At some point, most of us start thinking about retirement. John was ahead of the curve for most people and at a younger age started projecting out his income and savings. He realized retirement was not looking great, tried to figure out the stock market, then fell in love with real estate investing. Now he’s got a large portfolio and currently working on a 41 unit deal. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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“It’s all about partnerships” – John Fortes on his real estate investing success
John Fortes Real Estate Background:
- One of the founding partners of Community First Investment Group
- has 62 units under management and is currently syndicating another 41 units
- Based in Boston, MA
- Say hi to him at https://www.cfigwealth.com/
- Best Ever Book: The Third Door
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TRANSCRIPTION
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, John Fortes. How are you doing, John?
John Fortes: Hey, Joe. How are you doing? I’m doing good. Thank you for having me.
Joe Fairless: Well, I’m doing well, and I’m glad to hear that also. Well, looking forward to this conversation. A little bit about John – he is one of the founding partners of Community First Investment Group. He’s got over 63 units under management, and is currently syndicating another 41 units. He’s based near Boston, Massachusetts. With that being said, John, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
John Fortes: Yes. I have a background in IT, but back in the day I noticed that the 401K situation wasn’t gonna help me retire. I presented this to my wife, and I stumbled upon multiple other things. I went through five years of just researching, and I finally decided to do it.
I valued real estate over stocks, so that’s how I got here, and it led me to form the company, Community First, with my two other partners, and… Now I’m here on your show.
Joe Fairless: So you were looking at your retirement plan, and what indicated that “Hey, this isn’t gonna work out. I need to do something else”?
John Fortes: Great question. Projecting it out. I started working, and then nine years later I’m projecting it out to see in another nine years what it would look like, and I said, “Hm, this is very shaky to me.” It’s not much to live off of, so I said, “I’ve gotta figure out something else.” I literally turned to stocks, I tried to figure that out, I could not make sense of it. Real estate really was understanding… And I could completely understand real estate because I went through the process of buying a house and seeing how equity worked.
Joe Fairless: So how long ago was this?
John Fortes: Five years ago, in 2013. Six now, yeah.
Joe Fairless: Okay, five to six years ago. And what did you do immediately after, to prepare you, to where you are today?
John Fortes: I presented it to my wife, and I went through a huge growth process from 2014, 2015 and 2016, and in 2017 I finally joined Bigger Pockets. From there I did a bunch of research, and just kind of networked with a few people and just poked holes in a few arguments that I had, but nothing really fell through the concrete, so I was like “Okay, it’s got some legs.”
Then I started looking at my own home in value, and how it’s appreciating, and how basically if you buy right, you can really enjoy the benefits of the appreciation… But when I go back and look at it if I have a tenant doing everything that I’m doing in my own home, I saw crazy value in that.
Then when I purchased my first single-family – kind of like you; you have a few single-families…
Joe Fairless: Yup, I do.
John Fortes: I’m always kind of surprised that you still have them, but you said they cash-flow well…
Joe Fairless: You want them?
John Fortes: [laughs]
Joe Fairless: 175k per single-family. I’ll give them to you; we’ll do the contract right after we get done with this conversation.
John Fortes: I’ve shifted my focus since then… [laughs]
Joe Fairless: Oh, darn it! Okay…
John Fortes: [laughs] I purchased mine and then I saw the value of multifamily, because I wanted to scale… So that’s when I reached out to my first partner, who’s my tax accountant. He runs my analysis for me, and he’s great with numbers; I don’t wanna do anything with numbers. Now I wanna focus on investor relations, raising money, raising capital, broker relations, looking for the opportunities and presenting it to my partner… Because he doesn’t wanna be the face of anything, meaning he doesn’t wanna speak to people really…
Joe Fairless: [laughs] I know the type, yeah.
John Fortes: Yeah. He’s awesome when you get him to talk, but he just doesn’t wanna go ahead and look for it.
Joe Fairless: Yup.
John Fortes: But with that said, my other partner’s the same way, but he has a focus in inspection companies. He has an inspection company on the residential side, and then he has a multifamily inspection company as well, so… He helps us with boots on the ground and what we’re looking for when we’re looking through the property, when we’re walking through the property; he knows exactly what to look for. So we really, really help each other. We form a nice little team.
