Alex’s first deal took him 6 months to close, and he only made $1800. After that, he realized he was doing something wrong. He made some changes, continued taking risks, and now succeeds at a high level in real estate investing. Learn how he kept going even after a bad first deal, and what tactics he employs to avoid another bad deal. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“You think you know something, but more than likely you haven’t played all angles of devil’s advocate” – Alex Brodowski
Alex Brodowski Real Estate Background:
- Real Estate Developer and founder of Westmont Capital Group, LLC.
- Owns multifamily, retail, and light industrial properties
- Last year they had $30M worth of inventory they moved
- Based in Nashville, TN
- Say hi to him at abATwestmontcapgroup.com
- Best Ever Book: Think and Grow Rich
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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, Alex Brodowski. How are you doing, Alex?
Alex Brodowski: I’m doing great, Joe. How about yourself?
Joe Fairless: I am doing great as well, and looking forward to our conversation. A little bit about Alex – he’s a real estate developer and founder of Westmont Capital Group. Last year they had 30 million dollars worth of inventory they moved. He owns multifamily, retail and light industrial properties. Based in Nashville, Tennessee. With that being said, Alex, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Alex Brodowski: Sure. I’ve done just about everything that you can think of in terms of real estate, in this wild journey of trying to figure out what exactly it is that I’m trying to do. I started off as a realtor, because I knew that I wanted to do deals for myself, so obviously the number one [unintelligible [00:01:48].21] is to sell other people’s stuff. So I did that for maybe a year or so… But about six months into it I realized that I needed to really get something moving, so I hustled hard to try to move the ball to get something going. And then just like I tell people all the time in real estate, it’s two times harder, and it takes three times longer to do a deal. I don’t care what deal it is, that’s just kind of how it goes.
So this story, even though it’s long, I think it impacts a lot of people, just so they understand where people start; and it doesn’t change the bigger the deals get. It took me six months to get my first deal done, and I got $1,800.
Joe Fairless: At least you didn’t lose $1,800. There’s that…
Alex Brodowski: Yeah, that was a positive. I didn’t have any debt on the property, because I was an agent, but… That really was like “What in the world…?” But for some reason, at the same time, the gut punch of the reality of the hard work was also the reward that, well, it does work, it’s not a waste of time… So I probably did that for a year, like I said. And the minute I had enough pennies in the piggy bank to buy something, I was ready to do it, because I can’t stand working with other people when I don’t get to make the decisions.
So I actually bought a house to flip, and it was 40k-something; I put another 40k into it, and then I sold it for 130k, so the profit margin came out pretty good on that. It was like 50%.
Then from there I moved into some multifamily units. There was a deal that I found – they were dilapidated in the ghetto, and the price was just too good; I couldn’t pass it up. I wasn’t even in the market for it, I had no intention of being a multifamily landlord, but I called up a partner and I said “Hey, I think this is something that we should do.” Then he said, “Okay, let’s do it.” So we got into that and we actually ended up getting in with a lot of the other landlords in that neighborhood, and this group effort took place of cleaning up this neighborhood and taking honestly a D neighborhood and bringing it up to a C+.
That was really cool to watch, and it was really cool to be a part of a collaborative effort between property owners and landlords to make this happen… Because so many times we find that regardless of what sector of the business you’re in, everybody’s competing against each other. So the only way it was gonna work for anybody to profit was for everybody to team up together and work together to make that happen. That was really cool.
After that, the things really got rolling from a flipping standpoint. That’s really what I pride myself on doing; I do it on a lot bigger scale now. After that I got into residential subdivisions, and I still do that. There’s a lot of money in that, and there’s certainly a lot of risk in it, but the profit and the risk versus reward I find makes sense. Same with office buildings and office complexes. You can apply the same theories that are behind flipping a house, or in my case flipping a house and flipping apartments, and whatever else, and taking that to a nice office park where you’ve got a B+ (or maybe a B-). Nothing wrong with it it at all, and the occupancy is probably good too, but you can still go in there and create more value to either take it into an A, or get that cap rate better, so that you can sell it off to one of the net lease guys and take a profit there.
So I’ve gotten into some more creative things in that sense. I try to stay away from the D multifamily neighborhoods and the flipping houses; I certainly just don’t have the personnel or the appetite to do anymore. But stepping stones I think really should be the theme of anything that I have to offer to anyone, and certainly this conversation of how you can take all these different methods and all these different things, and they can be applied upwards; you can upscale them or you can downscale them. There’s a lot of things that the guys on Wall Street that I’ve encountered do, that I kind of downscaled, and I applied to smaller things, because they were missing out on those.
