If you’re in the position of working full time and investing part time, so was Jason. For some, that’s fantastic and they wouldn’t have it any other way. For some others, they are looking for a way to leave their full time job and invest in real estate full time. We’ll hear how Jason did that seven years ago, and how he has continued to scale his business since then. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“Focus on your mindset and personal growth” – Jason Pero
Jason Pero Real Estate Background:
- Started investing in real estate since 2001, left his day job in 2012
- Currently owns nearly 700 rental units, recently completed first syndication deal
- President of his local REIA/Apartment Association representing over 1600 members
- Based in Erie, PA
- Say hi to him at jasonperoATyahoo.com or 814.397.8037
- Best Ever Book: Poor Charlie’s Almanac
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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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Jason Pero. How are you doing, Jason?
Jason Pero: Doing great, Joe. Thanks for having me on.
Joe Fairless: Great, my pleasure. A little bit about Jason – he has been investing in real estate since 2001. He left his day job in 2012. He currently owns nearly 700 rental units, and recently completed his first syndicated deal. He’s the president of the local REIA apartment association, representing over 1,600 members. Based in Erie, PA. With that being said, Jason, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Jason Pero: Sure. As Joe said, I’ve been investing in real estate since 2001. My wife and I did it the old-fashion way; for the first 12-15 years we saved our hard-earned money and just pumped it into real estate mentor, saved up for down payments, traditional bank financing… Got it to about 300 units. Then I left a medical device sales job in 2012, to focus on running our real estate portfolio on our own.
At that time we started taking on private investors, doing some private money… And that sort of led into where we’re at now, which is syndicating deals and looking at much larger projects. I completed an 86-unit syndication this fall, working on a 205-unit currently, and just having a lot of fun with it.
Joe Fairless: Did I hear you right, you were in medical device sales?
Jason Pero: Correct, yeah.
Joe Fairless: So you had 300 units, you were buying properties (as you said) the traditional way, and you had a full-time job… What were your co-workers saying about your investing approach?
Jason Pero: Well, it was interesting, because I think that some co-workers probably thought I was crazy. Why would you wanna leave a high-paying W-2 job to go mess around with rental properties? But I had a lot of co-workers that were following similar paths. I had met different guys in Nashville, TN, or Cincinnati, OH or other markets, that had bought rental properties as well, and… It was hard to leave that comfort of the day job, but when I saw other guys do it with maybe much less backing, it kind of gave me the confidence that I was ready to jump at the time.
What’s interesting though – some of the guys I still keep in touch with, from when I left 7-8 years ago…
Joe Fairless: [unintelligible [00:04:22].12]
Jason Pero: …they’re still miserable at their day job, and not really moving forward in life.
Joe Fairless: Right… Okay, so 300 units – we’ll get into the syndication stuff, but I just wanna be clear on this… So 300 units – how many units was the largest property?
Jason Pero: At that time, the largest property was about 30 units. I had purchased some properties that were either in the same neighborhood, or very close to each other, side by side, but the largest individual property at the time was 30 units.
Joe Fairless: Okay. And then were the majority of them single-families?
Jason Pero: I had a handful of 25 to 30-units, a handful of 10 to 15-unit-sized properties, and then a bunch of duplexes; 50-80 duplexes.
Joe Fairless: Okay, so you were buying 10 to 15, 25 to 30, and then you had a bunch of duplexes… So how did it progress when you started, in terms of unit size?
Jason Pero: Our first deal was a duplex that we purchased for 32k, Erie, PA. I used the first $3,500 I saved up to buy that property. At the time, the cashflow paid for my student loan payment… And I was happy. I thought that was the greatest thing ever. Then the next year we saved up, purchased a duplex, purchased a 4-unit, right before we got married. And then kept saving our money… The next year we bought a 4-unit and a 7-unit. Then we kept going along that path.
Then in 2005 I met a gentleman who became a mentor of mine in the business, but he had 56 units in multiple locations, but there was a couple 8-units in there, there was a 16-unit, and just some various-sized properties… And he said “Hey look, I’ve got this group of properties. I’ll sell it to you for 1,1 million, and I’ll hold the paper, but you have to come up with 10% down.” So I borrowed against my 401K, borrowed against savings, cashed in some savings, I took out some lines of credit… I did all these things I probably shouldn’t do, that financial planners tell you not to do… But I did it, and it was successful, and that kind of launched us from this world of 23 rental units up to 79 rental units.
