071: Buying Rentals and Flipping Houses in New York with Jeremiah Dalton

On this episode of the InvestFourMore Real Estate Podcast I talk to Jeremiah Dalton, who is an attorney in New York. Jeremiah has a good job as an attorney, but one of his passions is real estate. Being in New York can make it very hard to invest in real estate, since prices are so high. Jeremiah has bought a rental in Pittsburgh, tried to flip in Buffalo, and has a flip right now in Long Island. Jeremiah is also part of one of my coaching programs and it has been a blast seeing his progress and success in real estate. We talk about how Jeremiah became an attorney, how he ended up with another rental in New Jersey, how he is flipping houses, and much more on the show.

Does Jeremiah like being an attorney?

Jeremiah thought about being a doctor or an attorney. He decided to go the attorney route, and has a good job, but admits being an attorney is not what he thought it would be. It is not quite as exciting as he hoped, and his commute leaves him little extra time for his family or real estate. Eventually Jeremiah would like to be a full-time real estate investor flipping houses and building his passive income with rentals.

How did Jeremiah end up with his first rental property?

Jeremiah bought a condo with his wife in New Jersey, because that was one of the few places close to New York he could afford at the time. It was a small studio unit, that he ended up converting into a one bedroom condo. After a few years, he and his wife moved to Long Island, but he kept the condo as a rental. Jeremiah admits he does not make a lot of cash flow on the rental property, but being close to New York he thinks there is a lot of potential appreciation with the property. We talk about how his appreciation play may work and why he feels safe with little cash flow, since he is in a good financial position otherwise.

How did Jeremiah’s experience with a turn-key rental property work in Pittsburgh?

Jeremiah found a company in Pittsburgh to help him buy and renovate a rental property. He liked Pittsburgh because of the growing economy and cheap prices. He bought a property for under $50,000, rehabbed it, and rented it for $650 a month. He was also able to refinance the property and get most of his cash out. The experience did not go exactly as planned since he hoped the home would appraise for more than it did, but it was a great learning experience for him. He also has a great story about how the neighbor was shot in the head and scared away his first tenants!

How did Jeremiah end up buying his first flip?

Jeremiah has been wanting to flip houses for quite some time. He signed up for my coaching program to help him with rentals and to figure out the best way to flip a house. Jeremiah is in New York which makes it very hard to find affordable houses that can be flipped. He first tried to work in Buffalo because he had some contacts in the area and prices were very cheap. After working with real estate agents, contractors, and making offers on multiple houses he became frustrated with the town. It was tough to find houses with enough room to make money when relying on agents to be your eyes and ears. Eventually Jeremiah found a property to flip that was in his own area in New York and he is currently working on it now. The house Jeremiah bought was a REO property that should have $30,000 to $50,000 in profit potential.

How did Jeremiah fund his first flip?

Jeremiah used a local bank to refinance his rental property in Pittsburgh, but he had a tough time finding a bank or hard money lender to finance his flip. The options he did find were very expensive since he had no experience. Jeremiah had worked with his father in the past on large commercial projects, and knew his dad had equity in his home, but was hesitant to ask him for money. Eventually Jeremiah realized if he borrowed money from his father it would help out his father since he would earn a good interest rate on his money and it would help out Jeremiah as well. They used Jeremiah’s income and his father’s equity to get a line of credit that Jeremiah could use to flip houses.

What are Jeremiah’s plans for the future?

Jeremiah loves to flip houses and plans to build his business bigger and bigger. He is working on finding more deals through real estate agents and wholesalers in the area. He is also looking at flipping in different markets as well. He wants to use the money he makes flipping to buy more rentals so that he can eventually get out of the corporate world.

[00:00:58.8] MF: Hey everyone, it’s Mark Ferguson with InvestFourMore. Welcome to another episode of the InvestFourMore Real Estate Podcast. I have a very cool guest on today, someone I know very well, Jeremiah Dalton, who I have helped coach a little bit who is an attorney in New York, invested in rental properties, working on a flip right now and I’m really excited to talk to Jeremiah because I think he has a really good story about being in the corporate world, trying to get into real estate, and also the challenges of investing when you’re in a big city like New York where it’s not easy to cash flow and find flips. He has worked on investing in other areas of the country and we’re going to talk a lot about that.

So Jeremiah, thank you so much for being on the show, how are you?

[00:01:42.5] JD: I’m great Mark, how are you?

[00:01:43.9] MF: I’m doing very well. I don’t like to beat around the bush so I love to get started quickly. Tell everyone, you’re an attorney, how did you get into that field? What made you want to become an attorney?

[00:01:56.3] JD: Well I would say the motivation behind becoming an attorney is why so many people go to school. They go to school, they get an education, they move up the ladder. I went beyond college and then did three years of law school. So during that time, you’re always sort of under the impression that the more educated you are that it was going to directly correlate with the more money you make. So I entered law school in 2007 and when I came out in 2010, it was a very different world.

There was the expectation that we were all going to graduate with these high paying jobs, we were going to make superfluous amounts of money and everything was going to be great. But in 2010, basically two years after everything really crashed, it still hadn't gotten any better. In fact it may have gotten worse, and I walked out with really not a lot of opportunities in front of me yet. I had a lot of student debt. My wife who I met in law school had just the same amount of student debt and ultimately, we wanted to start our lives.

