JF2289: Shifting Focus to Turnkey With Alexander Cruz

Alexander aka “Xander” is a full-time real estate investor with 7 years of experience. He is also the director of CR of Maryland where they have 350 single-family properties in Baltimore owned and under management and will currently rehab and sell 140+ turnkeys in 2020. 

Alexander Cruz Real Estate Background:

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Best Ever Tweet:

“Focus and stick to one area” – Alexander Cruz

TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today we’ll be speaking with Xander Cruz. Xander, how are you doing today?

Alexander Cruz: I’m doing great Theo, how are you?

Theo Hicks: I am well, thanks for asking, and thanks for joining us today. A little bit about Xander. He is a full-time real estate investor and has been for seven years. And he’s a partner of CR of Maryland, which has a portfolio of 350 single-family homes that are owned and under management. They also project to sell over a hundred and forty turn-keys in 2020, and they’ve also completed over 400 flips and over 400 wholesales. He is based in Baltimore, and you can say hi to him and learn more about his company at crofmaryland.com. So Xander, do you mind telling us some more about your background and what you’re focused on today?

Alexander Cruz: Sure. I’ll take you all the way back, I’ll keep it brief. I got into real estate back in 2011; I actually was hired by chance as an admin position for a broker. Quickly found out I wasn’t cut out for admin work, but I fell in love with real estate really fast. I did that for about a year and then I was an independent agent for about two years. And then that’s when I met my current business partner, who I still work with today. At the time that I met him, he was creating a new company in Maryland to be known as CR of Maryland, which is where we’re both from, we’re both Baltimore residents. At the time, our focus was just fix and flip. So at that time, it was me, Craig, and a project manager, and we were going out trying to buy homes, get them rehabbed, and then sell them.

So that grew a lot over time, we evolved a lot along the way. We went from being just a fix and flip company to focusing heavily on buying and renovating rental properties that we would keep for ourselves, so we built a pretty substantial rental portfolio here in Baltimore, and then of course also grew our property management team to oversee and manage it. And then that led us to last year, where we were reaching our intended limit of how many rentals we would personally have… And somebody said to us, “Well, why don’t you keep buying and renovating them, but instead of keeping them you can turn-key them? So you’re selling the property to another investor, but you retain the management.”

So it kind of clicked in our head and we made a big shift in our company, and that became our main focus. So probably about 90% of our time and energy is put into what we call our turn-key business. And like you said, we’ll deliver over 140 single-family properties this year in 2020 to turn-key investors from around the country, that we will buy ourselves, renovate ourselves and then continue to manage for many years to come. So it’s a really exciting part of the business… And we cover a lot of other aspects, we have a wholesale division, we have a retail real estate team… But our primary focus really is the turn-key business and property management.

Theo Hicks: How did you meet your business partner?

Alexander Cruz: Good question. Also a little by chance. So taking one step back again to the beginning… When I was in the admin role, I wasn’t good at it, but I worked hard and I maintained the relationship with my broker. So she’s the one that about two years later or whatever it was, that introduced me to Craig… Because I maintain a good relationship with her even though at that time I was no longer working for her; I was an agent in her office and she said, “Hey, I’ve got a guy coming in. I want you to meet him.” She had known him for years and she said, “I think you guys will work well together. I want you guys just to meet and talk and see what happens.”

And then over seven years, we became business partners, and depending on the day, our relationship can vary from best friend, to father-son, to business partner, and everything in between. But we have a really good relationship and it was all because of that introduction.

Theo Hicks: If you don’t mind diving deeper into that… So he obviously was doing his thing and you’re doing your thing, you guys came together, how did you decide how to structure the partnership in regards to compensation, and roles or responsibilities and things like that?

Alexander Cruz: Yeah, I would compare it to — not to sound weird, but let’s compare it to dating. So we didn’t go straight to a marriage. So in the beginning, our relationship was almost exclusively like agent and investor. Although we were working very closely together, I would get paid a commission when we would buy something and sell something. That’s how it started. So eventually it evolved, and we quickly figured out which of us was good at what. Again he’s a little bit older than I am, so he already had a pretty good base knowledge, but needed boots on the ground. We really had to hit the streets and find homes, and deal with contractors, and just do all the stuff that happens along the way. I was doing more of, I’ll say, that kind of heavy lifting, and I was the front-facing person, so I would deal with customers, agents etc, and he was more on the back end, building the business. So it was relatively easy for us to kind of define the roles, and then from there it just grew into a partnership, and we re-arranged pay and ownership and everything like that at the time.

Theo Hicks: So you were admin, and then you were a broker, and then you were a part of this company. And that’s when you started buying deals, right? So how does CR fund their deals? Maybe walk us through the evolution of that, so how you were doing it at first, and then what you’re doing now, and then how you got from A to Z.

