January 3, 2020

JF1948: Submarine Lieutenant Obtains 8 Units In Three Months with Anthony Pinto


Anthony is still in the service, while also building his real estate portfolio. We’ll hear how he was able to get those 8 units so quickly, and of course we’ll get to some of the details of a couple of his deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

“There’s so many opportunities to learn, you have to constantly be learning” – Anthony Pinto

Anthony Pinto Real Estate Background:

  • Submarine Lieutenant currently stationed in Norfolk, VA
  • Since acquiring 8 units in three months, Anthony has expanded into apartment building investments
  • Based in Norfolk, VA
  • Say hi to him at pinto.capital@gmail.com
  • Best Ever Book: Miracle Morning

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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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Anthony Pinto. How are you doing, Anthony?

Anthony Pinto: I’m great, Joe. How are you doing?

Joe Fairless: I’m glad that you’re glad to be here, and I’m doing well, and looking forward to our conversation. Anthony is a submarine lieutenant, currently stationed in Norfolk, Virginia. Thank you, sir, for keeping us all safe. Since he’s started real estate investing he’s acquired eight units in three months, and has expanded into apartment building investing.

With that being said, Anthony, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Anthony Pinto: Sure. Again, my name is lieutenant Anthony Pinto, submarine officer, stationed in Norfolk. I’ve been here for about three years, and I bought my first house in 2016 as a primary residence, when I first moved here. I used my VA loan.

Then at the end of last year I got off of my [unintelligible [00:02:14].09] again in Norfolk… And I really got thinking about how I didn’t wanna spend the next 20 years of my life going under way, being on a submarine… So I just started looking for other means to generate cash, and to generate wealth… And I looked to real estate investing as a way to do that.

In December I started going to the local meetups, I found a realtor… By the end of January I had a quad that we currently are house-hacking closed, and by the end of the next month, end of February,  we had a triplex closed, that I bought with a joint venture with a couple other Navy partners.

Since then we moved into larger apartment buildings, mainly in the Kansas City and the North Carolina areas. We had a 34-unit under contract about a  month ago, which we unfortunately had to release due to the property condition. It was pretty bad, I’ll just say that…

Since then, we continued to build my local team in the area, in Kansas City, both in terms of boots on the ground and on property management, and actually tomorrow we’re submitting an offer for a call for offers for a set of quads in the Grain Valley area on the Missouri side, which we’re really excited about.

Joe Fairless: Well, we have a lot to talk about. Let’s first talk about how quickly you jumped in… I believe, if I heard you correctly, you started studying real estate and going to real estate meetups in December, and you closed in January. How did you find and close so quickly?

Anthony Pinto: First off, I had an awesome real estate agent. She was a veteran herself, and she focuses a lot on specifically military investors. She’s got a mastermind herself that she does in the area, and there’s probably about 30 of us in that.

So it started off with her, she had a lot of great connections. I like to call her the Great Connector. Every time I have an issue, she can point me in the right direction, whether it’s insurance, or flooring, tree guy – you name it, she’s got somebody on call for that. So having a great real estate agent honestly really helped.

Secondly, looking through the weeds and seeing opportunities on deals that were already on the market. This quad that we’re house-hacking right now was about $60,000 overpriced, and it had been on the market for a few months already. No one had really taken a bite at it because it was so overpriced… So we kind of looked at it and we offered a price we thought was reasonable, and they countered, and we went back and forth for a while. It got to the point where, running my numbers on it, it just didn’t make sense, so we ended up walking away from that.

A week later they came back and said “Hey, we wanna go with your original offer.” We were like “Okay.” So we went through the whole contract and due diligence process, and got to about three days before we were supposed to close and we hadn’t heard anything from the appraiser… We had to delay the closing another week, and finally the appraiser came back at about $25,000 cheaper than the asking price. I don’t know if your listeners are familiar, but with the VA loan, it’s 0% down, 100% loan-to-value, and the VA will pretty much pay up to the appraisal price. Anything higher than that has to come out of pocket.

