September 9, 2019

JF1831: Real Estate Rookie Buys 5 Rentals in 12 Months with 25% COC Return with Greg Gaudet

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Greg is a long time Best Ever Listener, who took the plunge into real estate in 2018. Now Greg is a guest on the same podcast he listened to to learn the ins and outs of real estate. We’ll hear how he got over the fear of making mistakes, bought some properties, and is making a great income from those properties. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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“I just talked to everyone I could and learned what I needed to learn” – Greg Gaudet

Greg Gaudet Real Estate Background:


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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, Greg Gaudet. How are you doing, Greg?

Greg Gaudet: I’m great, Joe. Thanks for having me on the show.

Joe Fairless: I’m glad to hear that, and you are welcome. First off, let’s learn a little bit about Greg – he started in real estate as an appraiser, right out of high school, in 2002. He lost his job in the recession, moved around the real estate industry before getting his first deal in 2018. He bought five rentals in the first 12 months, averaging a 25% cash-on-cash return, and has done one wholesale. Based in Honolulu, Hawaii. With that being said, Greg, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Greg Gaudet: Absolutely, Joe. You covered a lot of it there. Just one correction – I’m based in Maui, Hawaii, in the Pukalani/Kahului area. Different island, but very close to Honolulu.

Like you said, my background – I’ve worked in real estate for most of my life; I’ve always been very interested in investing. I’ve made a lot of offers over the years. For about 15 years I was really interested in investing, but just never actually pulled the trigger… And I’ glad I didn’t, because I didn’t have any real education on investing; I just understood real estate, but I was really thinking of buying for appreciation.

Around 2017 I’ve found your podcast and some other resources, and started educating myself and learning how to really analyze a deal, and that’s when I finally took the plunge and made the commitment, and I haven’t looked back since.

Joe Fairless: Five rentals in the first 12 months, averaging 25% cash-on-cash return. Yes, please. That’s incredible, let’s talk about it. The first deal – give us the numbers and tell us a little bit about how you found it, please.

Greg Gaudet: Yeah, the first deal — so I’ll back up a little bit; in 2017 when I was ready to start and I was trying to figure out which route to take, I was looking at turnkey properties in (of course) the Central-Midwest area because of the price points; I live in a really expensive market. The median price here is $819,000. So because of that, I was looking at those cheaper markets. I called in to a guest that was on your show. It was something about him, I really liked him, and he sounded like he was willing to help anybody that gave him a call.

So I called him, told him “Hey, there’s this one building here in Maui that I can buy condos really cheap, but it’s a lower-end building and it scares me, so I’m gonna do turnkey in the Midwest.” And he said “I think you should look at your market. I don’t think you should do that.” And because of that conversation, I ended up taking a closer look at this one building — not one building, but there’s a few buildings; this one area with some buildings in Maui that are lower-end, and the price points are really low for Maui, in the 100k range.

Joe Fairless: 100k for what. A one-unit, or…?

Greg Gaudet: For a two-bedroom condo, yeah. At the time, the average sales price was 100k.

Joe Fairless: Okay, cool.

Greg Gaudet: So I was looking at units on the MLS there… A friend of mine that does a lot of different stuff with investments and auctions, foreclosures and that stuff, and she told me about this unit that was going to foreclosure auction; she said “This is a good deal, I think you should bid on it. It’s an ocean view, top floor corner unit, and it’s $65,000.” At first I kind of brushed it off, I thought “No, I don’t know anything about foreclosure auctions.” [unintelligible [00:05:44].11]

Joe Fairless: Right. It could be intimidating.

Greg Gaudet: Yeah. But some time went by, I made some offers on some other units… I was offering around 70k, 80k, 90k, and getting rejected… So I came back to it and said “Hey, is that thing still available?” She said, “Yeah, the hearing is coming up soon”, so I started doing my research. I’ve put a ton of work into learning how the system works here, by going to the unit and actually knocking on the door, talking to the tenants, I got to see the inside… I did all my due diligence. I found out everything was good. Then I went to the auction and bid on it.

Joe Fairless: Real quick though – usually when you’re knocking on the door of a place that’s going up for auction, you’re not gonna get a receptive audience. How did that go?

Greg Gaudet: Well, I think that’s not a really crowded market, so it’s not like any other city on the mainland. Probably you’d have a lot of people coming by and knocking on the door, or peeking in… Here that’s not really an issue. In fact, a lot of times they allow you to go into the property before the auction.

