March 2, 2024

Twenty-four rental units in two years! It’s possible, but only if you’re using the same principles that today’s guest has employed. With house hacking, HELOCs, the 80/20 rule, and a few more strategic investing moves, you too could fast-track your path to financial freedom. If you want to build your dream real estate portfolio without sacrificing decades in the process, these strategies will help you do it!

For Andrew Freed, a full-time project manager, real estate agent, and investor, these strategies have been life-changing. And even if you’re still a real estate rookie, you can do exactly what Andrew did to reach the same results. Thankfully, Andrew’s investing methods, tips, and tricks are well-rounded, well-developed, and easy to follow.

In this episode, Andrew walks us through how he managed to buy twenty-four units in two years, the moment the gears started turning in his mind, his personal development process, and the key principle that keeps him focused on his goals. Andrew also gives us his best advice for predicting and preventing problems in your rental properties, stabilizing, and raising the rent. From gaining the confidence to get started to finding investment partners, he offers valuable, step-by-step guidance we can all learn from.

Ashley:
This is Real Estate Rookie episode 267.

Andrew:
Whenever I get a property under contract, I always put a request, a public record request, in with the city or the town and request inspection information or housing violations and that gives you all the history on the property going as far back as you request, and that gives you insight into any legal issues that you’re having, any trouble tenants, any issues with the building. Just that alone will give you insight into what to look for when you do the inspection, or it might give you insight into tools you can use for the negotiation and to ask for money off. So that’s kind of one tip that I think a lot of people don’t do, but it’s really important with acquiring and doing your due diligence on a property.

Ashley:
My name is Ashley Kehr and I’m here with my co-host Tony Robinson.

Tony:
Welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Want to start today’s episode by shouting out someone by the username of Naftali B and Naftali said, “Great show. Thank you, Ashley and Tony. I really enjoyed listening to your show. You provide great tips, insights, and provide a true path for rookies to start investing in real estate. Keep those episodes coming.” For all of our rookies that are listening, if you have not yet left us an honest rating and review on Apple Podcast or Spotify, please take the two minutes and 17 seconds it takes to do that. The more reviews we get, more folks who can help, and that’s what we like to do here at the Real Estate Rookie podcast, is help people.
What’s up, Ash? How you doing today?

Ashley:
Well, I just want to give a little warning for this podcast. If for some reason you hear fake throw up noises or you hear a bell ringing, my oldest son stayed home from school today and he had three demands for me this morning. He just wanted Tim Horton’s hot chocolate, a Tim Horton’s breakfast sandwich and a bell to ring so that he didn’t have to yell mom and could just ring the bell. I went out and did my little errands this morning and I got the chocolate, I got the breakfast sandwich. I could not find a bell, so I got a cat collar with a little jingle bell on it. So he has a little cat collar that he is shaking or ringing for me when he needs me in his room.
Usually on Tuesdays, Tony and I record all day, and so this is our last one and right before this he said to me, he’s like, “Well, how long is it going to be?” and I was like, “I don’t know, probably an hour and a half,” and he said, “Well, do you think you could just say, “Oh my God, my son is throwing up. I have to go.” I said, “I don’t think I could do that.” He’s like, “You can try it.”

Tony:
So was he fake throwing up in the background?

Ashley:
No, no, no. I didn’t hear it at least and I do have my noise-canceling headphones on, so I don’t know, maybe it did come through the microphone. Or the little cat collar dinging.

Tony:
That’s hilarious.

Ashley:
If you guys hear anything in the background, that’s full disclosure for what it is.

Tony:
I love that he’s like, “I need a bell so I can beckon you when I need something.”

Ashley:
I know. Then I’m even worse for trying to fulfill that request, I guess.

Tony:
I wish Sean would ask me for a bell. I’d be like, “Boy, if you don’t get your foot up and come in this living room …”

Ashley:
Well, the thing is whenever he is sick, he always just like, “I want to go outside in the barn,” or, “I want to go out in the shop. I want to go outside and do this,” or whatever. So the fact that he actually wanted to stay inside, I’m like, “Eh, he must actually really be sick.”

Tony:
Well, cool. Well, we got a good episode for today. We bring on a guest by the name of Andrew Freed, and Andrew’s got a really interesting story. He talks about how he feels like he raced most of his 20s and then had this awakening with what he calls the purple pill, so if you guys want to sit around and figure out what the purple pill is. Then he goes on to outlay how he’s built a portfolio of 18, about to be 24, units over the course of just a couple of years and just the entire story and his framework of about working on himself first to become the type of person that can invest in real estate, I thought was really eye-opening.

Ashley:
That personal development he did as to looking at his life as I’m living the American dream, I have a nice W2 job, I bought a condo, I can do whatever I want basically. He came to that realization where, “Even though I have everything that I’m supposed to …” when you graduate college, you get your job, everything, you buy your house, he’s like, “It just wasn’t fulfilling to me and I realized that I’m actually still living paycheck to paycheck and what happens if I lose my job? I have to go get another job.” That had instilled a fear into him so he talks about that whole progression and how he realized those things and just how he’s been able to grow his portfolio in a short period of time. He has a strategy that he’s doing to implement lines of credits to help him further his strategy, but also stresses on the importance of having reserves and different exit strategies in case you do get over leveraged with yourself.
Well, Andrew, welcome to the Real Estate Rookie podcast. You want to just start off telling us a little bit about yourself and how you got started in real estate?

Andrew:
Absolutely. I first want to mention I’m ecstatic to be here. Bigger Pockets was instrumental in my success in real estate. I found my mentor on Bigger Pockets. I found many syndicators on Bigger Pockets, and I’ve gotten all of my questions answered. So I literally wouldn’t be here today without Bigger Pockets, so I just want to say thank you.

Tony:
Yeah, man, and just really quick, on behalf of Bigger Pockets, you’re very welcome. I think Ash and I love hearing stories like that and even though our podcast is relatively new, we just get to take the credit for all of the other things that Bigger Pockets has done. So we appreciate that, man. But no, seriously, I think Ash and I both, we were products of the Bigger Pockets community before we became hosts. So we know firsthand just how influential of a platform this is and then how many lives have been changed. So Andrew, we appreciate you sharing that as well, man.