Joe Fairless: Let’s pause right there real quick… When you were borrowing against the 401K, lines of credit, you were married at the time, so how does that conversation sound between you and your wife?
Jason Pero: Well, that was probably the best sale, or the best thing I ever did… Early on, when my wife and I were dating, and we bought our first rental properties, I sold her this idea that “Hey, we could be rich someday. We keep buying rental properties, and we can work for ourselves.” We were in our early twenties, and I’m happy I went down that path, but… It seemed to make sense that “Hey, by the time we’re 30 or 40 we can retire, we can have these rental properties paying for our lifestyle…” We had much smaller goals at the time, but she bought into my dream, and I had this passion and excitement and idea about what this life would look like, and she bought into it, and she supported me with it, and she participated in it as well, as far as looking for properties…
Those first few years we did all the work ourselves. I am not handy whatsoever – I still am not handy – and we would go in and try and fix the vacant units up, and we would try and pretend like we knew how to fix a leaky faucet, and things like that… But she was ultimately my biggest cheerleader, still is, and just bought into the dream. She kind of works in the background, but still helps me run all the high-level pieces of our business. I think that was a really important key (maybe for your listeners), that if you are married or in a relationship, having a spouse that’s supportive, or at least see eye-to-eye with you on some of these things is really important… Because they’re gonna have your back when things are good, but then you wanna make sure they have your back when things maybe are a little challenging, too.
Joe Fairless: So there was no pushback on borrowing against the 401K, or getting lines of credit during that time.
Jason Pero: No. We were young, and I think was before we had kids, early-mid-twenties, and she said “Gosh, if you really feel strongly about this, I’ve got you. We’ve got this.” The idea was that if we borrowed against the 401-K, the cashflow from the investment was going to be able to pay that back. And at the same token, we both had really good W-2 jobs that we still had enough cashflow to be able to pay back that 401K. It wasn’t as if we were doing that as a desperate move. It was an idea that made a heck of a lot of sense at the time, that “Hey, if I have to borrow $50,000 but this property cash-flows 50k/year, I’m gonna be able to pay this back in a year…”, so it just seemed to make sense.
Joe Fairless: Meeting your mentor was an important part of your journey… How did you meet the mentor?
Jason Pero: Our initial meeting – he had put an ad in the local newspaper, and the ad said “Local investor retiring. Up to 128 units, owner financing available. Call this number.” So I called the guy, had a meeting with him on (probably) an early Saturday morning or something like that, and we just sort of hit it off. I think he saw something in me that reminded him of his younger self. I kind of grew up without a lot of means, and that type of thing… So I was really impressed with this guy. I said “Oh my gosh, he left a great day job to go and do this real estate thing”, and he seemed to be living a really good life. We did this real estate deal, but we ended up meeting every few weeks, or at least once a month for coffee, and just sort of talking the business and becoming friends… And ultimately, I bought out the rest of his portfolio and really [unintelligible [00:09:47].26]
Joe Fairless: How many more units was that?
Jason Pero: 72.
Joe Fairless: 72. So a 56 plus another 72.
Jason Pero: Yup.
Joe Fairless: Got it. And that makes up a big ol’ chunk of the 300… How did you buy the 72?
Jason Pero: What was interesting is actually some of the pieces of what I originally purchased from him I had ended up selling to a local company; their name is Erie Insurance, and they’re a big employer here. They provide [unintelligible [00:10:15].12] and all that kind of stuff… They had approached me about a property that they needed to buy and tear down, so they could complete construction of a parking garage, but they didn’t wanna pay me any more than I had paid for the property. I said “Well, I’m not gonna do that…”
Joe Fairless: There’s your dilemma…
Jason Pero: Yeah, I’m not gonna give up this cashflow. But I had a handful of other properties near their corporate headquarters that they were willing to pay quite a bit of a premium on, and it made me worth my while. I mean, it wasn’t life-changing money, but it was enough that it would get my attention.
