Carlos is a broker and has been flipping houses since 2010. He also owns over 40 units and has syndicated 20 of them. He shares some great stories with us of how he’s gotten to where he is today. From his syndication deal to why he is no longer flipping much. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
Carlos Gutierrez Real Estate Background:
- Realtor since 2010, flipped about 20 properties from 2011-2017
- Purchased 20 units raising $200k to close, rehabbed and paid investors back after 14 months
- Owns another 41 units
- Based in Charleston, South Carolina
- Say hi to him at firstname.lastname@example.org or 843.934.4250
- Best Ever Book: Best Ever Apartment Syndication Book by Joe Fairless
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Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.
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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, Carlos Gutierrez. How are you doing, Carlos?
Carlos Gutierrez: Good, Joe. How are you guys doing?
Joe Fairless: I’m doing great, and welcome, and looking forward to our conversation. A little bit about Carlos – he has been a realtor since 2010; he flipped about 20 properties from 2011 to 2017, purchased 20 units, raising $200,000 to close; rehabbed and paid the investors back in 14 months. Owns another 41 units. Based in Charleston, South Carolina. With that being said, Carlos, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Carlos Gutierrez: Yeah, how’s everybody doing? As Joe and I were speaking earlier, we are safe here in Charleston, from the hurricane. It wasn’t that bad. We got a little bit of rain and some wind.
A little bit of my background – I’ve started flipping houses in about 2010-2011. I flipped about probably over 15 to 20. When I first started, I got my real estate license, became a realtor, and at the same time that I was flipping houses I was also doing the brokerage side of the deal, so I was buying and selling houses with buyers and sellers. I did that from 2011, and I still do it now. I don’t concentrate as much on it.
Joe Fairless: Why not?
Carlos Gutierrez: Just because it’s like multifamily – it’s gotten harder to find good, solid deals. I’ve always been of the model that I’d rather keep my money than lose money.
Joe Fairless: Ditto.
Carlos Gutierrez: So if I get a solid deal, then I’ll go after it, but they’re just hard to find, especially locally here in Charleston; we’ve gotten a lot of investors – not only local investors, but national investors – just buying stuff up left and right. They’re essentially buying for yield, so they’re kind of overpaying, in my opinion, for properties that I was buying for 20%-30% less two or three years ago.
Joe Fairless: And you purchased 20 units raising $200,000 to close. Can you talk about that?
Carlos Gutierrez: That’s a little bit of a cool story. My wife and I, we moved from the DC area from Virginia, down to Charleston. She’s from Virginia, I’m from Florida. I didn’t wanna be in Virginia, she didn’t wanna be in Florida, so I said “Pick somewhere in the middle.” So we ended up in Summerville, South Carolina, a submarket of Charleston. We’d come visit a couple of times, to look at houses and see where we wanted to be.
One day we were down here looking at new construction, and I have a five and a three year old, and my wife wanted to stop and get some food, and we looked at our phones and we’re like “Oh, let’s go to a Subway.” When we actually got to the Subway, there was actually no Subway there. The Subway had closed down and it became an office building. But while I was in the parking lot I had looked across the street; there was an 8-plex that was empty, and it was a pretty solid-looking building. It was all brick, a little bit of siding… But other than it being empty, it looked pretty decent. I’m like “I’m wondering why that thing’s empty.”
I wrote the address down in my phone, and about a year later we moved down to Summerville, Charleston, and I said “You know what, I’m gonna write this guy a letter.” I wrote the guy a letter and said “I’d like to buy your apartment if you’re interested.” He called me back and he said, “Not only do I own eight, I actually own 20 on that street. Are you interested in buying all 20?” I said, “Sure, if we can come to an understanding.”
Back and forth – he’s an older gentleman, so everything was done over the mail.
Joe Fairless: Mail, like…?
Carlos Gutierrez: Yeah, literally. I talked to him on the phone, and I said “This is how much I can give you.” Then he’s like “This is how much I want.” We were kind of back and forth. We finally agreed on a $750,000 price. He’s like “Alright, send me the contract.” I was like, “Yeah, what’s your e-mail?” He’s like, “I don’t have an e-mail. Mail it to me. I’ll have my lawyer look at it, and if it’s good, I’ll fill it out and send it back to you.” About two weeks pass… [laughter]
Joe Fairless: Did you at least overnight it?
Carlos Gutierrez: I did. [unintelligible [00:07:04].12] where he would have to sign for it. We’re used to technology; I send you a contract today, and it’s gotta be settled in half an hour. So it took about a month before we finally got all the paperwork.
Joe Fairless: How does it work when he has markups to a printed out contract? How are those updates communicated?
