinidad, so I was with Gary Sheffield — I’d met Gary Sheffield, that played at that time for the Yankees…
Joe Fairless: The baseball player?
Bryan Chavis: Winky introduced me to Sheffield. Sheffield was trying to get involved with buying multifamily, wanted to deploy some money in that space… A-Rod was doing it, so A-Rod kind of convinced him that “Hey, this is a good thing…” So he came to me; Winky was like “Hey, this is the guy you’ve gotta meet.” So I of course started basically consulting and teaching these guys for free, and I think that’s something else for some of your listeners – there’s some value in that; I wasn’t charging these guys. Most people were like “Why didn’t you charge them? They’ve got so much money…” At the end of the day, you have to remember, I had zero brand, no one knew who I was, so I was trying to build a name, and for me it was giving knowledge away for free at the time, and building a reputation, and so that’s what I was doing.
I was helping him with a lot of his real estate deals. He was writing a book called The Inside Power, and the guy Vigliano, from Vigliano and Associates, his book agent, got on the phone with me because he wanted to ask me a few questions for the writer that was writing the book about Gary getting involved with real estate and how he met me for Gary’s book. So I began to talk, and then the guy was intrigued; he’s like “What do you think about multifamily? What do you think about New York?” He started asking me real estate related questions, so I gave him a 30-minute seminar, and then he was like “Do you have any books yourself?” I was like, “Yeah, I’ve mentioned that. Absolutely. I’ve got a manual here that I’ve been selling out of the trunk of my car.” So he was like “Send it over to me.”
So I immediately FedEx-ed it, and didn’t hear from him. I went to the fight, which was almost a month later, and I hadn’t heard from him. Then I get a call, when I was in Vegas at the fight, and it was him, David Vigliano. He was like, “Hey look, we’ve read your stuff, we love it. We want you to come to New York. We think we can pitch you to a few major publishers here, and I think we can make something happen with this manual thing you’ve got here.” “Great, when do you want me in New York?” “Tonight.”
Joe Fairless: [laughs] I was gonna say “Tomorrow.” Dang!
Bryan Chavis: So I ended up going from Vegas to New York, and the rest was history. And then I remember Simon & Schuster walking in there, and it’s funny, because Joe [unintelligible [00:08:58].15] was in there at the time; I didn’t know who he was, so we were both sitting in the waiting room, and he goes off to his agent, I go off to mine; of course, we have two completely different trajectories. I should have went with him in hindsight; I should have follow him to his meeting, because it worked out much better then… [laughter] So we go in, and Simon & Schuster was like “How many people are bidding?” and I had my book agent who was trying to negotiate…
Basically, Simon & Schuster said “Hey, we don’t care who’s bidding. We want this book.” And that’s kind of how it all got started. We did a rewrite of the book, and then wrote another one, called “The landlord entrepreneur” just last year, that I launched with them… So it’s been a really good relationship to this point with Simon & Schuster, and that’s kind of how that all got started.
Joe Fairless: Oh, man… What a fun story. Thank you for sharing that. With that book, the original one that you were selling out of the trunk of your car and at the meetings, you asked the attendees to write their problems on the board when they walked in the room and then you solved them… What were some common problems that they had that you solved?
Bryan Chavis: Most of those common problems revolved around the lack of systems. They ranged from “I moved tenants in. They’re destroying the unit”, so a lot of their problems were because these individuals did not understand that in real estate investing, like most glorify it, was about the brick and mortar. Real estate investing, when you’re buying multifamily or you’re buying apartment buildings or rental property, it’s a long-term strategy, therefore there has to be some systems in place to be able to operate day-to-day. I think these individuals came in with a very glossy idea of real estate investing and didn’t really quite understand that it was a business… So I had to kind of teach them to develop a franchise mindset, meaning that systems run the whole entire business, and the systems predict the profitability, and not necessarily buying low and selling high, like a lot books talk about – transactions, transactions, brick and mortar. Bricks and mortars never paid me rent. People pay me rent.
So a lot of the questions come from the lack of understand that you’re dealing with your prospect demographic, how to deal with them, the rules, the regulations, the systems that are involved with dealing with the tenant when they’re a prospect, when they become a tenant, and then when you’re moving the tenant out. So really just getting them to understand that this was a business.
Then the idea is “Okay, it’s a business. How do I get it organized?” That’s when the manual came in, and when I would walk them through the manual and solved their problems through showing them the systems that they needed… Because in property management in most states the landlord-tenant laws dictate how we have to react to certain issues that may arise, so you need to have the systems in place to keep you out of trouble.