So we were sort of at a crossroads a little bit. I was fortunate enough to land on my feet and I wound up securing a very good paying job. But before that, I was working a lot with my father, I kind of exited the legal industry for a period of time because he was in the film business and that was booming and I was working with him and I was helping him, he was taking a lot of these raw warehouses and converting them into studios and we needed someone to kind of run the ins and outs of the company along with the paperwork and all the filing.

So I did that for a while until that sort of came to an end and ultimately I found a job where I’m working now but you know, at the end of the day, what is really missing from all of this is that you don’t have the freedom necessarily to do what it is that you want to do, spend more time with your family and I just had a daughter and I have a son on the way so when you add all that into the mix, you start to look at yourself and say, you know, “Well how much time am I really spending at work versus how much am I spending with my family?”

And I know a lot of people that I graduated with are not as fortunate as me and I never try to look a gift horse in the mouth and where I work the people treat me very well, but again it just comes down to being able to have the freedom and the opportunity to expand as much as you want and real estate really affords you the ability to do that.

[0:04:30.8] MF: Yeah, a great story about how you got started and some of the challenges you faced. One thing, I’ve talked to a lot of attorneys before and a few of them seemed happy and love their job but a lot of them really seem unhappy. I’m not saying you seem unhappy at all, but was being an attorney what you pictured it or was it something completely different?

[0:04:49.6] JD: No it wasn’t. I had thought about becoming a doctor but I guess maybe for one reason or another,I just saw the where the medical field was heading and it was before Obamacare and things of that nature. You spoke to a lot of doctors and very much like an attorney they were just miserable. I didn’t really want to go down that road. I guess due to a lack of options, lack of direction, I went down the attorney road figuring that no matter what I did, I was always going to have a good background, a good foundation for whatever I wanted to do. I really always did want to do real estate, but I knew I had to make a living and I guess I never really saw myself as being able to just make money in real estate right off the bat. So I thought, “Well this would be a good way for me to make enough money to get started and then maybe segue into it full time one day.”

[0:05:40.0] MF: Right, that makes sense and I’ve heard the same story form attorneys over and over again. I took law classes in college and I really enjoyed my law classes. It made so much sense to me. It’s like common sense how the law worked. But then I see law and reality, it doesn’t always seem to be common sense the way it’s supposed to be.

[0:06:00.1] JD: Yeah, and it’s not. But I’m passionate about the people that I help and standing up for people who are putting in a hard day’s work and so from that standpoint, it’s rewarding. But ultimately when you’re looking at your whole life and you take a step back, there are things that I wanted to do and haven’t done, you always come back to real estate as being one of those things that gives you both time and money.

So in the meantime you pick one or the other. While from a financial standpoint, I’m in a good place, I’m just not left with a lot of time. Real estate can give you both and it’s not easy to setup and establish but once you do, you never really look back.

[0:06:49.9] MF: Right, I completely agree with that and you have a rental property in New Jersey. I think, if I remember right, that was your first rental. How did you come about getting that property and how did that become a rental for you?

[0:07:02.5] JD: It was kind of funny. I met my wife halfway through law school, we instantly hit it off and as we got closer and closer, we were thinking about moving in together and so I was always against renting because I felt like I was throwing away money, the market had started to turn down and I said, “Why don’t we look into buying something?” Unfortunately, we really didn’t qualify because we didn’t have the income. So it was a little easier back then, but we were fortunate enough that my future mother in law, we were able to put her on the loan and combined with myself and my wife, we were able to qualify for a small condo in New Jersey and what was nice about it was that it was very close to, it was right outside in Manhattan, which is where I went to law school.

So it was a great and easy commute while we lived there. We basically worked and went to law school at the same time and paid the mortgage. It was very small. It was 550 square feet that I actually converted into like a junior one bedroom, it was a studio and I put up a wall and actually I guess it’s the first real piece of real estate that I added value to. It became actually a very popular thing, a lot of people saw what I did in the building and they kind of copied that design.

So it added some value to it and then, you know, obviously you can only live in 550 square feet for so long so we ultimately moved out of there and my wife’s family lives out east in Long Island and so we just established ourselves out there closer to where her family is and we rented the place out and we’ve had a great tenant in there ever since and I don’t really make any money off of it, I make very little but it’s an area that is definitely prime for high growth.

You know, just being a few miles outside of the city as it gets more and more expensive, people sort of get pushed to the outskirts and this is certainly one of those areas. It’s not one of the things I necessarily look at for cash flow, but I know that if 20 years from now, when my son is looking to go to college, I’ll be in a position where I could at least sell it. I kind of look at it as my college savings plan for my children.

[0:09:22.0] MF: Yeah, that makes sense and I think, I talk a lot about buying for cash flow and when you buy rentals, it’s really important to have cash flow. But I think in your case with this property, it’s not like you need the cash flow to survive, you’re not scraping by and it really is kind of a long-term play where I think it makes sense to keep that one to see what happens with the future value on it.