Carlos Gutierrez: What I did finally was — because he was an older gentleman and I don’t know if he’s never dealt in real estate or just happened to have this property, but I wanted to make sure that everything was okay, so I said “Why don’t I just have my lawyer contact your lawyer? And that way we can have no miscommunication.” Because I would call him and be like “Hey…” His name was Skippy, by the way. [laughter] I could write a book on this whole deal, literally. And finally, back and forth, the lawyers kind of agreed and put an actual contract together. But it was still like a residential contract, it wasn’t like a LOI type of thing.
Joe Fairless: Okay, so a $750,000 purchase price, all 20 units… What was the reason why you did not contact him when you first saw the property? I know you weren’t living there, but…
Carlos Gutierrez: Yeah, I wasn’t living here at the time, and I knew that it was gonna be a heavy construction type of a deal, so I didn’t wanna buy it and be in DC and have to fly back and forth.
Joe Fairless: Okay.
Carlos Gutierrez: And at that time I had a three-year-old and a one-year-old. You know about that, I think you said your wife was pregnant–
Joe Fairless: Yeah, she’s due in a couple– well, by the time this airs, hopefully we have a baby girl.
Carlos Gutierrez: You’ll have a child, so you’ll understand that. All that time that you had in the world, when you start having kids, you’re like “I had so much time before. I literally have no time right now.” So that’s the reason why I waited.
Joe Fairless: Okay. So you got the contract agreed upon… High-level, besides the purchase price, what were some of the terms?
Carlos Gutierrez: It was basic terms. I gave him a $10,000 earnest money deposit, I put 90 days to close… I did it on no contingencies, because I had already walked around the buildings, I looked through the windows… I knew I was gonna do heavy construction, so other than having an appraisal contingency or things like that, there was no other contingencies in the deal.
Joe Fairless: Okay. Was your earnest money non-refundable day one?
Carlos Gutierrez: No, the lawyers agreed that it would be non-refundable (I think it was) 30 or 45 days.
Joe Fairless: Okay.
Carlos Gutierrez: Kind of after we got the appraisal and all that stuff.
Joe Fairless: Okay.
Carlos Gutierrez: And I wanted to put that in the paperwork, because I knew it was gonna be one of those things where it’s too small for the big banks, and too big for the local banks. It kind of fell in between, so I had to get a local credit union that wanted to see that area move forward. I had 30%-40% occupancy.
So there was a lot of things that a Fannie Mae/Freddie Mac type of thing or a local Bank of America would be like “No, we’re not gonna have it.” So I’ve got a Heritage Trust Credit Union which is a local person, he got me a pretty decent loan; it would amortize over 20 years, 20% down, instead of 25% down; 4,9% or 5% interest rate, which was a little bit higher at that time, but still it was decent for the occupancy.
Joe Fairless: What was the loan term?
Carlos Gutierrez: Five years.
Joe Fairless: Five years, okay. And then what about your construction?
Carlos Gutierrez: So the construction was — I estimated about $100,000, because it was gonna be about $10,000/unit for the building that was empty, and then about another 20k-30k in the other units that needed to be either turned, or put another roof on another building… There was a total of four buildings, and two out of the four buildings got new roofs.
Joe Fairless: How did you estimate that?
Carlos Gutierrez: I had experience with single-family flips, and I literally just went into an apartment and said “Well, I need (from A to Z) plumbing, electrical, roof flooring”, all that stuff… And I just put a budget together from my experience in single-family, and I also had experience with apartments, because I had a old-time job as an apartment manager/maintenance guy.
Joe Fairless: Okay. Did you plan on doing that work yourself?
Carlos Gutierrez: No. Since I first started, I said “I’m never gonna be one of those guys that buys the house and does everything and it takes him six months to flip.” The name of the game, in my opinion, is being fast. So other than maybe like demoing a house or pressure-washing something outside just to keep me a little bit busy, other than that I never did heavy construction.
Joe Fairless: Okay. In the loan that you got, did that $100,000 — was that included in your loan?
Carlos Gutierrez: No. They treated it as a — I wouldn’t call that a performing asset, but they knew that I was gonna get to that level, so they just treated it as stabilized, 70%-80% stabilized…
Joe Fairless: Even though it was 40% and you were probably kicking those 40% out, I imagine.
Carlos Gutierrez: Correct, yeah. It was a huge obstacle, because like I said, “nobody really wanted to touch it” type of a thing; they couldn’t see past the numbers. It had to have been somebody that was local, that knew that area, and knew that that area was starting to turn around.
Joe Fairless: How long ago was this?
Carlos Gutierrez: 2016.
Joe Fairless: Okay, great. About two years ago. Perfect. What have been the major milestones that you’ve accomplished from then to now?
Carlos Gutierrez: In that particular deal?
Joe Fairless: Yeah, with that particular deal.
Carlos Gutierrez: When I did the ARV on that deal, I thought it was gonna be around a million, a million fifty. So I knew I didn’t have that much spread, but I knew it could be a nice performing asset once it gets stabilized… And we estimated the rents, once it was rehabbed, about $750 to $775. With so much demand in the area for rentals and so many people moving down to Charleston, we were able to rent all those at $850.