So those are things that I think people need to keep in mind whenever they’re looking at doing deals and trying to do them in a different way.
Joe Fairless: What’s an example of that – things you saw people on Wall Street doing, that you then applied to what you were doing?
Alex Brodowski: There are a lot of guys that are in these triple-net lease groups, and they wanna buy big. One thing that I never understood when I started out – and really years in I still didn’t get it; this is a very recent fact that I’ve discovered, and nobody else really thinks about it either… It’s hard to sell something that is in-between the bottom end of a spread and the top of the spread; but the higher you go, the more difficult it is to find, and the bigger the buyer pool you have.
For instance, if you told me a couple years ago that if I had a portfolio with 600 apartments in it, and it was 25 million dollars, or a portfolio of Walgreens with 40 of them that were 100 million dollars, myself, and I think just about anybody else, would say “Well, the multifamily portfolio would be easier to move.
Joe Fairless: Sure.
Alex Brodowski: It’s a smaller number, there’s more of an appetite for multifamily — I mean, just about everybody talks about it and wants it… And I would never have believed that 100 million dollars and up is probably the most required asset type/class/number/ whatever you wanna call it out of anything, as far as Wall Street is concerned, or as far as Singapore is concerned. It’s probably even higher than that. And if you think about it, it does make logical sense – they can’t find anything, one thing to get, where they can spend that much money… And for us smaller people, and especially somebody that’s starting out, your problem is finding a deal, finding something that’s affordable, something that makes sense that you can tap into… But usually it’s because you need money. You’ve gotta find capital to do the deal, and these guys have so much money and so much capital that they can’t get rid of it quick enough for them to go buy a one, two-million-dollar complex, or buy ten McDonald’s for 20 million.
It’s not even close to the amount of money that they have to move, because the majority of them are real estate investment trusts, or they work hand-in-hand with real estate investment trusts, or institutional investors like insurance companies… And they can’t move this money fast enough. They’ve got people who have money sitting there, ready to spend it; they want a return, and their returns you and I would laugh at… But when you look at it from a gross perspective, it does make sense, because you’ll have a company like Nationwide – everybody knows Nationwide. Well, Nationwide’s collecting all these premiums people pay in to insurance premiums, not really thinking about.
Of course, yeah, some of that money is paid out in claims and collections, but nobody really stops and says “What’s going on with all this extra money?” Surely they’ve got extra money, and they do; they’ve got buckets of it. They all do. And they take that money and they’re funding real estate projects; they fund high rises in New York, they fund certain municipal joint ventures when it comes to construction of roads and streets [unintelligible [00:09:10].02] they do all kinds of crazy stuff with their money. But for them, they’re wanting serious deals, and for those serious deals that are hard to find they’re usually getting around 4% for their money… So it’s kind of like they are the banks, if that makes sense. But that’s where the real estate kind of crosses over into a totally different animal from your mom and pop single-family investor, versus Wall Street.
Joe Fairless: Let’s go back to the residential subdivisions and the office parks that you were talking about, that you mentioned you flip. Let’s talk about one of them – residential subdivisions. We’ll start with that. You said the profits are great, and the risk versus reward makes sense… So how much can you make doing residential subdivisions, and then can you define that more, so we have some context for how large and how you think about it?
Alex Brodowski: I would say — and I’m even doing it on my calculator right now… I would say that on average I’m doing 27% or 28% return on those deals. Now, a lot of guys are not getting those kinds of numbers because they’re having to pay market prices for their land… But when you’re talking about serious investment upfront – maybe it’s a couple million dollars in land, and then you’ve got probably 4-6 million dollars of improvements that are required for streets, water, sewer, you name it; you’re gonna phase it out, so that helps. You’ll be able to do it over several phases, instead of having to come up with all that money at once. However, your carry cost is gonna dig into that margin.
So if you had all the money in the world and you could do these projects with cash, your return would be even stronger than that, but the carry cost really makes it difficult to keep those margins. The other thing that’s kind of a challenge is that when you’re working with builders – and I work with one of THE top national builders – they have these takedown schedules that have to comply with their corporate financials… So just because you’ve got 100 lots and they have an appetite for 100 lots, and they need them right now, they may wanna hold off and wait to close for two or three more months, so that they can show that inventory and that spread on their financials for the next quarter. That’s something to keep in mind when you’re doing that, and I don’t know if too many people understand that.