[0:09:44.1] JD: Yeah, absolutely. And you see that a lot in New York because taxes are so high and the values are so high and the renst that correspond to the values aren’t exactly that great as you see with other parts of the country. But the flip side to that is that the growth rate is enormous and I think I might have told you, I knew someone that had a brownstone in Brooklyn in a very rough part of Brooklyn and he bought it maybe 10 years ago for a few hundred thousand and now it’s worth several million.

That’s the kind of growth that you see within the New York metropolitan areas. So because of that, people tend to hold on to things and they don’t make very much cash flow. But when they go to sell it, they usually reap significant gains.

[0:10:36.9] MF: Right. That makes sense. One thing about New York too, you know more about this than I do, but it wasn’t hit quite that hard by the crash was it? In the housing crisis?

[0:10:45.7] JD: You know, I’m actually doing my first flip out east in Long island, that was hit very hard and that is actually the county where I live and where I’m doing the flip, which has a very high concentration of bank owned properties. But yes, you’re right. It wasn’t hit as hard, but it was hit. There were certainly opportunities.

I wish at the time I knew what I knew now, I might have been able to pick some of them up because even sometimes it’s not always about whether you have the money but rather whether you can just pull the money together and at the time I didn’t really think of it like that. But there were definitively discounts to be had and you know if you were smart, a lot of people in just a couple of years were able to retire.

[0:11:25.7] MF: Right, well I mean, and New York still probably has one of the highest foreclosure rates in the country as you know because it takes so long to foreclose in that state. I don’t know if you want to touch on that just a little bit so people can realize how crazy it is?

[0:11:41.7] JD: It’s funny actually because my wife wound up finding a job like 10 minutes from where we moved to and lo and behold, their primary source of business was doing foreclosures and again, she found a job, the same thing with me where jobs opportunities weren't plentiful, but this was one of the few booming industries as you could well imagine, so she handles foreclosures on behalf of banks.

So she knows the foreclosure process from start to finish inside and out by now and she’ll come home and she’ll tell me these stories and it is incredible, you’re talking in some cases a decade to foreclose on a house. The banks that she represents, they have properties all over the country and they’ve all deemed New York to be the “special state”. So because of that, yeah, the process is very time consuming but I guess on the flip side, she’s established a very good career for herself.

[0:12:40.6] MF: Right, isn’t it the average time like three years to foreclose in New York or something like that?

[0:12:45.8] JD: I’ll be honest, I would think that number is skewed, I would think it’s even longer than that because if you think about how many houses are upwards to 10 years, so I would say that number is probably skewed. I would say like five years, may be a bit more accurate. But again, I’m just sort of shooting from the cuff but just because the whole process takes so long and New York Courts are notorious for being backed up. I would definitely say it’s longer than three years.

[0:13:34.4] MF: Right, that’s crazy. I know Florida is very long, New Jersey is very long. You go to a state like Colorado where I’m at and I think by the time people start being late on their payments to the time the foreclosure is completed, it probably takes eight months and after the foreclosure has started, it’s like, three or four months and most of them are done. It’s crazy. Very cool.

So I mean, you’ve obviously had some challenges being in New York City and I hear this from a lot of different investors, “Hey, I’m in New York City or I’m in San Francisco, prices are so high, it’s really hard for me to find rental properties at cash flow.” I know you want to buy rentals and you also want to flip, but you experimented with a rental property out of state. So can you tell a little bit of how that process started and how that’s turned out for you?

[0:14:25.1] JD: Sure, I’m a member of the Long Island Real Estate Investor’s Association. So there was a vendor that was there and they advertised doing turnkey homes. It’s not turnkey homes in the traditional sense that they buy and fix it up and sell it to you with the renter in place. Typically they would go out and they would find the property, they’d get it under contract, bring it to your attention and tell you, “All right, this is what your all in cost is going to be. You’re going to buy it at this amount, this is what your repairs are going to be, and this is what it will rent for,” and they give you a breakdown and pro forma.

And at first I wasn’t really too sure about it so I kind of shied away from it but my wife said, “Let’s just give them a try,” and you know, they’re doing it in Pittsburg, Pennsylvania, which you and I have discussed. There’s an area that I really like with a lot of high growth, the term steel city is probably an antiquated term at this point. They have a lot of growth drivers in there. Google is in there, the medical industry is booming there and you know, there’s an enormous amount of colleges and universities that are putting money into the city. I went there and I was pretty amazed at how well the city was doing.

So the surrounding areas, certainly in regards to the housing that’s needed to have all these people live, it gives you an opportunity for great cash flowing homes. So at that point I said, “Well I want go down there and give them a try.” I went down and I wound up getting a home that was about $50,000, all in. It turned out to be a pretty good rental, I wouldn’t say the greatest. It’s in an area that is a transitional neighborhood.

I have a tenant in there and as far as my cash on cash return, this is after I refinanced it, I’m doing about 17% cash on cash. Which is pretty good considering that I really didn’t have to do anything at all. But the flip side to that was it was basically appraised for what I had put in to it. What I had invested, that’s what it appraised for. I know you’ve talked about this very often when you say, “The only way to make money, not the only way, but the best way to make money in real estate is to buy propert for under market value.”

With this turnkey companies, I know a lot of people are into them and it’s not a bad way I think for people who are older and retired and they want to park their money in real estate but they want to do little work and just receive a good rate of return, I think it’s a great thing. But for younger people such as myself. If you are looking to really build a strong real estate portfolio, I think the only way to do that is to like you said buy property for under market value. In my case, I don’t want to I was had but when I went to them and I said, “I want to buy something that I could ultimately refinance and take my cash out,” and they brought this particular house to my attention.

I didn’t entirely agree with the comps and I think this is for investors to realize to trust your own instincts. I didn’t really agree with the comps. But I figured they knew the area well and I figured I should just give them a shot and trust their judgment and it wound up appraising for what I figured it would appraise for. So that was disappointing. You know, I would say it was a good experience and it introduced me to the area, got acclimated to the city with training wheels I would say. But at this point, I want to invest more in that city but I think it’s going to be incumbent upon me to do more of the leg work, finding the deals and kind of putting it all together so that when I do, when it does come time to refinance, I’m left with a pretty significant chunk of equity that was built in from the hard work that I put in.

[0:18:23.5] MF: Yeah, I completely agree with all that and just to kind of summarize what I remember you talking about is you found that turnkey company, they said that you could buy these, get a great deal, you buy the property and then they would repair it for you but you would pay them for all the repairs once you’re done with the process, they’d say it would be worth, what? 20% more than everything you had in it, something like that? You could refinance? You get almost all your money out.

[0:18:51.6] JD: Exactly. I knew that those were probably unrealistic expectations that I would get all my money out. But if I did, I thought like I had really hit a home run but I think I was a little foolish. I thought I’d be able to get most of it out. But it ultimately just appraised for exactly what I put in. Now that said, you hear some of theseturn key companies, they sell properties to investors and you know, they buy it for $40,000 and it is worth 25.

It didn’t exactly turn out that way for me, but that was a disappointing aspect because I kind of felt like, “Now I have some unnecessary cash tied up into this house whereas had I been able to take all my money out, I could have been a little bit more aggressive you know, with another piece of property. That being said though, it led me to my property manager who is very good, who said that he actually will handle rehabs for me moving forward.

So I think that’s the route that I’m going to try to go down in which he brings me the property, he’s going to know what the repairs are going to be. He’s going to know what the rents are because he manages properties and I think he’ll be hopefully a key member of my team to help me expand my rental portfolio but not at the rates, not at the surcharge that I was paying to this other company.

[0:20:21.6] MF: Also, it was a great learning experience for you, like you said. You got a ton of contacts and I think you’re setup well to do things in the future because of what you learned. One thing before we get off this subject, I want you to tell the story of your tenant, the first tenant you had in there and why they left.

[0:20:38.2] JD: Oh okay, yeah. It’s funny but it’s scary too. I knew the neighborhood that I was investing and it’s a transitional area and the people I’ve spoken to said just a few blocks away, the homes were worth three times the amount so there is plenty of growth. I knew what I was getting into, I knew it wasn’t the best of areas I certainly wouldn’t live there but we thought the place would rent for anywhere between $625 to $675 a month. We put it on the market for $750, it rents right away, I was like, “Wow, what a score.” So already I was calculating my cash on cash returns at close to 20% and saying this is a great deal and I barely have to do anything.

The people move in, two days later they sign a lease, two days after that I touch base with the property manager to see how things were going. He doesn’t get back to me, which I found a little peculiar and then he tells me that the tenants, when they were moving in, the neighbor next door decided to take a trip over and introduce himself and told him that he was a victim of a shooting merely two or three days prior. Actually a home invasion as he claims and he was the victim of a shooting. They shot him in the head.

Now I don’t know how he was shot in the head and having this conversation three days later so he clearly liked to exaggerate just a bit. But that scared off my tenants and they wanted out so we cut them a deal, I think we only charged them like a half a month’s rent, gave them back their security deposit and then unfortunately the house sat for like the next two months and I wound up taking $650 for rent, which was right in the line with our expectations but it was significantly below what we were originally going to get

[0:22:26.1] MF: Yeah, that story always — I couldn’t believe that happened when you told me about it and yeah, you never know what crazy things are going to happen in real estate.

[0:22:34.8] JD: Yeah.

[0:22:35.9] MF: All right Jeremiah. So you got to Pittsburg property performing well and I know you’ve always wanted to flip houses too, but flipping in New York City can be rather difficult due to the price points, even the surrounding area of New York. How did you get started flipping and I know you chose a different market, can you tell us a little bit about that?

[0:22:53.8] JD: Yeah, so I wanted my flips to help fund my rentals and having done real estate rehabs before on a much larger scale, and I loved taking something from point A to point B and just seeing the transition over time but then looking back from the beginning and then looking to the end and seeing what a difference you made. So it’s something that I was really passionate about doing and I wanted it as maybe a full time career but at the very least to help subsidize the rental properties I wanted to purchase.

So originally, New York is very expensive and you’re looking at several hundred, three, $400,000 to flip houses on average. My price range was below that. So one of the areas that seem to be ripe for flipping or at least it appeared to be was within Buffalo, New York. So I started to pursue that opportunity and kind of thought I was a little crazy at first because I said, “Here I am, it’s my first flip, you know I have a lot of construction experience, but it is still your first flip and you’re going to be doing something from a remote location, it could be hard and I guess in the end I was proven to be correct because I was trying to find properties but not having much luck.

Because the market is hot up in Buffalo, there was a tremendous amount of competition and I think people were looking to make less profit than maybe I was looking to make. So I was constantly getting beat out and then I think you and I discussed the fact that not only was I getting beat out but even if you were to win the bid, I wasn’t even going to get an opportunity to go into the house to check it out.

I thought, “Well, between the time the offer’s accepted and when I would go to contract, I can at least go and go through the property just to make sure there’s nothing glaring and basically everyone up there was telling me, no, once the offer is accepted, they pretty much closed the door and you don’t get back into that house until you purchase it, which to this day I still find a bit unusual but because I was striking out left and right. I kind of bypassed my own backyard due to the fact that I felt like I was being priced out but I shouldn’t let money really get in the way.

So I started to think of ways that I could help generate access to more capital and, you know there’s always hard money but hard money isn’t bad but the problem is you know, there’s so much competition with real estate, especially with flips. The better your offer can be, the better chance you have of getting it. So when you add hard money into the equation when you add points and the high interest rates and the fees that they charge and you know in New York, there’s a 1% mortgage recording fee on top of everything. So if you have $200,000 loan, there’s just a $2,000 recording tax that’s added to it. When you put all those elements together and you add those fees into whatever you’re looking to buy, you’re going to find yourself again striking out on deals because your cost to do business is so high. I actually wound up approaching my father and he has a house with a fairly significant amount of equity in it, I talked to him about maybe taking a home equity line of credit out and they are based off the prime rate and the prime rate now is at three and a half percent.

So even if I were to pay him an additional six and a half to seven and a half percent on top of it, it’s still a tremendous amount of cost saving when doing your deals. I mean, right off the bat, you take hard money out of the equation, no points, no excessive fees or anything like that. Four or $5,000 might make the difference between whether you get a deal or not. So at that point we went to the bank and I thought it was really just going to be all based on him, but this is something for people to consider. Since he is older and he’s nearing retirement, he works less and less, so he has less and less income. At that point, I was sort of under the impression that it was all going to be based on his income and when I sat down with the banker, he was like, “Well no, we could put you on a loan as well, he has to be on it because he owns the house obviously, but we can use your income and the equity in his house and put the two of you together to quality.” I said, “Wow, that’s great.” I thought I would have to own the home to be able to qualify for the home equity line of credit but I didn’t. Now we were able to open up a line of credit for several hundred thousand dollars and that, coupled with the line of credit that I had for a few hundred thousand on my own home, I had a nice amount of funds to use

At that point, I kind of set forth with pursuing flips out in Long Island. I wound up coming across a home, it’s further out east, it’s about an hour east of me so it’s pretty far from the city but it was an REO and again, I talk about being in a situation where a few thousand dollars can make a difference, I put in an offer and my offer was second but because mine was all cash offer, I wound up getting it but had I done it with hard money, my offer would have been significantly less and more likely than not, I wouldn’t have wound up with it.

[0:28:14.7] MF: Right, that’s a lot of things to think about with the financing. I know one thing you struggled with was asking or working with your father with money. So do you want to talk a little bit about that and how that you ultimately decided it would be all right to work with him on that?

[0:28:29.6] JD: Yeah, I mean, listen. For people who work with parents, they know how difficult it can be and I having worked with him before, I knew how involved he could be and I didn’t want it to become that. I said to myself, “Well here’s an opportunity where he could retire, he doesn’t have the biggest pension in the world and still has a decent amount of expenses so if I can give him a good rate of return and he can make some money and I could have cheaper financing, it is a win/win for both sides. So far, he’s been pretty good. I thought he would be more involved but he wasn’t and thank you for that as you sort of pushed me in that direction because I was shying away from it.

I’ve been doing this flip but he hasn’t been involved at all, he asked questions once in a while but nothing out of the ordinary. It’s great. The beauty of this home equity line of credit is I don’t even own the home, but it’s a line of credit that’s in my name and we were able to just use my income and the equity in his house to kind of put the two together. Aspiring investors, if they have family members, and of course we have to be careful because you know it's the equity in their home, but if they don’t have a lot of income and you have the income and they have the assets that you necessarily don’t have, you can combine the two.

Even if you would have paid them well above that interest rate for the HELOC, it’s still cheaper than hard money especially once you take out the fees.

[0:30:23.2] MF: Right, with the hard money too, a lot of them will require appraisals to be done, somewhat multiple contractor bids, it can take them six weeks to close on some deals, it’s not an easy process to get hard money financing, especially on your first one. Dealing with the family too, I hear a lot of people say, “You know I want private money, how do I find private money?” And I always say, look first in your friends or family, maybe like well I don’t want to lose their money.

Well, it’s okay to lose stranger’s money but it’s not okay to lose your family’s money. You know, I think and like you sad, a lot of people want to be independent, they don’t want help from their family, they want to do it all on their own but you’re helping out them too, it’s not like they’re giving you a handout, they’re not giving you the money, you’re paying them interest, you’re providing value to them as well, it’s a win/win solution and if it makes your real estate investing works so much better why not do it? Why not try it? I’m glad you ended up doing that.

[0:31:24.6] JD: Yeah, it has been good, it really has been good from that standpoint and you know, I’ve been fortunate enough to have access to this capital and especially like when dealing with a contractor a lot of people who use almost all hard money to finance the entire project, those people, especially when they’re financing the rehabs, sometimes a contractor needs money pretty quickly and you have to go through the process with hard money, having them doing inspections and submitting an invoice just to pay for work that’s involved with getting the next draw of money could take a long time and it’s just a bad for your relationship between you and your contractor so having that capital on hand that you and only you make the decision of when to cut in the next check makes it so much easier.

[0:32:13.5] MF: Right, for sure. All right, on your flip you're doing now, can you tell us some of the numbers, what you bought it for? The repairs, how long it’s taking you?

[0:32:22.5] JD: Sure, so this was a lot lower than I thought, again, Long Island is 2 separate counties, so I wasn’t familiar with every single area. But I figured, anything that is halfway decent area was going to be, you know, at least $300,000. But I found an area in Long Island, middle of the road area, certainly not high end by any stretch but very middle of the road, working class but in demand. I found a ranch, three bedroom, one and a half bathroom ranch, purchased price for me was $160,050.

The overall repairs were going to be, because there’s a pool, significant repairs with that, about $55,000. So at that point I’ll be in it for $215 and you’re looking at a potential selling price of anywhere from $275 to $285. Not an amazing profit, I know probably a lot more seasoned flippers out there would want more of a profit for that kind of investment but I was comfortable with that profit margin. I felt that even if things went really bad, worse comes to worse I would be left with basically no profit, which I try to look at it as a learning experience and anything I made is a bonus.

So that’s pretty much where we’re at now, we’re very close to finishing up. The appliances just showed up today and we’re putting the finishing touches within a couple of days, and I hope to have it on the market soon. I spoke to some realtors in the area who thought it could fetch as high as $290 to $295, which, you know, it would be a real score by any standards, any metrics that you know flippers tend to use, I think that would be a great deal. But even if I walked away with $25 to $30,000 on it, I’d be pretty happy with that.

[0:34:10.0] MF: Yeah, I know, I think you did a great job especially considering it’s your first flip and as quickly as you’re doing it as well, that’s one thing too I want to talk about. You’re not doing the work yourself, you’re hiring a contractor. So how did that process work out, finding a contractor, I know it’s not always as you expect on contractor dealing with them, but how has that been?

[0:34:33.7] JD: Well I can’t recall the video that I was watching, and this was before I think I had joined up with your mastery group, but there was somebody that was giving one of those sort of free seminars and he came up actually, it was a great idea that he had which was to go around and look at houses, check on Zillow, any house that looked that they may be a flip check on the price history and if you notice a significant gap between a short period of time, in all likelihood it was a flip.

So I started scouring the internet and trying to find somebody who was a real estate agent that was marketing a flip. So I found an old listing and I contacted the real estate agent and I said, “It looks like this was a flip, do you work with investors,” in all hopes of maybe establishing a relationship with that person. And, you know, “Oh, by the way, do you know the contractor who did this property?” So that was actually how I found the contractor that’s doing the work for me now.

I thought that was actually a very good tool, a little trick to help build your network. If you look at homes that looked like flips and find an agent who did them, maybe he works with investors a lot and then just by virtue of getting into contact with him or her, you could then see who the contractor was and you could very quickly build a team just by using that strategy.

[0:35:57.2] MF: Yeah, that’s a great idea and I think it worked out well for you and this contractor I think has done a real good job for you there. There can be some horror stories of using contractors, especially the first couple of times. I know it’s been a little slower than you think, a little more expensive, which happens on every single flip I do as well. But it sounds like it’s been a pretty good process overall?

[0:36:18.5] JD: Yeah, it has been. I was hoping to keep the budget of under $50,000 anywhere between $45 to $50. We wound up exceeding that but a lot of that had to do with the pool. The pool just, that was a risk and it was probably maybe one of the reasons I wound up with it. Listen, there’s still always that element that maybe this house won’t sell for as high as they think it will. There is an exact comp across the street that’s sold for $275 and this house is going to be even nicer. So I’d like to think that we can get that number.

But that being said, you never know. It’s always a gamble to a certain sense. An educated one, but a gamble nonetheless. Still, a part of me was also wondering when I won the bid, the first thing that was like, “What am I missing? Why am I the winning bid? Why is somebody else is not the winning bid? You know, is there something that I’m missing?” But I think a lot of that had to do with the fact that there was a pool and that scared some people off and you know, I think the other thing is too is that people are, especially out in Long Island, because it’s a more significant investment, they’re looking to make more money. It also helped that I wasn’t using hard money. I had the line of credit, so my financing allowed me to make my offer more competitive.

[0:37:29.1] MF: Right. I think you’re doing a great job on it and yeah, sometimes I get properties like that too where I’m just like, “Why did nobody else try to find buy this or why did nobody else bid on it?” I bought a house at the local foreclosure sale a couple of months ago and I hadn’t bought one in years there and as the only bidder and I couldn’t figure it out. But sometimes that happens and yeah, you can’t second guess yourself, you just got to go with it and be happy.

