November 22, 2021
Joe Fairless

JF2638: Why Building Wealth Is Better Than Immediate Returns with Steve White


 

Steve White never thought he would be investing in real estate. That is, until he found a deal that he couldn’t ignore. Steve is sharing his tenant screening guidelines, how he guarantees tenants before buying the building, and which pandemic-proof tenants performed well last year and continue to do so today. 

Steve White Real Estate Background: 

  • Landlord, real estate investor, RentPrep CEO — a company connecting tenants with landlords serving over 150,000 landlords and 2 million tenant screenings
  • Active investor with 15+ years of experience including A/B office space, and particularly with medical tenants
  • Based in Buffalo, NY
  • Say hi to him at: rentprep.com
  • Best Ever Book: Outwitting the Devil: The Secrets to Freedom and Success by Napoleon Hill

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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 the fluffy stuff. With us today, Steve White. How are you doing, Steve?

Steve White: Excellent, Joe. Thanks for having me on.

Joe Fairless: Oh, it’s my pleasure, and I’m glad to hear that. A little bit about Steve—he is a landlord, he’s a real estate investor, and he’s the CEO of RentPrep. He’s an active investor with 15+ years of experience. His focus particularly is with medical tenants. He likes A and B office buildings and product. He’s based in Buffalo, New York.

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

Steve White: Sure. I would say, as an investor, I am definitely an investor who is playing the long game. I’m looking much more on the side of building wealth, versus trying to focus on the cash flow side or what the immediate returns is going to be. So I’m more of a buy and hold, and a lot of experience dealing with landlords and tenants in owning RentPrep. So, we’re a tenant screening company, and heard the worst of the worst, and learned a long time ago that great tenants make great landlords. So we’re pretty picky with who we’re selecting to rent to, both on the commercial and residential side, and I’ve been known to let a place sit vacant for a lot longer than most we feel comfortable with, just to wait for that right tenant to come through. So a little bit of different strategy. I know I talked to some investors – just a completely different world that they live in, and mine’s much more of a long game, I would say.

Joe Fairless: What is the world that other investors live in that you’re referring to?

Steve White: I would say the numbers are a lot—not that the numbers are not important to me, they certainly are, but I go into deals a lot of times a) making sure that I’ve got the right tenant picked out if it’s a commercial property. I usually know ahead of time who I’m going to be renting to and who I have in mind, which is a little bit of a strange approach, I realize; not super active. And so when the opportunity comes up, that’s when you start to go out and look, and I’ve had pretty good luck and pretty successful with it to make sure that I’ve got the right tenants lined up for the right properties. So I would say, again, if I’m cutting it close, if I’m not cash flowing, super positive, or putting a lot in there, I’m okay with it, as long as it fits into my long-term strategy.

Joe Fairless: So will you elaborate more on that? Because I always hear, you know,  buy a cash-flowing property, and I tend to subscribe to that philosophy. But you just said, “Hey, if it’s not cash flowing, then I still might buy it, because I’m in it for the long run.”

Steve White: Yeah.

Joe Fairless: Will you elaborate?

Steve White: Yeah. So I’ve got a building right now, that I’m looking at putting a chiropractor in there, long-term tenant, and I have to go into it knowing or assuming this is going to be a long-term tenant. So again, I think that’s why for me, sort of knowing ahead of time who that tenant might be and sort of working those things out and understanding what they’re looking for, what they want – it’s cutting it close, probably closer than a lot of people are comfortable with, in terms of what I’m going to have on the mortgage and what I’m going to be collecting in rent.

So probably for the first five years, it’s going to be cutting it really close, and then through progressive increases in the rent, and as I’m paying more and more on the mortgage, at some point I’m probably going to end up refinancing it, like I usually do. So for me, it’s 5-10 years until it really starts to cash flow, where most people are comfortable with it. If I’m cutting it close, it’s okay. That’s usually part of the strategy for me, is play the long game, find the right tenant and go into it with that mindset.

Joe Fairless: And as far as finding the right tenant, even if you find the right tenant, I imagine sometimes things don’t work out exactly how you had planned, so that right tenant bounces, and now you’re left with a vacancy. So I imagine then you’re in a world of hurt, because you were cutting it close to begin with, and the right tenant, for whatever reason, left.

Steve White: Yeah. So on the commercial side, knock on wood, that has not happened. My contingency plan would be usually, I would say try to find somebody in that same space, or in my mind I’m thinking, “Okay, if I lose a chiropractor out of there, I bought this place for the chiropractor, maybe even helped set it up for a chiropractic office.” So I’m immediately looking for a chiropractor to fill that vacancy, if something ends up happening. If somebody leaves, or something unforeseen happens or they’re no longer in business, or their practice shut down.

Luckily, that hasn’t happened. I’ve had good long-term tenants on the commercial side. I usually have a relationship, even if it’s just under the premise of, hey, they might rent from me… They usually understand my position in it, too; I’m just trying to make this work for everybody. So I’ve had good relationships with the tenants that I’ve had, and luckily, even through the pandemic, they’ve never missed rent, never late on anything. Again, it could be part of the nature of their business too, but I’ve gotten pretty lucky. I’m not saying it’s a bulletproof strategy, necessarily. I’ve seen how things can go wrong or fall off the rails, but on the commercial side, I’ve been pretty lucky.

Joe Fairless: I’m glad to hear that. I’m not here to jinx you, that’s for sure. How many commercial properties do you currently have?

Steve White: Just three. And it’s another important thing to point out, too. I would say if anything, I became a real estate investor kicking and screaming. I didn’t go into it wanting necessarily to do this, and part of it was just being spooked in the industry and the business that I’m in. I’ve got 160,000 landlord clients around the country. I’ve heard every horror story you can imagine, from flushing concrete down the toilet, meth labs in the kitchen, to tenants stabbing other tenants in the building. I had enough reason to not want to go into this.

So for a long time, I was pretty reluctant to do it, and I think I had a situation where a perfect deal dropped into my lap, and it was sort of like the universe telling me, “I dare you not to do this.” So the business side of me was like, “I have to do it”, but right from the beginning, my biggest concern has always been, “Man, I’ve got to really get the screening right. I’ve got to get the right tenant in there. I do this for a living. I can’t be the guy that owns a tenant screening company, and ends up having to evict somebody.” Not to say that—it can happen to anybody, but I would definitely say, my focus has been, for my personal portfolio, whether it’s commercial or residential, for me, the focus is really on finding that right tenant. That to me is where the success lies for buy and holds.

Joe Fairless: Well, you said the perfect deal… That was your first commercial deal that you purchased.

Steve White: Yeah.

Joe Fairless: Tell us about the numbers on that one, and just talk a little bit more about it.

Steve White: Yeah, it was a two-unit building that was in an area that, I would say, a good mix of sort of residential, but on the outskirts of like a village. So it wasn’t something that was going to get a lot of traffic or anything like that, and it just so happened to have — and this is sort of my introduction into dealing with chiropractors… I had a chiropractic tenant in there. So I learned a little bit more about his business, how long he had been there, we put some money into the building.

So overall, the building was, I thought, a really good deal. Actually, I made an offer about $20,000 below the asking, which – the asking was already pretty low. I don’t know if the numbers would be relevant or not.

Joe Fairless: They are. Yeah.

Steve White: It was $340,000. Original listing price was $410,000, sat in the market for a long time. I’m watching it, I’m watching it, it keeps coming down… And this was during a stretch of time where there definitely wasn’t a race to pick up commercial property. So it wasn’t unusual for commercial properties to sit for a bit. And the seller, so on one side, it has a chiropractor. On the other side, it’s got a dermatologist. The dermatologist was retiring and moving to Poland.

So I go through and I did kind of a walk-through and looked around, and one thing I noticed is he had a ton of medical records. Nothing was in a computer, everything was hard copies. Because the nature of our business and background checks, we have to deal with sensitive information, we have to maintain records, and we have to destroy records regularly, and I knew that in the medical space, they sort of do the same thing. So I came in with an offer of $20,000 less than asking, with the deal that I would manage his records, knowing he’s going to Poland and he’s not going to manage these. He’s going to have to pay somebody to manage these medical records, and to make sure that they’re being destroyed, but kept as long as they need to be, which is seven years.

Joe Fairless: That’s an interesting nuance that you picked up on. How did you know that?

Steve White: Well, I got creative. I felt like, at the time, “This is the best idea ever.” And it was really just me walking through and noticing one of the rooms in the building was completely dedicated to medical records. I don’t know if you’ve ever seen in some of the old school medical offices, they’ve got these huge — it looks almost like a vault where you crank a wheel and it moves the huge doors where you have everything alphabetized. So it’s these huge racks that these records basically sit on.

So it was just me seeing those and thinking to myself, “Ah, if this guy’s moving to Poland. Who’s managing these medical records?” He had boxes of them already that were labeled with the years, to note that he needed to destroy them, and he’s going to have a shredding company come out and give a certified destruction of documents. We do the same thing for the background check side of things, where if we’re printing out – anything at all. It could be a report, or criminal records, whatever it might be.

So the idea just struck me. I was right in my assumption that he did need to manage this. It was something that he was thinking about. He did know he was going to end up having to pay somebody to manage all these records… So he took me up on it. I quickly wished that I didn’t do it, but there’s a couple of times where I said, “I would have paid the 20,000. It’s not worth this.”

Basically, this was during a stretch of time where I was way more invested into the business than I was on the property side. So I had to hire kids to come help me organize, alphabetize all of these medical records, and then separate them by year. It was a huge, huge undertaking. I severely underestimated how much effort and energy would actually go into this.

Break: [10:23] to [11:56]

Joe Fairless: If presented a similar deal right now, how much less would you offer in order to compensate for the administrative headaches?

Steve White: $50,000 at least. At least $50,000, because I know what I would pay somebody, it’s going to cost me 5-10 to pay people to do all this and manage all this into the future, and then—

Joe Fairless: Per year? Or just…

Steve White: No.

Joe Fairless: Just total.

Steve White: In total.

Joe Fairless: Five years? 10 years?

Steve White: No, just for—Well, the money that I would pay to have somebody come in and do it, it’s just a one-time fee. They come in, organize this… It was a nightmare to do. I feel like for a long time I had bad dreams and recurring nightmares about organizing, alphabetizing and sorting. Yeah, it was pretty crazy.

Put it this way – we sorted so much in the beginning, and we were racing, because we were doing a build-out. So we had to move all this stuff, and then it became a beat-the-clock type of thing and we were spending all night sorting out these records. You had to open the files, there was nothing on the file to indicate what year… So we got to the point where everybody who worked on this had literally burned off their fingerprints on their fingers, from just grabbing files and flipping through and opening them. So we’ve all got band-aids on our fingers [Crosstalk] the skin through.

Joe Fairless: So you wouldn’t do that again. 340k was the offer, and what did you end up buying it for? $340,000?

Steve White: $320,000.

Joe Fairless: $320,000. Got it. How much did you put into the deal?

Steve White: I think we put—

Joe Fairless: —in addition to your fingerprints, obviously. Besides that, money-wise, how much money you put in a deal?

Steve White: Right around $100,000 cash.

Joe Fairless: Okay. 100k to get it ready for the next chiropractor and dermatologist?

Steve White: Exactly, yeah. That’s another thing, I severely underestimated the build-out costs. And of course, we ran into, “Well, this is going to be an issue” and then this is going to be an issue not really going through the way that I probably would have gone through the amount of build-out that we were doing. I was just looking at it walking through and saying, “Oh, we can move this here, move this there.” There was a couple of issues where we ran into like, “Well, you can’t move that wall. There’s beams in that wall, and it’s beyond load bearing. It’s like structural things that are covered up in there. So we can’t move that.” And so I probably would have taken my time going through it again. I would have had a builder go through and look at what the build-out would be, and understand that a bit better, too. So I ended up putting, I think, in total about $220,00 or $230,000 into the total construction and remodel after we purchased it.

Joe Fairless: And what is it worth today?

Steve White: It’s over $600,000.

Joe Fairless: It’s good?

Steve White: Yeah. I would say—

Joe Fairless: Is it in Buffalo?

Steve White: Yeah, right outside of Buffalo. Lancaster.

Joe Fairless: Okay.

Steve White: But yeah, the value of it was just a really good, structurally sound building. The way that it was built, it was a—I don’t know if you guys have consumer beverages over by you, but they all sort of look the same around here. There’s places where you can go and buy beer and wine and that sort of stuff, and they’re built sort of this open thrust with really solid concrete walls and everything, and it made it a little bit easier for us to maneuver and move things around and in terms of how we want the office space to look… And a ton of parking. A ton. In a suburban sort of mixed area, it was perfect. Matter of fact, our parking is so ample. A lot of times, we end up having to chase people out of the parking lot who park there to pull over and take a nap, or will do all kinds of weird stuff with that.

Joe Fairless: How long ago did you buy this?

Steve White: Three years now.

Joe Fairless: Okay, three years. So that was the first deal. What was the second commercial deal? High level.

Steve White: So the second commercial deal was just a space that we wanted just for a chiropractor.

Joe Fairless: I’m sensing a theme here with [unintelligible [00:15:33].09]

Steve White: Yes. Well, you know what it was? The chiropractors that — we purchased the building and inherited this guy, I saw it as kind of recession-proof or pandemic-proof. He had a great business. Looking at it from the business side of things, I thought, ‘This is the perfect tenant for me. There’s not a lot of instability. He’s got a great practice. He’s been around for a long time. Even through the pandemic, he was able to stay open as a medically necessary.”  I just sort of found a niche there, where I said, “I like this.”

Joe Fairless: All right. What were the numbers on that deal?

Steve White: That one was around $250,000 for the building itself, and didn’t need anything. That one was pretty recently remodeled. It was not far from the other office, only a couple of miles away, so I was good with the area. I liked the area, and familiar with all the taxes, town tax and things like that, and the building itself had sat vacant for quite a while. It was just sort of a weird space that I think it was too small to do anything else with. It was about 1,800 square feet, so it wasn’t like anyone was going to buy it and turn it into a home; it didn’t have a basement or anything which in our area here Buffalo, New York, everybody’s got a basement.

Joe Fairless: What’s it rent for?

Steve White: $1,750, and that includes pretty much everything except for the heat; we make them pay for the heat.

Joe Fairless: Okay. So you bought a building for $250,000, it rents for $1750… And what would you say it’s worth now?

Steve White: I would say, with the market the way that it’s been going crazy here, I would say $300,000 all day, at least. The building is a good structure to be able to add on to it if we wanted to, and a lot of parking lot space there as well. So there’s a lot of opportunity to do different things if we wanted to. But as long as that chiropractor’s in there, he loves it, he’s paying his rent, and he’s got a good business going, I wouldn’t move him.

Joe Fairless: That seems like that deal cash flowed out of the gate.

Steve White: Yeah, that one was good. It’s in a weird spot. I feel like that building just wasn’t selling.

Joe Fairless: What was weird about it specifically?

Steve White: It’s on a pie shape of a property. So there’s no yard which is great for me, right? Like, less to maintain. I like that. Great for visibility. So if you’re driving by—

Joe Fairless: Is that on the back of the pie? Where’s the frontage?

Steve White: The buildings on the front of the pie.

Joe Fairless: Oh, that’s good.

Steve White: Yeah, the back is parking. But the way that it’s situated, you just sort of drive by and see the side of it. It’s not the sexiest of buildings or anything, but for a chiropractor that just wants good frontage, easy access, I feel like it was perfect. And I got the buy-in from the chiropractor at the time to say, “Hey, what do you think about this property?” And he liked it. So that, to me, was the most important thing. Can it work for the people that are going to be in there? Is it a place that I would buy and maybe put my business in? Probably not. But as long as the chiropractor says, “Yep, that works for me. I like it. This is a perfect area location for where my patients can come” and it’s not far from where I was. So that checked all the boxes there.

Joe Fairless: Got it. And the third deal, high level.

Steve White: Third deal high level was more of a, I would say, storage space; it had a lot of storage space. It was being used for business that did welding. So used to be like a pole barn. So no floor, they ended up putting a floor in there. Steel sides in an industrial part of the property. I liked the idea that it could be multi-use. We could use it for a warehouse if we needed the space, we could keep the people that were doing welding in there… They were able to drag all these big pieces of metal, and the things that they were working on to fabricate, they can drag it into this building, and it had two roll up doors, one on each side… So that one went for under $200,000, and there wasn’t a whole lot to it, and I don’t know what it would take to make that something beyond what it is.

In other words, I don’t know if it’ll ever be anything more than storage, maybe warehouse space, or somebody is using it to do welding or something like that in there. But it’s uninsulated. I’m sure they’re freezing in the wintertime in there. They’ve got heaters and things like that, but… It’s not my typical type of deal but again, just sort of fell out of the sky and ran the numbers and said, “That one looks good, too.” So I feel like the universe challenges me sometimes and dares me, it says like, “Go ahead and say no.” So that was another one where I picked up, because it was just too good to turn down.