They were living there rent-free. They knew that their time was coming. I just approached them really nicely, and they let me take a look around. I told them, “Look, I’m gonna buy this unit. We can work together and I can be really reasonable. I can probably help you guys through this process, and you can help me, or we can not be nice to each other and it’ll just be worse for everybody… And they worked with me.

Joe Fairless: Huh. Okay. So you educated yourself. How did you go about educating yourself about the auction process? Because at this point you hadn’t purchased a rental property yet, correct?

Greg Gaudet: No.

Joe Fairless: Okay.

Greg Gaudet: So I would go to all the auctions, I’d talk to everybody there, I’d talk to the people that were bidding, I’d talk to the commissioners that were doing the sales… I would just talk to everybody and learn everything I needed to learn. And also talking to a lender, because another important detail is I used a traditional mortgage to purchase that unit. I found out everything I needed to know, I felt confident enough, I went through and did it.

Now I’ve bought a couple more at the auction, and I kind of know this system a little bit better. Looking back on that, there’s so many things that could have gone wrong. That was not a good decision. It’s just unbelievable that it all worked out. I’m super-happy I did it, because it was a great deal. I bought it for $70,000, it appraised at purchase for $95,000, and on the one-year mark from the date I closed on it, the bank valued it at $142,000, so it basically doubled in value from what I paid for it in one year. And it cash-flows about $650-$700 a month. So it does well, but it was really risky. A lot of things could have gone wrong.

Joe Fairless: What are some things that could have gone wrong based on what you’ve heard, or some other experiences and conversations with investors?

Greg Gaudet: One thing that could have gone wrong… The day the appraiser came – because remember, I didn’t have the cash to close on this unit – the tenants could have said “No, we’re not gonna let you in”, and I would have been out of my 10% deposit, non-refundable. So that could have happened. I could have found out that it was a second position mortgage that was foreclosing, and there could have been a $300,000 first-position mortgage that would not be wiped off… There’s a lot of things that could have gone wrong.

Joe Fairless: So that property was purchased, and — what does it rent for again?

Greg Gaudet: It’s rented for $1,700.

Joe Fairless: Wow! [laughs] That’s some return.

Greg Gaudet: Keep in mind, it’s a condo, so the HOA dues are $585/month. So that’s a big chunk of that.

Joe Fairless: Okay.

Greg Gaudet: If you factor that in, you might look at it and say “70k purchase price, for $1,700 rent, it’s more than a 2% rent to price ratio”, but the maintenance fees… Those probably sound really high to people on the mainland, but those are kind of average here in Maui, also because the building has a pool, 24-hour security, and all these amenities.

The taxes are really low though. The taxes are $50/month, $600/year, so all-in expenses are about $1,000.

Joe Fairless: Those ARE really low taxes… Is that typical for the area?

Greg Gaudet: Yeah. Hawaii’s got some of the lowest property taxes in the country.

Joe Fairless: Oh, yes they do. Wow. With the property – that was your first one; you jumped in feet-first, a foreclosure auction. Then what did you do after that, in terms of acquisitions?

Greg Gaudet: The next one I bought on the MLS, actually. The only one I’ve ever bought on the MLS was a rundown unit that I got a good deal on it, fixed it up, and I did an incredibly frugal rehab on it. The contractors were giving me $10,000 estimates; these guys were going in there saying “Oh, I can’t do this. It’s too nasty.” It was pretty bad. And then I ended up actually rehabbing it for about $2,100 just by saving everything I could, being super-frugal.

Then after that, the same realtor that represented me on that one, I would see him surfing in the water, I’d see him all the time, and I’d mention “Hey, I’m looking for units. Let me know about off market deals.” He texted me a couple months later (or actually probably like a month later) and said he had run into an agent at an open house, and said he’d just inherited a unit at that same building, and wanted to sell it quick… So I made him an offer, I bought that one under market value, nice and quick.

Joe Fairless: What did you make the offer for?

Greg Gaudet: That unit actually — at the time, the value was about 120k (about a year ago). I wanted to offer him in the ’80s. My agent – he’s a retail agent, and he said, “Oh, I think you’ve gotta be in the hundreds…”, and being my third deal, I was still very new, so I let him sway me a little bit… So I started at 90k, and ended up getting it for 95k. At the time it was worth about 120k, 125k.

Joe Fairless: Okay.

Greg Gaudet: So it was right at the cut-off. That’s probably my worst deal, I paid a little too much on that one.

Joe Fairless: What does that rent for?