Alexander Cruz: In total honesty, the blessing of my partner was that he had come from the business world already, and we had a pretty big amount of capital to work with. So for us, raising capital wasn’t the issue, it was more so how to use it and how to use it successfully. So that’s where the challenge of finding deals and having the right strategy in place to profit off of the deals – that was honestly the biggest challenge, because we’re in a competitive market and it has always been that way for as long as I’ve been in it.

Theo Hicks: So when you partnered up, he had a big book of people that he could just reach out to whenever he needed money?

Alexander Cruz: Correct. So I actually — and part of what I skipped in this story was he already had built and was running and owned a successful flipping company in Pennsylvania; even though he was from Baltimore he worked up there, because that’s where his previous business life was. So he was basically coming down here to recreate the same company, and already had a person in place, a PA that was running it day to day. So he didn’t have to be there every day, he spent all his time here, and wanted to do it in Baltimore. So that’s where it got grounded and started. So fortunately for us, the funding was in place.

Theo Hicks: Okay. So the harder part was finding deals to place that capital in. And so what is the best way to find deals, in your opinion?

Alexander Cruz: Yeah. And one thing that just caught my eye as you said that – the hard part was finding deals, but then also just growing, it’s really hard. We went from me, him, and one project manager, and today we have about 28 employees and team members. So this growth is super challenging; you hit that wall over and over again, and you have to revamp and adjust systems, and improve and implement systems. So in the beginning we had no systems.

Aside from that, the question was how do we find deals… So when we first started it was a lot easier, you could still find deals on the MLS pretty regularly. That quickly changed I’d say in 2014 or 2015; that’s when we started doing our off-market marketing is what we call it, so direct to seller marketing. The best strategy I can say is to cast a wide net. There are some months where certain things work better than others, and obviously, if you have the ability to market, you’re going to have to spend money on marketing. If you’re going to do that, I would talk to people who are already doing it and find out what’s working for them and what their strategies are. Don’t try to reinvent the wheel. There’s plenty of guys doing it and probably talking about it in podcasts or wherever else, so you don’t have to start from scratch. But we still do some mail, we still do some skip tracing, we do some outbound calls and texts, we have SEO, we have Pay-Per-Click, we have a Facebook page… Facebook you don’t really get many more seller leads from, but you can still create some awareness. So you have to cast a wide net and then constantly be evaluating your numbers. We look at numbers every single week, so we can tell what’s working, what’s not working and we can tinker and adjust. But you have to be consistent, you can’t just do something for a month and then give up.

Theo Hicks: Have you seen an increase or decrease in leads over the past six months?

Alexander Cruz: It’s been a bit of a wave. When COVID hit in March – I’m sure everybody talked about this, but it got pretty quiet for a few weeks to a month. And then right after that it, seemingly just started to spike back to normal again. I mean, it’s been very consistent for us for the past few months.

Theo Hicks: So out of all things you’ve mentioned over the past, say, six months, what’s been the number one source of deals?

Alexander Cruz: I think we’re getting our best value out of outbound right now. And when I say outbound, that’s calling and texting people. It seems to get the best response. We still do get a response from mail, and what’s interesting is actually some of our best overall deals sources back to mail. And I think a lot of that has to do with that we’re a legitimate operation. So it sounds silly, but our postcard has the Better Business Bureau logo on it, because we’re registered, or affiliated, or whatever it is… And that makes a difference to some sellers. And then they google us and they can see it, “Okay, they are a real company. They have 200 reviews and a website and everything else.” And at that point, there is a comfort level that you don’t always get out of everybody else.

Theo Hicks: Do you think that people can still replicate this professional persona without having to have a full-fledged company? Like what are some things they can do to gain that credibility if they don’t have a company like yours?

Alexander Cruz: Yes, sure. The biggest thing is just professionalism. We’ve talked to so many people over the years that say they called three other investors that never called them back. If you’re going to pay for leads, you’ve got to answer the phone and call people back. And then on top of that, you have to create a follow-up system. There is a local wholesaler we know well that he’s doing a ton of deals right now, and he doesn’t have a big operation; it’s like him and two other guys. But they are meticulous and I would say obsessive about their follow up. That is the biggest part of success, especially in the competitive market. Because half of it is just timing and luck. It’s when does the seller answers the phone, and then once you have them on the phone, are you doing a good job with them?

So you don’t have to have a big operation to establish legitimacy; you just have to treat people right, know what you’re talking about, and pick up the phone and call people back. If you say you’re going to call somebody, you’ve got to call them.

Theo Hicks: Is selling the turn-key deal in the back end a challenge at all, or is it pretty smooth?

