Can you begin a real estate investing career with little to no money?
Yes, you can – Ben Leybovich is one example that proves it. Ben was and is a violinist and was diagnosed with MS at the beginning of his artistic career. He knew then that he’d have to develop ways to produce income that were not dependent on his physical skills. His research led him to real estate investing and he’s never looked back.
Ben had no money at the time or cash of his own to invest in his business so he worked hard to discover ways to partner with others who did have money. With other people’s money he could get started with real estate investing as a real business. Ben’s passion is to produce passive income that does not depend on his continued daily work. For that reason he’s invested heavily in multi-family properties and feels that they are the best investment in the real estate industry.
Learn why Ben Leybovich insists on developing the power of leverage to enable him to invest in properties that are sure winners rather than just buying anything that might increase his cash flow. He want’s certain types of properties that will be long-term wealth building properties, not just immediate gains. For that reason Ben only does 1 deal per year on average, but works hard to make sure it’s the right deal that will grow his wealth.
Listen in to this episode of The Invest Four More Podcast to learn how Ben Leybovich chooses multi-family properties over single-family properties almost every time, and how he leverages them to amass wealth. Ben and I don’t always agree on the best way to invest, but he has some great techniques and a ton of knowledge.
Do you know what syndication is when it comes to real estate investing? Ben Leybovich believes that syndication is one of the best leveraging tools to amass wealth in real estate. Listen in to hear his simple definition and how he describes its outworking in his real estate business.
All that on this episode of The Invest Four More Podcast.
OUTLINE OF THIS POWERFUL EPISODE
- Mark Ferguson introduces Ben Leybovich
- From violin player to real estate investor: Ben Leybovich’s story.
- Ben’s goal to replace active income with passive income – and why he’s focusing there.
- Learning the power of leverage to gain greater income.
- How Ben bought his first piece of real estate.
- Choosing contractors who can stick with you through the long haul.
- The things that kept Ben going after some hard setbacks in his first projects.
- Why Ben only purchases deals that he likes, whether they will increase his cash flow or not.
- Why Ben chose multi-family properties to invest most of his business in.
- One deal a year = above average deals for Ben.
- What real estate investing has done for Ben’s life and business.
- What is real estate syndication?
- The things Ben would love to see happen in the next year.
- Information on Ben’s investing program Cash Flow Freedom University
LINKS MENTIONED IN THIS GREAT EPISODE
Contact Ben: [email protected]
TWEETS TO SHARE THIS POWERFUL EPISODE
[tweetthis]From violin player to #realestateinvetor – The story of Ben Leybovich[/tweetthis]
[tweetthis]#Realestate is the most logical way to start with nothing and attain #success[/tweetthis]
[tweetthis]Learn the power of #leverage to gain more income: in this episode[/tweetthis]
[tweetthis]No having money is not necessarily a limit to being a #realestateinvestor[/tweetthis]
[tweetthis]#Multi-family properties as wealth-builders. In this episode.[/tweetthis]
Mark: Hi everyone, it’s Mark Ferguson with Invest for More, welcome to another podcast on real estate and real estate investing. Today I am super excited to have this guest on the show. Ben Leybovich, who is an awesome real estate investor, also has a great website, tons of information for people looking to start investing, at justaskbwhy.com. So we are going to talk about a number of things today with Ben on investing on investing, where he is located, what he is currently doing, and even a little bit about being a real estate agent. He has a different philosophy about me on that subject. So Ben I’d like to thank you for joining the show. How is it going?
Ben: It’s my pleasure, thank you for having me on Mark. We’ve known each other for quite a while here there and everywhere, it’s a pleasure to be speaking to you like this.
Mark: Oh yes. same here, and for those who don’t know I started my blog a little over two years ago and one of first people I met on one of the online investing space was Ben. So he’s been doing the website for a while. Huge presence on Bigger Pockets, and Ben really helped me out learning the space, just kind of figuring out what it was all about, and he has been a great help to me, and it’s been kind of fun talking to each other over the years, evolving and seeing where we could take our sites, and in investing as well. So Ben, first question I have for you. You’ve got a very interesting history as far as how you got into real estate, about what you grew up wanting to do, why don’t you tell our listeners exactly how you got started in real estate and why that came about?