[0:37:52.9] JD: Yeah, I kind of just, I don’t want to say shut my eyes but I did all my numbers, I said I’m not going to keep looking for things that are wrong. By all accounts, this seems to be you know, a solid investment, there doesn’t seem to be anything wrong with the house. I mean granted, it needs a lot of work. New siding, new roof, new kitchen, new floors, paint, you know, the pool of course, the back yard was a mess. So it really needs tons and tons of work but you know, the bones weregood, as they say, the mechanicals appeared to be in good shape. So we felt going in that we weren’t going to get hit with anything major.

[0:38:31.6] MF: Right. One thing I want to touch on too is in Colorado, the process for buying and selling houses is very easy. There’s not transfer taxes, we use title companies, which is pretty simple, it’s a pretty straight forward process. But I know things are a lot different in New York. So can you go over, you know, when you bought this house, it took you almost two months to close on it, right?

[0:38:54.0] JD: I would say six weeks is when it closed. This was me with no contingencies, no inspection contingencies, granted we had someone who looked at the house and that was sort of like a quasi inspection. Certainly no financing aspect. Again, it was just banks taking a long time to put everything together withthe documents. But I would have closed the next day if I could have. But yeah, the whole process still took about six weeks, which is remarkable but again but that is the byproduct of doing things in New York. You know, you have some cost savings, typically your agents are earning around 4%, whereas most places there are six. So you save money in that respect. Title can take a while, especially when doing an REO.

I wouldn't say anything really that jumped out at me, “Well, it got held up because of this or it got held up because of that.” I just think unfortunately the processing time just took longer than they expected, and a lot of people when you hear about people who invest all over the country, they make an offer and they’re working on the house in a week, two weeks. You know? Things just always take a little bit longer and you just kind of have to plan for that.

[0:40:07.6] MF: Right, you have to use an attorney to close in New York as well, right?

[0:40:11.1] JD: You do, you do. And luckily enough, I was able to have my wife and her boss do that which was added up to some cost savings. It came with a title policy, the bank provided a title policy with an A rated company so I had no qualms about taking that policy. There were some cost savings there. So when you add all those things in, together, I was able to save some money in that regard. But yeah, attorneys, typically New York and New Jersey they handle closings. Everywhere else like the house I bought in Pittsburg, title company handled it. But in New York and New Jersey, it’s all different.

[0:40:49.2] MF: Right, one thing too, you talked about possibly turning this property into a rental if the market isn’t what you think it is. But one thing that I think is crazy is this house is worth, we’ll say $275, $285. What are the taxes per year on this property?

[0:41:07.0] JD: Oh okay, well here’s the funny part. The taxes are about $10,000 a year. So Suffolk county and Nassau county, which were the two counties that comprise Long Island, in conjunction with Westchester county, which is also a suburb of New York City have the highest taxes in the country. If you look it up, Westchester, Nassau and Suffolk are always the highest. So yeah, that makes it very, very tough.

So even from a time standpoint, the sooner that you can fix it up and sell it, the more money you’re going to make because you’re not going to be on the hook for a thousand dollars a month in property taxes alone. So yeah, those numbers always startle people because everywhere else, tax is $2,000, $3,000, maybe in some places just a thousand, you know? So a minimal expense. But in New York it’s incredibly high.

[0:41:55.4] MF: Yeah, I always cannot believe that, in Colorado for that same house, the taxes would probably be, where I’m at, $1,200 to $1,500 a year. That’s just 10 times more where you are. Great, well I mean you’re doing really well with the flip. You’ve got a couple of rentals now, can you touch on what some of your goals are and what your plans are for the future?

[0:42:15.8] JD: Sure. Ultimately, my main focus is the flips. I feel like if I can generate enough revenue with the flips, even on a part time basis, that will help me purchase more rentals. I purchase more rentals, it gives me the freedom to potentially maybe do something different one day but still have that cash flow because there’s always that part of me that wonders in the back of my head, “Maybe flipping won’t be what it is in five years from now or even two or three years from now? Maybe the deals won’t be there.”

But more likely than not, the rental income will. I can go one or two ways. I can really kind of ramp up the flipping business and make that a full time career for myself. Or I can use the rental, the income from the flips to subsidize the rental business and purchase more rental properties. I haven’t fully decided which way I want to go, but I can’t say enough about how much I enjoy the flipping process, you know what I mean? So it’s something I don’t think I’d ever want to not do. So I’m tempted to just focus on that and build that as much as I can, but like you said, there’s really something to be said for just having passive income every month.

[0:43:33.0] MF: Right, and you know, I’ve been flipping since 2001. Through hot markets, through down markets, through the housing crisis and then there were a lot of people who say, “You can’t flip houses anymore, that time was passed,” that was four years ago after the housing crisis. I think it was, I want to say easy, but it was easier to flip houses back then because there were so many foreclosures but there’s always going to be deals out there if you know how to find them and you put the work in.

Sure you won’t be able to go on the MLS and find a property or flip every week but, you know, I think the pros are out there, they’re always going to be able to flip houses and find deals and yeah, I would not worry too much about, as long as there’s houses for sale, I think you can make money flipping houses.