Takedown schedules I think are fairly common, but that’s another example of where the corporate world crosses over into simple deal-making. The deal is there, I’ve got something to sell and they wanna buy it, I’ve got my margins, and obviously they’re gonna make their profits, but you have to finagle and work it so that benefits them on their back-ends, so that they can show the financials that they need to.
Joe Fairless: When you busted out your calculator just now, what numbers did you put in? Just walk us through how you came up with the 28%.
Alex Brodowski: I just did one of the last deals, because I can remember what I’ve made… And it was a $62,000 lot sale, and I had $48,000 in it. So I just did 48k divided by 62k, and that’s about it.
Joe Fairless: Okay. So what’s the largest residential sub-division that you flipped? Are you doing single lots? Are you doing 10, or 20, or 50, or 100 at a time?
Alex Brodowski: Well, maybe I should have been more specific… The subdivisions can go both ways. I develop them, and I’ll flip them. I will find the land, I’ll come up with the money to improve it, I’ll find a builder, I’ll put the whole deal together, and then wait for my money in a takedown schedule. Or there are instances where I will go in, where another developer has already developed all of the lots, or they’re about to develop the lots and play middleman essentially, and pull in one of my builder partners or builder clients, and flip them over to them. So there are two different situations. Both of them I do. But I would say that the flipping is probably not as regular as having to actually develop it myself.
The largest flip that I’ve done was 170 lots, and I tacked on $2,000/lot. To be honest with you, I don’t know what that is off the top of my head, 170… I should know this, right? I’m a real estate guy.
Joe Fairless: [laughs] That’s alright.
Alex Brodowski: Like 300k. And that was a subdivision that was developed — it was about finished out; it wasn’t totally finished out, but it was about finished out… And I had a builder partner who was a national guy, and I told him that it was available, I told him “Here’s the price”, I made my deal with the other guy, kind of very similar to wholesaling, but the difference is that I actually closed. A lot of wholesalers assign stuff, and I’ve never done that. Any deal that I’ve ever done, I’ve always had a deed, and then transferred that deed to somebody else. So I always take title at some point in the venture. But I would say that’s probably the biggest flip deal that I’ve done from a residential perspective.
How I came up with that number? I totally just pulled that out of thin air. There was no rhyme or reason or justification for it. It was just I got it as low as I could on the acquisition, and then I thought “How high is it reasonable for me to expect for a builder to pay?” and they did, and so that’s how I made the deal happen.
Joe Fairless: The office park – what’s the largest project you’ve done in terms of dollars or flipping an office park? Because it’s really intriguing when you’re talking about taking a B office park to an A. I’d just love to learn more about a specific deal you’ve done.
Alex Brodowski: I would say that the most impressive – and this is still ongoing; it’s a group of people – was it was an old company… I don’t remember what the trade was, but it was kind of an industrial place. But it had some office to it, too… But you have these big facilities that were barren, that could be used for something else, that were just sitting there vacant. So an office park grew out of that. Structures that were only enclosed on the back and the side, and the front was open, so that trucks could pull in and out – those were enclosed and turned into A- offices… And the office that was already there – that was also turned into an A- office, because it was probably C+ or B- at best, because it was old. It was probably from the late ’70s.
Slowly, land was procured around this office park (if you will); at this point it was still kind of an industrial yard, but the land was procured around it, and then new buildings were put together. So what ended up happening – and we actually have one lot left still that we’ve gotta do something with… But what you have is steel in some of these buildings that’s old, old, old; probably from the ’50s or older. It was used for the coverings of the roofings for these trucks, where these trucks would pull in, or where they’d store stuff like hay, or whatever it is that you could come up with. Those were enclosed, the steel stayed, but everything else changed.
Then you’ve got also got new buildings that came out of nowhere, that are all around it. So at the end of the day you have this hodge-podge of things, but the land value made sense for all of it, and the structures were there for you to build onto it. And because of the way that the ordinances were written, you didn’t have to go through some of the guidelines that you might normally have to when you’re getting plans approved, because technically this was a remodel of existing structures versus brand new plans, brand new footings, and slabs, and all of that. So I would say that’s probably the most interesting project, but it has not been disposed of yet. That’s something that I’m pushing for right now, and if we do, that will probably tie back into my conversation about the Wall Street guys and needing to spend money, because I really think that’s the best route to go with that.