Greg Gaudet: $1,700.

Joe Fairless: I’m noticing a theme… Same HOA, $585/month?

Greg Gaudet: Yeah. Same building… And also, it’ notable that a lot of my units are HUD rentals, Section 8. So the $1,700 is kind of like that’s what I’ll get. I’ve built a relationship with the HUD inspectors and case workers, and I pretty much know that if I have a two-bedroom…

So one of the ways that I was able to make this happen – these numbers sound really great – I got really lucky. I bought at a good time, when prices were still reasonable, rents were going up, and prices just happened to go up a lot over the last year, year-and-a-half now.

Joe Fairless: How much could you sell the second one for?

Greg Gaudet: The second one… That was a one-bedroom unit. There haven’t been any comps actually since that one sold, but there’s one in escrow right now for about 120k, so I’d say I could sell it for about 110k to 120k… And I bought that one for 75k.

Joe Fairless: Why are they so inexpensive relative to my perception of how much they should be?

Greg Gaudet: It’s mostly just because this particular building is not a desirable building. It’s about a D-class building, from Maui. In any mainland market I’d say it’d probably be considered like a C, C- class. But since Maui doesn’t’ really have any rough neighborhoods or lower-class neighborhoods, the cheapest you can buy a single-family house here is at least 400k, maybe 500k, unless it’s a knockdown. If it’s a teardown, you’ll get it in the 300s maybe.

This particular building – everybody knows it. It’s a huge, really large building, over 350 units, so it’s a well-known building, and it has a bad reputation… But people need to live. There’s a lot of people here that are just low-wage earners, or young families that have young kids and don’t make a lot of money, and they need a place to live. It’s central, it’s right in the middle of the town, across the street from the ocean, and… It’s not a bad place, it’s just not a fancy place.

Joe Fairless: You’ve bought five rentals in the first 12 months. Why weren’t you buying properties before?

Greg Gaudet: I made a lot of offers before. I was making a lot of offers in 2011 and 2012, 2013… But back then I was looking at real estate as “I buy my home, and then in a couple years I sell it and I make a bunch of money.” I didn’t understand that there’s so many principles in investing that you use to determine when to buy and when not to buy, and how to invest. So I did wanna buy, and I was trying to buy previously, but because I was just based on speculation, I was making really low offers, and only willing to buy if I got it– and I also didn’t know about other methods to buy. I was only looking at MLS listings, and none of those retail sellers were taking my offers.

I kind of wish that I had bought a couple of units, as I look back at 2012, because I was gonna buy them around 100k back then, and now they’re 250k(ish) today. So I didn’t know what I didn’t know back then.

Joe Fairless: For the five transactions in the first 12 months, how much money out of pocket in total were you to get those five transactions completed?

Greg Gaudet: I was putting about 20% down on each unit. Again, I’m really frugal, so I was saving, and I still do save probably 60% of my income… So I put about 20k to 25k per unit, except for one of the last ones. The last one I’ve just bought for 30k, so that one I just paid cash. So I got that one free and clear for just a little more than I’ve put as a down payment on all the others, and it’s worth the same. It’s in the same building.

Joe Fairless: It’s in the same building! Are all five in the same building?

Greg Gaudet: Not in the same building, but yes, in the same condominium project, the same association.

Joe Fairless: Okay, so you said there’s 300 of them, and you have five within the 300?

Greg Gaudet: Yeah, there’s like 352, and I have  five of them… And I’m done there. I’ve got five, I’ve got enough there. They do very good returns.

Joe Fairless: Why?

Greg Gaudet: Well, I just don’t think it’s smart to–

Joe Fairless: By 70 years you’re gonna own the whole building at this rate.

Greg Gaudet: Right?! Well, I don’t know; my mentor’s got a bunch there, and another guy I know there has got probably 15 of them there… Because obviously, they make great cashflow. Funny story, my mentor today is actually the guy that showed up to that first auction and bid against me. I showed up expecting to buy it for 64k, and I didn’t think anybody else was interested… And I show up to the auction, there’s another bidder there. He bid against me, and we both had a max bid of 70k, and just because I happened to bid first, I was the one that bid 70k, and he couldn’t go any higher, so I won it. And today he’s my mentor.

But yeah, I have five units there, I have a lot of my capital invested there, and if the whole place burned to the ground, I just wanna diversify. So as much as I love the returns there, I think it’s time to diversify, so I’m looking for other units now.

Joe Fairless: How did you come across the last one, where you bought it for $30,000 cash?