Joe Fairless: Why not do residential versus commercial?

Steve White: I do have some residential. On the residential side, I don’t have a whole lot to do with managing on those, because I’m pretty busy with my business, and I’ve seen where landlords burnout, which is to think that there’s something they’re not. Some people get into it or do a buy and hold… They may read exactly how to manage, they may understand how to manage, but when the time comes to actually doing it, they find that that’s the part that they hate. Dealing with relationships, nurturing tenant relationships, or dealing with sometimes the nonsense that comes with managing tenants.

So, right out the gate, my very first residential rental property that I had, I managed it for about a year, and then I got a property management company to come in there and manage it. So the only thing that I’ll do is I’ll step in when it comes time to do the screening, and any kind of turnover, because that’s sort of my area of expertise and where I like to jump in. But in terms of maintaining and the day-to-day, all my properties cash flow well enough that I can easily afford a property management company, which keeps me in good graces with my wife as well. She does not like me getting the phone call in the middle of the night that the toilet’s overflowing, or this is broke, or that’s broke. So that has worked out pretty well, just having a property management company manage the residential stuff.

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

Steve White: I would say, don’t force it, and if you’re buying and holding, so if you’re going to be a landlord or manage a property, don’t be afraid to let it sit vacant. Don’t make a decision out of fear that it’s going to sit vacant for a month and you’re not going to cash flow. It’s well worth it to let it sit vacant, to make sure that you get the right tenant in there. The right tenant will make or break you. So that was something that took a lot of discipline for me, and it’s really the best advice that I can give. We see a lot of landlords, that’s where they make the mistake. They get nervous. They feel like they’ve got to fill it. They end up picking the least worst instead of the best, and it’s usually a decision that they regret not that far down the road.

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

Steve White: I’m ready, man.

Joe Fairless: Alright, first, a quick word from our Best Ever partners.

Break: [22:07] to [24:55]

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

Steve White: Napoleon Hill, and it may not be the one or any of the books that a lot of people [Inaudible [25:03]  It’s Outwitting the Devil.

Joe Fairless: Oh, yeah. Co-authored by Sharon Lechter, I believe.

Steve White: You got it. Yep.

Joe Fairless: What deal have you made the most amount of money on?

Steve White: I’d say probably the commercial property. That one cash flows pretty well.

Joe Fairless: And what does it cash flow each month? Or each year, how much does it put in your pocket?

Steve White: I would say about $12,000. I’m cash-flowing about $1,000 on it. So I’d say about $12,000.

Joe Fairless: Nice. $12,000 a year. That’s the first one?

Steve White: Yeah, and I don’t touch it. That’s money that sits in there, it reaches a certain amount, if something goes wrong, I’ve got to fix something, a roof, or we’ve just had a water heater that went out… So I have my sort of maintenance fund in there, and then anything else gets put into a very, very safe investment.

Joe Fairless: Best ever way you like to give back to the community.

Steve White: I would say right now, it’s through my employees. We’ve got a Facebook community, the moderators don’t want to get paid, we allow them to choose a charity of their choice. Same thing with employees here at RentPrep. We try to get them involved in charities of their choice that they want to get involved in, in the company… It works to support that.

So I would say aside from anything else that I’m doing on a personal level, I feel like I can cover more ground and make a big impact with supporting employees and people around me to help them contribute to what they believe in.

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

Steve White: Rentprep.com. We’ve got a Facebook community. If you are authentic and a genuine landlord, you can get in. If not, we’re going to keep you out. We’re a strange Facebook community in that we actually only approve about a third of the people that apply to join. We keep it pretty secure and private for a good reason. So it’s not something that anybody can just join, but it’s a great place to connect with me or 12,000 other landlords in there that are there for the right reasons to share their knowledge and gain knowledge from others.

Joe Fairless: Steve, thanks for being on show. Thanks for talking about your background, and the commercial real estate deals, the three deals, and talking about some angles for those deals that you took, in particular the first one with managing the records and being able to get a lower offer… And you paid for it, but you saved some money clearly, and you found the competitive edge to get the deal. So, I appreciate you being on show, sharing your advice. I hope you have a best ever day, and talk to you again soon.

Steve White: Thanks, Joe.

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