Ben: I will make it quick, Mark; because I think it’s pretty well known. It’s right there on my website. People can read about it, but I am a violinists by training. I was trained as a violin player on I went University of Cincinnati College Conservatory Music, which I don’t know how it ranks now, but it was the top five at the time and I would imagine it still is. It is a great school. But the thing that happened to me was I was diagnosed with multiple sclerosis when I was in the first year of my Master’s Degree there, in Cincinnati. You know my body, kind of went a little crazy on me, and one thing led to another, some MRI images showed some lesions on the brain; this and that and the other and you know they couldn’t confirm it. They called it probable multiple sclerosis; because some of the signs and symptoms were there, others were not, but you know doctors, you know they like to cover their asses, so they gave me this diagnoses and they basically said, “Hey, we don’t want to freak out of what you could be in a wheelchair in two years.” So you know I am a violinists, violin any music but violin in specific is a function of fine motor skills, you know, you got to use your hands in very finite fashion so put yourself in that circumstance, you’re being told, “Hey, dude, you may not be able to use your extremities; you may not be able the walk, you may not be able to use your hands, and here I am. I played the violins at the age of five, or maybe four. It was a long time ago, I can’t remember exactly, but you know, you’re being told you’re stupid if you still want to go for this; because if you want to make some money, you may not be able to. It’s not a function of how good or bad you are. It’s a function of, it’s taken out of your hands, essentially. So I am not going to go into the symptoms – the physiological symptoms I felt at the time, but it wasn’t a far stretch for me to believe the doctors that you know, that there’ll be a time that I won’t be able to perform. Well, one thing led to another and honestly, if you can’t move you can’t work; if you can’t work, you can’t make money. So that got me started doing research and thinking, and reading books, and talking to other people, and I eventually arrived at real estate, I thought, and now I know, the most logical, and most reasonable, and the most probable way for somebody to achieve financial success, while starting with nothing, or close to nothing, and doing it in ways that have a chance at that some kind of “passivity.” I am a huge, absolutely huge proponent of working less and making more money. I don’t mind working 24/7 with my head, and I do. I just can’t live any other way; but I make it a point, I don’t care how much it costs me to outsource, I make a point to try not to rely on income that I have to generate with effort; because I know that that effort can be taken away from me. It can be taken away from you at a snap, and I have very personal knowledge of businesses, and I read this in the book. This is just what I know in my life to be true, and so I don’t want to get comfortable with the house payment that I have to do a W-2 work form or 1099 work form. I don’t want to get too comfortable with the car payments that I must make, as long as somebody else is paying for it, I’m cool with it. But if I am the one paying for it I’d rather not have it. So I do have a reserve, nice enough, but reserved lifestyle, I don’t overspend’ I don’t. [unclear] you know, I don’t. I could afford a lot more than what I do; because of that kind of line of thinking. I want to spend a very low percentage of my pay, and I want to focus on spending the passive income, as opposed to the earned income. I also have some earned income but my purpose in life is to get away from it; to replace it with passive income, or at least income that maybe not completely passive but could be systematize to where I become a function of manager over and above the system, as opposed to be plugged in to that system, and having to the work. I just can’t. I think it is risky.
Mark: what you’re basically saying is you want to be a businessman who owns a business, has people who are working for you, or the business works itself, where you can take vacations, spend time with your family. You are not the one who has to work 40 hours a week or else you don’t get paid.
Ben: Not only that, Mark, but you and I know that there is only 24 hours in a day for all of us and even if you didn’t work 40 hours a week.
Mark. Okay, so you can make a lot of money, if you are also smart about how you work. But the bottom line is that you can’t jump over that hurdle, whatever that hurdle is. It is what it is, and it’s 24 hours in the day; and let’s say you are totally healthy for the rest of your life; let’s just say that. Complete bullshit. Nobody ever is, but let’s just say you are completely healthy for the rest of your life; you still have limitations, so the only way to grow beyond those kind of organic limitations is to leverage. Leverage other people, leverage systems and everybody I have ever done business with makes money on me. Why shouldn’t they? Of course they should. If I am making money so should everybody else, but the point is are not trying to do it all myself, I just I think it’s risky. I don’t think it is reasonable like, I used to think for a period of time that I would start a management company, manage my own rentals of manage everybody else’s rentals. And then I say, “What the hell am I doing? Why would I want that life? Managing that many tenants? That’s why the only thing I’m interested in nowadays is a syndication; because guess what? Those projects are big enough so that you can have payroll as part of operating expenses and the project, that way I am systematizing the management process, okay? That’s why I don’t like smaller projects anymore. That is why I wouldn’t buy another four-plex. Why? Just more work for me. I don’t want more work.
Mark: Well it’s funny; because I am up to nine people on my team now. So I’ve got six licensed agents, and it is so nice not to have to sell all the houses myself: Not to have to do all the income producing myself. My other agents do it, kind of what I make is a bonus. And I also just hired a new contractor full-time and he is managing all of my rehab projects for my rentals and for my flips; because that was driving me crazy. I was taking six months to get a rehab job done. Mostly it was my fault as I wasn’t managing them right. I wasn’t keeping on top of it, and so yeah, you can use people in whatever place in your business to leverage your time. It will make you more money, it will make you happier. It’s just a beautiful thing once you get that idea down, and you implement it, so yeah.
Mark: That’s awesome. So tell me, how did you buy your first piece of real estate? How did that all come about?
Ben: Well, when this happened in college. I started studying, and I started talking to people and you know I quickly, pretty quickly realized, that look, my capacity to enter the game has a lot to do with of having or not having cash; and you know, buying certain asset classes you can’t avoid needing cash, and real estate I discovered that having money is good. It’s helpful, it’s a bonus, it makes things easier, it opens up the playing field, it does a lot of good things; however, not having it, is not necessarily admittance of defeat. You can still do some things, by having knowledge, which is the only thing that is more powerful than more valuable than money in this game. Well, my first purchase was a flip. I actually found a house; it was literally taken apart. It was a nice brick ranch in, you know, I figured I placed at $80,000/$90,000 after we have value. But it was a nice part of town, you know, good location; so I called a friend of mine happens to be a CPA controller for company, and I said, “Look, I’m setting up a line of credit,” and I said, “I can’t handle both the purchase and the rehabs, so you purchase thing, I’ll give you a mortgage’ we’ll turn it around; I’ll pay you when I sell.” He came back to me and said, “Listen, how about I buy you out. Here is a chunk of money. I want this thing for a rental.” Well, interestingly in the end he ended up not keeping it as a rental, but sold it for about $90,000, which is where I estimated the after-repair value to be. So it was a wholesale deal, double closing, kind of thing, but I, you know, I don’t practice wholesaling as a business model. I don’t like it as a business model. Talk about not passive. Shoosh to do. Talk about not passive. I mean finding deals, prospecting deals, prospecting all, my God I see all these newbies. I want to start with wholesale, and I just pull my hair out. What part of wholesaling do you think is easy? It’s probably the most sophisticated way to make money in real estate aside for syndication, and you know, big-money – the SEC kind of money; but that was my first deal; and then I bought a house. It lost me $20,000; because it was a rehab; it was completely over my head. I knew nothing about real estate; I couldn’t tell a rafter from a fodder if you put a gun to my head; and I do this rehab. It had liked some kind of stupid 40 windows or 35 windows, by the time I figured out at $325,000 an opening per window, that right there is ten grand ($10,000) you know, and the thing needed everything. It needed everything, right? So I did what a newbie does, you know; I put the numbers on paintwork, and it seemed to make sense. The only thing that I forgot is that I knew nothing, and I forgot to discount for that, and so I was had by that contract and I would go back and redo the work again, and that first contract that cost $20,000; that’s the first two deals, and after that experience, that was a very formative experience for me, Mark; because I decided, ‘look if I’m going to be buying, and the thing with this one, the reason I was able to live have through that experience, and back then $20,000 might have just been a million, you know, ’cause back then $20,000, was like WOW, you know. So I lived through it because of my propensity for finance. I found myself being able to finance myself out, get investor out, get the principal and interests out, and then I put the house on the market, and in the end I finally sold it, but this was just when the market was beginning to crash 2007; sometime late in 2007. So that’s when I decided, done! I’m not flipping; because when you do flips for $20,000 margin, that $20,000 margin will go up in smoke in about 3 seconds. And in my area that’s what the margin is, if you are lucky, and most of the time it is standard 15. You’re just not interested in that kind of risk. If I was in the marketplace where you can flip and make $70,000/$80,000 margin, and even if you do everything wrong, you are still likely going to make some money on a flip. You know, if that was the case I’d be doing it; although it’s not passive, but I’d be doing it; because that kind of capital gain, you just do it, but for $20,000, not16:06 you couldn’t get a crane to lift me on a $20,000 flip. You couldn’t pay me enough money up. You couldn’t give me $20,000 right now to do a $20,000 flip, because I would lose forty on it. I mean it is all higher, you know. It’s just… It blows my mind when people talk about doing in Ohio, you know, it is ridiculous. My experience doesn’t mesh with what I hear people talk about, but that’s how it started. That’s what led me to income-producing real estate; besides the fact that I figured out I can finance it 100% and be done with it, and benefit from the cash flow, and yeah you know, once in a while in you have to manage the dentist but by and large, man, you want to know heartache? Go flip some houses. Dude, I’m just not interested in that life man. I respect you for doing it. Serge is my good friend, Serge Shucard, Brian, I don’t get it. I wouldn’t do it.
Mark: Yeah. You got to have to have the margins. If I had $20,000 of margins in my flips, I wouldn’t do it either, but I think we average $32,000 profit per deal, we do, and in your projected profit it is always more than that like you said. You know you figure you are going to make brought was more about what is Johnny figured make 35 or 40 (thousand) and then you just assume $5,000 is out the window, repairs will cost more and you assume $5,000 and something else will happen with delays and some kind of contractor issues, so it is like you said. That money can disappear very fast.