Joe Fairless: Oh, absolutely. Yeah, so you’ve got someone who is good at the underwriting, you’ve got someone who’s good on due diligence, and you’ve got someone who’s good at bringing in the capital… What about asset management? Is that the inspection person who focuses on asset management, or the accountant?
John Fortes: Well, it’s the inspection person who focuses on the asset managing, making sure everything’s going according to plan, and then we’ll all get on a call with the PM if we have to, and just say “Hey, why is this happening, why is that happening? Can you explain this to us? We expected this…”, or something like that.
Not that any call has gone bad or anything, but we just have a good sense of what we’re looking at when we’re dealing with certain things, when we have to reach out to the PM.
Joe Fairless: Got it. So let’s talk about this – is it 63 units that you have under management?
John Fortes: It’s a 62-unit, yeah. A 62-unit in Johnson City, Tennessee.
Joe Fairless: Alright, 62 units in [00:07:24].20] You are near Boston, Massachusetts, which is not close to [00:07:30].04] I imagine. I know where Tennessee is, I don’t know where Johnson City, Tennessee is. How did you find the property in Johnson City, Tennessee?
John Fortes: One of our partners in the community that we’re part of–
Joe Fairless: Which one?
John Fortes: [unintelligible [00:07:41].25]
Joe Fairless: Okay. Yup.
John Fortes: They’ve been good to us. And everybody in the community has been kind of really formed like a brotherhood/sisterhood, and it’s tightly knit with anybody that’s actively in the communities… So they found an opportunity and they had someone drop out, and my team was literally looking; it was a JV opportunity, and after we did our due diligence and looked at everything, and we knew we had another member as boots on the ground in the area, it made sense to do it. We would have been crazy if we didn’t do it. Everyone in that JV opportunity has been wonderful to work with. Had we not been part of the community, we probably wouldn’t do the deal because we wouldn’t know them like we did. So that was important.
Joe Fairless: What did you all bring that was missing from the partnership?
John Fortes: We brought capital, but also we brought another level of looking over the analysis of the work, and then another level of being able to walk the property, and with my partner Matt give a great detail of what the scope of the work that needs to be done there in the inspection period.
Joe Fairless: Okay. And how many other partners do you have besides your team of three?
John Fortes: There’s seven of us total in that deal.
Joe Fairless: Wow. So seven total people, or you three plus —
John Fortes: Yes. I’m counting us as an entity, yes.
Joe Fairless: Okay, so you three is one, and then you’ve got six other people who are in the deal?
John Fortes: Yes.
Joe Fairless: And are they six other entities, or are there literally six other people?
John Fortes: I believe some came in as entities and some came in as just an individual.
Joe Fairless: Okay, so there’s probably more than six–
John Fortes: Oh, no, no, we know everybody that’s part of the deal, but some people wanted to come–
Joe Fairless: Oh, right, right, right. So it’s six people behind the entity, or six people, plus you three. So there’s nine of you on the general partnership side, correct?
John Fortes: Yes.
Joe Fairless: How did you structure the general partnership?
John Fortes: We came in with a per capita amount, and that’s kind of how we came through with it. The person that found the deal got a little bit bigger piece of the equity as well.
Joe Fairless: Okay, so someone who found the deal got a piece of equity, plus it was split up among you all based on the capital that you brought to the deal.
John Fortes: Yeah. And then another partner – I wanted to mention this because he’s been very important. One of our partners, Darren – he has been boots on the ground, because most of us are all out of state. So he got another additional piece of the equity as well as part of the structure, for his hard work in that. That’s very important, because he deserves it.
Joe Fairless: Yeah, that’s very valuable. So you’ve got someone who found the deal, they get equity; someone boots on the ground, they get equity, and then those two people may or may not have raised money, but everyone gets equity based on how much equity they brought to the deal.
John Fortes: Yes.
Joe Fairless: How do you make decisions on which direction to take the property, on which direction to take the property?
John Fortes: This is the fun part – we all get on a call and we discuss the two different options that we need to decide on, and we all make the decision on the call. So that’s really, really been a great experience, because in the other syndication the pool is smaller, and now we have a better understanding of how to tackle certain things because of this project, the 62. So we do make a decision by getting on a call, presenting the details first and then presenting the options.