So here we were, stuck with about $25,000 cheaper than what the asking price was, I was trying to rack my brain about how to figure this issue out… And we came out to the agreement that we would just pay for closing costs.

So for about $7,000 out of pocket we got about $25,000 off the price, and the final price was actually cheaper than what we had originally gone with, which was a pretty awesome deal.

Joe Fairless: Wow. How did you meet the real estate agent?

Anthony Pinto: She was the only real estate agent that I saw that was holding meetups on Bigger Pockets in my area. So I went to a meetup of hers, and I was impressed, and I took her out to coffee the next day, and the rest is history, I guess.

Joe Fairless: What did you end up buying the property for?

Anthony Pinto: We bought it for 287k. Our original offer was 290k, and the listed asking price was 350k.

Joe Fairless: It’s a quad… Do you have it rented out?

Anthony Pinto: We do. We live in one of the units, two of the units are long-term rentals, and then we airbnb the fourth unit.

Joe Fairless: How much do you bring in per month on average for the Airbnb?

Anthony Pinto: We get about $900 to $950, depending on the summer or weekend timeframe… Which is about $100-$150 more than we could get if we just did a long-term rental on it.

Joe Fairless: Okay. Are the other two $750?

Anthony Pinto: The one-bedroom is $800, and the two-bedroom is $1,000.

Joe Fairless: Oh, okay. Great.

Anthony Pinto: Yeah. It more than covers the mortgage, and then some.

Joe Fairless: Yeah, $2,700 in rent… So on the 1% rule it’s a little bit less than 1%, I imagine?

Anthony Pinto: Right. And that’s including the fact that we’re living here as well. So when we move out, you can add probably another $800-$900 on top of that.

Joe Fairless: And then it’s 1.1%, 1.2%. Okay. Great. And that was no money out of pocket?

Anthony Pinto: Except for the closing costs we had to bring at the very end – yeah, 0% down.

Joe Fairless: So how much in total did you have to bring?

Anthony Pinto: I think it came out to around 7k.

Joe Fairless: And what about the triplex that you had partners on?

Anthony Pinto: Actually, I have Redfin alerts/emails to me for multifamily deals in the area, and I would occasionally look through it and I got this deal sent over to me at like 6 o’clock in the morning, when I was getting ready for work… So that morning I kind of looked through and I was like “Wow, this seems like a really great price”, just based off of what I thought we could get for rent. It was going for 215k, and we could rent it for about $2,800 in total.

So that morning, on my way to work, I went to go take a look at it. I was like “Oh, this doesn’t look like a bad property.” Basically, it was a turnkey flip that the owner wanted to get rid of, to reinvest his capital elsewhere. So that afternoon I put an offer in, and my realtor submitted it, and by the next morning we had it under contract.

Joe Fairless: What were they asking and what did you offer?

Anthony Pinto: The asking was 209k, and we put in 215k.

Joe Fairless: That’s right. I’m sorry, you mentioned 215k earlier. Okay, so you offered more than what they were asking.

Anthony Pinto: Right. And my realtor was trying to text… So I can’t have my phone in the shipyard where I am, so  my realtor was texting me, he was like “Hey, we have a deadline at 1. I need an offer.” And I didn’t get that until [1:30]. At this point we had to be competitive, because there were already 2-3 offers in. The only way we could do it is just offer a higher than asking price, especially since the numbers still worked for that.

Joe Fairless: What are the numbers on that one?

Anthony Pinto: We are currently renting it for $2,750, bought it for 215k, mortgage comes out to be about $1,100, about 33% expenses on that… So we’re cash-flowing about $600 total off of that property.

Joe Fairless: You mentioned you had partners… How do you structure that partnership?

