With us today is Jim Murray, co-owner of Lyon Property Management Group and co-host of the podcast The Cashflow Kings. Jim shares with us the steps he took to get out of the W-2 world and build his property management company. He also shares his experience in the profitability of property management.
Best Ever Tweet:
“The biggest thing is you have to be a great saver before you can be a great investor.” – Jim Murray
Jim Murray’s Real Estate Background:
- Co-Owner of Lyon Property Management Group
- Co-Host of the podcast The Cashflow Kings
- Invests in multifamily real estate and manages real estate
- Based in Providence, RI
- Say hi to him at https://www.lyonpropertygroup.com/
- Best Ever Book: The Wealthy Gardener: Life Lessons on Prosperity Between Father and Son by John Soforic
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real-estate investing advice ever show. I am Joe Fairless, 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, Jim Murray. How are you doing, Jim?
Jim Murray: Hey Joe, thanks for having me on the podcast. I am really excited to be here.
Joe Fairless: My pleasure. I’m looking forward to our conversation. A little bit about Jim, – he is the co-owner of Lyon Property Management Group and co-host of the podcast The Cashflow Kings. Invests in multifamily real estate and manages real estate. Based in Providence, Rhode Island. So with that being said, do you want to give the Best Ever listeners a little bit more about your background and your current focus?
Jim Murray: Absolutely. So I came out of college and started by house-hacking. So the first real estate investment was a house-hack. From there I went into wholesaling, I did a couple of flips, I bought my second house hack. The goal was always to become a corporate dropout. I have a degree in finance from Ohio State University – so shout-out to my [00:02:13].13] out there – and I landed a job at a large investment firm. I ended up catching a bad review, led me to…
Joe Fairless: What did they say about you?
Jim Murray: So my manager told me – and I will have to use without the profanity… But she told me “I don’t understand how you are so effing confident, because you are effing average.” And I said…
Joe Fairless: [Laughs]
Jim Murray: “Great. Great.”
Joe Fairless: Dang… That is harsh coming out of college.
Jim Murray: Yeah, I sent her a really cool email when I left, but it’s one of the world’s largest privately held investment managers, so that went over well. I sent an email to 200 of my closest friends, called her out doing part of the email…
Joe Fairless: What did you say?
Jim Murray: I called her out that she called me average.
Joe Fairless: Well, if you are being average, I think it’s fine to call you average. Were you being average?
Jim Murray: Honestly, at my corporate 9 to 5, I definitely was.
Joe Fairless: So what’s wrong with her saying that you are average?
Jim Murray: It was the confidence thing. She is saying “I don’t understand why you’re confident.”
Joe Fairless: Yeah, that kind of was below the belt, right?
Jim Murray: But I think where she was frustrated was the fact that I had automated my job the first month that I was there, and she was just trying to apply pressure.
Joe Fairless: Okay, in what way did you automate it? I imagine others weren’t?
Jim Murray: So I would produce a packet to be presented to the CFO on a monthly basis for the part of the company that I was within, and it was a bunch of Excel models. So I created it so I would just dump the data in and it would pump out the 50 slides for the deck that I needed, rather than all the manual work that the previous person who had the job had done… And I did that.
Joe Fairless: That’s so smart.
Jim Murray: Well, yeah.
Joe Fairless: You thought so?
Jim Murray: That’s what led me to be average the rest of the time, because I had automated my job. And honestly, it was an established business within the franchise that I worked for. They weren’t making any changes… I consistently asked for more work, I didn’t get it… So I started to focus on my real estate investing. And that’s really when I started to build out the property management company and started to focus on the things that I really want to do to get me out of my 9 to 5.
Joe Fairless: Okay. And what are some of the steps you took as a W-2 employee to get out of the W-2 employee world?
Jim Murray: So the biggest thing is that you have to be a great saver before you can be a great investor. As you are taking those nice paychecks hopefully from your day job, you’ve gotta make sure that you are saving at least 10%. So I would say 10% for retirement but, then also your rainy day fund for when you leave. So I was able to save up a sizeable nest egg for when I left, in case the property management business–
Joe Fairless: How much did you save?
Jim Murray: I saved 80,000 dollars in cash.
Joe Fairless: Wow. Okay.
Jim Murray: So I got a pretty good increase. So I left that job when she called me average. They moved me into another part of the company. They wanna bring me in from my previous background… I spent 6 years there. They gave me a 40% increase, so I banked the entire thing. So that was the biggest component that was able to set me apart.