And that park – for you to wrap your mind around – the total gross leasable area would be probably 230,000 square feet. So it’s not a huge thing…
Joe Fairless: But not small either.
Alex Brodowski: …but it’s certainly not tiny.
Joe Fairless: Yeah. What’s your role in that?
Alex Brodowski: My role in that is actually at this point procuring the buyer. But before that it was tenanting, pulling in tenants.
Joe Fairless: And for someone who hasn’t done that – found tenants for an office park that was certainly a non-traditional office park – what are some challenges in that, and then how did you overcome it to get the tenants in there?
Alex Brodowski: The challenge is similar to that of any person who basically is gonna be a leasing agent, because that’s what I did – I was a glorified leasing agent. The biggest issue — people always need somewhere to operate, so I would say that there’s no shortage of leads from people that need a place to operate… But putting them somewhere and stacking them strategically is the hard part, and I still can’t say that I have mastered that one.
Often times – and this goes for a lot of other things. This happened in an inner state development that I worked on up there… Same situation – when you’re in a crunch and you have vacancies and you need to fill them, you’re gonna try to put in the first person that comes along, so that you get some cashflow rolling in. The problem is if you load in the wrong guy – and you’re not gonna know it when you do it – it might ward off other potentials that could have been even better. Or for instance if you’ve got a person that comes in who has a non-compete, or — I can’t remember the name of the clause, but basically they’re the only person of this entire industry that can be in this entire complex; you might not think that that’s that big of a problem.
For instance, a real estate office – this is a great example… A real estate brokerage will say that “We’re gonna be the only real estate office in this office complex”, and you say “That’s fine. I don’t know why we’d need any other real estate companies in here anyways. It’d be kind of weird if the building was just full of brokerages.” So you let them come in, but then you find out that when you wanna load in an attorney who says that they also do real estate closings, in another one of the buildings, the real estate company says “You can’t do that, because they handle real estate-related activities, and in our lease it says that we’re real estate only.” The same thing could go with insurance companies.
So you have to be careful when you’re mixing all these people together, because anybody who cross-connects businesses, even though it’s ridiculous and you and I know that they’re all very separate, they can claim that it somehow impacts their business, and for that reason on a best-case scenario they’d be entitled to leave and not have to pay you for the rest of their lease. Worst-case scenario, if you loaded those people in there, they could sue you.
So those are some challenges that you can’t really overcome until you get to the situation… And usually people are reasonable, but I’d say that when you’re filling a space or you’re trying a land development, which is really my main thing lately, when you’re loading in users, you’ve gotta be careful and you’ve gotta be proactive on thinking “Who needs to go here, who’s the best fit for here, and what could be a problem doing this?” Because you certainly don’t wanna load in somebody that’s gonna ward off any potential, because no one deal is worth losing three over, if they see that this one guy is here and they don’t wanna be around them.
Joe Fairless: Thank your sharing that. That’s something I wouldn’t think about initially, and I’m glad that you brought that up. Let’s take a step back… Based on your experience as a real estate investor and entrepreneur, what is your best real estate investing advice ever?
Alex Brodowski: Never assume. This has been a hot topic in my office, so if you let me get on my soapbox for a minute… We had a deal very recently – within the past month – that taught me a lesson that people have told me over and over again, but you never really listen to it, and that’s the “Never assume” thing.
Four years ago I would drive by this particular site every day on my way to work; it didn’t have a sign in front of it, no one talked about it. The grass was growing up, but not in a fashion that would make you think that it’s an abandoned property. So I drove by it every single day, always having the thought of “I should probably try to buy that” or “I should probably try to make a deal with that.” But like so many people, I didn’t. I even printed out the tax records, and they hung up in my office, every day, next to some other stuff that I had. So I was forced to look at it every day.
I knew who the owner was even at that point, but I just assumed that this property was so prime, off of a major highway, that if it was sitting there vacant, there had to be some reason for that… So I didn’t do anything with it, and I forgot all about it. I moved offices, I stopped having to see it, stopped having to think about it.
And about a month ago, the guy who is in charge of acquisitions at my company said “Hey, I’ve knocked out all these different things, and we’re still working on this, we’re waiting to hear back on that… What do you want me to do at the moment, right now, while we’re waiting on everybody else?” I said, “I don’t know…” I was flustered working on something else, and then I said “I’ll tell you what – take this address, look it up, and try to get in contact with this guy and tell him I wanna buy his stuff”, and I wrote down the address, or at least what I thought was the approximate address of that property, and gave it to him.