So what I did is I sold those properties and 1031-exchanged into this 72-unit deal. But he 72-unit deal was broken up into three properties. There was a 16-unit, a 26-unit and a 30-unit that comprised that deal. The 30-units were these really nice luxury townhomes, really high price per door (100k/door), and I just could not wrap my head around those numbers at the time, and… The guy’s name is Dick. Dick had said to me “Look, I’ll hold the paper 100%, 5% fixed for 25 years on the apartment buildings in the city, but you have to buy these townhomes (that were in a little suburb outside of Erie) and cash me out of those.” And that’s what we did. It took a lot of convincing on my end, but it was probably the best deal I ever did in my life, just because it was able to catapult me into working for myself, but also get me into a higher and better class of property as well.
Joe Fairless: Oh, absolutely. So at that point did that put you at the 200-250 mark?
Jason Pero: That 72 was the deal that was the catalyst for me to leave my day job. I had actually quit my day job about a month and a half before the deal was closing. I just wanted to take a little bit of a break and wrap my head around what my new life was gonna look like after quitting that day job. It was maybe a month and a half, maybe two months in between the job and then closing that deal.
Joe Fairless: Using your best guess, where would you be today if you hadn’t called on that newspaper ad?
Jason Pero: Boy… I don’t know. I would say I’d probably be at 40 or 50 units, maybe 100 if I was lucky. I think a part of it was responding to that ad, and at the same time I really bought into this idea of personal development, and got turned on to Tony Robbins and Jim Rohn and all of the personal development classic gurus… And then I just started diving in and started journaling, and started focusing on trying to improve myself… So I think that sort of happened at the same time; not because of the gentleman I reached out to, but I think it really was a good lesson for me, to try to keep an open mind and meet anybody you can, because you never know what kind of door that’ll open.
Joe Fairless: Let’s talk about the one you syndicated recently. I believe you told us it was an 86-unit?
Jason Pero: Yes.
Joe Fairless: Okay. So you syndicated an 86-unit… Tell us about it.
Jason Pero: Okay. I started to get turned on to the idea of syndicating — gosh, probably when I left my day job, I just couldn’t wrap my head around it. Fast-forward a few years and I met a gentleman who ended up being my co-GP on the deal… But I ended up linking up with Rod Khleif, I was on his podcast, and met a bunch of folks through his mastermind that were all syndicating deals… And I said “Oh my gosh, I can do this. This is easy.” It was like one little missing piece of information in my mind that I had to get comfortable with.
So I came back from this first mastermind meeting, I called this guy Mark that I had beginning to be friends with, and we were trying to figure out how we would work together or syndicate a deal together. I said “Hey, we’re ready. Let’s do this.” We got our ducks in a row, talked to our syndication attorney, but didn’t have a deal.
Summer came along, and a real estate broker friend of mine had called me and said “Hey, we have an in on an 86-unit deal. It’s gonna hit the national brokers pretty soon, but you have the first look at it.” We went in, loved the property, thought it would fit and be a great deal that we could go out and raise money for. This was my first raise; I’d done one-on-one joint ventures in the past, but something where I had to go out and actually sell shares of an LP – that was the first time.
We had offered 4,5 million. The appraisal did not come in exactly where we wanted it, so we were able to negotiate $350,000 off the sales price.
Joe Fairless: Did it come in 350k below 4,5?
Jason Pero: Yeah, it came in a little higher than what we negotiated down, so it did work out in our favor… But we got it for 4,15 million. Sort of very much a modern building; it was built in the 1980’s, but had been updated. The previous owners took really good care of it.
Joe Fairless: Why were they selling?
Jason Pero: They had gotten divorced a few years back. They had amassed quite a bit of property during their marriage, but they got divorced, gone on with their lives, but they still had this real estate business that they were trying to run together… And as you can imagine, that’s probably a big challenge, having your ex be your co-business owner. So they just started the process of liquidating their portfolio and figuring out how they’ll split their lives apart, and especially on these things that they’d co-owned together for so long. So that was really the catalyst for them to try and start thinking about selling.
We got it under contract – it was kind of a normal timeframe, but a little shorter, a little more regimented than I was used to… But we went out and raised the capital, I put some of my own money, the gentleman who co-sponsored the deal with me put some of his own skin in the game as well… And the raise was heck of a lot easier than I thought it would be.