The other big thing trying to quit the 9 to 5 job outside of saving is networking. Networking is huge in real estate. And having a tool like a Bigger Pockets or a local REIA, it’s going to absolutely set you up for success. That was the second component of how to get me out of the 9 to 5. And the third component was building a viable day job, so at least I had some funds to continue kind of my day to day life as I built the company that I wanted.
Joe Fairless: At what point did you have the confidence to leave your W-2 and when did you do that?
Jim Murray: That’s a great question, because I have some realtors that I know that are part-time now, and because of the height of market, they are doing really well. They are getting a lot of deals and they asked me the same question… It’s when you feel the pain. Mine was about a year and a half after launching the property management company. We had grown to a point that was sustainable. I left my W-2 job on a salary that was 30% of what I was previously making, but I always consistently lived well below my means… But the pain of not being able to chase my dream full time just became too much, so I grew the side hustle in order to make it a full time hustle.
Joe Fairless: Property management… So from what I’ve heard is if someone has 5 or 6 companies, they are an investor, they have a couple other non-real estate ventures, they also have a property management company, usually they say their least profitable is property management. What is your experience in the profitability of property management?
Jim Murray: I would say we are profitable within reason. So we are not [00:06:14].21] our clients, but the most profitable part of property management is going to be your maintenance. So you’re gonna have a top-notch maintenance team; that’s where you are going to be able to drive profitability. I am not saying that you overcharge your clients, but charging them for the value that you provide.
On the other side, I noticed that a lot of property managers compete on price, and this is a conversation that I have all the time. There’s another company in our local market that continues to reduce their prices because they are losing business to us, but our pricing has remained the same. So I talk with my business partner about this all the time… If you are in business competing on price, you are in the wrong business. Some of the entrepreneurship gurus talk about how you should really enter that high-end market. I am not the most expensive property manager in our area, we are about middle of the road, but we really drive that value home.
A lot of folks look at management fees and they are like, “Oh you only collect rents to earn that management fee?” That’s where it begins. There are a lot of intangibles in the management fee when you have great property managers. That’s going to be relationships with bankers to get your better financing, relationships with real-estate attorneys so when your tenants go to sue you over security deposits if you are tough on security deposits, I am getting that phone call first before the tenant even files, so at least the owner has a head-up… Or that attorney that I know is going to turn that business.
So there are a lot of intangibles booked into that management fee that owners don’t understand, and that’s where owners will try and cut down some of these other guys to get a better price in the management fee, rather than property manager trying to show them the value that they can provide.
Joe Fairless: Why did you choose to get into property management as a business?
Jim Murray: That’s a great question. So I bought my first couple properties and I realized what you actually make at the end of the day per door. In our local market, a great investor is going to earn about $150 per door on a net basis annually. And that’s really in the long run, too. So if you buy a distressed property, you are going to spend a lot more money upfront before you are going to earn that $150 a month. And I looked at it as, “Hey, as a property manager I won’t have the upside potential or the capital appreciation on one hand, but I can also earn that amount of dollars per door, but it gains me access to capital as well.”
At the end of the day, I always who had an entrepreneur tilt where I’ve wanted to buy companies, and I think that property management is a good starting place that has exposed us to other entrepreneurs and other really interesting opportunities.
Joe Fairless: And what are some other opportunities? Just giving a couple examples.
Jim Murray: This is a fun one that I think will connect with some of the listeners… We’ve had opportunities to purchase buildings to invest in medical marijuana growth. We’ve had opportunities to purchase restaurants. So other folks that are familiar with our very process-oriented approach, they figured that it would bode well in the restaurant business.
And then the other cool thing is as we built this out, we’ve been able to go out and become paid speakers as well, just as entrepreneurs. Talk about the processes, things of that nature.
Joe Fairless: And have you acted on any of those purchases or those opportunities to purchase?
Jim Murray: At this point we haven’t. We’ve been focused on really building a great property management product. Here’s the difference in terms of being a good entrepreneur versus a great one… A good one is going to work in their business and get stuck. A great entrepreneur is going to find a way to level themselves out and be able to work more on the business and not as much in it. So we are very close, we’re probably at about the 10-yard line, about to run the pole across the goal line in terms of my partner and I leveling ourselves out of the business, so we can start focusing on some of those other opportunities.
Joe Fairless: What would be the first one you’d focus on?
Jim Murray: The first one is we are going to get back into wholesaling. Because wholesaling is going to naturally feed business back to the property management company.
Joe Fairless: Ah, smart.