Ben: And then the pain and anguish, what is that worth? The process of dealing with contractors and bull shit I don’t know how else to put it man, it just the so much of it in this process. You know, a lot of it probably has to do with… look at the quality of people; you are dealing with a lot, you know handy people, contractors, you know; and I hate to say it, but it’s true; you wouldn’t be friends with these guys, you wouldn’t invite them in your home, you wouldn’t let them play with your kids, so the way people think and the way people make decisions; like, I’ve been with the same contractor. Now, once I found them, I’ve been with them for seven years. I don’t ask, I don’t need code to dial them. I give them the key. I have an HVAC guy, I have an electricity guy, I have an electricity guy, have a plumber guy. It’s the same crew, the same people that I been dealing with for 6 years. Once I found them, I hold onto them. I don’t nickel and dime them. I just know that I can hand them the key that they are going to take care of the issue, they are going to return the key; they are going to submit a bill. They are not going to ask me for money up front; because they can’t afford to buy supplies – not at that stop. You know what I am talking about; none of that stuff. You are dealing with professionals. Now, these are the kind of people I’ll invite to my house. But do you know how difficult it is to find these guys? Most contractors out there, man, dude, if you show up on time, you are ahead of the game. You know, it’s crazy, so I of the heartache involved with going with contractors right and left, and when you’re doing a lot of flipping, you got to have several teams accessible so that somebody can’t make it or somebody…Oh My God… I don’t want life. You couldn’t pay me enough.
Mark: That’s why I hired that contractor to take over; because it was so much work just managing the contractors and if you’re not on them every week, or a few times a week then the go off doing their other jobs, doing their own thing; they forget about you and yes, it’s crazy, but I am impressed. You went through some really crazy, bad experiences, but you kept going. I mean you sign up the flip, but you still stayed in the real estate game. You decided to take a different route. What kept you going and kept you in the business after going through those problems?
Ben: well I hate to fail that’s for one thing so that kinda didn’t bode well with me. Secondly, I assume the liability for not knowing enough, and I just figured you know if I knew more, the result will be different, and thirdly, it just defined to me what to do, and what not to do. I think what not to do is to count your eggs. In other words to go for the profit. I make sure I don’t lose. This is like what I do now, is when I underwrite a deal I underwrite it so that I don’t lose, first, and then I worry about making money, and that’s what’s kept me safe and that’s what kept me making money is; because if you don’t lose you, know play, good defense. I think winning is also a function of the marketplace, and you just don’t know, like the flip that I lost $20,000 on, that’s a $120,000 house, but by the time I sold it, I sold it for $110,000. The market started to change, and we were barely two or three months into that down cycle we all hopefully remember well, from 2007 2008. We were just the beginning, but it was enough to where the market was started to dip, and the problem with that deal is, I couldn’t rent it. I couldn’t rent, and then cash flow it, because it was a wrong kind of asset. It was an older house and yeah, I fixed it but it wasn’t conducive to tenant proofing it, you know, there were a lot of things in that house I could not rent. And I also couldn’t rent it for enough to really cash flow it, after capex and vacancies and all those expenses. So I was stuck. I was stuck with a product that needed to be moved, so I don’t do that anymore. I don’t buy anything that requires me to sell, and that’s the only way to make money, so now when I do a syndicated deal, I want to sell it five years from now, but if I can’t I’ll just cash flow it; I underwrite the cash flow, and a maybe the IR suffers ‘cause we can’t sell in a timely fashion cause you know everything time sensitive, but at least we can cash flow at least we’re not gonna be stuck; and so it just taught me a lot that experience and based on that I just moved on. I never lost faith that real estate had the key to financial success, some kind of stability that I couldn’t achieve with W-2. I just realized that I needed passive cash flow, and it wasn’t starting businesses, then I have to be real estate, and at the time I was a musician. I didn’t know much about starting businesses, and you know, I couldn’t do that, and so real estate by default, had to be the solution. I had to make it work
Mark: I love the fact about cash, I hear so many people who had a personal residence or flip that doesn’t work out right, and they end up renting it out, and making negative cash flow renting it out, hoping for the market to turn at some unknown point in the future, and like you said, they don’t think about how much money they’re losing while they’re waiting for the market to turn, and then there’s no guarantee that the market will ever turn, and they’re selling cost, once the market turns as well, so I mean it’s just this ongoing process of just negative cash flow to make the situation so much worse, and like you did, just get out; take your losses and move on. You will probably be so much better.
Ben: Absolutely, absolutely.
Mark: How how many units do you have now as far as rental properties?
Ben: 27 in my own portfolio.
Mark: I mean you manage all your properties though.
Ben: I have opportunities to buy more I just don’t, right. Again, it goes back the conversation I have very clearly defined in my mind, what I want. if it doesn’t fit, I’m not going to buy it/ I don’t care if it makes a Little cash flow; what the hell do I need more cash flow for? Okay, so it’s another $400 cash flow. What am I gonna sleep better because of it? I have very different goals in life at this point, and I understand real estate very, very well, and so if something comes across my radar that really makes a lot of sense and fits into my business plan, great; I’ll take action on it. If not. it may still make sense. It just doesn’t make sense for me. It may make sense to somebody else.
Mark: When you bought your property though you didn’t just go out to the MOS, buy whatever was there and put 20% down. I mean, you worked your butt off to buy those properties, put a little of your own money into them as you can. Tell us how you did that, and how long it took you to get those deals done,
Ben: Well, I’ve been at this since 2006. I bought my first multifamily in 2006. I’m a 27 properties and I sold something recently here, ’cause it wasn’t making sense to hold it; so I sold it. But I average last time I bought something was about two years ago, in February 2013. There was a big project. [It took me] It’s stable now. I have my first vacancy in about nine months, in that project today. It took me a year and a half to reposition. It was a ten unit building and took year and a half to reposition it, so you know one bird at a time. You shoot to kill, you skin; you cook. I can’t handle anymore moving parts and that, you know. This was a tough one. It had all of the classic problems of everything that could be wrong with multifamily building that needed to be fixed everything was there.’ It was a lot of work, so it took me a year and a half. and I’ve been looking at things for about 6-9 months; I’ve been underwriting things I just not seen anything that qualifies; but even prior to this, it was usually one deal a year is pretty much my M.O. – one deal a year. Things don’t come up that are worthwhile, and most of my stuff is word-of-mouth. So most of my stuff is not MLS stuff. The financing is a whole other thing; because like you said, I finance 100% everything I do, so there is always some kind of blend of private capital, and that, you know, institutional money in there; but to me, it usually doesn’t cost either anything, or very, very little.
Mark: I have 13 rental properties now. All of mine are single-family, except for one that’s an uptown duplex. I’ll say it’s closer to a single-family than multifamily, the way it’s set up. Why did you choose multifamily over single-family? Was it your market? Was it the aspects of the properties; the management part of it? What attracted you to multifamily?
Ben: Well, many things. How much time you got?
Mark: We will be here until tomorrow morning.
Ben: So in very general terms, I like the versification of revenue streams; so if I’m going to have an asset, I would rather it makes a few revenue streams, as opposed to just one. Because a house ultimately, if there’s a tenant in there, then it cash flows if there is no tenant in there, then it doesn’t cash flow. Now, the big issue is that I am in Lyme, Ohio, and aside for cash flow, I want to build wealth, which is a function of equity, and it is a function of balance sheets. The multifamily, as you know, valuations mechanics are generally capitalized valuation of the net operating income. Single-family, you know, to figure out what it’s worth you simply do a comparative market analysis, so it’s got nothing to do with the income. So for somebody who wants to build wealth, who wants to build their balance sheets, if you are in a marketplace whereby single families are appreciating in value and multi-families maybe or not; then what you buy is single-family. If you a marketplace like mine where single families never go anywhere, they just, they just never go anywhere. Then if I buy single families then my balance sheet is never going to gro. In multifamily, however, what we have is something called forced appreciation; because the value of a multi- family is a function of its income. If I can role the income over multifamily, I can back in to the increased valuation. It’s a mechanical process that I have a lot of control over, as opposed to the single-family, it’s just. What does this house right sell for and what does this house to the left sell for, and now let’s make adjustments to those valuations to configure my house and see what it’s worth. That strictly…9:41 Now in multifamily your capitalization rates and GRMs are driven by the marketplace, but those are based on something. That something is net operating income, which is a function of income on the one side, and expenses on the others. So, if I can hike the income and lower their expenses, I can create the spread, which is going to evaluate in additional equity on the balance sheet. So in that I preach about cash flow, and I think cash flow is keying I think cash flow is keying logic only go so far. Because when it does cash flow is it helps us to hold on to our assets long enough for them to appreciate in value so that we can build wealth, and we can retire and pass on our wealth to our children. Okay. That’s that’s the ultimate goal. You can buy assets that cash flow, but don’t build wealth; you can buy assets that the marketplace is decided, ‘this is a piece of shit and it’s never going to be worth any more than what you are paying for it’, you can. It’s easy to by those kinds of assets. I don’t want those kind assets, but unfortunately in my marketplace, those assets are single-family homes. Now the only other problem I would mention with single-family homes is that they also don’t cash flow, so they’re a double threat in my marketplace; because you see a lot of stuff you know I call them PIGs – $30,000 house people will buy. You see a lot of California money coming out to Ohio; a bunch places, Cleveland, Toledo, you know Cincinnati buying those PIGs. A PIG is a PIG for a reason, you know. Once it’s a pig, the marketplace has decided that’s a pig. There’s a reason why the marketplace has decided that this functional obsolescence, and financial obsolescence of all is a pig. So you know you are not get any value out of it on your balance sheet, which means the only thing you’re getting is the cash flow. Well are you? Because then you have to wonder who’s gonna live there? How reliable a tenant are they, if they’re willing to live in a pig? You see what I’m saying? That’s the logic. Who is this project going to attract? And what about Capex? You’re talking about an old house that needs everything. Are you really going to gut it and replace the wiring, and replaced the roof, replace the windows, and a lot, a lot, a lot. Are you gonna do all that? Why would you? That’s like throwing good money after bad, right? Because if the market says this thing is only worth $45,000 but it needs 35 in order bring it to anywhere near a reasonably good condition, and you paying $23K for it, are you really gonna do it? And then you have the worst problems with turnkey; because those guys have to make their money on sale, right? So by the time you add that margin in, but I think I’m slowly walking away from your question on to a different tangent, but Ohio is the difficult market. It is a difficult market, because you don’t particularly have great job growth. It’s the Midwest. It’s not just Ohio. It’s not just Lymore, it’s not just Cleveland, or Cincinnati, or Columbus, that there are pockets that are very good, but by and large, you’re talking Kentucky, Indiana, Michigan; Ohio. People are generally moving out. They’re not coming here. It’s not the sunny weather; it’s not the high tech industry, you know, it’s not oil. So it’s a difficult market; so you have to be very, very, careful; because demand drives appreciation. Demand for rentals, and demand for houses; that’s what drives appreciation. If you ultimately don’t have that demand, then you have to get above average deals, and a lot of what I see going on out there right now would barely qualify for average. Forget about above average; and I only do one deal a year; because I want above-average deals. I have to. If I lived in San Francisco, I could buy a freaking shack and sit on it for 7 or 8 years; hell, even if I only live where you live in Colorado; by the way I spent a lot of years of summers in Colorado in aspen. I was a fellow at the Aspen Festival, you know, back in my violin playing day. I would like to go sometime – great memories there; but for San Francisco, or Hawaii with land lock, you know, all you have to do is buy a piece of land. That’s all you got to do; and just sit on it, and that mitigates a lot of the problems and a lot of mistakes, and a lot of the miscalculations cash flow wise, and a lot of problems; but in Ohio we don’t have it, so you better be damn well sure what your exit is gonna look like, what the timeframe between here and there is going to look like; you better understand the dynamics of what it’s like to have house rented; what is that mean; better anticipate the expenses before you come across them. It is very, very difficult. It’s not pro forma.
Mark: I’m glad you said that you went off a little tangent, but my whole point, people trying to argue multifamily versus single-family, what’s better, you know, lower-priced, higher priced houses, and my answers is always, ‘Well, depends on where your market is, what’s your market look like, what houses can you buy, can you buy them at a discount, what’s the cash flow look like. It’s all different where everybody is and for you it’s a completely different market than for me. You mentioned Colorado. The highest appreciating market the country right now. We are higher than California right now. It’s crazy. Our prices went up 15% in the last four months, so it’s just insane, and so very, very different in very different marketplaces.
Ben: But I tell you, I would rather be where you are paying top dollar for quality, quality, quality assets that are going to be appreciate; because you know, I underwrite to IRR. I don’t underwrite cap rate; doesn’t even doesn’t even enter.., well it doesn’t enter my thinking, but it’s not in the way that you think. Not the cash on cash. I underwrite the IRR, which means I project the entire lifespan of the investment, which means I underwrite the exit. Well, I would rather be looking at exits in the in a highly appreciating market like you. I could afford to pay a six cap for an apartment building and still make a whole lot more money faster, quite potentially, then what I do in Lymer or anywhere in the Midwest, simply; because if people want to be there, enough, so that driving up costs to such an extent, I want to be there. I want to provide to the marketplace that which many people want, and people want to live in Colorado, and work in Colorado. So I want to give that to them, but I’m stuck here. I don’t believe in long-term investing on small-scale. That’s one of the reasons I look at big – a hundred, a hundred and fifty unit projects right now is because I can underwrite management. I can underwrite payroll as part of my operating structure, which means that I can expand my footprint; I can go to the different areas, and I don’t …I have to manage the managers; but I don’t have to be on the ground managing attendance, and that’s what I’m trying to get away from.
Mark: Make sense; makes a lot of sense. I’ll rather be in Colorado too just in case you’re wondering, but you can always go, Ben.
Ben: I’m thinking about coming to visit you guys this summer actually.
Mark: Oh yeah; come out here. We’ll take care of you.
Ben: I’m afraid to ask what that means
Mark: It’ll be a lot of fun. I will. So we’ve talked about your properties, on how you got started. You’ve kind of evolved from flipping to rental properties and then you started justaskbenwhy.com, so tell me, why you started that site, what it’s been like, and what it has done for yourself and your business?
Ben: Well, I started because a lot of people asking me what I do and how I do it. So, I’m a musician, and a lot of people in this world still see me that way. I don’t play, and when I do play I typically don’t even ask for money. I only do it because, you know, at heart I am still a musician. I love the violin. It’s who I am. It just not what I am. It’s who I am, but a lot of people are looking and just kind of going ‘what’s going on here? Ben’s doing some…’ So that’s why I started it. I started ‘justaskbenwhy. I thought, you know, maybe I can monetize it; maybe I can do something with it to create another revenue stream. I mean, I’m not gonna blow sunshine up yours. I like passive cash flow. It is what it is. I like it. I think it’s necessary. I teach everybody to get an idea to become really good at something and to monetize it ten different ways; every ways that you can; because you have to. You have to. You have to be safe. What happens to my family if I get taken out by a miss, or if I get run over by a car, or whatever, you know? I would hope; I have several revenue streams that they can lean on, you know, and I would hope of those revenue streams are passive and stable, and that very much involves real estate, also involves justaskbenwhy. So I started out justaskbenwhy to tell people how I do what I do – creative finance. How to, you know, help my old classmates, some of whom might been spending hours and hours on the phone, and some of them own property now, and just in general people reaching out, and I set up justaskbenwhy. I set it up initially as a podcast, I think, before the podcasts was exist. I set it up as a podcast, and it went nowhere. It went nowhere three years ago; because nobody knew me; so why should it go anywhere right? So then I said, okay this is was when my kids were maybe two years old; they’re six now; my kids were two years old, and I’m in the basement of my house at night. We’re talking 3 AM 4 AM, and I said, I am not going to be doing continuing to do this thing asking people to pay 20 bucks for 30 bucks, or whatever hoping somebody comes to listen. What I’m going to do is, I’m going to create this product that takes people from point A to point B, that explains my methodology, the way I see real estate, the way I view real estate top to bottom. At least, you know, on the initial level; not very the sophisticated syndication stuff, and things like that; but how do you go from having no real estate, what you need to know to have the duplex, a four-plex, you know, have a few units. What you need to look for; how you analyze it; how you underwrite it; how do you value on how much to pay; all that kind of stuff. What do you buy? What do you not buy? How you manage tenants; all of that kind of thing. So I created this package, you know; I sat there in the basement in my house, when everybody was sleeping, and I dictated my thoughts into the computer, and then I wrote the PDF to go along with that, and I created a little software to analyze property. So I thought, you know, I don’t know if anybody’s ever go find it, anybody is ever going to want to listen to anything I have to say, except for that I’m somewhere. I’ve definitely made progress. I am a guy, who graduated from Cincinnati Conservatory as a Violinist; was told I have multiple sclerosis; I can’t have a performing career; because of it, and now I’ve got these units; and they are cash flowing, and I’ve got a balance sheet, and I’ve got a little bit a net worth; and I’ve got, you know, I’ve lowered my tax liability; because of real estate, and I’ve done these things. This was real that three or four years ago; I mean, it’s a lot better now, but even back then was very real. I said a lot of people out there struggle, flat-out; just struggle, and a lot of people out there are just like me. You would be surprised how many people reach out and say, ‘I have been in an accident’ or I had a heart attack. So I understand. I can relate to you on that level. So I created this package and I said, “look, if people want to purchase it; okay, they should purchase it; and if people don’t want to purchase then, okay, I wasted my time.” So I created it. I put it online, and that’s CFFU and it is basically been unchanged – the same product I’ve had for three years, it’s there. I’s just a course. It’s about 20 hours of me talking, telling people what to do, and what not to do, why and how; and people have been buying, and people been very, very, very positive. Well you know; you have gone through the entire thing. I think it’s good stuff; I think it’s really good stuff; and I think that anybody that’s interested in real estate, it is a cheap price to pay for education, ’cause remember, I lost money. I lost real money. So rather than going through that, I think it’s a very cheap way to educate yourself.
Mark: You’ve had a very expensive education. You can just think of it that way. Twenty thousand dollars of education.
Ben: Twenty Thousand dollar lessons; that’s right.
Mark: I went through. I listen to all your recording, and it was really good stuff. It’s interesting; because I have a completely different way I invested. I was putting 20% down buying single-family homes, and you go through how you bought multifamily properties without using your own money; using private money; how you structure the deals, and also how you found them too, which is [you know] if you buy a property off MLS, especially multifamily, you are going to pay a lot more money than if you’re using word-of-mouth, no real estate agents, off market properties,
Ben: And the essence of….
Mark: You also have a huge advantage from a full-time agent, so I can get better deals than most people.
Ben: Sure, but you are still competing ’cause you are not the only one who knows about property. So the reason I’ve been able to get the deals I’ve been able to get, is because nobody else knew about them. They weren’t marketed, so that’s a good circumstance to start negotiation from good starting point, and the I don’t know that I got steals, I’ve gotten fair deals, but at least I was able to be face-to-face with sellers and we were able to okay, ‘here’s your problem. Here is my problem. How can we solve to both of our satisfaction?” which isn’t something you can do in the MLS. It’s just not how business runs in the MLS. So I am a big proponent, of course, I’m finding it really difficult now in the syndication space; because it’s so hot. Everything goes through brokers, it seems like, and that’s one of things I am really struggling with; because I structure deals. I got create solutions. That’s the essence of real estate to me. If I can’t have access to seller, to figure out what the issue is, and how we can be creative about putting this deal together so you get what you need to get, but I still have some meat on the bone; if all you are telling me is that I want $6.5 million for hundred and 20 units, well, great – Okay, what do I do with that?
Mark: Real quick explain what syndication is to those who don’t know what it is.