Ashley:
I mean, we’re still the biggest Bigger Pockets groupies there are. Still to the …

Tony:
Well, sorry, man, I didn’t mean to get you off track from your story, but I just wanted to comment on that. I appreciate that.

Andrew:
Of course, of course. A little bit about myself. I’ve been in real estate for about a little over two years now. I’m a multi-family buy and hold investor. I’m currently up to 18 units in Worcester, Massachusetts. I’m about to close on a six unit, so I’m about to be at 24 units. I’m also an investor focused agent. My first year I closed about 10 deals and I’m also a W2 certified project manager, which really those skills really fit well with the real estate investor. That’s kind of where I am and what I’ve done over my course in real estate.

Ashley:
When we were at the Bigger Pockets conference, Tony and I did a workshop thing and we had somebody raise their hand and say that they were in their W2 job now they were a project manager and they just felt like they had no skills for real estate and they wanted to partner with somebody but didn’t know what they could bring to the table. It was just like, “Wait, you’re a project manager, tell us a little bit about what you do.” The next question we asked, “So who here would love somebody to manage the rehab project for them?” Every hand shot up in the room, but it’s such a great skill set to have. Do you want to tell us a little bit more about how you’ve used project management into your real estate investing?

Andrew:
Yeah, absolutely. I mean, at the end of the day, it really comes down to being proactive, following up constantly and time efficiency. Some of the principles I live by on a daily basis is the Paretos principle, which 20% of your inputs create 80% of your outputs. Every single day in the morning, I’ll figure out my year goals, I’ll break it down quarterly, monthly, weekly, and what can I do today? What three, five items can I do today to get you to my goals? Those are usually high impact items like walking properties, making offers, talking with brokers, talking with lenders. I avoid time-wasting things like organizing my email and things like that. Time efficiency is at the precipice of being a good project manager, and it’s truly what you really, really … I mean, it’s a great skill to have in real estate as well. I mean, all of us wear 20 hats and we all have the same amount of time in the day, so we have to be very efficient with that.

Tony:
I love the idea of the Pareto principle, and I think it doesn’t get enough love and it’s so easy to be busy and not be productive. I think most people, especially when you’re dealing with limited time, if you’re looking to be a real estate investor and you also have a day job, you also have family commitments, you also have maybe community commitments, whatever it is, you need to be able to be exceptionally productive with the little time that you have available to work on your real estate business. I guess my first question, Andrew, is how did you make the determination or how did you come to decide what was that 20% of activity that was going to produce 80% of your results?

Andrew:
That’s a great question. More or less kind of the activities that get me to closer to my goal. We all need money to buy real estate, so I utilized lines of credit. Maybe that’s locating partners, maybe that’s underwriting deals. It’s whatever next steps I can get to that are going to get me to my goals. I always wanted to be an entrepreneur at heart, I always wanted to control my future. I mean, maybe that was just a result of my last name being Freed, but I really felt the need to really take control of my time and really create the reality that I want. I took many entrepreneurship classes. I even wrote a business plan for my master’s program. But at the end of the day, my entire network have the middle class mindset, get a good job, work for a good company, make good money and I really took that to heart.

Ashley:
Was there one thing that made you … was there a moment where you can remember this was the thing that made you want to change?

Andrew:
I mean, the real moment that really hit for me is when … come around COVID. I did everything right when it comes to achieving the middle class dream. I got a good job at a prestigious organization. I made six figures. I had my own condo in Boston. I really did everything you needed to do to “achieve the American dream.” At the end of the day, I really looked at my life, really looked at my net worth, and I realized at the end of the day, I’m still paycheck to paycheck. Maybe I have six months of savings, maybe a year of savings. But at the end of the day, if they fired me, I would rely on that job six months, 12 months later. That really frightened me. That really frightened me to death, to be honest with you. I kind of ate the purple pill, I read Rich Dad, Poor Dad and that really opened my eyes to the possibility of the world.
I very much drowned my ambition in video games. In video games, I always kind of created the character I wanted, created the avatar I wanted, focused on the skills that I wanted, and I really wasted a majority of my 20s in that state of mind. However, after reading Rich Dad, Poor Dad, I came to the realization that at the end of the day, life is a video game. Why create a character in a virtual reality when I can create the avatar and the person that I want to be in this reality? That was kind of the real turning point for me, and that really kind of gave you the ambition to really go full force in the real estate.

Tony:
Just really quickly, I just wanted to say I appreciate you being transparent about you almost looking for this escape with gaming and I think it’s going to be a different escape for every person, but I think all of us find ourselves getting lost in these things that are entertaining or they make us feel good momentarily, but in the reality they, at least the amount of time we’re putting into it, detract from our ability to achieve our goals long term. Maybe for some people it’s TikTok, maybe for other people it’s Netflix, maybe for some people it’s … who knows what it is, but everyone has their vice that can in the moment feel like a good thing, but really it’s hurting you from achieving the goals that you want in life.
I guess my question is how did you break that habit? Because I think so many people have these things that they’ve established in their lives, these rhythms that they find themselves in, and it’s so hard to break free from that because the momentum’s been building for so long. How did you change your mindset and then change your behavior to say, “Hey, I’m going to break away from this negative habit,” and really focus energy on something more fruitful?

Andrew:
Many people want the rewards of the external environment to give them their dreams, but at the end of the day, if you want the external environment to give you what you’re looking for, you really have to look internal and you have to really cure those inner demons first before you can expect the external world to provide what you want for your dream. The way I did that was I spent a good two to three hours in self-development every single day. I’m trying to create the avatar, the character that I want to create to bring the reality to this world that I want. Every single morning I’ll spend an hour doing Miracle Morning, I’ll meditate, I’ll write, I’ll scribe, I’ll go through my yearly goals and figure out what I can do that day to get me to my goals.
Really the most important thing that really brought me to this next level is just practicing gratitude. All of us are really lucky to live in the United States. We’re literally the top 1% of the 1% of wealthy people in the entire world. So just being grateful for what you have and the opportunity that has given you really has really pushed me to really go after my goals and not rest until I achieve them.