Joe Fairless: What was the total raise?
Jason Pero: We raised 1,5 million.
Joe Fairless: Wow, congrats on that.
Jason Pero: Yeah, thank you.
Joe Fairless: How much did you invest in it?
Jason Pero: I originally committed 200k, and I backed it down to 100k, because we over-raised. We over-funded our raise, so I ended up pulling it back, and I ended up only with 100k in the deal.
Joe Fairless: And what was something that was challenging about the deal? It doesn’t sound like the money raise, but maybe some other component of it, that you didn’t expect it to be so challenging.
Jason Pero: Well, the money raise was hard because it was the first time I did it, but it wasn’t as hard — just kind of a quick side-bar about it was that I’d never done it, so it seemed really challenging from the outset, but once you do it and you have a deal that makes sense, there are investors looking for places to invest their money. And once I realized that, it became easy.
But one of the big challenges in the deal was there was a difficult seller, one of the spouses. We needed a slight extension, just because it was a Freddie Mac; it’s the government, and sometimes things are really quick, and sometimes they’re not. We would have thought that I was asking for their first-born by asking for an extension… And it was one of those scenarios where this individual was banging their fist on the table, and high drama as it relates to that part of the negotiation of the deal… But I think it was mostly theatrics; that’s just how this person had done business, and that’s what they’re used to… Because at the closing table we all hugged, and she was very pleasant, and everything was really easy… So looking back, that’s just the way that they do business, and it really wasn’t that difficult.
We offered up hard money and said “Look, we’re gonna close this deal. We have everything funded. It’s really just coming down to the lender, and we need a few more weeks”, and really just try to sell them on the confidence in us that this deal is gonna close and a couple more weeks isn’t gonna hurt anybody, and we’re committed to this deal; we put up a significant additional capital as hard money, so I think that we’ve just put our money where our mouth is, and we were confident it was gonna close.
Joe Fairless: And what fees do you take on that deal?
Jason Pero: For the first deal I did not take any acquisition fee. We did a normal split. When I say normal – we took an 80/20 split, but my company does the management, so I do benefit a little bit on the back-end. And I worked the asset management fee into the property management fee as well.
Joe Fairless: Do you have your own property management company that’s managing it?
Jason Pero: I do, yeah. With all of our units we self-manage. I think there’s some efficiency in having your own team. There’s certainly a lot of challenges, and that’s a whole other topic in terms of having your own employees… But I think you can control the process a little bit better, you can control costs a little bit better. We certainly earn that management fee, but at the same time, local investors know who I am, they know of my company, and there’s some faith that someone with 18 years of industry experience – that I’ve got my boots on the ground and I can make things happen. I think that puts our investors’ minds at ease, knowing that somebody has their hands on the wheel and looking at things at all times.
Joe Fairless: What’s been a tough part of having a management company that you own and oversee?
Jason Pero: I think the hardest part is you sort of have that tendency to get involved in too much. If there’s a tenant issue, or complaint, or concern, you’re gonna hear about it. So we had to develop thick skin. You have to be a problem-solver. If there’s a maintenance headache – not that you’re out there personally fixing it, but you have a team of guys or gals on the payroll dealing with problems, fixing those maintenance problems, fixing things that break, turning over vacant units… So I think the challenge is just keeping everything in order; I’ve learned to hire those that are better than me, including office manager, business manager types that can keep everything on schedule and deal with the customer service part of it, deal with some of the employee issues, and things of that nature.
Joe Fairless: What’s your best real estate investing advice ever?
Jason Pero: I think the best advice would be to focus on your mindset and your personal growth. Most of real estate investing is transactional. That’s easy. I think the hard part is being able to develop yourself into a better human being.
Joe Fairless: What’s the way that you like to act on that advice, tactically speaking?
Jason Pero: Sure. One of the things – I spend a lot of time, number one, listening to podcasts like yours. That keeps you up with industry content, it keeps you up with the mindset of fellow investors. I’m always reading, whether it’s business books, personal development books… And then journaling – setting goals, reviewing and refining those goals as an ongoing process… Just writing, just jotting down ideas, jotting down thoughts. If a quote strikes me in something that I read, writing down and kind of reflecting on it. I spend a lot of time doing that.