Alexander Cruz: I’d say it’s pretty smooth. I don’t want to say that the product sells itself, but the combination of the product. So we have a really good market, the rent to sale price ratios are great, the returns are really high. And then on top of that, we go really crazy on our renovations. So we target homes that need everything, and then we do everything. So it’s as close to new construction as you’re going to get. These are full rewires, they have all new ductwork, brand new roof, windows, plumbing, and then of course kitchens and bathrooms are always brand new. So you have good numbers, you have a really solid product, and then the last part of it is you have us that’s going to properly manage it, and we’re local, we already own and manage well over 300 properties, we understand what has to happen, we have the systems in place, and we have the people in place.

Theo Hicks: What type of returns are these people who are buying these… If I want to buy a turn-key house from you, what should I expect to pay? And then what ROI should I expect?

Alexander Cruz: Our typical price point for a renovated house is going to be between $140,000 and $200,000. And then in that price point — when we build out our portfolio we actually show a 5% vacancy and a 5% maintenance and reserves. So we’re taking 10% off the returns off the top. Even after that, our cash on cash returns is typically 12% to 14%. So they’re pretty strong numbers, and I’m told consistently by potential buyers that our numbers are pretty much on the top that they see as they shop in different markets around the country.

Then the other nice thing is our market actually does have some appreciation. It’s nothing crazy like Dallas and Tampa and some of these other really hot markets; we’re pretty modest, 3% to 6%, but it’s a good number to have in addition to your cash flow.

Theo Hicks: Do most people, most of your clients, are they in Baltimore, or do they just buy it, it’s sight unsee, and they never even see the property and just kind of [unintelligible [15:04]

Alexander Cruz: Yes. Most of our clients come from outside of town. We’re involved in a couple of networks now that that’s kind of what they do, is educate and produce these buyers that are seeking renovated turn-key product and they’re considering areas all around the country. A lot of times they live in California, or Atlanta, New Jersey, just more expensive areas where they wouldn’t buy a rental locally, because it’s so expensive it doesn’t make sense. So we do get a lot of those. We have some local investors, too.

Theo Hicks: Alright, Xander, what is your best real estate investing advice ever?

Alexander Cruz: The best advice ever, and something that we’ve at times struggled with, is to stick with and focus on one area that you’re good at or can be good at, and not get distracted and try to do too much. We’ve all done it as we fall for like the shiny object, and you start getting away from what you’re really good at. So for us, it’s buying and renovating, it’s really what we’re good at. So to spend a lot of time – and I’m sorry if anybody from the retail team is listening, but to spend 80% of our time on the retail team, that’s not where we get our best return on investment, and it’s honestly not what we’re great at. We’re good enough and we have a team in place and it provides us an extra outlet for leads and can take care of people in different ways there, but the vast majority of our energy is spent where we make our most money and can get our best return.

Theo Hicks: Awesome. So are you ready for the Best Ever lightning round?

Alexander Cruz: I’m ready.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:16:33] – [00:17:14]

Theo Hicks: Okay, Xander, what is the Best Ever book you’ve recently read?

Alexander Cruz: I always go back to Relentless by Tim Grover. He was the trainer of Michael Jordan for many, many, many years, and then Dwayne Wade and several other amazing athletes. It’s all about mentality and your mental approach. And it’s applicable in sports of course, but also in business and life. I remember that book a lot, I love that one.

Theo Hicks: If your business were to collapse today, what would you do next?

Alexander Cruz: I would probably, honestly, hop right into real estate sales. It’s the one thing that no matter what the economy is doing, is still happening. And you have the most control over your own success and you determine how much you work, how many leads you get, you can create that on your own… You really have the most control of your destiny there. So that’s probably where I would head.

Theo Hicks: Out of all the deals your company has done, what’s been the Best Ever deal?

Alexander Cruz: The Best Ever deal… It’s been a couple of homes that we have flipped… We actually have one this year, we just got a really good deal on it, off-market, in the wintertime. And there was an older couple, they needed seven months to move… They didn’t need that long originally, but then COVID, hit so the settlement got pushed out months while they were waiting to move into their retirement home… And we had a good price — they were ecstatic, because they got to be flexible when they moved. The house also had [unintelligible [00:18:27].25] So we then finally got them moved out, but the house was meticulous; so we literally just cleaned it up and put it back on the market, fixed the septic, and the market is stupid hot right now. So we actually made six figures on that. That’s one of our best deals ever.

Theo Hicks: On the flip side, of all the deals your company has done, tell us about a time that you lost money on a deal and then what lessons you learned.

Alexander Cruz: Ah, which ones? This actually ties back to what I said earlier… There’s an infamous street named Allendale, and I bought a house in Allendale that had, I kid you not, a hole in the roof that was probably about seven feet in diameter. And actually, the guy was still living in the house like this for years. So when we finally took possession, the hole and the water damage went all the way down to the basement. So we said, “Well, let’s tear the house down”, it was a rancher, “and we’ll build a two-story house on the foundation.” We’re good at rehab, we’re not good at building.