Joe Fairless: Uuh…
Carlos Gutierrez: And I’m talking about my phone was ringing off the hook. And I could probably push it higher, but I just thought that at that level I didn’t need to push it anymore. The biggest milestone when we actually finished the rehab, I was able to refinance it at a valuation of 1,2 million. I was able to get a new loan, longer amortization, close to the same interest rate (4.84%), amortized over 25 years, 10-year call… I was able to pay the first loan off, plus the investors, plus give me back my initial investment in the deal.
Joe Fairless: When you paid off your investors, did you buy them out, or are they still owners with you in the deal?
Carlos Gutierrez: No, I bought them out. We came into this deal — we gave them promissory notes. I had a partner at 40% equity, and he brought all the money from investors. We gave them 10% return on their money, and I gave him a 40% equity, and I was able to pay everybody back, including him, his equity. So I’m the sole owner now of the 20 units.
Joe Fairless: Wow… If you hadn’t got a favorable appraisal of 1,2… Let’s say you execute the business plan but the market just went South – what’s your plan for having those investors at that 10% promissory note?
Carlos Gutierrez: Even at a million dollar ARV, I knew I was able to pay at least the investors off. I was planning to keep the partner with his equity in, and my initial investment. I knew that it was gonna be a longer-term play. But this time, when I refinanced it, I knew I could pay at least the 2-3 investors back.
Joe Fairless: And how did you know that?
Carlos Gutierrez: Just by doing the math on the ARV, and working backwards.
Joe Fairless: Okay.
Carlos Gutierrez: I factored that into the business plan and into the underwriting that I did.
Joe Fairless: How much monthly income does it net you in your bank account?
Carlos Gutierrez: It’s about $125 to $150/door right now. That’s factoring in the management fee, escrowing the taxes and insurance… Because when you buy a multifamily, especially small ones, they don’t escrow all that, so at the end of the year you’ve gotta pay $15,00-$20,000 in taxes, and you’ve gotta make sure you escrow that monthly… Which I see a lot of investors not do that. When they net out cashflow, I’m like “Did you net out vacancy rate? Did you net out taxes, insurance, all that stuff?” They’re like “No.” Well, [unintelligible [00:16:03].13]
Joe Fairless: Why do you think the property was still for sale one year after you looked at it?
Carlos Gutierrez: It actually was never for sale?
Joe Fairless: Oh, I missed that.
Carlos Gutierrez: Did I not say that?
Joe Fairless: I don’t think you said it was for sale, I just thought it was.
Carlos Gutierrez: I’ve always been a guy that’s always kind of looking for a deal. And when I see empty places, I’m like “This is for the taking.” So I just sent the person a letter. I’ve gotten my best deals from dealing straight with owners, from sending them letters. Instead of doing a massive 2,000-3,000 fliers, I’m kind of bird-dogging, I guess you’d call it
Joe Fairless: Sure.
Carlos Gutierrez: Yeah, and I look for places that are empty, and then send them out letters.
Joe Fairless: What does that letter say that you sent to the gentleman who had the 8-unit that then grew to a 20-unit portfolio that you purchased?
Carlos Gutierrez: I did basic letters. I remember wholesalers back in the day in Maryland used to send out those yellow letters… Real basic. “My name is Carlos Gutierrez. I own Cg4Properties. I would like to purchase your property at 123 Smith Street. I can buy it in cash in 30 days or less. Call me at this number.” I don’t even put an e-mail, because most of these people don’t do e-mail.
Joe Fairless: So Skippy called you, and he says “Oh, great! Buy my place for cash, 30 days”, but then you ended up financing it, so how did that conversation go?
Carlos Gutierrez: I said “Listen, Skippy… Usually I buy properties in cash, but this property has significant amount of construction, so I need to keep that capital that I was gonna pay you cash for, and try to finance it. I’m gonna try to finance it, and then with the capital that I was gonna pay you, the straight cash, for the property – I’m gonna need it for the construction.” And he was actually really nice to deal with, and open, and he knew that to have 20 units and to have a 30% occupancy — and he had a mortgage on; it’s not like one of those guys that has owned a property for 30-40 years and it doesn’t matter if it’s 40% occupancy, they’re still making money.
Joe Fairless: What was the main challenge you had turning the property around after you closed on it?
Carlos Gutierrez: The hardest challenge was to actually get contractors to work. Again, Charleston has been an area where there’s been so much new construction and so many people moving in that they actually have a shortage in blue-collar type of contractors. For the roof, I had to call like four roofers to do a roof on this property, because all the roofers were doing new construction… They’re not gonna leave new construction where they can do 2-3 roofs a day, to come do my roof.
Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?