Joe Fairless: What were you making the decision on on the last call you did with everyone?
John Fortes: The last call we had to make the decision because when we hired a contractor for a particular piece of the project, when he presented us a bill, his bill was a little bit higher than what he already negotiated on…
Joe Fairless: Imagine that…
John Fortes: [laughs] Oh man, you’ve gone through that too? [laughter] So with that said, we had to decide on how could we pivot for this, and good thing we work with a great PM that could outsource different project to different people to bring at different phases of the project… And it’s a very, very highly intense project. We have one building down, but two of them still with some vacancies in it… But we are still cash-flowing about $3,000/month. So that’s a testament to the underwriting that was done on this project.
Joe Fairless: How much higher was the bill than what they quoted?
John Fortes: I believe it was like — it had to be over 50k, because we weren’t comfortable…
Joe Fairless: Dang…
John Fortes: I can’t remember the exact number, but it was like “Are you kidding me?” And we were looking at the itemized — it appeared he was charging an hourly rate for just like a light fixture, or something like that…
Joe Fairless: Oh, wow…
John Fortes: Something insane. And when we went through and itemized it, because we’re questioning everything on that, and it was ridiculous from what he already told us… And it was certain things like that lightwork that could have just been done by a handyman, and8 he just really, really overcharged us on those things.
Joe Fairless: So when you have those calls, how do you structure the conversation with — I’m sure not all nine of you are on every call, but I’m sure there’s more than three or four of you on every call… So how do you structure a conversation with that many people?
John Fortes: Well, it’s all about communication. If we know certain people are not gonna be on the call, we try to present what is actually happening and what will be discussed and what needs a decision on, and we try to give everyone an opportunity to have a voice. That’s very important. And that’s been very, very awesome with this group, because we all have the same end goal, we all have the potential of this property, and we all know exactly what we need to do.
We also present options, the worst-case scenario and the best-case scenario during those calls, and we make sure that whoever can’t make it knows exactly everything that we are going to discuss, and we try to get something beforehand, for their not being able to make the meeting.
Joe Fairless: Yup. It sounds like you get along really well with the other partners, and you have a lot of respect for them. You can tell just by hearing how you talk about them.
John Fortes: Oh, they’ve been great. It’s been an awesome partnership, and I know there’s a bunch of us in it, but it was everybody that wants to learn, everybody that wanted to do this, and anybody that just had the desire, the passion to just be able to go ahead and let’s make this happen.
Joe Fairless: How much equity did you bring to the deal?
John Fortes: As my group, we brought in 81k of the raise.
Joe Fairless: What was the total raise?
John Fortes: It was 550k, I believe.
Joe Fairless: Okay. And what structure do you have with investors?
John Fortes: Everybody that’s in it — we don’t have any passive investors in this deal.
Joe Fairless: Okay.
John Fortes: So that’s why on this one, the 41, we are syndicating.
Joe Fairless: Okay. Of the nine people that you have on the GP side, is that everyone in the deal? The equity actually came from all nine of you?
John Fortes: Yes. Everyone has equity in the deal.
Joe Fairless: Okay, got it. Did you personally invest in this one?
John Fortes: Yes, we all did. My whole Community First did, we invested in this deal, and everybody else that is part of the GP contributed to the deal.
Joe Fairless: Is the plan to renovate it, reposition and refinance out, or what’s the exit strategy, if there is one?
John Fortes: The exit is pretty unique. We have a worst-case and a best-case. The worst-case is we stay in the bridge loan, and we have options to be able to go out. The best-case is to refi after repositioning, and… As a matter of fact, the last conversation we had, the property is going to be one of the best in the area, so we will be able to [unintelligible [00:15:42].01]. We can command – or whatever we wanna try to do – market rate, and maybe even a slight bump, but I’m not even entertaining that; market rate would be great.
Joe Fairless: This 41-unit that you’re syndicating – where is that located?
John Fortes: In Chattanooga. It’s quite a way.
Joe Fairless: In Tennessee…
John Fortes: Yes.
Joe Fairless: And how many partners do you have on that one?
John Fortes: There’s five of us on the GP side, I believe.