So really long story short, this dragged on for over a year. By the time we were ready to go, we had to tear the foundation out and build a new one. Then we decided to try and get a variance for the building’s set back lines so we could add a garage; we spent months and thousands on attorneys to do that, and the variance got denied. So we have no house, we have a hole in the ground, we are way upside down at this point, and we still have nothing after a year. Neighbors hate us, “What are you doing with the lot?” and finally, we’re like, “Let’s just sell the lot. We sell to a builder that knows what the heck they’re doing.”

So we finally did, and that nice profit I just talked about on the other deal, is about what we lost on this deal. It was just a total disaster. The lesson is, like I said earlier, stick to what you’re good at. If you don’t know how to build homes, don’t go and try to build a house, especially when it’s going to be expensive. Or if you’re going to do it, find somebody that knows what they’re doing, and you need to partner with them or pay them to guide you through it. Don’t try to reinvent the wheel; find an expert, and rely on them.

Theo Hicks: What is the Best Ever way you like to give back?

Alexander Cruz: Sure. So my girlfriend is a school counselor at a title one school locally, and they have a lot of underprivileged kids. So we partnered with a local charity called Baltimore Hunger Project, and they serve kids in elementary school all over the Baltimore area that are what they call food insecure. These are kids that go home from school and might not have dinner that night at all, and might not have breakfast until they get to school the next day. So what Baltimore Hunger Project does is provide meals to these kids every week, and they’ll send them home on the weekends with a big pack of food, so that they’ll have food through the weekend, and hopefully gets them until Monday.

When the pandemic hit and schools closed, the Baltimore Hunger Project, I forget — the number is crazy; they went from serving 600 kids a week to over 2,000 kids a week, and they continue to grow. Because now they’re not going to school, they have no way to get this food. So it’s been a huge operation to expand it, and we’re really honored to say that we’ve been able to help them financially and also with time, so that I can still, in a way, get back to the kids at my girlfriend’s school, and then also other kids in the Baltimore area.

And then recently we also partnered with them to purchase 30 laptops for kids at an elementary school nearby that didn’t have them. It’s a small private school, so they weren’t given like they were at the public schools. These kids just didn’t have laptops, so we were able to provide 30 laptops to them. So that’s an ongoing thing for us. We really are huge in giving back to the kids in the community here.

Theo Hicks: And then lastly, what is the Best Ever place to reach you?

Alexander Cruz: Sure. So the easiest way is to go to crofmaryland.com. There’s a Contact Us tab that’s super easy, you can just do that. Or you can click the turn-key tab and click over to that page, there’s a Sign-Up link there was well that’s specific to the turn-key properties. You can always reach us there. You can sign up on the page to automatically get dumped into our system, and then we’ll reach out to you to schedule a call and discuss things further.

Theo Hicks: Perfect Xander. Well, thanks for joining us. Lots of solid advice given in this episode. A few of the takeaways that I got was how you make a business partner and the importance of not, I guess, burning bridges at any…

Alexander Cruz: That’s it.

Theo Hicks: …any job that you do in the past…

Alexander Cruz: It’s huge.

Theo Hicks: Because you never really know when some relationship that you created will result in, for you, a massive business.

Alexander Cruz: Yup.

Theo Hicks: And then you also talked about how you are finding deals. That at first it was in the MLS, and then now you do off-market marketing. And why it’s important to cast a wide net, because what works one month or one year might not work the next month or the next year. Results are what’s important also – track, and then not try to reinvent the wheel and just kind of see what other people are doing that works for them and do the exact same thing.

So you do mailing, skip tracing, hop on calls, SEO and Pay-Per-Click. And you get the most deals from the outbound call and texts. But the best deals come from the mail. And you talked about why it’s important to be a professional, right? You’re a professionally run company, so you got the Better Business Bureau logo on the mailers and then they look you up and they see all the reviews on your website… So they know they’re working with a professional company, but you don’t have to necessarily be a company to still have these same professionals. And you gave the example of the wholesalers – they’re a small crew, but because they’re meticulous in their follow-up, they’re still able to do a lot of deals. And so follow up is key here.

And then your Best Ever advice was to not fall on the shiny object syndrome, and you mentioned that everyone does it and you gave us an example of your worst deal. But to focus on what you are good at. And then when you’ve got your business and you’re doing the one thing you’re good at, you are kind of studying further within that to focus on the areas that result in the greatest ROI.

So you’ve talked about in the podcast before, a dollar an hour, 10 dollars an hour, a hundred dollars an hour, and a thousand dollars an hour job, and making sure you as a CEO are focusing on those higher dollars per hour jobs, and contracting up everything else. So Xander, I appreciate it. Thanks for joining us. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

Alexander Cruz: Thanks, Theo.

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