[0:44:15.3] JD: Yeah, so that’s what I really want to explore, that’s what I really want to grow and I’m hoping to do both. Have a substantial flipping business and I don’t think I want to invest in my own back yard for rentals just because it’s harder to cash flow, but areas such as Pittsburgh where I really think it’s prime for a tremendous amount of growth over the next decade, yeah, I would love to be able to use what I’ve made, or at least a portion of it, and invest in more rentals there.

[0:44:48.4] MF: That’s great. I know you’re not looking to switch careers right now, but I imagine with your commute and your job and having a young child that yeah, you can see a little better future hopefully when things get built up.

[0:45:03.7] JD: Yeah. I mean you find very little time for yourself. I wake up and I’m up at 5:30, in work at seven. Working till 5:30-6, I drive home and the phone doesn’t stop ringing, I walk into the house and hope to pick up my daughter and play with her for a little bit but the phone rings again. I get a small slither of time with her, a small slither of time to eat and maybe 15, 20 minutes to watch TV after I shower. That’s it, and I go to bed, and I wake up and I do it again, that’s all coupled with a two and a half hour commute, about an hour in and an hour half home.

Some people have it worse, I always try to look on the bright side of things and be grateful for what I have, but that being said, it’s not going to stop me from trying to improve my own situation.

[0:45:45.5] MF: Right, one thing I want to talk about here, we’ve been going a while here but one other thing that I think has been amazing that you’ve done is you’ve bought rentals, you’ve done this flip with so little time, and you have any tips or any advice for other people who on your situation who say, “Man, I just don’t have time to pursue this.”

[0:46:04.8] JD: Yeah, I mean, you know what? There have been times where during this flip I felt I hadn’t been putting the time in because from my experience with supervising jobs with my father, I know how much time you can put in and I know the difference that it makes when you’re there and you’re on the guys, how much faster it can go. I even know that when I redid areas of my home. I’d redo a thousand square feet of my home at a time from start to finish. Full gut and if I wasn’t there, those guys wouldn’t do anything. So there is that part of it, unfortunately, I think we just have to accept that that’s an element built into your cost that it’s not going to go as fast as it possibly could go if you are there.

Build that into your cost, have the people that you could trust that you can supervise the rehab. In today’s world with camera phones, especially where everyone has a smart phone where I think even now probably by next week, my wife’s going to have an iPhone for my 16 month old. I think everyone has access to information at the touch of their fingertips. You could stay on the contractor, “Hey, send me photos, send me photos, show me an update here, show me an update there. Is it the same as being there, no, of course not but you know what though? It’s the next best thing so that keeps them on their toes where they have to show tangible proof of the work that they’ve done, they’ve got to do it within the five minutes of you asking them.

That coupled with visiting the property on a weekend and always checking in on the contractor or asking him each day how did we do today? My contractor said, you’re not like other investors I work with and these are investors who do it full time, he says more often than not, they just, you know, I tell them when we hit certain milestones, they cut me another check and then that’s it. He goes, “I actually like it because you know, I kind of feel like I always know what to expect and what you need and I’m never second guessing things, I don’t know if he’s just saying that but yeah, the fact that I’ve always been in touch with him every single day has helped.

Reminding him of things and just keeping a constant stream of communication has made a very big difference, and it helps that I have a construction background and I knew what the next step was and I’d be reminding him of that as it was coming up. It helps having a construction background from that standpoint, so I wasn’t completely in the dark.

[0:48:28.9] MF: Right, I know you’ve had some dealing with huge commercial projects versus small residential projects has been a little eye opening but that’s what you had to deal with when you’re dealing with contractors.

[0:48:39.3] JD: Exactly.

[0:48:39.5] MF: Very cool. Well Jeremiah, I think that is all I wanted to go over with you. Awesome job on the podcast, we went over a lot of information about your sort of pseudo turnkey rental, your rental that you lived in for a while, trying out in Buffalo, flipping in your sort of back yard, a little far away and some of your goals.

Any parting advice you have for anybody who is in a big city or close to a big city like you are who wants to start investing?

[0:49:06.8] JD: I would just say, no matter where you live, there are always cheaper areas outside of the initial confines of an expensive city. I was kind of afraid of going to those cheaper areas, thinking that nobody would buy them but people with moderate means, they need a place to reside and don’t be afraid and don’t be intimidated by a big market because when you have a big market, you might just have to look a little further outside the initial radius of the city. You’ll be surprised that people, they’re willing to live 40, 50 miles away from that central hub and you might find yourself in a more affordable area if you expand your boundaries.

[0:49:49.6] MF: Great advice and I tell people that too you know, check your backyard first but if that doesn’t work, it doesn’t mean you have to automatically go to a different sate. Keep looking around you and see what opportunities there are.

[0:50:01.2] JD: Exactly.

[0:50:02.5] MF: Great. Well Jeremiah, thank you so much for being on the show, really appreciate it, you did a great job. Hope you have a great weekend coming up here and I’m sure we’ll talk here soon.

[0:50:11.1] JD: All right Mark, thank you so much for having me.

[0:50:13.4] MF: All right, take care.