Jim Murray: Yep, so that’s gonna be the big one, off the jump. We are also looking at opening up a hard money business. We have investors that are very well-capitalized, and we have connects with other local wholesalers or rehabbers that are always looking for good terms on capital, but it allows us to work with the investors that we want to and still make a margin on that business as well.
So off the jump it’s going to be really related to the core business. You build some that are closer to the core, and then you can expand from there.
Joe Fairless: I see the logic and I really enjoy the logic of next focusing on wholesale, because that will naturally feed your property management business. So it’s not like you are creating a new venture, but you are creating a close cousin to the venture that you are currently doing, and they’ll play off each of each other.
Jim Murray: Absolutely. And what helps is a lot of wholesalers start out and they’re like, “Well, who do I market to?” or “Where do I find my cash buyers?” Well, our buyers and our cash buyers are going to be built into the property management business. And if those guys don’t want to buy it, then we could buy it as well.
Joe Fairless: Do you personally invest in real estate?
Jim Murray: Yes. Currently, I own two four-unit properties. The opportunities in our local market has lead to more flipping of multifamilies lately than anything, just because we’re very late in the cycle in this real estate market currently.
Joe Fairless: And who manages those properties — I am kidding. [Laughs]
Jim Murray: [laughs] Rob, it’s my friend around — I am just kidding.
Joe Fairless: Right, right. With the two properties – will you tell us about them?
Jim Murray: Yeah. The first property I bought, I was 23 years old.
Joe Fairless: How old are you now?
Jim Murray: Thirty-one.
Joe Fairless: Okay.
Jim Murray: So it was scary as shit, the first night. Sleeping on an air-mattress, I had just closed on it… My girlfriend at the time, she wanted to get a puppy, so we got a puppy that night… I got stuck with it. I love dogs, but sleeping there with a new puppy on the air-mattress and a half remodeled unit, I thought to myself, “What did I get into?” From there it was a climb. Honestly, every weekend for the first year I was working on the property. My tenants gained an appreciation for that, and I gained an appreciation for the process. But I was able to get it up and cash-flowing.
It was a four-unit building I bought for 140,000 dollars. At purchase it generated a thousand dollars gross monthly. Once it was stabilized a year later, it’s now been generating gross between $3,600 and $3,800 on a monthly basis.
Joe Fairless: Wow. Bravo.
Jim Murray: Thank you. The coolest thing is when I first bought it and I started to stabilize it, my mortgage was only $140 a month. And the first tenant I placed on the third floor – it was a 3-bedroom – they paid $900 monthly, and I’m like, “Holy cow, that’s a major part of the mortgage.” I had a great mentor that got me in; I didn’t realize I good it could be. So, very quickly I was cashflow-positive and headed in the right direction.
Joe Fairless: Any thoughts on doing a refi on that one?
Jim Murray: Yeah, I am in a really good position to do a refi right now. The property is worth about $300,000, and I still own 135k. I had a great mentor in the beginning through a separate business that I worked a part of, and he told me “Hey, you should never refi unless you have somewhere to put the money.” I haven’t found the right opportunity of where to put the money, but when I do, I would definitely refi that one in a second. It’s in a favorable area, Pawtucket, Rhode Island, and I think that it will work out pretty well.
Joe Fairless: That was one deal. What about the other one?
Jim Murray: The second multifamily that I house-hacked… So here’s the cool part – I house-hacked the first one, and two years down the road I was actually able to roll my owner-occupied mortgage into an investor non-owner-occupied mortgage, which allowed me to use an FHA loan on the second property to come in for very low money.
The second property was a 4-unit in Lincoln, Rhode Island, and at that property I actually leveraged a 203K loan. So the bank finances the rehab. I went with a 203K loan that was $35,000 or less, so it’s a streamlined 203K, so the process was a lot easier. If you go above $35,000 on rehab funds, the process becomes more difficult and more expensive. This is probably a good golden nugget for listeners.
I was able to live on that one again. When I picked it up, I had a bunch of one-bedrooms in an A neighborhood that rented at $500 a month. I came in, increase all the tenants to $800. All my friends thought I was crazy. I retained one tenant who is actually still there today, but I was actually able to rent the other ones for $825 a month after removing the other tenants.
The inherited tenants were not happy going from $500 to $800, but I said “Hey listen, go take a look at the market. You are going to have to incur moving costs, you are also going to have to come up with first month’s rent in security on another place. This is still a really good deal for you guys, and I’d love to keep you.”