A couple days later the guy calls me saying that he wants to sell it. I was blown away just by the fact that he wanted to sell it. I just really didn’t expect that. Because what I do a lot of times, whenever I’m getting ready to buy anything – I don’t know if this is common knowledge or not – I pull up Secretary of State information and I pull up tax records to see what these people have. That way you know when you’re going into a deal whether you’re dealing with a real estate guy or just some guy who happens to have some real estate. It was apparent that he was a real estate guy, so I was shocked when he called us back.
I took his phone call, and I asked him if he’d be interested in selling it, and he said “Absolutely.” He said that up until now, he probably would not have been so interested in selling it, but I just happened to catch him at the right time… So I said, “Well, what do you want for it?” and he said that he really wasn’t sure. So I said, “Well, okay, I’ll try to make an offer by tomorrow.”
I got with the attorney and had a contract drawn up… And I really didn’t know what to offer him. I knew what it was worth, and I still know what it’s worth, but you never know. You don’t wanna go in and offer someone a number that is really close to market value when they would have taken $10,000, or whatever. And just so you can have numbers, we’ll say that this site’s worth $1,000,0008. That’s probably what the land is worth. So when I’m thinking about something that’s worth $1,000,0008, that’s almost 10 acres, I’m gonna offer maybe $600,000-$800,000 normally, hoping to get a deal closer to 600k, but I may have to go closer to 800k. But that would typically satisfy most people if they’re not an investment person who bought it for investment reasons.
So I actually ended up coming up with the number of 350k, because I thought “This deal is so wild… I’m gonna push the envelope on it anyways, and see what happens.” So I offered him 350k and I thought “I’ll probably never hear back from him again.” And sure enough, he calls me back and he says “I got your offer…”, and I’m like “Oh, God…” And then he says “I was wondering if maybe you could do $400,000”, and I said “I’m gonna have to think about it, because that’s really pushing it. We hadn’t anticipated spending that much money.” So we crunched our numbers and then came back up with 375k. I told him 375k was the best that we could do, and then he said “That’s great.” And he was tickled to death, he was thrilled. He was happy. His basis in the property was like $1,800, he’d had it so long.
So that’s where we made the deal at, and we are pending closing on selling that property at the moment for a really good profit. I can’t say what it is yet, because it’s not done, but the numbers that we’re talking about are very impressive… So I would say that the number one thing I even remind myself daily now is to never assume, because you think you might know something, or you think — even when all the facts point to a certain outcome, more than likely somebody has not played every angle of devil’s advocate to see what can happen.
Joe Fairless: Congratulations, but I will hold the full congratulations until after it closes… But regardless of if it closes right now, you still have that property, and you’ve got a lot of equity in it, so you’ve already won the major battle; now you’ve just gotta close it out. That’s pretty cool, thanks for sharing that.
We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Alex Brodowski: Sure.
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Break: [00:26:51].23] to [00:27:32].14]
Joe Fairless: Okay, real quick – best ever book you’ve recently read?
Alex Brodowski: Think and Grow Rich, by Napoleon Hill.
Joe Fairless: What’s a mistake you’ve made on a deal?
Alex Brodowski: Getting in too deep, too fast financially, and also bringing people into the deal. So just all across the board, taking on way too much, way too quick.
Joe Fairless: Best ever way you like to give back?
Alex Brodowski: To give back?
Joe Fairless: Yeah, like give back to the community?
Alex Brodowski: Physically volunteering and trying to do things that pertain to housing for the less fortunate is definitely my preferred method of charitable contribution to society.
Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing?
Alex Brodowski: They can shoot me an e-mail at email@example.com.
Joe Fairless: I thoroughly enjoyed our conversation, Alex. Thanks for talking about some specific deals, and a couple perhaps paradigm shifts in our minds. One is “Which one’s easier to move – a 20 million dollar apartment portfolio, or a 100 million dollar single-tenant portfolio with a bunch of Walgreens?” Perhaps the 100 million, because of the Wall Street money looking to spend large chunks of cash, and their need for lower returns, because it’s such high dollars that they’re spending… And then also the “never assume” story. I think that’s something that regardless of where we’re at in our journey, we can all take to heart.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.
Alex Brodowski: Hey, thanks for having me. I appreciate it.Follow Me: