JF2327: Turnkey Rentals With Eric Martel

Eric Martel Real Estate Background:

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“Just take action, I think people are waiting and hoping for the greatest deal ever.” – Eric Martel

TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. 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, Eric Martel. How are you doing, Eric?

Eric Martel: Very good. How are you?

Joe Fairless: Well, I’m glad to hear that, and I’m doing well. A little bit about Eric – he’s a full-time real estate investor, has been for four years. He owns a turnkey rental provider; they sell 10 properties a month. His portfolio consists of 100 units in Midtown Memphis, and he’s currently based in Los Angeles, California. He’s got a book coming out called Stop Trading Your Time For Money. And you can be notified about when that book launches and go check it out at marteleric.com/book. So with that being said, Eric, doyou want to give the Best Ever listeners a little bit more about your background and your current focus?

Eric Martel: My background, I was just a regular upbringing as a child, in a not poor family, but lower middle class, I would say. I purchased my first apartment building when I was 18 years old, while I was still at university. And then after graduating, I was an actuary, and I was dismayed to see so many corporate pension plans basically being converted into 401Ks. And that was really shifting a lot of the risk of retirement to the employees. So that made me reconsider the traditional belief about retirement planning and retirement saving.

Two years later after the .com crash in 2001, so I lost a lot of money, and that was my turning point where I said “Okay, well I have to do something where I am in control of my investment, and start working on passive income.” I did a whole bunch of different businesses to get there. I was trying to get into real estate at the time, but I was in San Francisco and we did the numbers and it didn’t make a lot of sense; the returns were very low. And if you wanted it to cash flow, you had to put a lot of money. So I did other things I did a gourmet sauce company, we did a low-carb grocery store, all kinds of crazy things. And then really four or five years ago we decided to get going on real estate with my two sons, and things are going very well. And now we’re helping other people also build a portfolio of passive income so that they can retire early, achieve financial freedom, and leave a legacy for future generations.

Joe Fairless: You’ve done a decent amount of varying things. A grocery store? You owned a grocery store?

Eric Martel: Yeah, low-carb. You remember Atkins? We did like a low-carb…

Joe Fairless: I do.

Eric Martel: Yeah. A low-carb grocery store. And then Atkins died, out of all things… So it was interesting. So yeah, when Atkins passed away, then the low-carb kind of disappeared, or really was not as prominent. So we moved on, then we did a gourmet sauce company. We worked at it for about five years. That was going very well, we were in Whole Foods across the country, we were in a bunch of other stores as well… And there was no traction; five years of hard work, and it didn’t sell itself. The only time it would sell is if we were there in the stores, doing in-store demos and all of that. So, yeah.

Joe Fairless: And then I heard earlier, which is most relevant to this conversation – 18 years old, you bought your first apartment building?

Eric Martel: Yeah, that’s right. At 18 I bought an apartment building. And thing is that when I bought this building, I didn’t have any grand plans of achieving financial freedom. I was 18 years old, I had my whole life in front of me. But I had met through a friend of mine, a mentor, a real estate investor, he was a community college teacher, he was with a modest salary, and he managed to build a 36-unit apartment building 45 minutes outside of Montreal. And then I was really intrigued by that. He agreed to mentor me in, to learn about real estate investment. So that’s what I did. I kind of jumped at the opportunity, and he basically mentored me throughout this whole process. So basically, I kind of bought this building to prove that it can be done. I had no money down. I think I had $150 in the bank, and I had to write a check for the mortgage application; it was like $75, and that really made a dent in my budget. [laughter] You have to give half your money away to the bank for an application. It was crazy.

Joe Fairless: If only they knew…

Eric Martel: Yeah, exactly, right?

Joe Fairless: Which they should have known…

Eric Martel: Yeah.

Joe Fairless: Shame on them.

Eric Martel: We were there in front of the public notary, signing the documents and all of that… And then it  was kind of like “Okay, well does Eric have the money–” because I had to put like 20% down, and then he said, “Well, does Eric have the money down?” And stuff like that. And then the notary, and the realtor, and the seller were looking at each other and they said, “Oh, yeah. He has that. No problem. Moving on…” So the bank was satisfied that everybody was nodding that I had the money, and of course, I didn’t have the money. So that could have gone very badly. The rest of the money came from the seller, so I had like sellers financing for the 25% that was left. And that’s how I was able to buy it without any money down.

Joe Fairless: Oh, so the 20% down that the bank was asking about – that came from the seller?

Eric Martel: The seller. Yeah.

Joe Fairless: Okay, because you got a second loan, like a second mortgage on it?

Eric Martel: Got a second mortgage on the property. But in the order — when you’re signing the document, the first thing that you sign is you sign the sale agreement, then you sign the first mortgage on the first lien on the property. But at that point, the bank is asking, “Oh, yeah, do you have a 20% or 25% down payment?” That’s why everybody’s looking, “Oh, yeah. He has it, yeah.”

Joe Fairless: How many units?

Eric Martel: That was eight units.

Joe Fairless: Eight units. How much was the purchase price?

Eric Martel: It was not in a good part of town, I must say. So I think the purchase price at that time was $80,000. Something like that.

Joe Fairless: And where was it?

Eric Martel: This was in the Trois-Rivières. Three Rivers. About 45 minutes outside of Montreal.

Joe Fairless: Okay. Three Rivers. What did do you do with it?

Eric Martel: Eventually, I sold it… Because after that, when I became an actuary, I found a job in Toronto, which was six hours away from my investment. So I thought “Okay, well I better get rid of it.” So I sold it and made a little bit of profit. I think I made a 15k profit when I sold it.

Joe Fairless: What was it like managing an eight-unit as an 18-year-old?

Eric Martel: That what the problem, this is where I made a mistake… Because I should have had a property management company to handle all of that. It was an exciting project and all of that, I was very happy with it, but yeah, that really left a bitter taste in my mouth, that I had to go there and fix things, and fix the window, I remember, and then do some plumbing. And I hate doing plumbing. There was a leak in a wall or something like that, and I had to fix it. I don’t know what I’m doing. That’s the one thing where I made a mistake there.

Joe Fairless: And now let’s fast-forward to today. You have a portfolio of 100 units in Midtown Memphis.

Eric Martel: Yeah. We started doing single-family. A few years back we just did single-family, we just bid — I don’t know if you’re familiar with the BRRRR…

Joe Fairless: I am, but would you mind just quickly saying what it is?

Eric Martel: Yeah. So the BRRRR is basically you’re buying a distressed property, so this is the B, buy the distressed property. Then you renovate it, then you rent it out, and then you refinance, and then you repeat. So that’s how we got started – we bought our first single-family rental in Memphis. We renovated it, rented it out, and then we refinanced it, then we did it again. We did two more, and then we did three more, and that’s how we got started.

And we’ve done a lot of interesting things that you pointed out before with the low-carb grocery store and the gourmet sauce company, and a couple of other businesses that we did. So our friends started asking questions, “What are the Martels doing?” [laughter] So they started asking questions about that as well. And then Memphis, like “Why Memphis?” And, “What are you guys doing?” So then they wanted to invest with us, so we started to do joint ventures and all that.

And then we went to Cleveland, we opened that market as well in Cleveland. And at that point, we said about, “We should really do a turnkey rental business. We have so many people that are interested. Let’s do that.” And that’s when basically Martel turnkey was founded. Because we had these friends and close people that we knew in our network that were interested in building the passive income the same way we started.

And then from that, we invested in apartment buildings. We did such a great job in Memphis with their renovations that people noticed it. And then a realtor contacted us and said “Hey, are you interested in buying an apartment building?” And so yeah, so we jumped at the opportunity, and we bought our… That one was a 20-unit apartment building; we renovated it, and when we did that project — it was it was in Midtown, Memphis in a pretty visible area. So they noticed that “Oh yeah, they did a good job.” And actually, the seller of that apartment building kept getting compliments about, “Oh, you did a great job renovating your apartment building,” and stuff like that. So he says “Oh, well actually I sold it.” So, that seller, he had a whole portfolio of apartment buildings, so he contacted us to say, “Well, you did such a great job with that one. Are you interested in…” He showed us a whole portfolio. And he was kind of divesting from that and moving into a different type of investment. So we got our pick of other apartment buildings from that, and then we had more opportunities come our way.

Joe Fairless: So what did you buy from him after that?

Eric Martel: So after that, we bought another apartment building, also in Midtown Memphis as well, in what’s called Overton Square. That’s a very nice area; they have live outdoor concerts, lots of bars and restaurants. So that’s a very dynamic area. And we’re literally half a block away from that location, and that’s booming. Memphis is really booming. In that same area, they’re building a new hotel called The Memphian.

Joe Fairless: How many units was that other one?

Eric Martel: The first one was 20 units, this one is 24 units.

Joe Fairless: And then you’ve got…

Eric Martel: And we bought a bunch of other ones after that too.

Joe Fairless: Anything larger than 24 units?

Eric Martel: No. These are pretty much that size; we have 16 to 24 units. Yeah.

Joe Fairless: Percentage of real estate investors who are focused on multi-family would stay away from 16 units, 20 units, 24 units, especially if they weren’t local, because of the property not being able to pay for staff to oversee it. How do you get around that?

Eric Martel: Well, for us, we have a property management company. It’s actually the same property management company that is managing our single-family rentals, and these apartment buildings. So it is the same professional property management company, they have all the processes.

Joe Fairless: Third-party or you own them?

Eric Martel: It’s a third party.

Joe Fairless: Third-party. Okay.

Eric Martel: So they’re doing a great job, they’re professional, they know what needs to be done. And it’s really the same thing. There’s no difference for us whether it’s a single-family or multi-family. We don’t have anybody on location either, like a superintendent, or — we don’t have an office on site. So it’s just a property management company that handles all of that.

Joe Fairless: What type of learning curve was there for the property management company to manage a 24-unit property, if they weren’t already doing that for other landlords?

Eric Martel: Yeah, they were already doing that for other landlords. But that’s a good point. If you’re dealing with a property management company right now that only handles single-family rentals and now you want to get into the multi-family, you may have to find a different property management company to handle that. It is slightly different in how it is handled.

Joe Fairless: In what ways is it slightly different?

Eric Martel: Well, there’s a lot more traveling around in the single-family rental. If you want to go and visit your 16 tenants and 16 different houses, then your property management company has to travel a little bit more to get things done. You have 16 roofs that you have to deal with, you have 16 times four exterior walls that you have to deal with. So for the property management company it’s different from that perspective, and a different market. If they’re dealing with one apartment building in terms of maintenance and all, that’s a little bit easier, I would say. But they’re also dealing with other problems, because typically it’s in other areas, in other residential areas. For us, we’re in Midtown, so if you’re in Midtown Memphis, there’s a little bit more… It’s not a serious crime, but you have more serious problems, people, vagrants that are walking around, and you have to be careful about that. Also because you have all these people in the apartment building, then there are more potential conflicts, I would say, between tenants. The music is too loud and blah blah blah, and these kinds of things. In single-family rentals you don’t have to deal with that, or the barbecues, or… Especially in Memphis, you do a lot of barbecues.

Joe Fairless: They’ve got good barbecue there. Of course…

Eric Martel: They do, they do.

Joe Fairless: They should be doing barbecues. What deal have you lost the most amount of money on?

Eric Martel: I think it was really a single-family rental. We haven’t lost really that much money. Out of 200 or more properties that we did, we probably lost money on, I would say maybe, five properties.

Joe Fairless: Which one did you lose the most on?

Eric Martel: Less than 10.  And I think the one we lost the most on, going from memory, I think it was $9,000; that’s how much we lost.

Joe Fairless: That’s nothing compared to the good stuff. Do you remember what happened on that deal?

Eric Martel: There was a couple of things. There was a plumbing issue in the wall, and we didn’t know about it, because we didn’t open any of the walls; we just did our thing, and then the main stack had an issue with it, and we needed to fix that. And the one that happened last month was — there was a lot of rain in Cleveland, and then we had seepage in the basement of one of the units. And we had done some seal from the inside and everything seemed fine, but then there was like torrential rain, and now the water started seeping in. So we had to go and spend $6,000 that we were not planning to spend on that renovation. So, yeah, these kinds of things. So this one we didn’t lose money, but every once in a while you do get surprises like that where you actually have to plan for that.

Joe Fairless: On the flip side, what deal have you made the most money on?

Eric Martel: Sorry, there are so many… [laughter] I have to order them. One of them we literally bought a building at a very low price, way below market, and all we had to do was paint the inside, just clean it up, and then we sold it, and we made 30% profit on that property.

Joe Fairless: Wow. What did you buy it for?

Eric Martel: I think we bought it for 60 or something like that. And then we sold it for 90k.

Joe Fairless: And all you did was paint it?

Eric Martel: All we did was paint it.

Joe Fairless: Huh. How can I find one of those?

Eric Martel: Well, we’re still looking… We call those the unicorns. So out of the 200 or more properties that we did, I think we had two or three of these unicorns, where we just didn’t have so much work…

Joe Fairless: Was there any common denominator for how you found those unicorns, compared to other properties that you found?

Eric Martel: No. It’s just to cast a wide net, and then every once in a while you’re going to get something good. It’s really about the numbers, how many properties you need to do, and then that’s when you’re going to find these things. That’s why one of the advice that I give to investors that are getting started too, is that they keep looking for that great deal; they say, “Oh, yeah. This is good, this is a good deal, but I think I can find a better deal.” A good deal is a good deal. Just get it and then move on, and then do another couple of good deals, and eventually, you’re going to find a great deal. But taking action is very important, starting to invest is very important. It’s more important than finding the unicorn and finding these amazing deals. A good deal is a good deal; just take action, invest, and then eventually, you’ll get a great deal.

Joe Fairless:  I’m going to ask you to dig deep, and in addition to that advice, I’m going to ask you for additional advice.. Because of the format of the show, I have to ask the question, because we got some music that leads up to it and everything… So be on your toes, and here we go – what is your best real estate investing advice ever outside, of what you just mentioned?

Eric Martel: I think take action. I think this is critical. I think people are just on the sideline, either waiting for the great deal ever or something like that, or they keep moving around. I think it’s important for people to take action and invest in something. There’s a lot of talk, not a lot of action.

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

Eric Martel: Okay, I’ll do my best. I’m not very good at that.

Joe Fairless: Well, just a couple of questions. First though, a quick word from Best Ever partners.

Break: [00:20:13] – [00:20:53]

Joe Fairless: Alright, best ever way you like to give back to the community?

Eric Martel: I like the food donation thing; I forget what the organization is. But yeah, I like that. I’ve done a few of those and I really like that.

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

Eric Martel: They can go on marteleric.com, that’s my website, and then you can connect with everything else I do. My book, my podcast, everything.

Joe Fairless: Thank you so much for being on the show, Eric, and talking about your portfolio, accumulation and your focus now with the turnkey company. Congrats on the book that’s coming out, Stop Trading Your Time For Money. I enjoyed hearing about some of the lessons learned, as well as the good stuff too. So, I appreciate it. Hope you have a Best Ever day and talk to you again soon.

Eric Martel: Great. Thank you very much.

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