Anthony Pinto: Actually, this was a great learning experience for me, because I knew I wanted to bring in outside money, but I really didn’t know how to do that. This was my first time using a commercial loan that I got through a credit union… So after we got that property under contract, I was like “Oh, man… Now I need to figure out how to find this money.” So I started scouring Bigger Pockets and trying to research as much as possible, raising private capital. I stumbled upon a couple books, but I eventually made a list of all the people that I knew – family, friends, people I went to college with, people I work with, and just started calling a whole bunch of people. I probably called 60 or so people, trying to explain what I was doing and see if they would be interested in this great opportunity.

So my first partner I found is an active duty intelligence officer, also in Norfolk. I found him on Bigger Pockets. It turns out we had a ton of similarities. He was two years behind me at the Naval Academy, and we knew a lot of the same people. I had him over for dinner, and we talked and talked, and ended up investing about 12k with me.

So the total raise for this was about 48k, I’ll just start off with that. He brought a quarter of that. And then the second guy I found was also a submarine, senior chief, active duty guy. He had done investing before and he had a lot of money tied up int he stock market, that he wanted to take out. So we got talking and he brought the rest of it, 36k. So in about three weeks after getting it under contract we had the full amount raised, to be able to close on the property.

Joe Fairless: And how do you structure the ownership percentages?

Anthony Pinto: I had a big conversation with my lawyer on how to [unintelligible [00:10:20].04] LLC for this. Basically, what we did is we formed an LLC in the form of a partnership, with a president, vice-president and treasurer. And the three of us sat down and we just talked through the different terms, we talked through how we were gonna do the equity split, how we were gonna do the cashflow splits, who was gonna take what role and responsibility, what  we were gonna do for the long-term business plan, what the different exit strategies were… So we basically got together with our lawyer and we talked through all these different things, and our lawyer drafted up our operating agreement, which was the legal solidification of our partnership.

From there, we closed on the property, and we were operating as an LLC, and we were getting the cashflow and equity and the percentages outlined within the operating agreement itself.

Joe Fairless: And what are some highlights of how that operating agreement reads in terms of cash distribution priority and ownership percentages?

Anthony Pinto: For me, since I was not bringing money to the table, I had to offer something else… It’s pretty similar to a syndication we’re working on right now. Those not bringing capital to the table have to be a little more creative in what they’re actually bringing, and the advantages they’re bringing. So what I brought was obviously finding the deal, and I also personally guaranteed the loan. Since we were able to go through a credit union and do a commercial loan, it was recourse, so I had to personally guarantee that, which I was fine with doing. $215,000 wasn’t a lot of money to really be worried about. So I personally guaranteed the loan. So that, and finding the deal, and securing the financing got me 35% of the equity and of the cashflow.

The partner that brought the most money got 50% of the cashflow and 35% of the equity, and then the last partner got 15% and 15%. So we just kind of worked it out to make sure that the returns that the investors were looking for made sense. Based on that equity split and the cashflow, the larger partner wanted 11% return, and so we were able to get that to him based off of the conservative proforma that we were operating off of.

Joe Fairless: Let’s talk about that 34-unit. Tell us the story about that.

Anthony Pinto: Sure. This property was on LoopNet, that’s how I originally found it. It had been on there for about two years; it had been under contract a year before that with another buyer, and it was not very well maintained. There were a lot of bad tenants in there, there were really high delinquencies, there were evictions left and right… The property just wasn’t being taken care of. And the biggest issue with the previous buyer is that the property was made up of two multifamily buildings and a single-family home on the same lot, which was very unusual collateral. The Fannie and Freddie representative at the bank that the buyer was talking to was like “Yeah, this is unusual. We’re not comfortable with how this is laid out.” So he wasn’t able to secure financing for that based off of that, and just how the property was operating at the time.

So after that release about a year ago, the owner went in and got rid of a whole bunch of bad tenants, put a lot of money into replacing the roofs and renovating the units, and basically trying to turn the property around as much as they could.