Carlos Gutierrez: In the short time that I’ve been doing this, I’d say a couple of things. I’d say – as cliché as it sounds, finding your big WHY. I always say, the fun times when you actually make money or when everything’s going fine, your big WHY is not that big of a deal; but when you have a fire at your property, or when the tenant is calling you in the middle of the night and there’s a toilet backed up, or something, you’ve gotta have that big WHY of looking past tomorrow, or next year. You’ve just gotta know why you’re doing it. If it’s just for the money, like people always say, you’re just gonna get tired; it’s just gonna mentally drain you. So your big WHY – you’ve gotta have that.
And the other advice I would say is build relationships with people and always go into the transaction or relationship with a win/win attitude. Again, as cliche as that sounds, and I’ve sure people have read it in books, it’s the truth. Most of the times that I’ve gotten the best deals through contractors or through people that send me deals, or relationships that I’ve built over time, they 1) trust me, and 2) it’s always gonna be a win/win when we do a deal or a transaction.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Carlos Gutierrez: Yes, I am.
Joe Fairless: Alright, well let’s do it. First, a quick word from our Best Ever partners.
Break: [00:20:24].04] to [00:21:17].08]
Joe Fairless: Best ever book you’ve recently read?
Carlos Gutierrez: Other than your book… [laughs]
Joe Fairless: Which one? The syndication one?
Carlos Gutierrez: The syndication book, yeah. I’ve been trying to get into syndication for the last two years, and I find your book to be actually very informative and very easy to read. There’s a lot of books out there that have a lot of information, but they’re difficult to read. When I say difficult, I mean boring. [laughter] They’re putting you to sleep.
Joe Fairless: I’m a very simple-minded person, so it’s easy for me to…
Carlos Gutierrez: [unintelligible [00:21:45].26] myself. I call myself the Forrest Gump of Charleston. [laughter]
Joe Fairless: What’s the best ever deal you’ve done that you haven’t talked about during this conversation?
Carlos Gutierrez: Okay, I’d have to go to single-family flips. Probably the most money I’ve ever made on the deal, and the reason why it’s my best deal is because 1) I’ve made the most money, and 2) it was the happiest buyer that I’ve ever seen in my life. She had struggled for a long time, husband left her with two kids, he was the breadwinner, she was down and out… This was in [unintelligible [00:22:25].15] Virginia. I bought the property through a HUD, and got a real good deal because it was back in 2013, so they were pretty much giving you houses back then; 2012-2013. I made the most money, but I also felt really good, because I sold her the property and left her with some good equity, meaning that I didn’t sell it to her at top retail. And she was able to move into a home and have a good future for her and her kids… And I was able to get her a good loan, and she really didn’t have to come out of pocket too much. So not only did I make a lot of money, but it felt good to help somebody else.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Carlos Gutierrez: A mistake I’ve made on a transaction? I guess I’m an old-school guy, and I used to go a lot on people’s word; unfortunately, in real estate you cannot do that. I went on somebody’s word, and it came back to bite me in the butt. Monetarily, as well.
Joe Fairless: Oh, literally?
Carlos Gutierrez: No, no… [laughs] Something didn’t literally bite me, but losing money felt like [unintelligible [00:23:36].24]
Joe Fairless: Sure, of course. Best ever way you like to give back?
Carlos Gutierrez: What we’ve done lately – and when I say lately, I mean probably back in 2013-2014 – when a big hurricane or a storm would ravage either a country or a state, we would partner up with local non-profits, and even collect food and supplies and stuff. We collected a lot of supplies for when the storm hit New Jersey, and when the storm hit West Virginia… Through Keller Williams we were able to raise a lot of funds and collect a lot of items.
And also in Puerto Rico – I’m originally from Puerto Rico, so this one kind of hit close to home – we collected over 2,500 pounds worth of food and water and all that stuff. We sent probably 3-4 pallets to Puerto Rico from Charleston.
Joe Fairless: Best way the Best Ever listeners can get in touch with you?
Carlos Gutierrez: The best way is probably e-mail, or a phone number. Cg4properties@gmail.com, or you can call our offices at 843-934-4250. Myself or my wife Christina will answer.
Joe Fairless: Carlos, thank you for being on the show. Thank you for talking about your deal with Skippy and how that’s netted you now $30,000/year in income. Now that the dust has settled, you don’t have any money in the deal; you own it 100%, and you make $30,000 as a result of it… And it sounds like you didn’t put any money in the deal initially, because you partnered with a private equity partner who then got bought out… So here’s a case study right here – how do you replace your $30,000 job income (if you’ve got $30,000), well, do one deal, and here’s exactly the step-by-step process for how to do it.
Thank you so much for sharing that story. I hope you have best ever day, and we’ll talk to you soon.
Carlos Gutierrez: Alright, Joe. Thank you for the opportunity.