Ashley:
That’s such a great point. I can find myself sometimes just sitting in my car and frustrated over something or stressed about something or just in a bad mood, and if I just focus on a couple things that I’m super grateful for, a smile just appears on my face and you feel that energy build up in you. I remember going to a conference where somebody led a seminar about just how you are positioning yourself. If you’re hunched over and then everybody, sit up, put your shoulders back, and you already feel better about your situation and things like that. I think those are just such little, easy things, but you forget sometimes, you don’t always do it. But Andrew, you’re getting into that habit of doing it every single day, feeling that grateful, expressing that gratitude for what you do have, and it can be the smallest of things.
I remember when my kids went to private school, we did it during COVID so they didn’t have to go virtual and they could go in school, but there was no bus system and I was like, “Every day I’m going to have to drive them to school and I’m going to have to pick them up. Every day.” I had a friend who didn’t even know I was going through this situation who said to me, “Oh, I’m so lucky with this job that I have. I get to drive my daughter to school every day. I get to do that, I get to spend those 20 minutes in the car with her,” and I was just like, “Wow, I’ve been thinking about it so wrong.” You need to be grateful of that I get to … I don’t have anything else to do. I can go and drive my kids to school. I get that time with them and that I’m able to do that where not everyone has that opportunity. I was looking at more of an inconvenience when it really wasn’t.
So I think that’s great. Hal Elrod is the one who writes that book, Miracle Morning, that you were referring to. Great book for anyone that wants to check that out.

Andrew:
I think that’s a great point. I mean, just going back to that, I mean just being very conscientious of where your thoughts go and the fact that whether you’re ruminating on something negative or whether you’re ruminating on something that will get you towards your goals. So that really has been instrumental for me, is kind of controlling where my thoughts go and focusing on things that get me towards my goal and literally pushing that behind you. For your example, you were focusing on the negative, like, “Oh, this is wasting my time. I’m driving my children to school.” But if you just switch that and focus on the positive, “I get to spend time with my children, I get to enjoy them in the morning, I get to enjoy their spirit driving them home,” that really changes the whole dynamic of the situation. It really puts that gratitude in the forefront, for sure.

Ashley:
Andrew, what do you think is the biggest impact you’ve had from this, implementing the Miracle Morning and expressing gratitude and scribing all these different things? Are you actually tracking any of this? Are you looking and seeing, “Okay, I’ve been doing this for 100 days now and I see an impact …” on your productivity or whatever it is?

Andrew:
I do definitely utilize a habit tracker. Every single day. I’ll have my nine, 10 items what I want to do, and I really focus on getting them done in the first two, three hours a day. Once I actually tackle those habits, everything else seems easy. When you really tackle hard things early, hard things throughout the day just go with the flow. That’s kind of been really good for my success is really just tracking those habits, really focusing on them on a daily basis.

Ashley:
When you started doing this, was this before you got your first deal and that’s kind of helped you lead into that? Or was that after? You want to maybe talk about the first deal?

Andrew:
Yeah, absolutely. I mean, this was all before my first deal. I really got into mindset. I really got into habit tracking. I really got into education, learning as much as I could. I think I listened to all 600 or 700 Bigger Pockets podcasts. I really did focus on that, but it really led me into my first deal and the fact that it set me up with the right partners, it put me in the right market and it gave me the right strategy. I ended up utilizing the house hack strategy. I opened up a line of credit on my one bedroom condo in Boston, around $200,000, and I used that as seed money to buy my next seven deals. I bought two house hacks. I invested in two, three families, I bought a five family, I invested in two syndications. I’m currently closing on a six family right now. To your point, those habits gave me the confidence to really go after my dream. I didn’t have to question whether I had the knowledge or whether I knew the right people. It really gave me the confidence to experience failure and really just thrive.

Tony:
Andrew, so many good things that you just said right now. I just want to take a quick second to unpack some of that. You said those habits gave me the confidence that I needed and it’s such an important idea for our rookie listeners to understand because so often we have these goals that we set and the goals seem almost so far-fetched because it’s like, “I don’t know anyone that’s doing those things. I’ve never done that myself. Is it even possible? Is it just a dream?” The question isn’t always like, “What do I need to do to achieve those goals?” The question we need to ask ourselves sometimes is, “Who do I need to become in order to achieve those goals?”
You are the perfect picture of what that looks like because before we even started talking about analyzing deals or choosing your market or doing this or doing that, the technical stuff of about real estate investing, you looked inward and said, “What do I need to do internally with inside of me? Who do I need to become if I want to be the type of person that can invest in real estate?” I just really wanted to call that out because I think it’s such an important concept for our Rookie listeners to understand. Then one other follow up question, when you had this, I guess, enlightening moment, this awakening inside of you and you went through these changes internally, how much time passed from that moment until you actually got that first deal?

Andrew:
I think I read Rich Dad April, 2020, so a month after COVID. I had all this time in my hands and when I was getting sick of video games, like, “Oh, I’m going to pick up this book.” Honestly, that book literally tears were rolling down my face. That book really changed my whole mindset and it really just showed me that I was honestly just avoiding my dream of entrepreneurship because I was scared of failure. When it comes to real estate and getting a deal under contract, you could do all the prep work you want, you could do all the due diligence, you never know what’s going to happen until you’re closing that property and you have that property, you own that property more or less. It’s really important to just be confident in your ability and know that you’re going to tackle any issue that comes your way. That confidence is instrumental to any rookie. I mean, you just have to be confident in your ability to really just anything that comes your way, you can definitely tackle. Sorry, [inaudible 00:20:45].

Tony:
No, no, it’s okay. No, I think it’s another important point is that repetition builds confidence and the more you do something, the more confidence you start to build in yourself to actually do that thing successfully. I think so many people have this … I don’t know, this warped sense of what it means to make progress towards something. But first is that we need to understand, we have to do the work initially to build that foundational level of confidence and understanding, and the second piece is that as you move through these steps towards success, more often than not you are going to make some mistakes and some things are going to go wrong.
Does that necessarily mean that you failed? Not really, right? Because mistakes and missteps, that’s part of the progress or the process towards success. But I think we have this fear that we build up to say if I make a single mistake, it means I’m a total failure. But I’m assuming, Austin, that a lot of that work you did about your mindset and your gratitude and the habits you were building helped you understand that failure and mistakes are part of the process.

Andrew:
Yeah, absolutely. I mean, I learn my best lessons when I fail. When I make a mistake, I know I’m not going to make that mistake again because I’m fully aware of it. I value, I appreciate failure on a daily basis and I know that that’s going to make me a stronger person and that’s going to allow me to take on bigger and tougher challenges throughout my investing career.

Ashley:
Andrew, I want to know what kind of hats you’re wearing in your business. Are you managing self-managing? Are you outsourcing the property management? Are you hiring contractors to do rehabs? Are you finding deals yourself? Do you have a wholesaler? Do you have real estate agent? What does that kind of look like? Because you have a full-time W2 job, what other things are you doing for your business besides just being the investor?

Andrew:
Totally. I couldn’t even change a light bulb, so I absolutely contract out all of that work. But everything else I do, I’m an agent, I source all of my own deals. I’ve gone a majority of my deals on the MLS, but I’ve gotten a few off market as well. I self-manage all of my units, so all of my tenants have my number, they reach out directly to me. For my W2, technically that’s a 40-hour work week so I do that as well. This all comes back to time efficiency, focusing on the 20% of inputs that create 80% of the output and all of my careers or my jobs are really focused on the tasks that are really instrumental towards my success in that particular field.
For example, for my W2, I’m a finance guy. I have to make sure my projects are budgeted correctly and are spending in accordance with the trend, and that that’s essentially what I focus on is the money side of it. Because everybody’s going to poke me once we go in the deficit, everybody’s going to poke me once we’re losing money. So I really try to focus on profitability.

Ashley:
Does you think that it gives you that little edge up because you’re focused on that compared to maybe somebody else who’s not really tracking their budget, that that’s where you’re seeing the real value in your investment is because you’re taking the time to be so detailed and that’s where you’re kind of seeing your return on investment there?

Andrew:
I mean, as you both know, the work is in the due diligence and being proactive. If you do your work upfront to make sure the project runs smoothly, that everybody’s on the same page, that all of your tools are readily available if things come your way, the projects a lot of times just run themselves. As long as you’re monitoring your rehab or you’re monitoring your long-term rental or you’re monitoring your clients, as long as you set them off on the right track and monitor them on a weekly or a monthly basis to get them back on track, that’s really the key to being a successful project manager and really have wearing multiple hats is just being extremely detail-oriented and being proactive.

Tony:
You mentioned, Andrew, about being proactive and doing the work up upfront was what you said. I love that phrase because I think doing the work up front is one of the most important things a new investor can do because if you do the right work up upfront when you’re analyzing the deal, when you’re sourcing the deal, on the back end typically the management becomes a little bit easier. So I’m curious, Andrew, with the 18 units you have right now and plus another six on the way, what does a deal look like for you and where do you see these opportunities coming?

Andrew:
It’s all about systematizing and automating the acquisition side as well as the stabilization side. In regards to the acquisition phase, there are some key metrics that I look at when it comes to buying multi-family units. One of the easiest metrics that I think everybody can utilize with quick underwriting is what is your fall in cost per unit? Say, for example, the unit costs $125,000 and it’s going to cost you $15,000 per unit to bring it to stabilization. Your all in cost for that unit is 140,000. If units in the area are trading for 200,00, 250,000, you barely have to underwrite that deal to know you’ve got a good deal. The other key metric I use is post stabilization cash on cash return. I like to ensure all of my tenants are month to month to ensure there is a quick path to stabilization, but by utilizing those two metrics, I can really underwrite properties extremely quickly and know if it’s a good deal or not.
Then if it is a good deal, then I can kind of dig in deeper. That’s kind of on the acquisition side. Once I actually get a property under contract, I’ll just give you a couple tips of what I do, but this one tip I think will save people thousands of dollars. Whenever I get a property under contract, I always put a request, a public record request, in with the city or the town and requesting inspection, inspection information or housing violations and that gives you all the history on the property going as far back as you request. That gives you insight into any legal issues that you’re having, any trouble tenants, any issues with the building. Just that alone will give you insight into what to look for when you do the inspection or it might give you insight into tools you can use to leverage for the negotiation and to ask for money off. That’s kind of one tip that I think a lot of people don’t do, but it’s really important with acquiring and doing your due diligence on a property.

Ashley:
I want people to really listen to that because that is a great piece of advice I don’t think a lot of people talk about enough. The first time that was introduced to me was purchasing a campground. I actually had the building inspector for that town call me. He got my attorney’s information and asked for my information and called me directly to say, “I heard you’re interested in buying this property and we really want to see it turned around. I just wanted you to know here are all the issues with it.” It had a sewer treatment system if we had all of these things that didn’t pass inspection that were failing and he’s like, “Stop into my office, I’ll give you the history of everything.” He’s like, “I just want somebody to come in who’s actually going to take care of the property and pay the taxes on it,” and things like that.
But it really was … so there was things that obviously weren’t disclosed that we never would’ve known about unless we had gone and got those public records from the town hall there.

Andrew:
Yeah, I mean I got a property under contract and in that report it mentioned the roof leaking. That was a really good point for me to point my inspector on and really focus on those issues. So it’s incredibly powerful, as you mentioned, with doing your due diligence because I mean, every property has the history and most of the time the town or the city has that information.

Ashley:
Here’s another one too that I’ve seen come up too is any health code violations, like problems with the water. If a tenant had called and said that they want the water tested, things like that, or also rats, a rat infestation, calling and saying that there’s a rat infestation, the landlord hasn’t taken care of it, things like that. Just going back through that history and the rat thing had been taken care of, but it was just like, okay, is the whole house … all the wires chewed up from rats living in the walls of that property, and just one more thing to check on.

Andrew:
Then once you actually acquire the property, you do due diligence, which make sure you always get the estoppels by the way, for multi-family [inaudible 00:29:21]. You want to make sure the tenant signs off on the rental amount because that’s almost more important than the lease.

Ashley:
Can you just tell everyone what an estoppel agreement is real quick?