Joe Fairless: Oh, that’s nothing.
John Fortes: [laughs] That’s nothing anymore, right?
Joe Fairless: Yeah. You make a decision in the blink of an eye.
John Fortes: Yeah. It’s basically a lot of people from the first deal, that came on this deal… So it’s great. It’s a great opportunity again, and the raise was, I believe, 600k, and it was recommended by us to syndicate this one. We kind of fell into syndication, and it was funny, because we had the money raised to complete the deal before we even kicked off the meeting with the syndication attorney. It was just that quick for us to raise.
Joe Fairless: And what’s the business plan with this deal?
John Fortes: It’s gonna cash-flow from day one. It is under-rented by $75 to $125 in certain units, and it’s a light value-add play where we can turnover units as people’s leases come up, if they don’t choose to stay… And we can kind of be able to position a unit for them to get the bump increase, and just really, really light value-added, and complete that for a five-year hold on that one.
Joe Fairless: And when you take a look at this deal, compared to the other deal — I know you said the other deal you came across through the group that you’re in… How did you come across this deal?
John Fortes: The same person that found the other deal was like “Gosh, are you guys ready to rock ‘n roll again?” We said, “Absolutely!” We work well together, it’s a great opportunity, and it’s all about partnerships… Because sometimes it might take you two years to find your own deal, and if you wanna hold on to whatever you have for two years, or you wanna rock ‘n roll with someone else – you’re still doing what you want to do, it’s just someone else found an opportunity. It doesn’t matter at the end of the day. You’re all doing it and you’re all going to benefit from it at the end of the day as well… So partnerships are important, and I preach it heavily everywhere; I don’t know if you’ve seen me screaming from the hills… I really believe in it, because there’s a lot of people in the industry, and it’s built off partnerships. I can’t probably name one person that’s doing it alone.
Joe Fairless: Yup. Well, when you look at the two deals and you think about the lessons you’ve learned so far, what’s something that hasn’t gone according to plan? …other than that contractor, which clearly that’s an issue, but you resolved that… What’s something else that hasn’t gone according to plan? Probably the 62-unit, since the 41-unit is still in motion.
John Fortes: Yeah, funny you ask… It’s been the 41-unit. The reason why is we’ve pivoted lenders twice. Was it twice…? Once, once. The other time was a back-up, just in case we needed to… So we were going to with agency debt, and they didn’t approve of our seasoning from the 62-unit because of how fast we went under contract with this one; we were supposed to close in December 21st, or something like that… And we’ve extended twice since we actually — we’re supposed to close tomorrow, but we’re extending out to the 8th, and it’s only because we had just received approval from the lender, we shifted to a community bank, and… If all went according to plan, we would have had this thing closed already; it’s just we had to move from the agency debt to community bank debt. We got the approval… And I think that was all in part to maybe the government shutdown, because it slowed a lot of things down; we don’t know, I can’t pin that down for sure. But yeah, that’s the only thing.
Joe Fairless: Are you signing on these loans?
John Fortes: Yes.
Joe Fairless: And are they recourse?
John Fortes: Yes, they are recourse.
Joe Fairless: How do you think about that in terms of your personal financial stability?
John Fortes: Well, it doesn’t bother me, because of the fact that the business plan — I’m confident in our underwriting, I’m confident in our business plan, I’m confident in our strategy, so it doesn’t bother me as much as it would for maybe someone else… But I do see the power of non-recourse, and I completely get it, but when you’re trying to make things happen in the beginning, why not…? I mean, come on…
Joe Fairless: [laughs] Yeah, I get that. Based on your experience, what is your best real estate investing advice ever?
John Fortes: Partner up. Find partners that complement you, and just go for it.
Joe Fairless: And clearly, you’re living and breathing that advice. I don’t think I need to ask you to elaborate, because we’ve already talked about the power of partnerships with what you’re doing.
Alright, we’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
John Fortes: Let’s do it.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:20:57].05] to [00:22:14].19]
Joe Fairless: Best ever book you’ve recently read?
John Fortes: Best ever book… The Third Door, by Alex Banayan I love it.
Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about already?