So the property almost did like a 180 between summer 2018 to 2019, which is when we were taking a look at it. So I looked at the property and it was being advertised to a local brokerage in the area, and actually the broker for this deal I had met on Bigger Pockets earlier, when I was visiting home in Kansas City over the Christmas break, and we never had had a chance to meet.

Long story short, I looked at this property and I was like “Oh, those numbers work.” We negotiated out the contract for it and came to a price that was a little more than I would have been comfortable with, but the numbers still worked out, even as conservative as they were… So we got under contract at the beginning of July.

It was mainly me taking down this property, so I  got a little ahead of myself on having the right experience and the right people on the team. I had been building my team in that area for a while, but I didn’t have the right players yet as it turned out, going through with this property.

So I set the contract up, got it under contract, started going through the due diligence. A lot of things just didn’t start adding up; there was a lot of confrontation between the seller and us trying to get due diligence documents and trying to get answers for things that were happening/had happened with the property.

So August rolls around, which was about three weeks after we had the property under contract, and I went to visit the property and do the property inspection… And I had had a boots on the ground partner go and take a look at the property initially, and he had just done a walkthrough of the outside and they had seen one of the only vacant units, which had been recently renovated. Based off of those pictures, I kind of had a sense of what I was walking into.

So I started to do the property inspection, started looking at the rest of the units, that hadn’t been renovated, and I was just appalled at the condition that this property had been maintained at, and the condition that people were living in.

I got told that 32 of the 34 units had been renovated, which was definitely not true. There were at least ten of the units that had significant renovations needed to be done. One of them probably needed to be gutted based off of water damage that was ongoing, that current management hadn’t taken care of.

So basically, for the two days we did the inspection, I kind of just realized, got with the partners and we’re like “We’re pretty much buying a lemon right off the bat.” I’ll go back a little bit – so that triplex that we bought, I had a lot of red flags going off in my head, just kind of walking around and talking with my realtor… And a lot of those same red flags were going off in my head with this property. I ignored them on the triplex, and I wasn’t gonna ignore them on this property.

So I got with the partners, we talked through it, and based on the property inspection, which had some pretty significant issues… Significant mold inside units that people were living in, there was ongoing water damage, and a lot of the units had foundation issues. We had, like I said, ongoing leaks, and some of the units should have been gutted. There were electrical breakers that were next to showers and next to sinks, that didn’t have any [unintelligible [00:16:14].02] or any protections like that… Just a lot of things were wrong with this property.

So we got together, and long story short, we ended up releasing from the contract, and was able to get the EMD back on that… But $5,000 for the property inspection was well worth realizing that this property would have been pretty much buying a lemon right off the bat.

Joe Fairless: Did the submarket meet your expectations?

Anthony Pinto: This property – I don’t know if I mentioned… I’m from Kansas City originally, so I knew where this property was, and it was actually about four blocks or so away from where my grandparents used to live… So I was pretty well familiar with the area.

The area was what I expected it to be. The submarket and type of clientele was what I expected it to be… But there’s always extremes of a certain type of clientele. I understand what a class C type of tenant is gonna look like, but there’s always gonna be extremes to that… Just the level of comfortableness that people are able to live in.

So I was a little taken aback by some of the conditions that people were living in in this property, but overall I kind of realized that this area probably needs a little more up and coming before it makes it worthwhile.

Joe Fairless: Okay. And that’s why I asked the question, because a lot of people will say “There’s nothing about a property I can’t fix if I buy it the right way… But if a market or submarket don’t cooperate, then that’s where I can get into some trouble. Because I can throw a lot of dollars at a property, and you could make Taj Mahal in the middle of a D class area.” That wouldn’t make sense to do, but you could… But you can’t make a Manhattan type of environment in an area that’s D class.

So when you got the inspection report back, what did you say to the seller? Did you try to negotiate, or were you just pulling out, you were like “Forget this”? How did that go?