Andrew:
Estoppel agreement is essentially the tenant signing off on the rental amount, who’s responsible for the utilities, whether they’re paid up to date. Get as much information on that estoppel as possible and have the tenants sign off on it because if they sign off on it’s going to be way easier to have that conversation with them when you show them their signature.

Tony:
Can you also spell estoppel?

Andrew:
I can. E-S-T-O-P-P-E-L.

Tony:
There you go, man. I remember the first time I heard it, I had to ask that person that told me about the estoppel agreement five times, because I didn’t understand what language they were speaking in and I had to google it to really understand. I just want to make it easy for the folks who to listen to google that later if they need to.

Ashley:
I feel like that was me because I feel like you’ve asked me to spell it before. Unless we just asked you to spell it because of [inaudible 00:30:17].

Tony:
Yeah, just because that first situation, I know I was so bad at trying to understand how to spell it. Phonetically, I couldn’t figure it out.

Ashley:
At one of your events, Tony, you should do that as a competition, the first person to spell estoppel correctly.

Tony:
That’s not a bad idea. Andrew, go ahead, continue with the stabilization piece on the properties.

Andrew:
Once you actually acquire the property, you know have to stabilizing and when it comes to stabilizing, you just want to make sure you develop the stabilization plans weeks in advance, like what’s your plan to get this to stabilization? And one of the key important pieces of information is ensuring tenants a month to month. As we all know, leases go with the building. If the whole building’s on year leases, you’re not going to be able to stabilize that or get the rents closer to market until a year occurs. So set up your stabilization plan and then develop a welcome letter with how they’re going to pay rent and I like to ensure all of that is automated. I use apartments.com and all of that just automatically deduct from the account on the first of the month, who they reached out for maintenance requests.
Then I also like to set up a meeting with them, really to establish rapport, explain the rules of the property as well as have a conversation about where rents are and where they need to be. I usually utilize the binder strategy to get the rents closer to market. I know most real estate investors kick out inherited tenants, but a majority of my portfolios is actually inherited tenants. I think 11 of my 18 units are inherited tenants and most of them are close to market. The way I really did that was I utilized the binder strategy on day one. I went to them and I explained, “This is market, this is what you pay, what do you think’s fair?” It’s usually human nature to choose the 50% mark. So a lot of times they’ll choose right in the 50% mark and then at that point I explain to them … first of all, I asked them, “Is there anything I can fix in the building that would make your experience better?”
Usually it’s something small like change the thermostat or change my faucet, which I’m always happy to do because that really establishes the rapport up front and that really gets their buy-in for the rent increase. Then I also kind of address what I’m going to do to improve the property and then I go about it, I go about my stabilization plan, I improve the property, come around six months, eight months later I have another binder strategy conversation with them and I get them closer to market. At that point, maybe they’re $100, they’re $200 below market, I’m okay with that, because the turning unit literally costs 10 to $15,000. How long is it going to take me to get a return on investment on $100, $150 difference? It’s literally going to take me seven, eight, nine years.
Before I kind of get tenants, I kind of do that calculation in my head, what makes sense and it’s worked extremely well. As I mentioned, a lot of my portfolio are inherited tenants. Everybody pays me on time, everybody treats my unit right and it’s been a great experience.

Tony:
Ashley, I’m curious because, Andrew, we’ve interviewed a lot of people and I don’t think I’ve ever heard anyone phrase it the way that you just did so articulately is that sometimes keeping a tenant below market rents is better than turning that property and increasing the rents. Ashley, for most of your properties, do you go along that same line of thinking where you’d rather keep that tenant in place even if they’re paying a little bit less in market rent?

Ashley:
Yeah, especially when first purchasing the property because there’s so many upfront cost when purchasing the property. You have your closing cost and you just … maybe there’s some maintenance or repairs that need to be upfront just like your attorney fees, all these things. My property management company, for every new property you add on, there’s an upfront fee, things like that to do. So keeping them in and also the property management company charges a leasing fee, which is one month’s rent, so the turnover of that. You have to pay them to go and change the locks, things like that. I’ve definitely kept people in properties. I usually like to give them an option where maybe I increase their rent a little bit or they have the option to vacate the property. But I’ve rented units out trying to get the max dollar and I ended up getting bad tenants because it wasn’t at market rent so the pool to pick from was very slim and it was people who thought they could afford but actually couldn’t afford and then ended up being non-paying tenants.
That’s a big thing that I’ve realized over the years that sometimes it’s actually better to be a little bit below market so you have a larger pool of tenants to select from. But I’ve heard it other ways too, that the more you push the price, then maybe you’re only going to get the people that can afford it and you’ll get a higher quality tenant. For me, I’m just not investing in high end areas, I guess, where I have that kind of white collar, W2, high income earners to select from.

Andrew:
I mean, just to your point, a lot of my units I’ll allow cats and dogs because if you remove cats and dog, you’re literally removing 50% of your tenant pool. Then as you both know, a lot of these large multis will have pests, will have rats. Right. I actually love cats because if there’s a cat in the unit, you’ll never see a mouse.

Ashley:
That’s true.

Andrew:
I welcome cats. I literally don’t even charge a cat fee.

Tony:
I was just going to say, Andrew, just to clarify because you mentioned the binder method, but can you just in one sentence just to define what that is because you talked about it in passing, but just for folks who aren’t familiar with that method, what exactly is the binder method by definition?

Andrew:
Yeah, absolutely. More or less it’s just you’re having a conversation with a tenant and you’re really just showing them what market rent is, what do they pay, and then you just have a conversation with them on what they think is fair. Like I said, most of the time it’s human nature to choose the 50% mark because even if it’s like … say it’s 2000 is market, they’re paying a thousand, even if they choose 1500, they still know they’re getting a deal. If they have rented an apartment right down the road, the same exact apartment, it’s going to cost them $2,000. A lot of times they will actually implement the rent increase on themselves rather than you having to implement it, which is really key because you want them to buy into it.
If you force it on them, there’s going to be less buy-in and a higher likelihood of them having to be evicted or you having tenant issues. That’s the binder strategy in a nutshell more or less and I like to use it twice. I’ll use it initially and then I like to use it later on once I approve the property, address some of the issues that the tenant have and show them that I am working to make the property better. At that point, the second binder go around tends to be pretty successful as well.