Joe Fairless: What are some things that you do to the properties to increase the rent? It sounds like it was below market already, but any formulaic process that you typically do?
Jim Murray: Honestly, it’s all going to start with painting and flooring. That’s going to get you a majority of the way there in most of the neighborhoods in my market.
The big thing with painting is painting the entire unit one color, and using that paint color throughout everything you own. So it’s a very streamlined turnover process. Same thing, with using similar flooring in every single unit. If you can streamline the turnover process, it’s going to mitigate costs, and then the guys that you bring in, it’s going to help you out tremendously.
So we use the same paint, we paint the unit… If we have hardwood floors, we refinish them because it’s very inexpensive. If we don’t have hardwood floors, we’d be pulling out the carpet and putting in the laminate vinyl flooring. It just lasts four or five turnovers, rather than two with typical wood laminate.
So those are some of the things that we focus on at the first turn over. I know it’s not crazy; these guys are probably thinking like “Oh, Jim puts in granite and stainless steel appliances”, and it’s not even at that level. It’s pretty straightforward, just the paint and the flooring, most of the time.
Joe Fairless: What’s a mistake that you’ve made on a deal, whether with management or your two four-units?
Jim Murray: I am going to go back to a wholesale deal that I blew. So, I went out to see a five-unit in Lincoln, Rhode Island, five or six years ago. I met with a gentleman. He was incredibly distressed. I was ready to lock it up at a good price, we were pretty close, and as I went to walk away from that negotiation and go home and write the P&S, he’s like, “Oh man, I feel like you are buying this really well.” And my response was, “Yeah, well you make all your money on the buy.” [laughter] As investors, we can say that to ourselves, but don’t say that to the buyer that you are about to clear a really strong deal on a five-unit that’s off market… And I still kick myself today for saying that. It was just a rookie mistake.
Joe Fairless: Deal didn’t happen?
Jim Murray: No.
Joe Fairless: What did he say, if anything, when you said that?
Jim Murray: I followed up with them for six months, he blew me off for four months, but he told me that — he was an Asian investor and he was able to find another partner to bring in capital to help get him out of the pinch that he was in. Or at least that’s the story that he told me. [laughs] I looked it up on public record and he had it in one legal entity, and now it’s in two separate legal entities, so it does look like he brought the partner like he said.
Joe Fairless: And what’s a deal, if any, that you’ve lost money on? Not opportunity cost in this example, but actually lost money.
Jim Murray: My first flipped deal. I bought a four-bedroom/two-bath house for $22,000 dollars. I did not realize it was a brothel and I did not realize that the previous owner was renting the garage to folks in the neighborhood to shoot up and do cocaine. It was wild. So the prostitutes would kick in the side door and sign their name in lipstick on the windows.
Joe Fairless: Oh, my goodness.
Jim Murray: There were almost like Cops episodes where we would go and check on the property at night… And we ended up installing Simply Safe, so that helped out tremendously. But I can remember one time we had the cops called, they brought the canine, and he looked at us and he goes, “If anybody comes running out, tackle them. We are gonna be right behind them.”
Joe Fairless: [laughs]
Jim Murray: It was crazy.
Joe Fairless: Did you tackle anyone?
Jim Murray: No. Nobody came out, but I was scared shitless for 30 seconds.
Joe Fairless: [laughs]
Jim Murray: So on that property, the first contract that we were going to work with — so I had two other partners, so it was three partners in total, including myself. The money partner wanted us to work with his contractor. I will use air quotes, even though nobody can see them, above “his contractor”. He wrote that guy a check for $30,000. We never saw that guy again.
So, $30,000 was our margin on that project, and a $80,000 rehab, and it took us a year and half to sell it, because it was in a D neighborhood… So with carrying cost and everything factored in, we’d lost a couple of thousand dollars.
So it wasn’t a huge loss, but I learned that you’ve got to work with tried and true contractors, but also you’ve got to factor in, if you are going to buy in a D-neighborhood, even if you make that single-family really nice, it’s still going to be difficult to sell in the backside.
And even to end that crazy story of buying the brothel in the hood, we went to close, got the clear to close, and then they did one last check and it showed up on the terrorists watchlist, so it took us an extra week to close it in order to prove that he wasn’t the terrorist on the list that they had pulled up, which was wild.
Joe Fairless: Wow. Clearly, there are some obvious things that “Hey, if you see this, you are not going to move forward on a deal”, but what are three or four bullet points of “If you come across a deal like this in the future…”? Because I am sure there are ways to make money on any deal, but if you come across certain things on a future deal, you’ll approach it differently. What are those?