Anthony Pinto: I knew that we were pretty much at the limit for where the seller was willing to go down… So I kind of realized that the level of negotiation that would make us comfortable with purchasing this property was much lower than what the seller was willing to go for. And just based on the amount of issues that were wrong with this property, it probably should have been torn down and built back up. There were so many issues that I kind of realized – this property was 60 years old; so if I’m seeing issues now, what are the issues that I’m not seeing? What are the issues and the repairs that have been done over the years that I’m not seeing, that may or may not have been [unintelligible [00:18:37].02]?

So I kind of realized that we can negotiate this all day, but at the end of the day this is not the type of property that I want to put my name and my investors’ name on. So we didn’t negotiate on it, we just pulled it based off of the property inspection; we basically pulled a contingency for due diligence.

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

Anthony Pinto: I think the best advice is you’ve gotta learn as much as you can. Be the expert in what you’re doing. People will flock to you when they realize that you are the expert in what they are trying to do, and you’re continuously learning… And that’s the other thing, continuously learn. There are so many opportunities to learn, so many podcasts, so many Bigger Pockets articles and forums… There’s so much out there. You have to continuously learn, because this market is constantly changing, whether it’s single-family homes or commercial. So learning and continuously learning.

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

Anthony Pinto: Ready for it.

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

Break: [00:19:40].11] to [00:20:16].03]

Joe Fairless: What’s the best ever book you’ve recently read?

Anthony Pinto: Best ever book is The Miracle Morning by Hal Elrod.

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

Anthony Pinto: Oh, man… A mistake [unintelligible [00:20:20].17] triplex and not going with my spidey senses about the property. I didn’t really talk about it, but we had a significant amount of issues with this supposedly turnkey property. So I took those same spidey senses and I applied them to this 34-unit and I turned away, and it worked out for the best.

Joe Fairless: What are the issues on the triplex?

Anthony Pinto: Let’s see… When we first bought it, within two weeks it got broken into and all the appliances and air conditioners got stolen. That was a pretty hefty insurance bill. We had A/C problems after that, we’ve had ceilings needing to be replaced because of leaking air handlers. We had significant termite damage that had been covered up with insulation in the crawl space, that we found afterwards. We had pest issues, we’ve had issues with tenants, there’s been some roof issues… Just a lot of different issues.

Joe Fairless: And how do you communicate that back to your two partners?

Anthony Pinto: A lot of the investors I talked to in the area had asked me about this property; the property is on a street called Carver Circle, so they would ask me “What’s up at Carver?” So I would tell them all these issues we’re having, and it kind of dawned on me – I can talk to people individually, or I can write about my experiences. I can talk about my experiences and put it online. So what we started was a blog called Rookie Real Estate, which is basically a testimony to my start from a rookie real estate investor at the end of last year to where we are now.

I talked a lot about how I got started, the mistakes that we’ve made, the different issues that we’ve had, and some lessons learned along the way. It’s geared towards the first-time investor.

For me, starting off, it was almost like a fire hose of information, and it was hard for me to focus on one thing and get started… So I wanted to start this blog as a way for first-time investors to get their bearing and guide them towards all these different resources we have available. And to also give them that things are gonna happen, and that problems exist, and not to have this spiritual view that everything with real estate is gonna work out for the best.

Joe Fairless: How can the Best Ever listeners get in touch with you and learn more about what you’re doing?

Anthony Pinto: Yeah, of course. I am on Facebook, Anthony Pinto. We also have a Facebook for our business, Pinto Capital Investments. We have a website, PintoCapitalInvestments.com, and then you can also find us on Instagram, I have LinkedIn, and then finally, our blog RookieRealEstateBlog.com. There’s also links to our website on there as well.

Joe Fairless: Anthony, thank you for talking about your first couple purchases, as well as the deal that didn’t work out, how you used some lessons from the second purchase to influence you backing out of the third purchase. Much better to learn on the triplex than on ten triplexes combined. And the specific examples of some of the red flags too, so thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Anthony Pinto: Alright, thanks, Joe. It was an honor to be here.

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