Ashley:
Andrew, do you want to take us through one of your deals for us? Do you have one in mind that you want to kind of go through the numbers?

Andrew:
Totally, totally. I closed on this three family with a partner back in June, 2022 in Worcester, Massachusetts. We got the three family for $500,000. It was relatively turnkey, it was in great shape. The real value add there was rents were far below market. Our strategy there was two of the tenants were on Section Eight month to month and then one of the tenant was just a normal tenant. So we gave them the welcome letter and we met with them and our strategy there was kind of contact Section Eight, request a rent increase and get it closer to market, which was a successful strategy. We actually ended up doing that in two or three months. The last unit on day one when we met them, they said, “I just lost my job, I can’t afford rent.”
But we knew that the second unit was the first unit’s mother, so rather than kicking out, we’re like, “Oh, why don’t you move in with your mother?” So she ended up moving with her mother. We got that vacant as in one month and we rented that for 2150. We rented the Section Eight, brought the second unit up to around 1950, and then the third unit was a one bed, we got around 1250. So the pity on the building is around $2,500 and the current revenue, after about three months of stabilizing the property breaks out to around $5,300. It was pretty good. Honestly, it was way easier than we expected. Just being empathetic and kind to the first floor tenant really cemented ourselves to be able to really stabilize that building in a quick manner. We were expecting to go through an eviction process.

Ashley:
What do you think that property is worth now now that you’ve increased the rent? You purchased for 500,000, what would you say the value is on it now?

Andrew:
That’s a three family, and as we know with residential, those are based off the sales comps approach. In this sideways or downward market, the value is probably pretty close to where he bought it, maybe 10, 20K higher, but it’s a fantastic cash flowing property. But to that point, that’s really why I’m focusing on five plus unit buildings moving forward because I really want to focus on the buildings that have value based on the income approach so I can get rewarded for the great stabilization that I do. If I stabilize these three families, if it produced 3,000 in revenue and then suddenly it produces 5,000 in revenue, the building is really not going to sell for more a lot of times. But these five plus unit buildings, if I increase the revenue from $4,000 to $8,000, I have the ability to … it’s based off the cap rate, it’s based on the income. I could refinance a lot of my money out, I could sell the building, I could 10-31 it. It gives me a lot more escape strategies and it really rewards me for my stabilization ability.

Ashley:
So really it’s how the appraisal is done is what you’re looking for is to using the sales-based approach or the income-based approach and when the appraiser is going to use that on the five plus units, you’re seeing it more of an advantage to you because you’re doing that forced appreciation by increasing the income. Even though there may be properties around you that are still selling for $500,000, but you’ve increased your income on that property, which is going to you … they’re not going to look at those comps for … compare it to that, it’s going to be the income on the property to show its value.

Andrew:
Yeah, and it just allows me to keep up the velocity of my money. I have more ability to take money out of that deal and put that into my next deal, which is that’s essentially how I’ve built my portfolio is utilizing the equity of all my properties. I mean, how long would it take you to save 20%, 25% on a $500,000 property? It would take most people three, four, five years. The only way most real estate investors scale is utilizing their equity and that’s kind of how I scaled and I’m planning on scaling in the future.

Ashley:
Andrew, how did you find your partner on this deal?

Andrew:
I found my partner in my meetup. I actually host a local meetup in Worcester, Massachusetts, and I met them there and I saw they were doing big things. They owned about the same amount of units I had and we just kind of connected. Then one day he just asked me, he’s like, “I see this great deal in the MLS, you want to walk it?” I’m like, “Sure.” So I actually walked the property. It was relatively turnkey, which honestly that’s kind of what I like to purchase is I like to purchase properties that maybe have minor cosmetic upgrades, maybe one CapEx item, but more or less they don’t require a lot of money to stabilize. It’s more on the management side. Rents are way below market. That’s kind of how I focus on stabilizing property and this kind of fit right into that bucket. I walked the property, it looked great, I looked at him and he looked at me like, “Let’s do this,” and split 50 50 and it was a great deal.

Ashley:
That’s awesome. Thank you for sharing that.

Tony:
I also just want to comment, Andrew, on the meetup. I am a huge proponent of new investors leveraging meetups both as attendees but especially as hosts as a way to build their network and their local community. When you made this decision to start the meetup, did you have a big online presence or this massive network of real estate investors you already knew? If not, how did you go about promoting that meetup and getting people to actually show up?

Andrew:
I like to say this was completely intentional, but just like everything in life, it was just a random act. I was actually looking for a mentor was kind of my real goal. I was looking for a mentor. I ran across a local mentor in Lowell, Massachusetts, which is about 45 minutes away from my city, and during one of his meetups he mentioned, “I’m trying to start a meetup in Worcester, but I’m trying to look for a venue. Can anybody help me out?” I really took that to heart and that weekend I went to about six or seven different venues. I took video, I took pictures, I sent it to him and he was like, “Wow, I’ve been asking somebody to do this for eight months. Nobody did it. Do you want to be our first guest at this meetup that I’m starting?” I’m like, “Yeah, absolutely, I’ll be happy to.”
So I ended up being the first guest and after that he asked me to actually host it and that’s kind of how I first started with that mentor. But I mean, more or less it was just trying to provide value to other people and in doing so, value was provided back to me.

Tony:
Ashley, me and you talk all the time about how new investors can find mentors by providing value first. Andrew, what you just described is the ultimate perfect example of a way to provide value to someone that you hope will in term provide value to you in the form of mentoring of some shape or form. The fact that this person was standing up in the room saying, “Man, I’m really stuck. I can’t find a place to do this thing,” and you spent an entire weekend doing it for him and then sent him all the information that he needed, those are the kind of things that endear someone to you to make them want to take time under their busy schedule to say, “Andrew just did this for me. Law of reciprocity says I want to pour back into Andrew now.” Man, dude, you’re such a hustler. I love that story.

Andrew:
Thanks. I mean, be honest with you, I didn’t even want to be a real estate agent. I literally just became a real estate agent to provide value to my mentor, to provide value in the form of commissions and then I could … I’m essentially his employee, so under the auspices of being one of his real estate agents, I can give them a call and ask him any question I want. To your point, when you’re looking for a mentor, don’t think what they can give you. Think what you can give them and provide value to them, and once you provide value, then ask for something in return. But as we all know, these very successful people don’t have a lot of time and if you’re not going to give them any direction, you’re not going to provide value, a lot of times they don’t have incentive other than the goodness of their heart to pour into you.

Tony:
One other thing I wanted to touch on was just the lending piece. What are some things that maybe new investors might not know about the lending side of getting into commercial real estate?

Andrew:
The amazing thing about commercial real estate is it combines finance. If you partner with two or three people, it combines all of your finances together to show you have the DTI to get a loan on that particular property. A lot of investors like myself, after you buy a certain amount of properties and you don’t have two years of rental income, your debt to income ratio catches up with you and it’s really hard to get loans. But a nice hurdle, a nice cheat code to get over that is to partner with people on deals and they combine all your finances together in one package and then that really gets you over that DTI hump. That’s another reason why I kind of went from small residential to commercial so I could really utilize partners to get over that DTI hump for sure.

Ashley:
Andrew, thank you for going through that deal with us. I think there was some great little tidbits in there that everyone can learn from and congratulations on that cash flow. That’s awesome. It sounds like a pretty cool deal just for doing a couple months of increasing the rent.
I want to take us to our next segment. This is the Rookie Request Line. You guys can give us a call at 1-888-5-R-O-O-K-I-E and leave us a voicemail. We may play your question on the show. Today’s question is from Tom in South Carolina. “Hey, guys, love the show. Just trying to get in the process of getting a HELOC on my primary residence. I am just wondering what kind of paperwork you should have already to bring to a local bank if that’s the route you’re trying to take and what you should be bringing prepared to talk about. Love to hear you guys’ input. Thank you.” So basically, Andrew, he wants to know what kind of paperwork, what should he have prepared to bring to the bank to get that line of credit and should he have knowledge of anything else that he should be prepared to talk about?

Andrew:
Well, before you actually apply for the HELOC, make sure you’re actually getting the best HELOC possible. The way I recommend that is kind of identifying all banks in a 50-mile radius and call every single one, see what HELOCs they have available, see what’s best for you because not all HELOCs are created equal. From my first HELOC, I had a ton of equity. There’s HELOCs that offer you better terms at 80 to 85% equity. If you have a lot of equity, those are really good options. If you don’t have a lot of equity, they’re actually HELOCs that go up to a 100%, but those have worse terms. It depends on your needs and how much equity you have on what the right HELOC is for you.
Regarding HELOC, that’s just a normal mortgage. More or less it’s a lien, so it’s everything A normal mortgage would need, your tax returns, your work information, things of that nature. A lot of times the great thing about HELOCs is they’re interest only, and people don’t really realize this, but when you’re actually going for loans, they take into account the minimum payment when calculating your debt to income ratio. So HELOCs, you can actually borrow a lot against it and it doesn’t actually detriment you too much when you go to lenders because they only take into account the interest on that money and not the principle plus interest, if that makes sense.

Ashley:
Can you touch as to how many lines of credit have you done, Andrew?

Andrew:
I did one line of credit on my one bedroom condo in Boston. I bought it in 2015 for 222. It appreciated to around 400,000. So come around COVID, I opened up a 200K line of credit. I utilized that to buy, I think, my next seven deals. My first house hack, I used my line of credit for my down payment on that. I think I did that with an FHA of 3.5% down. I used about 40K from there. Then once I was in that property and I was actually ready to house hack to my next property, I always recommend this before you move from one house hack to another house hack, open up a line of credit on that house hack. They have 100% HELOCs up to three to four families.
I actually opened up a $75,000 line of credit on my first house hack before I moved to my second house hack. I’m actually planning on opening up a line of credit on my second house hack before I move. It’s really important to have the ability to access that equity and as many of us, we got amazing first lien loans. Most of my loans are like 2% to 4%. I want to keep that loan. That is a huge asset, but I want to utilize that equity and I do that via lines of credit. Yes, lines of credit have higher interest rates, maybe seven, eight and a half now, but your overall blended rate across both of those loans, your first lien and your second lien is by far lower than going to the refinance process.

Ashley:
That’s a great point, that blended rate is looking at it in that scenario as to taking the two rates and bringing the average together and comparing it as to if you were to go refinance, pay the closing cost, pay the higher interest rate than that 2% or 3% that you currently have on your mortgage.

Andrew:
When it comes to growing and scaling, I really think of it like a hedge fund more or less. So when I’m actually opening up these line of credits and I’m borrowing at a 7% or an 8%, I just have to ensure whatever I’m moving those money into, it provides a higher return. I’m arbitraging one return from one fund into another fund and that’s really how I’ve been able to scale. Ever since I’ve gotten into real estate, it took me around 10 years to accumulate $250,000 in net worth. In a period of two years, I three Xed that through utilizing arbitrage and more or less thinking like a hedge fund. Like how can I borrow one pot of money and arbitrage that into a higher return? It’s been a very effective strategy for me, and I highly recommend people do that as long as they’re doing it in a safe way.
You have a decent amount of reserves. Maybe you have a 401K to fall back on. Maybe your parents will support you if you get in rough times, but you have to have a backup plan if you are planning to use leverage. Otherwise, it’s not a smart decision.

Ashley:
That right there is a great disclaimer, and I’m glad you said that because I think people get excited about the, “I don’t have to have any money to invest in real estate. I can just leverage this property to move to this property and go and refinance and do lines of credit and all these things.” But you’re right, you still have to have those reserves in place and tapping into other assets such as your 401k, you’re able to draw a loan from your 401k if you absolutely needed to. Or if somebody has a brokerage account, they could take a line of credit against their brokerage account, things like that. So knowing what your actual liquidity is in this situation, if things do take a turn for the worst is where can you pull money from to get yourself out of that bad situation I think is very important.

Andrew:
To really scale and grow in real estate, you really have to utilize the compound effect. For all the property that I own, for all the rental income that I get, I literally have taken, I think, about $200 from my properties in cash flow. I literally just let that recycle and compound, and I really live off my W2 income. I recommend people all the time, in regards to real estate, your W2 is really an asset, right? Because it gives you a flexibility to go after the best loan products. As we all know, in real estate, debt is your highest line item, that’s your most expensive line item. If you can get the best deal in debt, you can actually make deals work that don’t work for other people.

Tony:
Andrew, I’m so glad you touched on recycling that profit back into the business because most people, I think they take money out of the business too soon. For us in our business, we had, I think, 14 properties on Airbnb before we took a single penny out of the business and every other dollar was going back into the business to help fund the next deal, to renovate our existing properties, to make improvements, have better experiences. That decision to hold off made all the difference because now there was a snowball that started to form. Even now, we’re at almost 30 properties on Airbnb, we still take a relatively small salary from all of those properties, and the majority is going back into now mostly people. We’re been hiring a lot of people to help put the systems and processes in place to be able to continue to scale this business.
So if you’re listening and your goal is to build a large portfolio, I think it is prudent to try and reinvest as much as you can back into the business early on so that you can do a little bit better down the road. Andrew, I want to take us to our next segment here, which is the Rookie Exam. These are the three most important questions you will ever be asked in your life. Andrew, are you ready for these three questions?

Andrew:
Let’s go.

Tony:
All right. Question number one, what’s one actionable thing rookies should do after listening to your episode?

Andrew:
Take action. Take action. My biggest advice to new investors is start shooting out offers, cast a wide net. My advice to you for that particular strategy would be look at properties with 40 plus days on market, start writing up offers 50% of list price and just shoot them off, shoot them off. You’re literally casting out a wide net and you’re seeing who’s willing to bite, who’s willing to negotiate, who’s motivated to sell. Once you have somebody on that fishing line, you got to pull them in slowly. Maybe they’ll veer off, maybe they’ll get rid of the line, but at that point you really figure out who the motivated sellers are and you really can go after the properties that make sense.
That would be my advice, is really focus on those tasks that are going to get you to your goal. Does that mean get a line of credit? Does that mean underwrite deals? Does that mean walk properties? Does that mean talk with lenders? Does that mean reach out to brokers? These are the things that get you to your goals. If you’re just posting on social media and you have no deals done, stop it. Focus on the activities that will get you your first deal.

Ashley:
That’s a great point, because even I’ve done this before when I’ve started different businesses or little side hustles, is I get caught up in my logo design, I need to order my business card. It’s like you don’t need any of that to get started.

Andrew:
Get that first customer. That’s the key. Get that first customer.

Ashley:
What is one tool, software app or system in your business that you use?

Andrew:
I love apartments.com. Whenever I take ownership of a property, I ensure all of my tenants sign up for apartment.com and they’re set up an autopay. First of all, rent collection. When you own 18 units, you got to chase people down for checks. That’s an absolute time killer. When I set up people on apartments.com, I literally just sign on on the first of the month, I see if their payment’s processing or not. If it isn’t, I just shoot off quick texts. A lot of times it’s just tech issues. They fix it, ba-da bing, ba-da boom, I get paid. My rent collection, I don’t know, it probably takes me, I don’t know, 20 minutes a month. But if I didn’t have that software in place, if I was collecting checks, if I was collecting cash, that would literally take hours upon hours every month. It’s all about time efficiency and utilizing strategies to really automate your management of your properties.

Tony:
All right, Andrew, last question. Where do you plan on being in five years?

Andrew:
Well, first of all, one of my ultimate goals is to help 100 people reach financial independence. If I did that, if I gave to the world that, I feel like I’d given more to the world than what I took and I could really die happy. That’s one of my ultimate goals is really to mentor and help others achieve that financial independence. My next goal, and along those lines, I would love to start syndicating large multi-family. That’s definitely down the path for me for sure. Then lastly, I want to travel. I want to visit 100 countries. I want to see the world. I want to experience everything this world has to offer. That’s kind of what I envision my life to be like in five years.

Tony:
Sounds like an amazing five-year plan, and I don’t think I’ve heard one so … I don’t know, energizing since we’ve been on the podcast, man. So I love that, Andrew.

Andrew:
Thank you.

Tony:
Let me finish up by giving a shout-out to this week Rookie Rockstar. This week’s rockstar is Homer Olivarez, and Homer says, “Today we closed on our first deal. We’re officially landlords. This is the first of many to come, but we officially took our first step towards financial freedom. We can’t think Bigger Pockets and everyone in the forums enough for all the help. This will be our first house hack and we are also first time home buyers.” Now here’s the cool part about Homer’s story. He says, “We came into the closing table with zero money and are actually getting a check written to us for about $580. When they say you can buy a property with low and no money down, we were able to experience it firsthand.” So Homer, congratulations to you on that amazing first deal.

Andrew:
That’s just a testament to everything Bigger Pockets does good community. You guys really make a difference in people’s lives and you probably help millions of people reach financial dependence. You literally work for one of the best organizations I know of and I’m internally grateful to you as well. I would not be where I’m at without you guys, so thank you.

Ashley:
Well, we feel incredibly grateful that we’re the ones that get to sit here and get to interact with the guests because I mean, it’s the guests that give the real value. We just use our curiosity to pick and probe more as to, “How are you doing that?,” because we wanted to that. But thank you, we appreciate that, Andrew. Can you let everyone know where they can reach out to you, find out some more information about you?

Andrew:
Absolutely. You can follow me on Instagram and investorfreed.com. You can definitely reach out to me on LinkedIn or Facebook at Andrew Freed. I’m also an agent in Worcester, Massachusetts. I focus on investment property, multi-family, so feel free to reach out.

Ashley:
Well, thank you guys so much for listening to this week’s episode. Andrew, you brought tremendous value to our listeners and we really appreciated having you on. If you guys haven’t already, make sure you have joined the Real Estate Rookie Facebook group and are subscribed to our YouTube channel, Real Estate Rookie. Please leave us a review on your favorite podcast platform and tell us what you’re doing in your real estate investing career because we love to read them on the podcast. I’m Ashley @wealthfromrentals and he’s Tony @tonyjrobinson on Instagram, and we’ll see you guys next time.

 

???????????????????????????????????????????????????????????????????????????????????????????

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

About Author