Greg Gaudet: That was just from marketing myself. I did some direct mail, I just talk to everybody, I tell everybody what I do, I give my card to everybody… And a seller called me up, and [unintelligible [00:17:15].27]

Joe Fairless: From the direct mail?

Greg Gaudet: Yeah.

Joe Fairless: Okay. So you were mailing direct mail pieces to all 346 units at the time.

Greg Gaudet: I actually didn’t mail everybody. This is really time-consuming and I don’t necessarily recommend this, but I went through all the tax records and looked at the units that were worth mailing. I probably mailed about a little more than half of them. Anybody that bought in the last year – I didn’t bother mailing those people; they’re paying full retail. So I mailed all the people that I thought would be motivated. I actually made my own list and mailed them.

So she called me up… She had inherited it ten years ago, and she wanted nothing to do with it. She was going over there every month to collect rent. Tenants were a month behind… It was just a mess, and she just wanted to unload it really quick. So that one worked out great, I’m really happy with that.

Joe Fairless: I bet. And when you were looking at the tax records, you weren’t gonna mail to anyone who bought it within the last year… So did you mail to anyone who bought within 13 months or earlier, or did you have a different timeframe that you had a cut-off at?

Greg Gaudet: No, I didn’t have a set timeframe. If they bought two or three years ago but they bought it pretty cheap, I would add them. I just went on a case-by-case basis. I probably didn’t add anybody that bought in the last maybe two years, maybe even three years.

Joe Fairless: Okay, cool. You have these five units… Are you managing them yourself?

Greg Gaudet: I am self-managing them, just because I have property management experience, so I’m comfortable with it… And I also think that it’s important for me to learn my specific market issues. I don’t have experience managing D-class rentals and units in this building, so this was important for me to learn, so that when I do go to hire a manager, I will know what to expect and what not to expect. So if they send me a bill for something that doesn’t make sense, I can say “What are you doing?” and I’ll know that’s not the right property manager.

And also, I have the time and the ability. It’s not very time-consuming to manage these five units that are ten minutes from my house, so I do it to increase my cashflow and returns and learn more about my market.

Joe Fairless: What are some tips for someone who wants to have Section 8 tenants in their properties? Whether it’s tips for the process, or anything else that you have that comes to mind?

Greg Gaudet: Screening. Screening, screening… Screen some more. Just screen the heck out of those tenants, and don’t believe the stories. That goes for all tenants. I don’t like to classify anybody, but I do think that there tends to be a lot of tenants that end up in a situation where they’re on Section 8 because maybe they weren’t very responsible with some things. So I try to watch  out for those tenants, and I try to find the people that are good people.

A lot of my tenants were good, hardworking people, even homeowners, and something happened in their lives; it could be me tomorrow, so I kind of — actually, a little side detail I’ll throw out there… I’m really proud of this – all my tenants have come from the homeless shelter. We have a major housing shortage now. A lot of people – even people with jobs and working people can’t afford housing here, and they end up in the shelter… So I’m really proud of being able to add value to the community and provide housing to these people, and give them a nice place too, and be a good landlord.

Anyways, the point is – screen them. There’s a lot of bad tenants out there, but I check all their references, I’m very thorough with them, I’m very strict with them. I tell them upfront, I will do everything I can to be the best landlord and make you guys happy, but don’t be late on the rent.

Joe Fairless: And how much of the voucher pays for the $1,700?

Greg Gaudet: It depends on the tenant. Some tenants have a higher income; their portion will be higher. They’re limited to paying about 30% to 40% of their monthly income. I have a tenant that pays $80, and I have a tenant that pays $500, but pretty much HUD pays the majority for all of them.

Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?

Greg Gaudet: Based on my experience, it’s to get started. Educate yourselves and take action. I wish that I had educated myself a long time ago, and I would have taken action a long time ago. That’s my biggest regret, is not starting sooner. But it all comes down to preparation, and taking action.

Joe Fairless: Why do you think you had zero properties up until 2018, and then bam! Five rentals one after another after another after another. You mentioned that you were trying to time the market before, and you were trying to approach things a certain way, and now you don’t… But I’m more asking how you were able to buy five so quickly after not having bought any?

Greg Gaudet: One other detail about in the past when I was making offers – I was doing escrow for a really high-end brokerage, and my resource for market information was my broker. He was a retail broker. He didn’t understand anything about creating cashflow and buying below market value, and I didn’t know about any of the online resources and podcasts at the time. If I had found those back then, I would have started back then, in 2012.