It’s hard to take 30 minutes a day to do that, for me at least… Go where that inspiration hits you. Or if it’s Sunday morning and you’re having a cup of coffee and two hours to read or journal – do it then. But I think it’s important to take time, at least every week, to focus on making yourself a better person.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Jason Pero: I sure am.
Joe Fairless: Alright, well then let’s do it. First, a quick word from our Best Ever partners.
Break: [00:20:25].25] to [00:21:08].29]
Joe Fairless: Best ever book you’ve recently read?
Jason Pero: Poor Charlie’s Almanack.
Joe Fairless: What’s the worst deal you’ve done?
Jason Pero: The worst deal I’ve done was buying a car wash and laundromat.
Joe Fairless: Please elaborate.
Jason Pero: I thought it’d be a great idea to have a laundromat, because I had laundry machines in my building, and I said “Wow, this is easy. It’s passive income.” There’s nothing passive about owning a laundromat. [laughter] So it was a time suck away from things… I was basically running a business on top of running another business. So I was able to sell that to somebody – and hold back the financing on my end – who had the time and energy and drive to be a small business owner. It wasn’t something for an investor.
Joe Fairless: What aspect did you think would be passive that was the exact opposite of passive with the laundromat and car wash?
Jason Pero: I thought wrongly — with our apartment buildings you have laundry machines, and whether it’s a third-party service that manages it (which is how we do it now), but back in the day I used to go and collect all my own quarters, and thought “Wow, this is really easy. That’s easy money.” But I didn’t think through — now, this is going back seven years or so, after I quit my job and bought the laundromat… I didn’t really think through what it would take in terms of hiring and firing employees, watching inventory, lining up with folks to fix broken machines when they break down… All that type of stuff, I just didn’t think it through, and just really totally underestimated the amount of work it would take to run such an operation.
Joe Fairless: I probably would too, coming from my apartment investing experience… I’d be like “Oh, a laundromat. We’ll just collect coins, and that will be that.” But yeah, you’re getting yourself into a big ol’ operation.
What’s a deal that you’ve lost money on?
Jason Pero: Well, number one was the laundromat. That was one.
Joe Fairless: How much did you lose?
Jason Pero: Well, it was just a slow bleed. I would say there’s two components to it. I would say that I probably lost $10,000/year in actual capital that I had to invest in that to make it work… Because I just didn’t have the time to actively manage it. But also, all the time that I did spend doing that was taking away from what I could have been doing in terms of personal development, sourcing other real estate deals, focusing on the deals that do drive revenue and drive profitability to a company.
Joe Fairless: Best ever deal you’ve done?
Jason Pero: The best ever deal was that big 56-unit deal. And I’d say it’s the best because it took me from just buying onesie-twosies, to — that was the first million-dollar deal, and I think that was the launching pad for every other deal that I’ve done since.
Joe Fairless: Yup, it makes sense. What’s the best way you like to give back to the community?
Jason Pero: Sure. I love to give back. My wife and I are involved with a number of philanthropic organizations locally… But in terms of actual time and energy, I love to give back to helping out younger investors that maybe are on a similar path that I was on when I started, and just need some guidance. I think I was very fortunate to have some really solid mentors along the way. Nothing is more satisfying than being able to mentor somebody else coming up in the business and helping them along on their journey.
Joe Fairless: And how can the Best Ever listeners reach you?
Jason Pero: I’m sure you’re gonna put my number in the show notes. They can reach out via email, text, they can find me on Facebook or LinkedIn as well…
Joe Fairless: Jason, thanks for being on the show, talking about the evolution of your business – the first deal, and then the tipping point that really catapulted you to where you’re at now, and that is responding to the newspaper ad, and developing a connection with the gentleman who ended up mentoring you some, and then also selling you another 72 units that he had in his portfolio… Which takes you to a whole different level.
And then your recent syndication, your approach with that, the management company that you have created, and some challenges along the way there and how you overcame them… And to stay away from laundromats and car washes. Unless you’re a really bored person; then it sounds like that would be a very active job to keep you busy.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.
Jason Pero: Thanks. You too, Joe. Have a great day.
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