There was a lot of problem-solving, but it really basically stemmed from a lack of knowledge and understanding getting into this business. In this market, a lot of the questions that I get are “How do you operate at lower cap rates? How do you decide for making a deal happen in this market? How do you evaluate net present values, IRRs? How do all those things come into play? How do you create or generate cashflows from assets that are throwing off these lower cap rates?” So it’s a lot of the same, way back then and even to present day; the market is a little different, the values are a little higher, we know, depending on the class property that you’re looking at, class A, B, C and so on, but pretty much the gist of it in the problem-solving and in making this thing work is really understanding that it’s a business, and how to run it from an operational standpoint. How to have both an asset manager’s hat, and a property manager’s hat. How to wear those two hats.
Joe Fairless: What’s one specific tactic that we can implement if we want to have a franchise mindset?
Bryan Chavis: One specific technique one can implement — for me it’s kind of tough to say which one. It really depends on what it is you’re trying to do with the project. At the end of the day, if it’s a value-add play, what is one technique one can implement – I think it’s making sure that you step back and you organize and operate from a SEOTA standpoint, which I call a “Strategic Evaluation Over a Target Area.” Understanding who your prospect tenant is I think has always been the thing that’s kept me out of trouble – understanding who that prospect tenant is, understanding the demographics and psychographics.
Nowadays that information is pretty much everywhere. When I first started, you had to dig for it or pay for these expensive reports to get that, but that information is pretty much everywhere on the internet now, so… Really understanding who your prospect tenant is is key before you get started.
Joe Fairless: And what information do we need to know about the prospective tenant?
Bryan Chavis: Okay, good question. I’m trying to paint a picture, a profile; I’m gonna understand 1) the demographic, that’s who they are; psychographics is why they choose one unit versus another… So it’s really the same thing that Walmart, Walgreens, CVS – when you go in, if you remember back in the day they used to have those short receipts; now they have these long receipts that are about as long as the Dead Sea Scrolls… But all that information is basically offering you coupons based on your habits. So the idea of collecting information on my prospect tenant based on their habits, understanding their employment, average household size, the demographics, which means who they are, the psychographics (the why).
Compiling all this information gives me a great perspective and understanding of how I need to stage my rental units, curb appeal, what the focus is… I just took down a project in downtown St. Pete. I facebook every day from the property and show everyone how I’m turning this property. We went from the average $775 rents, I’m already up to $1,000 right now in the rents, and people are scratching their heads trying to figure out how I’m doing it… It’s because I understand my prospect tenant well before I even took the project down. So now I’m catering the whole entire property not based on my personal preference or what I wanna see there, but on my prospect tenant’s personal preference, and that’s everything from the outside of the unit to the inside, the way it looks, the way I have them show the rental unit, the advertisement, the way we speak about the property – everything is catered to that prospect tenant’s demographics and psychographics.
Joe Fairless: The $775 to $1,000 in rent – incredible jump. Did you have to invest–
Bryan Chavis: We’ve just purchased it in October, so I’m not even in a year yet.
Joe Fairless: Oh yeah, not even 12 months… How much have you invested per unit to do that?
Bryan Chavis: That’s a good question… Less than $1,000.
Joe Fairless: That’s even a better jump now in my mind.
Bryan Chavis: Yeah, I’m glad you asked that question.
Joe Fairless: What are some specific things that you’ve done on that property?
Bryan Chavis: Another good question. Some of the things that I like to focus on is I knew who I wanted to compete with. While everyone thought that I was competing with another property, like properties in the area, but I knew that like properties in the area lacked professional management, I knew they lacked the understanding of the demographic. Who I was going after was — if you look at downtown St. Pete, you see all the cranes, you see all the high-rises, all the new class A product coming out online… That’s attracting a lot of individuals there. That was the demographic that I was going after, and everyone thought I was crazy… But I’m trying to go after that demographic, so my pitch was “Why rent at $1,400? Come rent from me at $1,000. Get the same area, get the benefits… You want the free Wi-Fi? There’s a coffee shop attached to my building. You can go there and get the free Wi-Fi. You want the fancy weight room, you go two blocks – there’s the water, there’s the bay… You’ve got all the equipment out there that the city put out there for free…”
So I didn’t really feel like I had to compete with amenities with these companies. Where I had to compete with them, the large institutional guys, was the professional management, and then the way the unit looked and felt to the prospect tenant when they entered in the unit. So I focused on amenities… Ceiling fans – I put in high-end fixtures. We have these cool little faucets, when you put your hands on them in the bathroom, the LED light lights up, and it lights up the water stream so they don’t have to turn on the lights and disturb anybody in the studio. And just thinking about everything about that tenant and really just focusing on their needs, and always having a Wow factor when they come in. That Wow factor could be something as simple as a really cool ceiling fan.