Ben: So syndication is essentially just pooling capital together from multiple sources or entities in order to facilitate acquisition of larger projects. You can look at syndication like a simple partnership – a partnership whereby you bring 20,000 to the deal; I bring $20,000 to deal, Justin brings $20,000 to the deal. We use $60,000 for a down payment and we get a loan for the rest. So that’s basically the act of syndicating; okay? You are syndicating capital. Now when we talk about syndication, though, we generally mean a limited partnership, and there is a difference; a substantive differences between what is a partnership that’s a democracy, such as a MRC where everybody gets a vote, and a partnership – a limited partnership where you have the general partner who runs the show, and limited partners who are just there as money partners. Well the issue is that since limited partners don’t have any control over how the investment runs, FCC kind of regulate that; because people are just along for the ride. They don’t have that control, okay so you were the guy in control, you as a syndicate general partner. So it has to be done very properly with SEC attorneys, and usually it’s Reg.D506, that’s used as a vehicle to accomplish this, but essentially it’s a limited partnership, but we do is we find the …., in my case, apartment buildings. You can do it with any other asset class, but in my case, I look for apartment buildings, million dollar deals, that are way too big for me to try to do on my own, and I pull in partners to, you know, come up with the down-payment, and then I’m the managing partner. I manage the process. I, most of the time, have to sign on the loan; because there is recourse to me. There’s no recourse to limited partners, and I have to worry about refinances, if there is refinances as part of the business plan. I have to structure the exit, you know, at the time of the exit, so you know you manage it like any other investment you would manage, but you also have limited partners for whom you are generating return. That’s the essence of syndication.
Mark: You have been working on it for a while now, and like you said, it is a really tough market now to find those big deals. I think because there so much big money, so much big cash coming into real estate right now; not just the US but from other countries too….
Ben: Right and their agenda is preservation of capital. A lot of players out there aren’t even interested in getting returns. They just want to preserve their capital. You have a lot of instability in emerging markets that want to come to US. You have a stock market that’s flying high, and a lot of people are not trusting it going forward; they want to pull out; they want to get some yield to protect their investment, and this kind of, you know, apartments seemed to make a lot of sense; because generally speaking; population grows and you don’t have any more land than what you have, and then so on a macro thinking scale, it make sense, and so right now, a guy like me, who needs to generate a preferred rate of return to his investors, and you know, 16-17% IRR on a five or 10 year hold, a guy like me, when somebody else isn’t even underwriting to IRR. There are just getting Fannie Mae paper at 4% nonrecourse for 10 years fixed; you know, they’ll buy at 7.5 cap all day long; because guess what? They have that Delta. Their debt is 4%. They figure if they are buying at 7.5 cap; now I’ll tell you that cap is fictitious; it’s not real. It’s never going to happen, because most people over there; out there don’t know how to underwrite deals, but that’s what they’re thinking, and I have to compete with that. That’s a tough proposition; still trying.
Mark: Alright, we are getting close to running out of time, but tell me, in the next year what would be the perfect situation for you as far as your business? Would it be your website continuing to succeed, would it be finding syndication deals? What would you love to see happen?
Ben: I think it’s both. I’m a musician so I am kind of artsy-fartsy in a lot of ways and ADD, you know. I just have to have my hand in more than one pile of something, rather, in order to feel satisfied, you know, emotionally, so that’s why I work on several things all at once. My website doing well, I think is wonderful, first of all I am helping people, and secondly I am making money, and I making money asking people to pay at a price point, which is so reasonable considering education in the space. You to spend 20, 30, $40,000 on this education, and I’m asking for a few hundred bucks. I mean it’s not cheap, but I can feel good about the value I’m delivering and I do feel good, and people respond positively. So I feel very good about CFF and I want it to continue to grow. From my own personal growth, I want syndications; I want big apartment buildings. It’s just a natural outcome of me growing as an individual, as an investor, as a businessman. I want those things, and so I still go after those things. I think there are opportunities out there, but there very difficult to find, and I have to figure out how to position myself so that these opportunities come to me as opposed to somebody else which is a difficult proposition. I am selling myself. That’ what business people do. We sell ourselves. So both. I couldn’t tell you one or the other. I’m interested in both, and I work, actively pursuing both.
Mark: You will get one here soon – a syndication – I think.
Ben: I hope so, I hope so.
Mark: And I know your site is doing great so I wish you continued success on that. Now, if people want to get a hold of you what’s the best way? Is it going to justaskbenwhy.com, or e-mail? Tell us how to talk to you.
Ben: I have an e-mail account, [email protected] I have the e-mail on my website www.justaskbenwhy.com; I have, as you mentioned, a very large presence on biggerpockets.com, and also I have large presence on your site, actually. So I think there are a couple of articles that you’ve written, that you’ve included me into, that I see people reading all the time on your site. So if somebody wants to get a hold of me, they should just ask you.
Mark: Yes and going through the link to your site, yes some those articles as well on the podcast, so we will make sure people can get a hold of you however they want to. So Ben, I want to thank you very much for taking time out to do the podcast, to enlighten us with all your information and history from flipping to rental property syndication. Great show, great job, and thank you very much.
Ben: Mark thanks for having me.