Jim Murray: Having more control of the process. Candidly, I got into that deal with no money down. I just thought it was cool. The hard money or private money guy that I worked with, he said “Hey listen, rather than wholesale it, why don’t you work with me and you’ll make money on the back-end, so it’ll be more than your wholesale fee?” I would say, even if you are going to do that, try to get a wholesale fee so it makes it worth your time with the deal. You don’t always have to do that, but pay attention to that. And then just have more control or more of a level setting with your partners of the contractors that you are going to use, verify that they’ve worked with them before, or verify their references of the folks that they’d worked with. There are some other things on the deal that were just crazy.
Joe Fairless: Yeah, please.
Jim Murray: I would say I should have put more time into the due diligence upfront of how long properties were taking to clear in that market, and then also broken apart the neighborhoods. We were in that in-between neighborhood where it could have taken a long time to sell or a shorter time to sell, so I should have budgeted more for that longer term to sell the property on the back-end.
Joe Fairless: Okay. And how do you know what timeframe to budget on the back-end for selling a property?
Jim Murray: You can reach out the local realtors in your market. You can very easily go to MLS or even to Zillow to see who is clearing deals in that market, and then reach out to them and ask them “How long does it typically take you to clear, either a rehab, so something that is in really good condition, or something that has a less favorable condition?” But lean onto the experts in your market.
Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?
Jim Murray: Take action, simply. I remember one of the very first Bigger Pockets podcasts I listened to — I can’t remember who said it, but they said “Massive action equals massive results.” And at the end of the day, you just have to take action. There are so many people that are stuck on the sidelines thinking about ‘What if I do this? What if I do that?” Just go out and do it, because at the end of the day you are always going to make more money. Hopefully, you do make a return on everything that you buy, but just take the action and it’s going to get you to where you want to go.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever lightning round?
Jim Murray: Absolutely.
Joe Fairless: Alright, let’s do it. First, a quick word from your best ever partners.
Break: [00:20:39].14] to [00:21:19].18]
Joe Fairless: Best ever book you’ve recently read?
Jim Murray: The Wealthy Gardener.
Joe Fairless: And what did you learn from that, that you’ve applied to your business?
Jim Murray: It was a synopsis of every great book that I’ve ever read, but it led me to realize that we need a higher level of accountability in our business.
Joe Fairless: And how did you implement that?
Jim Murray: So my partner and I have a weekly mastermind meeting, and now we are more direct in our weekly mastermind, meaning like “Here are the three things that we need to work on”, rather than saying “Hey, broad strokes.” They are very definitive, one, two, three, for each partner, so that we can go and tackle that in the next week.
Joe Fairless: Best ever deal you’ve done.
Jim Murray: It was the first deal that I ever did.
Joe Fairless: What about a mistake you’ve made on a transaction that we have not talked about already?
Jim Murray: That’s a tough one. I know this is the lightning round, I am struggling now.
Joe Fairless: You can take a minute, that’s alright.
Jim Murray: I think it’s not getting tenant estoppels on a deal, and then showing up and the tenant telling me that the rent was half of what it actually was. That’s a big no-no, and that’s something that I will stand by on every income property investment that I ever make, for the rest of my life.
Joe Fairless: And will you elaborate, in case someone is not familiar with what you are referring to with tenant estoppels?
Jim Murray: So a tenant estoppel is a really fancy name for a document that just confirms the amount of rent the tenant pays. So you’ll get one tenant estoppel for every income-producing unit in whatever you buy, and the tenant, the owner and the buyer all sign it, so there’s no questions asked in terms of the amount of rent for that unit.
Joe Fairless: Best ever way you like to give back to the community?
Jim Murray: It’s giving my time. I was able to speak at a local middle school about financial literacy, and that was one of the best things I have ever done. It was just a real feel-good moment.
Joe Fairless: And how can best ever listeners learn more about what you are doing?
Jim Murray: Give me a follow on the The Cashflow Kings on Instagram. The handle is @thecashflowkings. We post daily, and you will get to see the ins and outs of everything that I do on a day to day basis.
Joe Fairless: Jim, thank you for being on the show talking about your thought process for creating a management company, how you position it among other property management companies, why you got into the business, and the lessons learned on some deals that did not go well, as well as lessons learned on some deals that did go very well. So I really appreciate your time. I hope you have a best ever day, and we’ll talk to you soon.
Jim Murray: Thanks.