You can go on Facebook and see some of those videos, and I show you when I got this oscillating ceiling fan from Home Depot with two little fans at the end of it, and they blow… It’s just really industrial and urban-looking, and really cool. And based on sensors, when you move, the light turns on, and you’ve got a remote control, you can turn it and rotate the whole entire unit, or just the fans… So just really cool little things like that that really target that demographic, and when they leave Park Plaza, whether or not they rent from me or not, they remember me.
Ultimately, I’m just trying to create that experience, and I let downtown St. Pete do the work with the amenities. I let the city do all the work, and I’m just piggy-backing on the location and focusing on the professional management.
Joe Fairless: That $1,000/unit that you invested in them, how is that budget broken out?
Bryan Chavis: In the due diligence process. When you buy a property, you go through that due diligence period – let me know if I’m explaining this the right way, if this is what you’re asking…
Joe Fairless: What I was asking – you mentioned all those different things you had in those units, like the ceiling fans and fixtures… Within that $1,000 budget, how do you allocate each of those items? Approximately, just to give us an idea of what was the bigger ticket item, versus the smaller ticket items.
Bryan Chavis: Okay, sorry. So I go with the Wow factor, so what I feel that they’re gonna see. Obviously, this is a studio apartment, so their eyes are gonna fix right to the kitchen. They already had the backsplashes from the previous owner, so I didn’t really have to do much there… So then the idea was we spend the money on the fixtures, the faucets, and then the ceiling fans. Those were just abundantly clear that they were outdated. They were actually brand new ceiling fans that the previous owner had in there, but they were those old, wooden fans… But that’s the first thing you see when you walk in, so that was the first thing I got rid of.
So the money was spent on the ceiling fan and on the refrigerators and the stove, the appliances. You want stainless steel, and then you want the brushed nickel, matching ceiling fan, the urban type look and feel… So the focus was really on the appliances packages and faucets and things of that nature. Those are your bigger ticket items.
Joe Fairless: Okay. And how do you spend $1,000 on refrigerators, stoves, ceiling fans, fixtures, lights that turn on when you move…? It seems like that would be more, right?
Bryan Chavis: Well, yeah, but you also have to think these are studios, so these are much smaller items, the refrigerators and things like that… So we’re getting a little smaller units. The ceiling fans are averaging around $300-$400, the faucets – we’re always getting the ones on sale or discounts… So yeah, I just try to buy them in bulk when I see the discounts. I have, of course, the Home Depot savings package or whatever it is that they have… But yeah, at the end of the day it’s not a lot. There’s the bathroom faucet, the kitchen faucet and the ceiling fan. Those are your major amenities that we’ve added in.
Joe Fairless: Okay, so the refrigerator and stove is not included in that $1,000.
Bryan Chavis: Sometimes I have to spend on that, but if I do spend on the refrigerator or a stove, I’m usually trying to get the [unintelligible [00:20:27].21] stainless steel from Home Depot out of the package… And there’s tons of them. You just have to ask where they are. Sometimes you have to go and pick them up, but…
Joe Fairless: How much are they, usually?
Bryan Chavis: I just bought one for $349.
Joe Fairless: Wow. That’s good stuff. With this property, what’s the projected hold period?
Bryan Chavis: Terminal value, probably somewhere right around 14 years.
Joe Fairless: What type of financing do you have on it?
Bryan Chavis: Cash.
Joe Fairless: All cash, no debt?
Bryan Chavis: No debt.
Joe Fairless: What was the purchase price?
Bryan Chavis: 2,6 million.
Joe Fairless: And was that syndicated, or was that your own cash?
Bryan Chavis: Syndicated.
Joe Fairless: What are the projected returns on a property with no debt for 14 years?
Bryan Chavis: Starting out, your entry cap is somewhere right around; you’re coming in at around a 6-cap, and then we’ll probably exit somewhere right around an 8… And for the vast majority of these guys it’s more of the efficiency and not the actual cash-on-cash return… Even though the cash return is extremely important; please understand that’s important; it’s also the IRR, the efficiency from which these guys are getting their money back. When you’re dealing with individuals who are 50-60 million, they’re looking to put their money into real estate, they’re not necessarily cash poor, so they would rather benefit from the tax deferrals… And again, these returns are not factoring the cost segregation, or factoring in any of the other ways we generate returns for our investors, but just straight cash-on-cash, we’re looking at a 6%, and then we’re also looking at an IRR upwards of 13%-14%.