John Fortes: When I bought my single-family home, I wanted to do the BRRRR strategy, but when you buy turnkey, you can’t do the BRRRR strategy… [laughs] So that was my mistake, but it’s still cash-flowing well, it’s doing good, and… I just can’t refi out of it, so hence why partnerships is important when I kind of ventured out.
Joe Fairless: I would think in Boston it would have appreciated just because the market went up enough, even if it was turnkey… Not the case?
John Fortes: I failed to mention that, but my first investment was in Florida. [laughs]
Joe Fairless: Oh, okay… What part?
John Fortes: Cocoa. right next to my sister-in-law, because my wife’s parents have a home in Cocoa Beach, and their daughter lives in Cocoa, and I was like “Hey, I’m just gonna look in the area.”
Joe Fairless: Well, I’ve never been to that area of Florida, but I don’t feel sorry for you, because you mentioned that it’s Cocoa Beach, so…
John Fortes: [laughs]
Joe Fairless: …it sounds like you’re still enjoying yourself, and you got some life experiences from the transaction.
John Fortes: Yes, yes.
Joe Fairless: What’s the best ever deal you’ve done?
John Fortes: My own personal home. The reason why is when I was going through those periods of 2014 through ’16, I saw the value of how appreciation worked with every paydown when I paid my own mortgage… So when I incorporated that and made sense of it, saying “Hey, what if I had someone else do this for me?”, I saw that basically an investment home could be a big piggy bank for you.
Joe Fairless: Best ever way you like to give back?
John Fortes: I love [unintelligible [00:23:53].19] my church and helping my friends and family with realizing the power of real estate. Like I said, you don’t need me to say it again, but I’m gonna say it again – I scream it from the hills, and I blast it and I try to promote it as much as possible, because I think it’s important. Because where I grew up, no one was telling us this stuff; schools ain’t, we don’t have a lot of people around us that tell us these things, and we don’t grow up around certain people that kind of know better, so… When I took my education in finance and it kind of shifted into this, then I scream it from the hills.
Joe Fairless: What was the point in time during your path where you had to put the chips on the table, and you were financially really strapped, at what point in time — if any; perhaps I shouldn’t imply that there was, but usually in any entrepreneur’s journey there’s a point in time where it’s like “Okay, I really stretched, but I believe in this.” Is there a part that you can think of?
John Fortes: Man, this hits home, because right now, the reason why I say that is had I not put all of this in motion — and this is the first time I’m gonna speak on it publicly, and I thank you for the platform, but I think it’s important… I was laid off in November. So right now, right now is the time.
Joe Fairless: You’re all in.
John Fortes: Going through it, yes. I am living it.
Joe Fairless: Well, it’s impressive what you’ve done, and the partnerships that you’ve created as a result of the value that you’ve added to all the people, and the communities that you’re actively participating in. Before we started recording, you and I hadn’t had a conversation before, but I’d seen you on my Facebook community, BestEverCommunity.com, and other places, and I told you (I think I said) “I feel like I know you already because of how active and how involved you are”, and also in the Bigger Pockets community… You’re always encouraging others. That type of stuff – well, “Service to many leads to greatness.” You’re an example of that.
John Fortes: I appreciate that, thank you. I believe firmly in the giver’s gain. I don’t do it for that reason, but it’s something of a mantra that me and a fellow person recite back; one of my brothers in this community – we say it back and forth to each other, and it really resonated between us because it helps us in certain situations, so I appreciate you saying that. Thank you.
Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?
John Fortes: I’m all over social media, John Fortes. I kind of use Instagram every now and then, but www.cfigwealth.com.
Joe Fairless: John, I’m grateful that you were on the show, thank you so much for joining us. Thanks for talking about the power of partnerships. That’s one components of this, it’s a main component, but I think the primary component is you being resourceful and putting yourself out there and adding value and wanting to help and contribute, and as a result, you find yourself in situations where you’re attracting others who want to be around you, and then you’re adding value, and then you all go together, and you’re just scratching the surface right now.
I’m excited to interview you at this stage in the game, and then I’m excited to bring you back in a couple of years once you continue to do what you’re doing now, for even an extended period of time.
Thanks again for being on the show, John. I hope you have a best ever day, and we’ll talk to you soon.
John Fortes: I appreciate you. Thank you, and God bless.
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