Now, the other thing that changed was over the years I increased my income, so I was able to save a lot more for a down payment. I’d also mentioned that I bought all my units below market value, but I haven’t refinanced any of them, so I’m kind of doing a delayed BRRRR strategy. The only one that I have taken equity own on is that last one that I bought for $30,000. Since I paid $30,000 cash, I just took out a HELOC from the bank. The day after I closed on it I just went to the bank and they gave me a HELOC for $76,000, so I’m gonna use that to buy my next three, so hopefully in 2019 I’ll buy three more units… But I still have all that equity and all those units, and I’m kind of waiting for a time where I can refinance them all and use that capital to buy something bigger. But to answer your question, it was between the preparation and all of that, and also just earning more over the years, and saving up the money to be able to scale.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Greg Gaudet: Let’s do it!

Joe Fairless: Alright, let’s do it! First, a quick word from our Best Ever partners.

Break: [00:24:02].07] to [00:24:51].16]

Joe Fairless: Best ever book you’ve recently read?

Greg Gaudet: I’m gonna say Never Split the Difference. I love that book.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Greg Gaudet: I would say a mistake I made was — I’ve just mentioned how I’ve been saving up my equity… I wish [unintelligible [00:25:03].15] true BRRRR strategy, but I didn’t plan it out that way, and it’s gonna be a lot more complicated to refinance to get all of my equity out, than if I had just been refinancing as I went… So I wish that I had better strategized my long-term plans, and tapped into my equity as I went.

Joe Fairless: What’s the best ever deal you’ve done?

Greg Gaudet: Definitely that last one. I mentioned I purchased it for 30k, market value is about 100k, and then the ARV — it’s not renovated; it’s rough, but it’s already rented out, so I’m not gonna be renovating it until the tenants decide to move… Purchase price 30k, ARV is about 140k, current market value is 100k, and the bank gave me 76k for it, as a line of credit, right after closing.

Joe Fairless: That’s beautiful. Nice job on that.

Greg Gaudet: Oh, and it cash-flows $600/month.

Joe Fairless: Oh, by the way, you make money as you go along. What’s the best ever way you like to give back to the community?

Greg Gaudet: Like I mentioned, helping people in need. There’s a lot of people in Maui that are good, hardworking people, and they’re really struggling… And a lot of landlords don’t want to accept HUD, because it is more work, and it is riskier, and there is a lot of downsides to it. There’s upsides too, though. I like that my rent is guaranteed every month, and I like that I’m helping the families. These people are so grateful. Other than that last tenant that I said I inherited,  every one of my tenants has come from the homeless shelter, and they’re so grateful… And it feels good to be able to help them out.

And then also, the unit that I inherited the tenants on – it’s a guy in his thirties and his mom had cancer, and they’ve lived in the unit for 20 years. She’s really sick. The old owner, I mentioned he mismanaged it; he had it rented way below market rent. It’s rented at $1,200/month. So I feel really good about buying that unit, because I feel pretty confident that most investors would go and take them out, renovate it, and either sell it for $150,000 or rent it for $1,700… And I’m not increasing their rents, I’m not kicking them out, I’m just letting them stay, letting them go through whatever they’ve gotta go through, and I’m sure I’ll be able to rent it for more at some point in the future… But for right now, it’s making a great return, I’ve got a ton of equity, and it’s the best deal I’ve ever done and there’s no need to increase the rent. That’s kind of a cool way for me to be able to give back, to be able to help that family stay in their housing and focus on their health, instead of worry about increased rent or finding a new place.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Greg Gaudet: They can hit me up on Bigger Pockets, search for Greg Gaudet in Pukalani, Hawaii, or I’ll give out my email address –

Joe Fairless: Greg, thank you for being on the show… Thanks for talking about what was holding you back, and then when you had a different mindset and different strategy, and then reached out to a guest on this podcast and you changed your approach… Holy cow – watch out, Maui, because here you go… Five transactions, 12 months, 25% cash-on-cash, and some good amount of equity to boot along the way.

Thanks for talking about how you found those deals, you jumped into deep waters on your first transaction with the foreclosure auction, and then on the last transaction, the direct mail, looking at the tax records, being intentional about who you’re mailing it out to, and having conversations… And lo and behold, it netted a very, very lucrative deal.

Thanks for being on the show. I hope you have a best ever day, and talk to you again soon.

Greg Gaudet: Thanks so much for having me, Joe. It’s been a blast.

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