Joe Fairless: And what type of structure do you do with your investors on a deal like this?
Bryan Chavis: There’s many different types of waterfalls, and we can get really far in the weeds with that, but…
Joe Fairless: For this one in particular.
Bryan Chavis: This one in particular is based on performance. Anytime I come to a deal, it’s usually no less than 20%-30% equity stake, and then performance based on waterfalls, IRR’s, various different hurdles that we have at payout. Sometimes there’s a pref, sometimes there isn’t, but…
Joe Fairless: Was there a pref on this one?
Bryan Chavis: No, sir.
Joe Fairless: It’s incredible… When you think about a deal and you’re analyzing it, how do you determine if you should out financing in place or pay all cash?
Bryan Chavis: That’s another good question, and I’m sure someone will always argue this, but after 2008 one of the things that I learned — in 2012 I pretty much lost everything; not necessarily in 2008, but in 2012 I was diagnosed with a brain tumor, did not have insurance, so I pretty much had to sell and liquidate everything and start over from scratch. So when I did and I’ve gone through the losses and gone through some of the things that I’ve gone through, I quickly realized that banks weren’t necessarily partners.
For me, being able to raise money – and many will argue, and I do not disagree with people saying “Use leverage”, and I’m not saying I’m never gonna use leverage again… I will. But for this deal I just didn’t think it made sense. If I’m gonna use leverage, I’ll leverage through the appreciation of this asset because of its location; I’ll use Park Plaza as a bank, and then I can look to use Park Plaza as leverage for the next deal, versus actually bringing in a bank right now. I have a little bit more bargaining chips, I will not be at a disadvantage, and then I can go after the more non-recourse loans, be a little bit more aggressive… Whereas I’m going to them and looking to shop a deal with them, we can already have a decent-sized portfolio and then begin to lend against it, whether it be bridge loans, or deployment of various different products that are out there that exist through Fannie Mae or Freddie Mac, that cater to multifamily. But for me, if I did not have to pull that level right now, it just made more sense to me after what I’ve gone through and some of the things I’ve seen, to have a few assets that we had outright, that we could then use as bargaining chips further down the road.
Joe Fairless: What’s your best real estate investing advice ever?
Bryan Chavis: Best real estate investing advice ever… Man, there’s a lot out there. I would say my best advice that I’ve received is that numbers do lie. People say numbers never lie. Numbers do lie. You can make numbers lie, so understanding how to perform your due diligence, understanding how to go through that SEOTA process, which I call the Strategic Evaluation of a Target Area – really understanding how to perform that to me has been the best advice that I have gotten, really understanding what that means. Numbers do lie, so making sure that you perform your due diligence, especially when you’re dealing with multifamily. You always wanna make sure you’re performing your due diligence.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Bryan Chavis: Let’s do it!
Joe Fairless: Alright, let’s do it! First, a quick word from our Best Ever partners.
Joe Fairless: Alright, Bryan, what’s the best ever book you’ve read?
Bryan Chavis: The Bible.
Joe Fairless: Best ever deal you’ve done?
Bryan Chavis: Park Plaza.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Bryan Chavis: Being too eager.
Joe Fairless: Best ever way you like to give back?
Bryan Chavis: Education, training.
Joe Fairless: And how can the Best Ever listeners learn more about you and get in touch with you?
Bryan Chavis: We have a summit coming up October 29th and 30th here in the Tampa Bay area. We’d love for them to come out to the summit at the Holiday Inn Westshore. BryanChavis.com, or BuyItRentItProfit.com. They can find out information about the summit at BuyItRentItProfit.com/brpsummit.
Joe Fairless: Bryan, thank you so much for being on the show and sharing your thought process, the case study with raising rents from $775 to $1,000, how you do it, how you think about it too, with understanding the prospective tenant and knowing who they are and why they choose one unit over another, the really strategic way that you looked at it from the deal we discussed, where you’ve got the amenities built in to the surrounding area – coffee shop, the weight facility on the bay, and you’re less than the class A property a little bit further in… Really interesting.
Thank you so much for being on the show again. I hope you have a best ever day, and we’ll talk to you soon.
Bryan Chavis: Thank you, sir. I appreciate you.